UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
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. ☐ Yes ☒
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 11, 2022.
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 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, 2022 | December
31, 2021 | ||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | $ | ||||||
Inventories | ||||||||
Total current assets | ||||||||
Non-Current Assets: | ||||||||
Property and equipment, net | ||||||||
Operating lease right-of-use asset | ||||||||
Other assets | ||||||||
Total non-current assets | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Current portion of operating lease liabilities | ||||||||
Current portion of bank notes payables | ||||||||
Current portion of loan payable, PPP | ||||||||
Current portion of loan payable, EIDL | ||||||||
Due to related party | ||||||||
Other payables | ||||||||
Total current liabilities | ||||||||
Operating lease liabilities, less current portion | ||||||||
Bank notes payables, less current portion | ||||||||
Restaurant revitalization fund | ||||||||
Loan payable, EIDL, less current portion | ||||||||
Loan payable, PPP, less current portion | ||||||||
Total liabilities | ||||||||
Commitments and Contingencies | ||||||||
Stockholders’ equity (deficit) | ||||||||
Class
A Common Stock - $ shares issued and outstanding at September 30, 2022 and December 31, 2021 par value; authorized shares; | ||||||||
Class
B Common Stock - $ shares issued and outstanding at September 30, 2022 and December 31, 2021 par value; authorized shares; | ||||||||
Additional paid-in capital | ||||||||
Stock subscriptions receivable | ( | ) | ||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ equity (deficit) | ( | ) | ||||||
Total liabilities and stockholders’ equity (deficit) | $ | $ |
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, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue: | ||||||||||||||||
Food and beverage | $ | $ | $ | $ | ||||||||||||
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): | ||||||||||||||||
PPP loan forgiveness | ||||||||||||||||
Other income | ||||||||||||||||
Interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Total other income (expense), net | ( | ) | ||||||||||||||
Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
Income tax provision | ||||||||||||||||
Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
Income (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)
Total | ||||||||||||||||||||||||||||||||
Additional | Stock | Stockholders’ | ||||||||||||||||||||||||||||||
Class A Shares | Class B Shares | Paid-In | Subscription | Accumulated | Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | (Deficit) | |||||||||||||||||||||||||
Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
Payments received for prior year subscription | - | - | ||||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Balance at March 31, 2022 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Balance at June 30, 2022 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
Cancellation of Class A Common Stock | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||||||
Issuance of Class B Common Stock | ||||||||||||||||||||||||||||||||
Issuance of Class A Common Stock | ||||||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Balance at September 30, 2022 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ |
Total | ||||||||||||||||||||||||||||||||
Additional | Stock | Stockholders’ | ||||||||||||||||||||||||||||||
Class A Shares | Class B Shares | Paid-In | Subscription | Accumulated | Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | (Deficit) | |||||||||||||||||||||||||
Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
Issuance of Class A Common Stock | ( | ) | ||||||||||||||||||||||||||||||
Distributions | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Balance at March 31, 2021 (unaudited) | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
Distributions | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Net Income | - | - | ||||||||||||||||||||||||||||||
Balance at June 30, 2021 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
Issuance of Class A Common Stock | ( | ) | ||||||||||||||||||||||||||||||
Distributions | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Net income | - | - | ||||||||||||||||||||||||||||||
Balance at September 30, 2021 (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, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | ||||||||
PPP loan forgiveness | ( | ) | ( | ) | ||||
Changes in assets and liabilities: | ||||||||
Inventories | ( | ) | ( | ) | ||||
Other assets | ( | ) | ( | ) | ||||
Accounts payable and accrued expenses | ||||||||
Due to related party | ( | ) | ||||||
Other payables | ( | ) | ||||||
Net cash (used in) provided by operating activities | ( | ) | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | ( | ) | ( | ) | ||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Cash flows from financing activities: | ||||||||
Bank overdrafts | ( | ) | ||||||
Proceeds from sale of common shares | ||||||||
Proceeds from borrowings | ||||||||
Repayments on bank notes payables | ( | ) | ( | ) | ||||
Stockholders’ distribution | ( | ) | ||||||
Net cash provided by financing activities | ||||||||
Net (decrease) increase in cash | ||||||||
Cash – beginning of period | ||||||||
Cash – end of period | $ | $ | ||||||
Supplemental disclosures of non-cash financing activities: | ||||||||
Forgiveness of paycheck protection program (PPP) loan | $ | $ | ||||||
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 did not have significant transactions since formation. 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
5 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting
The unaudited consolidated financial statements include the legal entities listed in Note 1 above as of September 30, 2022 and December 31, 2021 and for the three and nine month periods ended September 30, 2022 and 2021.
Basis of Presentation and Consolidation
The accompanying unaudited 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. 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.”
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 one reportable segment, consisting of operating its stores.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized, and minor replacements, maintenance and repairs are charged to expense as incurred. Depreciation and amortization are calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows:
Furniture and equipment | |||
Leasehold improvements | |||
Vehicle |
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
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.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and other receivables arising from its normal business activities. The Company has a diversified customer base. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for un-collectible accounts and, as a consequence, believes that its accounts receivable related credit risk exposure beyond such allowance is limited.
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
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 also requires new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company evaluated ASU 2016-02 and adopted this guidance as of January 1, 2019.
8 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”). The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU 2016-02 and have the same effective and transition requirements as ASU 2016-02. ASU 2018-10 supersedes the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees are required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees are required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for emerging growth companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. The Company adopted this guidance as of January 1, 2019.
In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” (“ASU 2018-11”). The amendments in ASU 2018-11 related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. The amendments in ASU 2018-11 are effective for emerging growth companies for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this guidance as of January 1, 2019.
In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements” (“Topic 842”) (“ASU 2019-01”). These amendments align the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied (Issue 1). ASU 2019-01 also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities (Issue 2). Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard (Issue 3). The transition and effective date provisions apply to Issue 1 and Issue 2. They do not apply to Issue 3 because the amendments for that Issue are to the original transition requirements in Topic 842. This amendment is for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company evaluated ASU 2019-01 and adopted this guidance as of January 1, 2019.
COVID-19 Impact on Concentration of Risk
The novel coronavirus (“COVID-19”) pandemic has significantly impacted health and economic conditions throughout the United States and globally, as public concern about becoming ill with the virus has led to the issuance of recommendations and/or mandates from federal, state and local authorities to practice social distancing or self-quarantine. The Company is continually monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread, and its impact on operations, financial position, cash flows, inventory, supply chains, purchasing trends, customer payments, and the industry in general, in addition to the impact on its employees. We have experienced significant disruptions to our business due to the COVID-19 pandemic and related suggested and mandated social distancing and shelter-in-place orders.
9 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Leasehold Improvement | $ | $ | ||||||
Furniture and equipment | ||||||||
Vehicle | ||||||||
Total property and equipment | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Total property and equipment, net | $ | $ |
Total
depreciation was $
4. BANK NOTES PAYABLES
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
September
22, 2017 ($ | $ | $ | ||||||
November 27, 2018
($ | ||||||||
February 13, 2020
($ | ||||||||
September 14, 2021
($ | ||||||||
September 15, 2021
($ | ||||||||
April 22, 2022 ($ | ||||||||
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, 2022:
For the years ended | Amount | |||
2022 (remaining three months) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Thereafter | ||||
Total | $ |
September 22, 2017 – $250,000 – Global AA Group, Inc.
On
September 22, 2017, Global AA Group, Inc. (the “AA”) executed the standard loan documents required for securing a loan of
$
10 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. | BANK NOTES PAYABLES (Continued) |
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 $
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 $
February 13, 2020 – $255,000 – Global CC Group, Inc.
On
February 13, 2020, 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 $
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 $
As
of September 30, 2022, the CC has received $
11 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. | BANK NOTES PAYABLES (Continued) |
September 15, 2021– $199,000 – Global DD Group, Inc.
On
September 15, 2021, 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 $
As
of September 30, 2022, the DD has received $
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 $
As
of September 30, 2022, the YC has received $
12 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. LOAN PAYABLES, PPP
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
February
16, 2021 ($ | $ | $ | ||||||
February 16, 2021
($ | ||||||||
February
16, 2021 ($ | ||||||||
Total loan payables, PPP | ||||||||
Less - current portion | ( | ) | ||||||
Total loans payables, PPP, less current portion | $ |
February 16, 2021 – $131,600 – Global AA Group, Inc.
On
February 16, 2021, Global AA Group, Inc. (the “AA”) executed the standard loan documents required for securing a Paycheck
Protection Program Loan (the “AA PPP Loan”) of $
The
AA PPP Loan is administered by the SBA. The interest rate of the loan is
On
February 1, 2022, $
February 16, 2021 – $166,700 – Global JJ Group, Inc.
On
February 16, 2021, Global JJ Group, Inc. (the “JJ”) executed the standard loan documents required for securing a PPP loan
(the “JJ PPP Loan”) of $
13 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. | LOAN PAYABLES, PPP (Continued) |
The
JJ PPP Loan is administered by the SBA. The interest rate of the loan is
On
February 9, 2022, $
February 16, 2021 – $87,600 – Global BB Group, Inc.
On
February 16, 2021, Global BB Group, Inc. (the “BB”) executed the standard loan documents required for securing a PPP loan
(the “BB PPP Loan”) of $
The
BB PPP Loan is administered by the SBA. The interest rate of the loan is
On
February 24, 2022, $
14 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. LOAN PAYABLES, EIDL
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
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, 2022:
For the years ended | Amount | |||
2022 (remaining three months) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
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.
15 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. | 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 $
16 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. RESTAURANT REVITALIZATION FUND
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
June
1, 2021 ( | $ | $ | ||||||
Total restaurant revitalization fund | $ | $ | ||||||
Less - current portion | ||||||||
Total restaurant revitalization fund, less current portion | $ | $ |
The following table provides future minimum payments as of September 30, 2022:
For the years ended | Amount | |||
2022 (remaining three months) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Thereafter | ||||
Total | $ |
June 1, 2021 – $700,454 – Global JJ Group, Inc.
On
June 1, 2021, Global JJ Group, Inc. (the “JJ”) executed the documents required for securing a Restaurant Revitalization Fund
(the “RRF Loan”) of $
The
RRF Loan is administered by the SBA. The interest rate of the RRF Loan is
As of September 30, 2022, none of the notes payables, loans payables, and RRF Loan noted above are in default.
17 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARY TRANSACTIONS
The Company had the following related party transactions:
● | Due
to related party – From time to time, the Company loaned money to APIIS Financial
Group, a company owned by James Chae, who is also the majority stockholder and CEO of the
Company. The balance is non-interest bearing and due on demand. As of September 30, 2022
and December 31, 2021, the balance was $ and $ |
● | Distributions
– From time to time, the Company made distributions to James Chae. For the
nine months ended September 30, 2022 and 2021, James Chae was distributed $ and $ |
● | Related party compensation - For the nine months ended September 30, 2022 and 2021, the compensation to James Chae was $ | and $ , respectively.|
● | Combination
of Entities Under Common Control - Effective October 2021, JJ transferred IP assets
to James Chae, and then Mr. Chae contributed |
● | Private
Placement - In December 2021, the Company received subscriptions for the sale of
| |
● | Exchange of class A common stock for class B 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.
18 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. 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.
In accordance with ASC 842, the components of lease expense were as follows:
September 30, | ||||||||
For the nine months ended | 2022 | 2021 | ||||||
Operating lease expense | $ | $ | ||||||
Total lease expense | $ | $ |
In accordance with ASC 842, other information related to leases was as follows:
For the nine months ended | 2022 | 2021 | ||||||
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 | |||
2022 (remaining six months) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
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
10. STOCKHOLDERS’ EQUITY (DEFICIT)
Class A Common Stock
The Company has authorization to issue and have outstanding at any one time shares of class A common stock with a par value of $ per share. Each share of class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally.
See Note 1 and Note 8 above for details regarding the issuance and redemption of shares of the Company’s class A common stock to and from James Chae, the Company’s majority stockholder, in December 2021.
In
December 2021, the Company received subscriptions for the sale of
In
September 2022, the Company consummated its initial public offering (the “IPO”) of
Immediately prior to the IPO, the Company issued shares of class A common stock as compensation to directors and consultants. The Company has accrued approximately $ million of compensation expense at December 31, 2021 for the shares at $ per share, which the Company’s board of directors determined to reflect the then current fair market value of the Company’s Class A common stock. Upon the issuance of the shares, the accrued liability was adjusted to additional paid-in-capital.
The
Company also granted the underwriters a 45-day option to purchase up to
20 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10. 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.
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, 2022 and 2021.
12. SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after September 30, 2022 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, 2022.
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 Prospectus on Form S-1 (File No. 333-262330). 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 Prospectus filed on Form S-1.
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 six months of our 2016 debut and has continued to expand our top-notch restaurant service across Southern California, currently owning and operating 8 restaurant stores with an additional 1 new restaurant store under construction/development and an additional 8 new restaurant stores expected to open in 2022.
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 have an opportunity to expand in both existing and new U.S. markets, as well as internationally.
22 |
Our Growth Strategies
Historically, we have averaged an opening of 1 store per year utilizing solely bank debt, revenues and related party loans. However, utilizing 38.47% of the net proceeds of our IPO in September 2022, we expect in the short term to open 8 new corporate-owned restaurants (excluding the 1 store currently under construction/development). Based on our internal analysis, we believe that we have the potential to grow our current domestic corporate-owned restaurants and international footprint to at least 250 restaurants domestically and at least 750 restaurants internationally by utilizing revenues generated by an increased number of corporate-owned restaurants, revenues generated through our franchise program (currently we do not have such a program), proceeds from the sale of equity securities in the public markets as a publicly traded company, and debt financings. The rate of future restaurant growth in any particular period is inherently uncertain and is subject to numerous factors that are outside of our control. As a result, we do not currently have an anticipated timeframe for such expansion.
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 a macroeconomic. 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.
Franchise Program Development.
We are aiming to initiate sales of franchises beginning in 2023. We intend to submit an application for franchise registration in California, and we intend to submit franchise applications in additional states over the next few months. While our initial franchise development will focus on the United States, we also believe the Yoshiharu concept will attract future franchise partners around the world.
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 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 average revenues per restaurant 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 for small-format Yoshiharu kiosks in stores to promote a limited selection of Yoshiharu cuisine.
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 grows.
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 planned openings of restaurant locations and is expected to stabilize as an average by location as our sales grows.
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
Three and nine months ended September 30, 2022 Compared to three and nine months ended September 30, 2021
The following table presents selected comparative results of operations from our unaudited financial statements for the three and nine months ended September 30, 2022 compared to three and nine months ended September 30, 2021. 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.
Nine
months ended September 30, | Increase / (Decrease) | |||||||||||||||
2022 | 2021 | $ | % | |||||||||||||
Revenue | $ | 5,746,336 | $ | 4,449,354 | $ | 1,296,982 | 29.1 | % | ||||||||
Restaurant operating expenses: | ||||||||||||||||
Food, beverages and supplies | 1,493,196 | 1,344,672 | 148,524 | 11.0 | % | |||||||||||
Labor | 2,644,887 | 1,626,651 | 1,018,236 | 62.6 | % | |||||||||||
Rent and utilities | 750,141 | 465,677 | 284,464 | 61.1 | % | |||||||||||
Delivery and service fees | 373,596 | 384,050 | (10,454 | ) | -2.7 | % | ||||||||||
Depreciation | 555,224 | 94,294 | 460,930 | 488.8 | % | |||||||||||
Total restaurant operating expenses | 5,817,044 | 3,915,344 | 1,901,700 | 48.6 | % | |||||||||||
Net operating restaurant operating income (loss) | (70,708 | ) | 534,010 | (604,718 | ) | -113.2 | % | |||||||||
General and administrative | 1,902,933 | 801,359 | 1,102,574 | 137.5 | % | |||||||||||
Related party compensation | 631,968 | - | 631,968 | n/a | ||||||||||||
Advertising and marketing | 78,298 | 12,437 | 65,861 | 529.6 | % | |||||||||||
Total operating expenses | 2,613,199 | 813,796 | 1,799,403 | 221.1 | % | |||||||||||
Loss from operations | (2,683,907 | ) | (279,786 | ) | (2,404,121 | ) | 859.3 | % | ||||||||
Other income (expense): | ||||||||||||||||
PPP loan forgiveness | 385,900 | 269,887 | 116,013 | 43.0 | % | |||||||||||
Other income | 6,301 | 25,000 | (18,699 | ) | -74.8 | % | ||||||||||
Interest | (61,876 | ) | (44,145 | ) | (17,731 | ) | 40.2 | % | ||||||||
Loss before income taxes | (2,353,582 | ) | (29,044 | ) | (2,324,538 | ) | 8003.5 | % | ||||||||
Income tax provision | 12,669 | 13,924 | (1,255 | ) | -9.0 | % | ||||||||||
Net loss | $ | (2,366,251 | ) | $ | (42,968 | ) | $ | (2,323,283 | ) | 5407.0 | % |
Three
months ended September 30, | Increase / (Decrease) | |||||||||||||||
2022 | 2021 | $ | % | |||||||||||||
Revenue | $ | 1,772,646 | $ | 1,842,729 | $ | (70,083 | ) | -3.8 | % | |||||||
Restaurant operating expenses: | ||||||||||||||||
Food, beverages and supplies | 456,442 | 587,581 | (131,139 | ) | -22.3 | % | ||||||||||
Labor | 836,646 | 550,610 | 286,036 | 51.9 | % | |||||||||||
Rent and utilities | 235,717 | 196,713 | 39,004 | 19.8 | % | |||||||||||
Delivery and service fees | 113,889 | 130,702 | (16,813 | ) | -12.9 | % | ||||||||||
Depreciation | 90,351 | 31,777 | 58,574 | 184.3 | % | |||||||||||
Total restaurant operating expenses | 1,733,045 | 1,497,383 | 235,662 | 15.7 | % | |||||||||||
Net operating restaurant operating income | 39,601 | 345,346 | (305,745 | ) | -88.5 | % | ||||||||||
General and administrative | 869,244 | 566,494 | 302,750 | 53.4 | % | |||||||||||
Related party compensation | 631,968 | - | 631,968 | n/a | ||||||||||||
Advertising and marketing | 37,715 | 10,439 | 27,276 | 261.3 | % | |||||||||||
Total operating expenses | 1,538,927 | 576,933 | 961,994 | 166.7 | % | |||||||||||
Loss from operations | (1,499,326 | ) | (231,587 | ) | (1,267,739 | ) | 547.4 | % | ||||||||
Other income (expense): | ||||||||||||||||
PPP loan forgiveness | - | 269,887 | (269,887 | ) | -100.0 | % | ||||||||||
Other income | - | - | - | N/A | ||||||||||||
Interest | (20,882 | ) | (13,239 | ) | (7,643 | ) | 57.7 | % | ||||||||
Income (loss) before income taxes | (1,520,208 | ) | 25,061 | (1,545,269 | ) | -6166.0 | % | |||||||||
Income tax provision | 5,629 | 7,315 | (1,686 | ) | -23.0 | % | ||||||||||
Net income (loss) | $ | (1,525,837 | ) | $ | 17,746 | $ | (1,543,583 | ) | -8698.2 | % |
25 |
Nine
months ended September 30, | Three
months ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(as a percentage of revenues) | (as a percentage of revenues) | |||||||||||||||
Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Restaurant operating expenses: | ||||||||||||||||
Food, beverages and supplies | 26.0 | % | 30.2 | % | 25.7 | % | 31.9 | % | ||||||||
Labor | 46.0 | % | 36.6 | % | 47.2 | % | 29.9 | % | ||||||||
Rent and utilities | 13.1 | % | 10.5 | % | 13.3 | % | 10.7 | % | ||||||||
Delivery and service fees | 6.5 | % | 8.6 | % | 6.4 | % | 7.1 | % | ||||||||
Depreciation | 9.7 | % | 2.1 | % | 5.1 | % | 1.7 | % | ||||||||
Total restaurant operating expenses | 101.2 | % | 88.0 | % | 97.8 | % | 81.3 | % | ||||||||
Net operating restaurant operating income (loss) | -1.2 | % | 12.0 | % | 2.2 | % | 18.7 | % | ||||||||
General and administrative | 44.1 | % | 18.0 | % | 84.7 | % | 30.7 | % | ||||||||
Advertising and marketing | 1.4 | % | 0.3 | % | 2.1 | % | 0.6 | % | ||||||||
Total operating expenses | 45.5 | % | 18.3 | % | 86.8 | % | 31.3 | % | ||||||||
Income (loss) from operations | -46.7 | % | -6.3 | % | -84.6 | % | -12.6 | % | ||||||||
Other income (expense): | ||||||||||||||||
PPP loan forgiveness | 6.7 | % | 6.1 | % | 0.0 | % | 14.6 | % | ||||||||
Other income | 0.1 | % | 0.6 | % | 0.0 | % | 0.0 | % | ||||||||
Interest | -1.1 | % | -1.0 | % | -1.2 | % | -0.7 | % | ||||||||
Income (loss) before income taxes | -41.0 | % | -0.7 | % | -85.8 | % | 1.4 | % | ||||||||
Income tax provision | 0.2 | % | 0.3 | % | 0.3 | % | 0.4 | % | ||||||||
Net income (loss) | -41.2 | % | -1.0 | % | -86.1 | % | 1.0 | % |
Revenues. Revenues were $5.7 million for the nine months ended September 30, 2022 compared to $4.4 million for the nine months ended September 30, 2021, representing an increase of approximately $1.3 million, or 29.1%. The increase in sales for the nine-month period was partially driven by $0.7 million in sales for the period from three new restaurants opened in July 2021, February 2022 and July 2022. The remainder of the increase of $0.8 million is considered to be attributable to recovery from the impact of the pandemic on customer traffic during 2021. The five restaurant locations that were open through all of 2021 each experienced consistent sales growth in the current year. Combined average monthly sales for these locations increased 9.8% for the nine-month period ended September 30, 2022 from the comparable period in the prior year. Revenues were approximately $1.77 million for the three-month period ended September 30, 2022, compared to $1.84 million for the comparable period in 2021, representing a slight decrease of $70,000, or 3.8%. The decrease in revenue for the periods was primarily driven by the renovation of five restaurants in September 2022 to upscale the interior design.
Food, beverage and supplies. Food, beverage and supplies costs were approximately $1.5 million for the nine months ended September 30, 2022 compared to $1.3 million for the nine months ended September 30, 2021, representing an increase of approximately $0.1 million, or 11.0%. The increase in costs for the nine-month period was primarily driven by increases in revenues from three new restaurants opened and from the recovery from lower volume experienced during the pandemic. As a percentage of sales, food, beverage and supplies costs decreased to 26.0% in the nine months ended September 30, 2022 compared to 30.2% in the nine months ended September 30, 2021. The decrease in costs as a percentage of sales was primarily driven by the increases in our menu prices and management’s efforts to increase purchasing power on ingredients. Food, beverage and supplies costs were approximately $0.5 million for the three months ended September 30, 2022 compared to $0.6 million for the three months ended September 30, 2021, representing a decrease of approximately $0.1 million, or 22.3%. The decrease in costs for the three-month period was primarily driven by decrease in revenues from the renovation of five restaurants during September 2022. As a percentage of sales, food, beverage and supplies costs decreased to 25.7% in the three months ended September 30, 2022 compared to 31.9% in the three months ended September 30, 2021. The decrease in costs as a percentage of sales was primarily driven by the increases in our menu prices and management’s efforts to increase purchasing power on ingredients.
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Labor. Labor and related costs were approximately $2.6 million for the nine months ended September 30, 2022 compared to $1.6 million for the nine months ended September 30, 2021, representing an increase of approximately $1.0 million, or 62.6%. The increase in costs was largely driven by additional labor costs incurred with respect to three new restaurants opened. As a percentage of sales, labor and related costs increased to 46.0% in the nine months ended September 30, 2022 compared to 36.6% in the nine months ended September 30, 2021. The increase in costs as a percentage of sales was primarily driven by added labor costs for new locations without commensurate increases in sales volume for those new locations yet relative to volume at other more established locations. Labor and related costs were approximately $837,000 for the three months ended September 30, 2022 compared to $551,000 for the three months ended September 30, 2021, representing an increase of approximately $286,000, or 51.9%. The increase in costs was largely driven by additional labor costs incurred with respect to three new restaurants opened. As a percentage of sales, labor and related costs increased to 47.2% in the three months ended September 30, 2022 compared to 29.9% in the three months ended September 30, 2021. The increase in costs as a percentage of sales was primarily driven by added labor costs for new locations without commensurate increases in sales volume for those new locations yet relative to volume at other more established locations.
Rent and utilities. Rent and utilities expenses were approximately $0.8 million for the nine months ended September 30, 2022 compared to $0.5 million for the nine months ended September 30, 2021, representing an increase of approximately $0.3 million, or 61.1%. The increase was primarily a result of additional occupancy expenses incurred with respect to three new restaurants opened. As a percentage of sales, rent and utilities expenses increased to 13.1% in the nine months ended September 30, 2022, compared to 10.5% for the nine months ended September 30, 2021. The increase in costs as a percentage of sales was primarily driven by added rent and utility costs for new locations without commensurate increases in sales volume for those new locations yet relative to volume at other more established locations. Rent and utilities expenses were approximately $236,000 for the three months ended September 30, 2022 compared to $197,000 for the three months ended September 30, 2021, representing an increase of approximately $39,000, or 19.8%. The increase was primarily a result of additional occupancy expenses incurred with respect to three new restaurants opened. As a percentage of sales, rent and utilities expenses increased to 13.3% in the three months ended September 30, 2022, compared to 10.7% for the three months ended September 30, 2021. The increase in costs as a percentage of sales was primarily driven by added rent and utility costs for new locations without commensurate increases in sales volume for those new locations yet relative to volume at other more established locations.
Delivery and service fees. Delivery and service fees incurred were approximately $374,000 for the nine months ended September 30, 2022 compared to $384,000 for the nine months ended September 30, 2021, representing a slight decrease of approximately $10,000 or 2.7%, primarily due to the comparable food sales via delivery during the comparable period. As a percentage of sales, delivery and service fees decreased to 6.5% for the nine months ended September 30, 2021 compared to 8.6% for the comparable period in the prior year. The change is largely driven by a slight decrease in food sales via delivery during the period. Delivery and service fees incurred were approximately $114,000 for the three months ended September 30, 2022 compared to $131,000 for the three months ended September 30, 2021, representing a slight decrease of approximately $17,000 or 12.9%, primarily due to a slight decrease in food sales via delivery during the comparable period. As a percentage of sales, delivery and service fees decreased to 6.4% for the three months ended September 30, 2021 compared to 7.1% for the comparable period in the prior year. The change is largely driven by the comparable food sales via delivery during the period.
Depreciation and amortization expenses. Depreciation and amortization expenses incurred were approximately $555,000 for the nine months ended September 30, 2022 compared to $94,000 for the nine months ended September 30, 2021, representing an increase of approximately $461,000, or 488.8%. The increase was primarily due to increased depreciation for the new restaurants opened and to changes in estimated depreciable lives for existing restaurants. As a percentage of sales, depreciation and amortization expenses increased to 9.7% for the nine months ended September 30, 2022 compared to 2.1% for the comparable period in the prior year. The change is largely driven by the increased depreciation as a result of the new locations and the change in estimated depreciable lives. Depreciation and amortization expenses incurred were approximately $90,000 for the three months ended September 30, 2022 compared to $32,000 for the three months ended September 30, 2021, representing an increase of approximately $58,000, or 184.3%. The increase was primarily due to increased depreciation for the new restaurants opened. As a percentage of sales, depreciation and amortization expenses increased to 5.1% for the three months ended September 30, 2022 compared to 1.7% for the comparable period in the prior year. The change is largely driven by the increased depreciation as a result of the new locations.
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General and administrative expenses. General and administrative expenses were approximately $1.9 million for the nine months ended September 30, 2022 compared to $0.8 million for the nine months ended September 30, 2021, representing an increase of approximately $1.1 million or 137.5%. This increase in general and administrative expenses was primarily due to the hiring of additional administrative employees, increases in professional services and corporate-level costs to support growth plans, the opening of new restaurants, as well as costs associated with outside administrative, legal and professional fees and other general corporate expenses associated with preparing to become a public company. As a percentage of sales, general and administrative expenses increased to 33.1% in the nine months ended September 30, 2022 from 18.0% in the nine months ended September 30, 2021, primarily due to the significant increase in necessary corporate costs mentioned above outpacing the increase in sales. General and administrative expenses were approximately $0.9 million for the three months ended September 30, 2022 compared to $0.6 million for the three months ended September 30, 2021, representing an increase of approximately $0.3 million or 53.4%. This increase in general and administrative expenses was primarily due to the hiring of additional administrative employees, increases in professional services and corporate-level costs to support growth plans, the opening of new restaurants, as well as costs associated with outside administrative, legal and professional fees and other general corporate expenses associated with preparing to become a public company. As a percentage of sales, general and administrative expenses increased to 49.0% in the three months ended September 30, 2022 from 30.7% in the three months ended September 30, 2021, primarily due to the significant increase in necessary corporate costs mentioned above outpacing the increase in sales.
Related party compensation: Compensation to James Chae was approximately $0.6 million for the nine months ended September 30, 2022 compared to $0 for the nine months ended September 30, 2021, representing an increase of approximately $0.6 million. The compensation was made pursuant to a nonwritten arrangement, in exchange for Mr. Chae's services rendered in connection with the successful completion of our IPO. As a percentage of sales, related party compensation was 11.0% in the nine months ended September 30, 2022. Related party compensation was approximately $0.6 million for the three months ended September 30, 2022 compared to $0 for the three months ended September 30, 2021, representing an increase of approximately $0.6 million. As a percentage of sales, related party compensation was 35.7% in the three months ended September 30, 2022.
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. In recent periods, the Company received significant assistance from governmental funds available in response to closures and impact on the business as a result of the pandemic. During the year ended December 31, 2020, the Company received approximately $723,000 in loans from these government assistance programs, and received additional loans amounting to approximately $1,360,000 during the year ended December 31, 2021. Certain of these loans are eligible for forgiveness under the government plans. During the year ended December 31, 2021, PPP loans amounting to approximately $270,000 were forgiven. During the nine months ended September 30, 2022, additional PPP loans amounting to approximately $386,000 were forgiven. See Note 4 (Bank Notes Payables) and Note 5 (Loan Payables, PPP) to the financial statements report for a more detailed discussion.
In September 2022, the Company consummated its initial public offering (the “IPO”) of 2,940,000 shares of its class A common stock at a public offering price of $4.00 per share, generating gross proceeds of $11,760,000. Net proceeds from the IPO were approximately $10.3 million after deducting underwriting discounts and commissions and other offering expenses of approximately $1.5 million.
We believe that expected cash flow from operations and the proceeds from the IPO 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, | ||||||||
2022 | 2021 | |||||||
Statement of Cash Flow Data: | ||||||||
Net cash (used in) provided by operating activities | $ | (3,332,613 | ) | $ | 307,913 | |||
Net cash used in investing activities | (457,428 | ) | (814,163 | ) | ||||
Net cash provided by financing activities | 10,347,640 | 559,549 |
Cash Flows (Used in) Provided by Operating Activities
Net cash used in operating activities during the nine-month period ended September 30, 2022 was $3,332,613, which resulted from net loss of $2,366,251, non-cash charges of $555,224 for depreciation and amortization which was offset by the PPP loan forgiveness of $385,900, and net cash outflows of $1,135,686 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 expense. The net cash outflows from changes in operating assets and liabilities were primarily the result of a decrease of $1,383,213 in due to related party, and an increase of $401,011 in other assets, partially offset by an increase of $685,899 in accounts payable and accrued expenses. The decreases in payables to related parties and stockholder were the result of repayment of expenditures incurred by the related parties and stockholder in connection with the opening of new restaurants. The increase in accounts payable was primarily due to the three new restaurants opened in July 2021, February 2022 and July 2022.
Net cash provided by operating activities during the nine months ended September 30, 2021 was $307,913, which resulted from net loss of $42,968, non-cash charges of $94,294 for depreciation and amortization which was offset by the PPP loan forgiveness of $269,887, and net cash inflows of $526,474 from changes in operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities were primarily the result of increases of $426,179 in due to related party and $114,826 in accounts payable and accrued expenses, partially offset by increases of $14,499 in inventories and $65,732 in other assets. The increase in payables to related parties was the result of expenditures incurred by the related parties in connection with the opening of new restaurants. The increase in accounts payable was primarily due to the timing of cash payments.
Cash Flows Used in Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2022 and 2021 was $457,428 and $814,164, respectively. These expenditures in each period are primarily related to purchases of property and equipment in connection with current and future restaurant openings and maintaining our existing restaurants.
Cash Flows Provided by Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2022 was $10,347,640, primarily due to $10,285,650 in net proceeds from the sale of 2,940,000 shares of class A common stock after deducting underwriting discounts and commissions and other offering expenses in September 2022, $60,000 in proceeds from the sale of class A common stock in December 2021, and $140,000 cash received through borrowings from banks, offset by $138,010 of repayment of borrowings.
Net cash provided by financing activities during the nine months ended September 30, 2021 was $559,549, due to $1,579,654 cash received through borrowings from banks and from pandemic relief funds available from government agencies. This was partially offset by $696,071 in stockholder distributions and by $294,974 of repayment of borrowings.
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Contractual Obligations
The following table presents our commitments and contractual obligations as of September 30, 2022, as well as our long-term obligations:
Payments due by period as of September 30, 2022 | ||||||||||||||||||||
Total | 2022
(remaining three months) | 2023-2024 | 2025-2026 | Thereafter | ||||||||||||||||
Capital lease payments | $ | 8,893,551 | $ | 137,531 | $ | 1,714,871 | $ | 1,843,005 | $ | 5,198,144 | ||||||||||
Bank note payables | 1,239,662 | 63,377 | 507,016 | 344,007 | 325,262 | |||||||||||||||
EIDL loan payables | 450,000 | 35,776 | 31,034 | 31,034 | 352,156 | |||||||||||||||
Restaurant revitalization fund loan payable | 700,454 | - | 700,454 | - | - | |||||||||||||||
Total contractual obligations | $ | 11,283,667 | $ | 683,821 | $ | 2,107,197 | $ | 1,191,109 | $ | 1,741,622 |
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, 2022, 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, 2022. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2022, 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, 2022 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, 2022 are fairly stated, in all material respects, in accordance with GAAP.
Changes in Internal Control Over Financial Reporting
Due to a transition period established by SEC rules applicable to newly public companies, our management is not required to evaluate the effectiveness of our internal control over financial reporting until after the filing of our Annual Report on Form 10-K for the year ending December 31, 2022. As a result, this Quarterly Report does not address whether there have been any changes in our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
In the future, the Company may be subject to various legal proceedings from time to time as part of its business. We and our subsidiaries are not currently a party, nor is our property subject, to any material pending legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We have not made any sales of unregistered equity securities during the quarterly period ended September 30, 2022.
In September 2022, the Company consummated its initial public offering (the “IPO”) of 2,940,000 shares of its class A common stock at a public offering price of $4.00 per share, generating gross proceeds of $11,760,000, pursuant to our Registration Statement on Form S-1 (as amended) (File No. 333-262330), which was declared effective by the SEC on September 8, 2022. EF Hutton, division of Benchmark Investments, LLC, acted as the representative of the underwriters of the IPO. After deducting underwriting discounts and commissions and other offering expenses payable by us, we received approximately $10.3 million in net proceeds from the IPO.
There has been no material change in the planned use of proceeds from the IPO as described in our final prospectus, dated September 8, 2022, which was filed with the SEC on September 12, 2022 pursuant to Rule 424(b) under the Securities Act.
We plan to use the net proceeds of the IPO as follows:
● | 38.47% of the net proceeds (approximately $3.79 million) for our expansion and development of new corporate owned restaurant locations, including during the year ending December 31, 2022; | |
● | 20.51% of the net proceeds (approximately $2.03 million) for the expansion of our distribution capabilities, including centralized warehousing, storage and delivery; | |
● | 20.51% of the net proceeds (approximately $2.03 million) for the development of our franchise program. As of the date of this Quarterly Report, we do not have a franchise program; and | |
● | 20.51% of the net proceeds (approximately $2.03 million) for general working capital and other corporate purposes. |
Our expected use of net proceeds from the IPO represents our current intentions based upon our present plans and business conditions. The amounts and timing of our actual use of net proceeds will vary depending on numerous factors. As a result, our management will have broad discretion in the application of the net proceeds of the IPO, and investors will be relying on our judgment regarding the application of the net proceeds.
Pending other uses, we intend to invest the proceeds to us in investment-grade, interest-bearing securities such as money market funds, certificates of deposit, or direct or guaranteed obligations of the U.S. government, or hold as cash. We cannot predict whether the proceeds invested will yield a favorable return.
No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries. For details regarding compensation to James Chae, the Company’s Chief Executive Officer, see Item 5 below. Pending the uses described, we have invested the net proceeds in our operating cash account.
Item 5. Other Information.
The information set forth below is included herein for the purpose of providing the disclosure required under “Item 5.02 – Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.” of Form 8-K.
On September 20, 2022, the Company issued a check for $500,000 to James Chae, the Company’s Chief Executive Officer, pursuant to a nonwritten arrangement, in exchange for Mr. Chae’s services rendered in connection with the successful completion of our IPO. In connection therewith, the Company also withheld $131,968 in taxes for a total of $631,968 in compensation to Mr. Chae. This compensatory arrangement was subsequently approved and ratified by the Company’s board of directors on November 10, 2022.
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Item 6. Exhibits.
The following exhibits are included herein or incorporated herein by reference :
101.INS* | Inline XBRL Instance Document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished herewith. |
33 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Signature | Title | Date | ||
/s/ James Chae | Chief
Executive Officer (Principal Executive Officer) |
November 14, 2022 | ||
James Chae | ||||
/s/ Soojae Ryan Cho | Chief
Financial Officer (Principal Financial and Accounting |
November 14, 2022 | ||
Soojae Ryan Cho | Officer) |
34 |
Exhibit 4.2
Form of Representative’s Warrant
THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) EF HUTTON, DIVISION OF BENCHMARK INVESTMENTS, LLC OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF EF HUTTON, DIVISION OF BENCHMARK INVESTMENTS, LLC OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO MARCH 8, 2023. VOID AFTER 5:00 P.M., EASTERN TIME, SEPTEMBER 8, 2027.
COMMON STOCK PURCHASE WARRANT
For the Purchase of [ ] Shares of Common Stock of
Yoshiharu Global Co.
1. Purchase Warrant. THIS CERTIFIES THAT, in consideration of funds duly paid by or on behalf of EF Hutton, division of Benchmark Investments, LLC (“Holder”), as registered owner of this Purchase Warrant Yoshiharu Global Co., a Delaware corporation (the “Company”), Holder is entitled, at any time or from time to time from March 8, 2023 (the “Commencement Date”), and at or before 5:00 p.m., Eastern time, September 8, 2027 (the “Expiration Date”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to [ ] shares of Class A common stock of the Company, par value $0.0001 per share (the “Shares”), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $5.00 per Share; provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “Exercise Price” shall mean the initial exercise price or the adjusted exercise price, depending on the context. The term “Effective Date” shall mean September 8, 2022, the date on which the Registration Statement on Form S-1 (File No. 333- 262330) of the Company was declared effective by the Securities and Exchange Commission.
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Warrant, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.
2.2 Cashless Exercise. If at any time after the Commencement Date there is no effective registration statement registering, or no current prospectus available for, the resale of the Shares by the Holder, then in lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the exercise form attached hereto, in which event the Company shall issue to Holder, Shares in accordance with the following formula:
X = Y(A-B)
A
Where,
X = The number of Shares to be issued to Holder;
Y = The number of Shares for which the Purchase Warrant is being exercised; A = The fair market value of one Share; and
B = The Exercise Price.
For purposes of this Section 2.2, the fair market value of a Share is defined as follows:
(i) if the Company’s common stock is traded on a securities exchange, the value shall be deemed to be the closing price on such exchange prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; or
(ii) if the Company’s common stock is actively traded over-the-counter, the value shall be deemed to be the closing bid price prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors.
2.3 Legend. Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (the “Securities Act”):
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE LAW. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE LAW WHICH, IN THE OPINION OF COUNSEL TO THE COMPANY, IS AVAILABLE.”
3. Transfer.
3.1 General Restrictions. The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant or the securities issuable hereunder for a period of one hundred eighty (180) days following the Effective Date to anyone other than: (i) EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) or an underwriter or a selected dealer participating in the Offering, or (ii) a bona fide officer or partner of EF Hutton or of any such underwriter or selected dealer, in each case in accordance with FINRA Conduct Rule 5110(e)(1), or (b) for a period of one hundred eighty (180) days following the Effective Date, cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(e)(2). On and after one hundred eighty (180) days after the Effective Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with the Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) business days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Securities Act. The securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Securities Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company (the Company hereby agreeing that the opinion of K&L Gates LLP shall be deemed satisfactory evidence of the availability of an exemption), or (ii) a registration statement or a post-effective amendment to the Registration Statement relating to the offer and sale of such securities has been filed by the Company and declared effective by the U.S. Securities and Exchange Commission (the “Commission”) and compliance with applicable state securities law has been established.
4. Registration Rights.
4.1 Demand Registration.
4.1.1 Grant of Right. The Company, upon written demand (a “Demand Notice”) of the Holders of at least 51% of the Purchase Warrants and/or the underlying Shares, agrees to register, on one (1) occasion, all or any portion of the Shares underlying the Purchase Warrants (collectively, the “Registrable Securities”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided, however, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 4.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holders to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.
4.1.2 Terms. The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 4.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such states as are reasonably requested by the Holders; provided, however, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 4.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 4.1.2, the Holder shall be entitled to a demand registration under this Section 4.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the Effective Date in accordance with FINRA Rule 5110(g)(8)(C).
4.2 “Piggy-Back” Registration.
4.2.1 Grant of Right. In addition to the demand right of registration described in Section 4.1 hereof, the Holder shall have the right, for a period of no more than seven (7) years from the Effective Date in accordance with FINRA Rule 5110(g)(8)(D), to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or Form S-4 or any equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of shares of Class A common stock which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities.
4.2.2 Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 4.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days’ written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 4.2.2; provided, however, that such registration rights shall terminate on the seventh anniversary of the Effective Date.
4.3 General Terms.
4.3.1 Indemnification. The Company shall indemnify the Holders of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 5.1 of the Underwriting Agreement between the Underwriters and the Company, dated as of September 8, 2022. The Holders of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.
4.3.2 Exercise of Purchase Warrants. Nothing contained in this Purchase Warrant shall be construed as requiring the Holders to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.
4.3.3 Documents Delivered to Holders. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a “cold comfort” letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.
4.3.4 Underwriting Agreement. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 4, which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Shares and their intended methods of distribution.
4.3.5 Documents to be Delivered by Holders. Each of the Holders participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.
4.3.6 Damages. Should the registration or the effectiveness thereof required by Sections 4.1 and 4.2 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holders shall, in addition to any other legal or other relief available to the Holders, be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.
4.4 Termination of Registration Rights. The registration rights afforded to the Holders under this Section 4 shall terminate on the earliest date when all Registrable Securities of such Holder either: (i) have been publicly sold by such Holder pursuant to a Registration Statement, (ii) have been covered by an effective Registration Statement on Form S-1 or Form S-3 (or successor form), which may be kept effective as an evergreen Registration Statement, or (iii) may be sold by the Holder within a 90 day period without registration pursuant to Rule 144 or consistent with applicable SEC interpretive guidance (including CD&I no. 201.04 (April 2, 2007) or similar interpretive guidance).
5. New Purchase Warrants to be Issued.
5.1 Partial Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereto, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.
5.2 Lost Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.
6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The Exercise Price and the number of Shares underlying the Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:
6.1.1 Share Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Shares, and the Exercise Price shall be proportionately decreased.
6.1.2 Aggregation of Shares. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise Price shall be proportionately increased.
6.1.3 Replacement of Securities upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.
6.1.4 Changes in Form of Purchase Warrant. Except as may otherwise be required under Section 6.2 hereof, this form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof.
6.2 Substitute Purchase Warrant. In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6. The above provision of this Section shall similarly apply to successive consolidations or share reconstructions or amalgamations.
6.3 Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.
7. Reservation and Listing. The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of the Purchase Warrants, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Warrants and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non- assessable and not subject to preemptive rights of any stockholder. As long as the Purchase Warrants shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of the Purchase Warrants to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.
8. Certain Notice Requirements.
8.1 Holder’s Right to Receive Notice. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a stockholder for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other stockholders of the Company at the same time and in the same manner that such notice is given to the stockholders.
8.2 Events Requiring Notice. The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change (“Price Notice”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Executive Officer or Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made when hand delivered or mailed by express mail or private courier service: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to the following address or to such other address as the Company may designate by notice to the Holders:
If to the Holder:
EF Hutton
590 Madison Avenue, 39th Floor
New York, New York 10022
Attn: Joseph T. Rallo
with a copy (which shall not constitute notice) to:
Mitchell Silberberg & Knupp LLP
437 Madison Avenue
New York, New York 10022
Attn: Blake Baron
Fax No.: (917) 546-7686
If to the Company:
Yoshiharu Global Co.
6940 Beach Blvd., Suite D-705
Buena Park, California 90621
Attn: James Chae, Chief Executive Officer
with a copy (which shall not constitute notice) to:
K&L Gates LLP
599 Lexington Avenue
New York, New York 10022
Attn: Matthew G.Ogurick
Fax No.: (212) 536-3901
9. Miscellaneous.
9.1 Amendments. The Company and EF Hutton may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and EF Hutton may deem necessary or desirable and that the Company and EF Hutton deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.
9.2 Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.
9.3 Entire Agreement. This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.4 Binding Effect. This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.
9.5 Governing Law; Submission to Jurisdiction; Trial by Jury. This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
9.6 Waiver, etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Execution in Counterparts. This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.
9.8 Exchange Agreement. As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and EF Hutton enter into an agreement (“Exchange Agreement”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the __ day of ______________, 2022.
Yoshiharu Global Co. | ||
By: | ||
Name: | ||
Title: |
[Form to be used to exercise Purchase Warrant]
Date: , 20
The undersigned hereby elects irrevocably to exercise the Purchase Warrant for shares of Class A common stock, par value $0.0001 per share (the “Shares”), of Yoshiharu Global Co., a Delaware corporation (the “Company”), and hereby makes payment of $ (at the rate of $ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.
or
The undersigned hereby elects irrevocably to convert its right to purchase Shares of the Company under the Purchase Warrant for Shares, as determined in accordance with the following formula:
X = Y(A-B)
A
Where,
X = The number of Shares to be issued to Holder;
Y = The number of Shares for which the Purchase Warrant is being exercised;
A = The fair market value of one Share which is equal to $ ; and
B = The Exercise Price which is equal to $ per share
The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.
Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been converted.
Signature ______________________________
Signature Guaranteed _____________________
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name: | ||
(Print in Block Letters) | ||
Address: |
NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
[Form to be used to assign Purchase Warrant]
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):
FOR VALUE RECEIVED, _ does hereby sell, assign and transfer unto the right to purchase shares of Class A common stock, par value $0.0001 per share, of Yoshiharu Global Co., a Delaware corporation (the “Company”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.
Dated: _________, 20__
Signature___________________________________
Signature Guaranteed__________________________
NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
Exhibit 10.3
Exhibit 31.1
CERTIFICATION
I, James Chae, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q (this “Report”) for the quarterly period ended September 30, 2022 of Yoshiharu Global Co.; |
2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; |
b. | [Paragraph intentionally omitted in accordance with SEC Release Nos. 34-47986 and 34-54942]; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and |
d. | Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: November 14, 2022 | By: | /s/ James Chae |
James Chae | ||
Chief
Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Soojae Ryan Cho, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q (this “Report”) for the quarterly period ended September 30, 2022 of Yoshiharu Global Co.; |
2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; |
b. | [Paragraph intentionally omitted in accordance with SEC Release Nos. 34-47986 and 34-54942]; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and |
d. | Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: November 14, 2022 | By: | /s/ Soojae Ryan Cho |
Soojae Ryan Cho | ||
Chief
Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION
In connection with the Quarterly Report of Yoshiharu Global Co. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Chae, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 14, 2022 | By: | /s/ James Chae |
James Chae | ||
Chief
Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION
In connection with the Quarterly Report of Yoshiharu Global Co. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Soojae Ryan Cho, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 14, 2022 | By: | /s/ Soojae Ryan Cho |
Soojae Ryan Cho | ||
Chief
Financial Officer (Principal Financial and Accounting Officer) |
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