Yoshiharu (YOSH) - 2024 Q4 - Annual Report

Part I Business Yoshiharu Global Co. is a fast-growing Japanese restaurant operator specializing in ramen, with ten operating restaurants in Southern California as of year-end 2024, plus several new locations under development or recently acquired - As of the report date, the company operates ten restaurants, has three new stores under construction/development, and recently acquired three existing restaurants in Las Vegas, which are expected to be integrated in the second quarter of 2024[19] - The company's core product is its signature ramen, featuring a rich bone broth boiled for over twelve hours, aiming to provide a high-quality, healthy, and affordable Japanese dining experience[20][21] - The company's Average Unit Volume (AUV) was $1.0 million in 2024, a decrease from $1.1 million in 2023[31] - Growth strategies include pursuing new restaurant development with a target of over 100% annual unit growth, delivering consistent comparable restaurant sales growth, increasing profitability through scale, and heightening brand awareness via marketing and potential retail partnerships[33][34][35][36] - The company utilizes Toast, Inc. for its point of sale, online ordering, delivery, marketing, and payroll management systems to streamline operations[64] Risk Factors The company faces significant risks, including a history of operating losses, reliance on future capital, a potential Nasdaq delisting, and heavy geographic concentration in California - The company incurred a net loss of $2.7 million in 2024 and $3.0 million in 2023, and must raise additional capital to sustain operations[85] - The company received a delisting notice from Nasdaq for failing to meet the minimum $2.5 million stockholders' equity requirement; an appeal hearing is scheduled for April 1, 2025, but a delisting could severely impair the ability to raise capital[89][176] - The business is geographically concentrated in California, making it vulnerable to local economic, regulatory, and weather conditions; the state's minimum wage was $16.00 per hour as of January 1, 2024, which increases labor costs[94][142] - The company's growth strategy, which involves opening new restaurants, is subject to risks such as site availability, construction permit delays, and competition; the estimated build-out cost per new restaurant is $350,000-$550,000[91][102] - The company has received unsecured, on-demand borrowings from its CEO, James Chae, and his affiliate; the outstanding balance was $732,710 as of December 31, 2024[128] - As a 'controlled company' due to CEO James Chae's majority voting power, it is exempt from certain Nasdaq corporate governance requirements, such as having a majority-independent board[281] Unresolved Staff Comments The company reports that it has no unresolved staff comments - Not applicable[181] Cybersecurity The company manages cybersecurity risks through an information security program overseen by the Audit Committee, with no material incidents reported to date - The company has an information security program designed to manage cybersecurity risks, utilizing various security tools[182] - The Board's Audit Committee oversees the cybersecurity risk management program, receiving periodic reports from management[185][186] - As of the date of this report, the company is not aware of any materially adverse cybersecurity incidents[184] Properties The company's executive offices are located in Buena Park, CA, and all restaurant and corporate office properties are leased - The company's executive offices are located at 6940 Beach Blvd, Suite D-705, Buena Park, CA 90621[189] - A comprehensive description of the company's principal physical properties (leased restaurant locations) is available under "Item 1 Business—Properties"[189] Legal Proceedings The company reports that there is no litigation currently pending or contemplated against it, its officers, or directors that would have a material impact - To the knowledge of management, there is no litigation currently pending or contemplated against the company or its officers and directors[190] Mine Safety Disclosures This item is not applicable to the company - Not applicable[191] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A Common Stock trades on Nasdaq under "YOSH", no cash dividends have been paid, and recent private placements were conducted to raise capital - The company's Class A Common Stock is traded on the Nasdaq Capital Market under the symbol "YOSH"[192] - The company has not paid any cash dividends and future dividend decisions will be at the discretion of the board of directors[194] - In March 2025, the company entered into several private placements, selling shares and warrants to raise capital, including selling 285,600 shares for $714,000 and 480,000 warrants for $1,200,000[196][197] [Reserved] This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue increased 39.3% to $12.9 million due to new restaurant sales, though the company reported a $2.7 million net loss and faces significant liquidity concerns Results of Operations (Years ended December 31) | | 2024 | 2023 | Change ($) | Change (%) | |:---|---:|---:|---:|---:| | Revenue | $12,839,137 | $9,214,779 | $3,624,358 | 39.3% | | Total restaurant operating expenses | $11,322,662 | $8,850,385 | $2,472,277 | 27.9% | | Net restaurant operating income | $1,516,475 | $364,394 | $1,152,081 | 316.2% | | General and administrative | $3,831,676 | $3,419,036 | $412,640 | 12.1% | | Loss from operations | ($2,555,029) | ($3,515,254) | $960,225 | -27.3% | | Net loss | ($2,665,869) | ($3,040,364) | $374,495 | -12.3% | - Revenue increased by $3.6 million (39.3%) in 2024, primarily driven by $3.5 million in sales from the acquisition of three Las Vegas restaurants and $1.0 million from two new restaurants, offset by a $0.8 million decrease at other locations[223] - Labor costs increased by 14.2% to $4.8 million due to new and acquired restaurants, but decreased as a percentage of sales due to lower relative labor costs in Las Vegas[225] - General and administrative expenses increased by 12.1% to $3.8 million due to acquisitions, new hires, and costs to support growth, but decreased as a percentage of sales from 37.1% to 29.7% due to cost control efforts[229] Summary of Cash Flows (Years ended December 31) | | 2024 | 2023 | |:---|---:|---:| | Net cash provided by (used in) operating activities | $875,224 | ($4,591,656) | | Net cash used in investing activities | ($2,561,527) | ($1,471,151) | | Net cash provided by financing activities | $1,465,013 | $1,386,347 | - The company has entered into multiple agreements in early 2025 to raise capital, including an equity purchase agreement for up to $10 million and several private placements for shares and warrants[234][235][236][237] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Yoshiharu Global Co is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide the information under this item[254] Financial Statements and Supplementary Data The company's audited financial statements and supplementary data are incorporated by reference and begin on page F-1 of the report - The required financial statements and supplementary data are located starting on page F-1 of the Form 10-K[255] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[256] Controls and Procedures Management has concluded that the company's disclosure controls and procedures were ineffective as of December 31, 2024, due to material weaknesses from its small size - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were ineffective[257] - Material weaknesses were identified related to inadequate accounting resources and a lack of segregation of duties, attributed to the small size of the accounting staff[258] - Management believes that despite the material weaknesses, the financial statements for the year ended December 31, 2024, are fairly stated in all material respects in accordance with GAAP[260] Other Information During the fourth quarter of 2024, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading plan or other non-Rule 10b5-1 trading arrangement in the last quarter of 2024[266] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[267] Part III Directors, Executive Officers and Corporate Governance As a "controlled company" led by CEO James Chae, Yoshiharu is exempt from certain Nasdaq governance rules and currently lacks a majority-independent board - The company is a "controlled company" under Nasdaq rules because CEO James Chae controls a majority of the voting power, exempting it from requirements like having a majority-independent board or a nominating committee[281] - Following the resignation of a director in February 2025, the company no longer has a majority independent board of directors[284] - The Audit Committee consists of two independent directors, both of whom qualify as "audit committee financial experts," but is temporarily below the required three members[292][294][284] - The positions of Chairman of the Board and Chief Executive Officer are both held by James Chae[306] Executive Compensation Executive compensation includes base salary and bonuses, with no equity awards outstanding for named executive officers at year-end 2024 Summary Compensation Table – Officers (2024 & 2023) | Name and Principal Position | Year | Salary ($) | Bonus ($) | Total ($) | |:---|---:|---:|---:|---:| | James Chae, CEO | 2024 | 140,000 | 0 | 140,000 | | Soojae Ryan Cho, CFO | 2024 | 120,000 | 0 | 120,000 | | James Chae, CEO | 2023 | 285,000 | 55,000 | 340,000 | | Soojae Ryan Cho, CFO | 2023 | 144,000 | 0 | 144,000 | - As of December 31, 2024, there were no outstanding equity awards for any of the Named Executive Officers (NEOs)[324] - The company adopted the 2022 Omnibus Equity Incentive Plan, authorizing up to 1,500,000 shares of Class A common stock for various types of awards to employees, directors, and consultants[327][332] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Founder and CEO James Chae controls 69.34% of the total voting power through his ownership of Class A and super-voting Class B common stock Beneficial Ownership as of March 20, 2025 | Name of Beneficial Owner | Class A Shares Beneficially Owned | Percent of Class A | Class B Shares Beneficially Owned | Percent of Class B | Percent of Total Voting Power | |:---|---:|---:|---:|---:|---:| | James Chae | 617,100 | 46.32% | 100,000 | 100.00% | 69.34% | | All NEOs and Directors as a Group (5 persons) | 632,000 | 47.44% | 100,000 | 100.00% | 69.98% | - Class B Common Stock has 10 votes per share, while Class A Common Stock has one vote per share, giving James Chae majority voting control[359] Certain Relationships and Related Transactions, and Director Independence The company has several related party transactions, primarily involving loans and formation contributions with its founder and CEO, James Chae - The company was formed through a series of transactions where founder James Chae contributed his existing restaurant entities and intellectual property in exchange for Class A and Class B stock, resulting in his control of the company[360][361] - The company has borrowed money from CEO James Chae on a non-interest bearing, due-on-demand basis; the outstanding balance was $732,710 as of December 31, 2024, up from $24,176 in 2023[363] - The company has a loan receivable of $100,300 from Won Zo Whittier, an entity 100% owned by James Chae; the loan is non-interest bearing with a 5-year term[363] Principal Accountant Fees and Services Total fees billed by auditors were $323,750 in 2024, with all audit and permitted non-audit services pre-approved by the Audit Committee Accountant Fees (Fiscal Years) | Fee Type | 2024 | 2023 | |:---|---:|---:| | Audit fees | $323,750 | $248,000 | | Audit related fees | $0 | $0 | | Tax fees | $0 | $12,000 | | All other fees | $0 | $104,000 | | Total fees | $323,750 | $364,000 | - The company's Audit Committee pre-approves all audit and permitted non-audit services provided by the independent registered public accounting firm[369] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report - This item lists all documents filed as part of the report, including financial statements and various exhibits such as the certificate of incorporation, bylaws, and material contracts[371][373] Form 10-K Summary This item is not applicable - Not applicable[374] Financial Statements and Supplementary Data Consolidated Financial Statements Acquisitions and financing activities grew total assets to $17.6 million, while a net loss of $2.7 million caused stockholders' equity to fall to $255,399 Consolidated Balance Sheet Highlights (as of December 31) | | 2024 | 2023 | |:---|---:|---:| | Total Current Assets | $1,464,568 | $1,535,349 | | Total Assets | $17,573,266 | $13,019,364 | | Total Current Liabilities | $6,041,089 | $3,269,060 | | Total Liabilities | $17,317,867 | $10,365,885 | | Total Stockholders' Equity | $255,399 | $2,653,479 | Consolidated Statement of Operations Highlights (Years ended December 31) | | 2024 | 2023 | |:---|---:|---:| | Total Revenue | $12,839,137 | $9,214,779 | | Loss from Operations | ($2,555,029) | ($3,515,254) | | Net Loss | ($2,665,869) | ($3,040,364) | | Basic and Diluted Loss Per Share | ($1.98) | ($2.29) | Notes to Consolidated Financial Statements Key financial events include a 1-for-10 reverse stock split, a $3.6 million restaurant acquisition, and significant financing activities in early 2025 to address liquidity - A 1-for-10 reverse stock split of both Class A and Class B common stock became effective on November 27, 2023[394] - On April 20, 2024, the company acquired assets of three Las Vegas restaurants for a total purchase price of $3.6 million, funded by $1.8 million in cash, a $600,000 promissory note, and a $1.2 million convertible note[399][418][419] - The Las Vegas acquisition resulted in the recording of $1,985,645 in Goodwill and $531,051 in intangible assets (Brand & non-compete)[419][421] - As of Dec 31, 2024, the company had total bank notes payable of $3.1 million and EIDL loans payable of $415,414[428][459] - Subsequent to year-end, in January 2025, the company entered into a $10 million equity line of credit (ELOC) agreement and in March 2025, conducted several private placements of stock and warrants to raise capital[504][505][506]