Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 28
Item 1C. Cybersecurity 28
Item 2. Properties 28
Item 3. Legal Proceedings 28
Item 4. Mine Safety Disclosures 28
PART II
Item 6. [Reserved] 29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 37
Item 8. Financial Statements and Supplementary Data 37
Item 9A. Controls and Procedure 37
Item 9B. Other Information 38
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 38
PART III
Item 10. Directors, Executive Officers and Corporate Governance 38
Item 11. Executive Compensation 43
Item 14. Principal Accounting Fees and Services 51
PART IV
Item 15. Exhibits and Financial Statement Schedules 52
i
As
used in this Annual Report on Form 10-K, unless otherwise indicated, Yoshiharu Global Co., together with its consolidated subsidiaries,
is hereinafter referred to as “Yoshiharu,” the “registrant,” “us,” “we,” “our,”
or the “Company.”
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), 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 Annual Report on Form 10-K 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; the risk 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; the risk 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; the risk 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; the risk
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; the risk 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; the risk 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 Annual Report on Form 10-K 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 in the section titled “Risk Factors” and elsewhere
in this Annual Report on Form 10-K. We undertake no obligation to update any forward-looking statements after the date of this Annual
Report on Form 10-K or to conform such statements to actual results or revised expectations, except as required by law.
ii
SUMMARY
OF SIGNIFICANT RISKS AFFECTING OUR COMPANY
Our
business is subject to multiple risks and uncertainties, as more fully described in “Risk Factors” and elsewhere in
this Annual Report on Form 10-K. We urge you to read the disclosures under the caption “Risk Factors” and this Annual
Report in full. Our significant risks may be summarized as follows:
● We will incur increased costs as a result of being a public company.
iii
PART
I
Item
1. Business.
Overview
of Yoshiharu
We
are 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, we gained recognition as a leading ramen restaurant in Southern California
within six months of our 2016 debut and have continued to expand our top-notch restaurant service across Southern California, currently
operating ten restaurants with an additional three new restaurant stores under construction/development. Further, we entered into a material
definitive agreement to acquire three existing restaurants in Las Vegas and expect to complete the acquisition in early second quarter
2024.
We
take pride in our warm, hearty, smooth, and rich bone broth, which is slowly boiled for over twelve hours. Customers can taste and experience
supreme quality and deep flavors. Combining the broth with the fresh, savory, and highest-quality ingredients, we serve 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. We also strive 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.
In
September 2022, we consummated our initial public offering (the “IPO”) of 2,940,000 shares of our Class A common stock (pre-Reverse
Stock Split), par value $0.0001 per share (“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
granted the underwriters a 45-day option to purchase up to 441,000 additional shares (equal to 15% of the shares of Class A Common Stock
sold in the IPO) to cover over-allotments, if any, which the underwriters did not exercise. In addition, we issued to the representative
of the underwriters warrants to purchase a number of shares of Class A Common Stock equal to 5.0% of the aggregate number of shares of
Class A Common Stock sold in the IPO (including shares of Class A Common Stock sold upon exercise of the over-allotment option). The
representative’s warrants are exercisable at any time and from time to time, in whole or in part, during the four-and-1⁄2-year
period commencing six months from the date of commencement of the sales of the shares of Class A Common Stock in connection with the
IPO, at an initial exercise price per share of $5.00 (equal to 125% of the initial public offering price per share of Class A Common
Stock). No representative’s warrants have been exercised.
On
September 9, 2022, the our Class A Common Stock began trading on the Nasdaq Capital Market under the symbol “YOSH.”
On
November 22, 2023, we filed a Certificate of Amendment (the “Certificate of Amendment”) to our Amended and Restated Certificate
of Incorporation to effect a reverse stock split of our Class A Common Stock and Class B common stock, par value $0.0001 per share (“Class
B Common Stock” and, together with Class A common Stock, “Common Stock”), in the ratio of 1-for-10 (the “Reverse
Stock Split”) effective at 11:59 p.m. eastern on November 27, 2023. The Class A Common Stock began trading on a split-adjusted
basis at the market open on Tuesday, November 28, 2023.
No
fractional shares were issued as a result of the Reverse Stock Split. Instead, any fractional shares that would have resulted from
the Reverse Stock Split were rounded up to the next whole number. As a result, a total of 34,846 shares of Class A Common Stock were
issued and total of 1,230,246 shares of Class A Common Stock were outstanding as of December 31, 2023. The Reverse Stock Split
affects all stockholders uniformly and did not alter any stockholder’s percentage interest in our outstanding Common Stock,
except for adjustments that may result from the treatment of fractional shares. The number of authorized shares of Common Stock and
number of authorized shares of our Class B common stock were not changed.
Supply
Chain Disruption and Inflation
Our
profitability depends in part on our ability to anticipate and react to changes in food and supply costs, especially in light of recent
supply chain disruptions. We believe we have experienced higher costs due to increased commodity prices and challenges sourcing our supplies
due in part to global supply chain disruptions. Although historically, and as of December 31, 2024, global supply chain disruptions have
not materially adversely affected our business, a substantial increase in the cost of, or inability to procure, the food products most
critical to our menu, such as canola oil, rice, meats, fish and other seafood, as well as fresh vegetables, could materially and adversely
affect our business, financial condition or results from operations. Because we provide moderately priced food, we may choose not to,
or may be unable to, pass along commodity price increases to consumers. These potential changes in supply costs could materially adversely
affect our business, financial condition or results of operations.
Historically
and as of the date hereof, inflation has not had a material effect on our results of operations. Severe increases in inflation, however,
could affect the global and U.S. economies and could have a materially adverse impact on our business, financial condition or results
of operations. Furthermore, future volatile, negative, or uncertain economic conditions and recessionary periods or periods of significant
inflation may adversely impact consumer spending at our restaurants, which would materially adversely affect our business, financial
condition and results of operations. Such effects can be especially pronounced during periods of economic contraction or slow economic
growth. To the extent that we are unable to offset such cost inflation through increased menu prices or increased efficiencies in our
operations and cost savings, there could be a negative impact on our business, sales and margin performance, net income, cash flows and
the trading price of our common shares. We have been able to offset to some extent these inflationary and other cost pressures through
actions such as increasing menu prices and supply chain initiatives, however, we expect these inflationary and other cost pressures to
continue into and throughout the year 2025.
Our
Strengths
Experienced
Management Team Dedicated to Growth.
Our
team is led by experienced and passionate senior management who are committed to our mission. We are led by our Chief Executive Officer,
James Chae. Mr. Chae founded Yoshiharu in 2016 and has helped grow the business since that time. Mr. Chae leads a team of talented professionals
with deep financial, operational, culinary, and real estate experience.
Compelling
Value Proposition with Broad Appeal.
Guests
can enjoy our signature ramen dishes or select from our variety of fresh sushi rolls, bento, and other Japanese cuisine. The high-quality
dishes at affordable prices are the result of our efficient operations. In addition, we believe our commitment to high-quality and fresh
ingredients in our food is at the forefront of current dining trends as customers continue to seek healthy food options.
Attractive
Restaurant-Level Economics.
At
Yoshiharu, we believe our rapid customer turnover, combined with our ability to deliver in 2 major day parts with lunch and dinner, allows
for robust and efficient sales in each of our restaurants. Our average unit volume (“AUV”, as defined herein) was $1.1 million
in 2023 and $1.0 million in 2024.
Quality
of Food and Excellence in Customer Service.
We
place a premium on serving high-quality, authentic Japanese cuisine. We believe in customer convenience and satisfaction and have created
strong, loyal and repeat customers who help expand the Yoshiharu network to their friends, family and co-workers.
Our
Growth Strategies
Pursue
New Restaurant Development.
We
have pursued a disciplined new corporate owned growth strategy. Having expanded our concept and operating model across varying restaurant
sizes and geographies, we plan to leverage our expertise opening new restaurants to fill in existing markets and expand into new geographies.
While we currently aim to achieve in excess of 100% annual unit growth rate over the next three to five years, we cannot predict the
time period of which we can achieve any level of restaurant growth or whether we will achieve this level of growth at all. Our ability
to achieve new restaurant growth is impacted by a number of risks and uncertainties beyond our control, including those described under
the caption “Risk Factors.” In particular, see “Risk Factors—Our long-term success is highly dependent
on our ability to successfully identify and secure appropriate sites and timely develop and expand our operations in existing and new
markets” for specific risks that could impede our ability to achieve new restaurant growth in the future. We believe there
is a significant opportunity to employ this strategy to open additional restaurants in our existing markets and in new markets with similar
demographics and retail environments.
Deliver
Consistent Comparable Restaurant Sales Growth.
We
have achieved positive comparable restaurant sales growth in recent periods. We believe we will be able to generate future comparable
restaurant sales growth by growing traffic through increased brand awareness, consistent delivery of a satisfying dining experience,
new menu offerings, and restaurant renovations. We will continue to manage our menu and pricing as part of our overall strategy to drive
traffic and increase average check. We are also exploring initiatives to grow sales of alcoholic beverages at our restaurants, including
the potential of a larger format restaurant with a sake bar concept. In addition to the strategies stated above, we expect to initiate
sales of franchises in 2024.
Increase
Profitability.
We
have invested in our infrastructure and personnel, which we believe positions us to continue to scale our business operations. As we
continue to grow, we expect to drive higher profitability both at a restaurant-level and corporate-level by taking advantage of our increasing
buying power with suppliers and leveraging our existing support infrastructure. Additionally, we believe we will be able to optimize
labor costs at existing restaurants as our restaurant base matures and AUVs 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.
Experienced
Management Team Dedicated to Growth.
Our
team is led by experienced and passionate senior management who are committed to our mission. We are led by our Chief Executive Officer,
James Chae. Mr. Chae founded Yoshiharu in 2016 and leads a team of talented professionals with deep financial, operational, culinary,
and real estate experience.
Properties
As
of December 31, 2024, we operated twelve (12) restaurants in California and one location under construction. We also operated three restaurants
in Las Vegas since April 2024. We operate a variety of restaurant formats, including in-line and end-cap restaurants located in retail
centres of varying sizes. Our restaurants currently average approximately 1,578 square feet. We lease the property for our corporate
offices and all of the properties on which we operate our restaurants.
The
table below shows the locations of our restaurants as of the date of this Report:
Store Location Address Year Launched
*1
Opened in February 2024.
*2
Opened in October 2024
*3
Under construction.
*4
Acquired in April 2024
We
are obligated under non-cancelable leases for the majority of our restaurants, as well as our corporate offices. The majority of our
restaurant leases have lease terms of 10 years, inclusive of customary extensions which are at the option of the company. Our restaurant
leases generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance charges, and other
operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds, although we generally do not
expect to pay significant rent on these properties based on the thresholds in those leases. We do not own any real property.
We
opened one restaurant in each year from 2019 through 2021, and we have opened two restaurants in 2022, 2023 and 2024, respectively. We
also acquired three existing restaurants in Las Vegas by an Asset Purchase Agreement (“APA”) with Mr. Jihyuck Hwang (“Seller”)
(see Note 9 Related Party Transactions) via the Company’s wholly owned subsidiary, Yoshiharu Las Vegas (“YLV”). The
APA provided for the purchase of specific assets of the three restaurant businesses, including inventory, security deposits, fixed assets
and lease assignment effective as of April 20, 2024.
We
anticipate approximately $350,000 - $550,000 in costs per new location in development and has spent approximately $484,000 for the one
location under construction/development as of December 31, 2024.
Site
Development and Expansion
Site
Selection Process
We
consider site selection to be instrumental to our success. As part of our strategic site selection process, we receive potential site
locations from networks of local brokers, which are then reviewed by our Development Team. This examination consists of an analysis of
the lease terms and conditions, a profitability evaluation, as well as multiple site visits during all times of the day, e.g., lunch,
late afternoon, dinner, weekdays and weekends, to test for traffic. The Development Team holds regular meetings for site approval with
other members of our senior management team in order to get a balanced perspective on a potential site.
Our
current real estate strategy focuses on high-traffic retail centers in markets with a diverse population and above-average household
income for the state. We believe we are attractive lessees for landlords given our ability to drive strong traffic comprised of above-average
household income guests, and we imagine our bargaining power will become stronger as we accumulate more stores. In site selection, we
also consider factors such as residential and commercial population density, restaurant visibility, traffic patterns, accessibility,
availability of suitable parking, proximity to highways, universities, shopping areas and office parks, the degree of competition within
the market area, and general availability of restaurant-level employees. We also invest in site analytics tools for demographic analysis
and data collection for both existing and new market areas, which we believe allows us to further understand the market area and determine
whether to open new restaurants in that location.
Our
flexible physical footprint, which has allowed us to open restaurants in size ranging from 1,500 to 2,500 square feet, allows us to open
in-line and end-cap restaurant formats at strip malls and shopping centers and penetrate markets in both suburban and urban areas. We
believe we have the ability to open additional restaurants in our existing metropolitan areas. We also believe there is significant opportunity
to employ the strategy in new markets with similar demographics across the U.S. and globally.
Expansion
Strategy
We
plan to pursue a multi-facet expansion strategy by opening new corporate restaurants or acquiring existing restaurants in both new and
existing markets, as well as utilizing the franchise market. We believe this expansion will be crucial to executing our growth strategy
and building awareness of Yoshiharu as a leading Japanese casual dining brand. Expansion into new markets occurs in parallel with ongoing
evaluation of existing markets, with the goal of maintaining a pipeline of top-tier development opportunities. As described under the
heading Site Selection Process above, we use a systematic approach to identify and review existing and new markets.
Upon
selecting a new market, we typically build one restaurant to prove concept viability in that market. We have developed a remote management
system whereby our senior operations team is able to monitor restaurants in real-time from our headquarters using approximately eight
cameras installed in each restaurant. We utilize this remote management system to maintain operational quality while minimizing inefficiencies
caused by a lack of economies of scale in new markets.
Due
to our relatively small restaurant count, new restaurants have an outsized impact on our financial performance. In order to mitigate
risk, we look to expand simultaneously in new and existing markets. We base our site selection on our most successful existing restaurants
and frequently reevaluate our strategy, pacing and markets. We believe we are in the early stages of our growth story and that our restaurant
model is designed to generate strong cash flow, attractive restaurant-level financial results and high returns on invested capital, which
we believe provides us with a strong foundation for expansion.
Restaurant
Design
Restaurant
design is handled by our Development Team in conjunction with outsourced vendor relationships, e.g., architects and general contractors.
Our restaurant size currently averages approximately 1,500 square feet. Seating in our restaurant is comprised of a combination of table
seating and bar seats with an average seating capacity of 40-50 guests.
We
are developing two main restaurant layouts. The standard restaurants will be built using our current layout and design which we believe
evokes a modern and on-trend Japanese dining atmosphere. The second layout is a larger floor plan where we will utilize a full service
restaurant and bar. We believe our see-through kitchens reflecting the cooks preparing first hand meals, amplify the lively bustle provided
by the great casual atmosphere, and serve to highlight the ambiance of getting great food in a modern Japanese style ambiance.
Construction
Construction
of a new restaurant takes approximately 12 to 24 weeks once construction permits are issued. Our Development Team oversees the build-out
process from engaging architects and contractors to design and build out the restaurant. The capital resources required to develop each
new restaurant are significant. On average, we estimate our restaurant build-outs to cost approximately $350,000 - $550,000 per standard
location, net of tenant allowances and pre-opening costs and assuming that we do not purchase the underlying real estate, but this figure
could be significantly higher depending on the market, restaurant size, and condition of the premises upon delivery by landlord. On average,
we estimate that our restaurants require a cash build-out cost of approximately $350,000-$550,000 per restaurant, net of landlord tenant
improvement allowances and pre-opening costs and assuming that we do not purchase the underlying real estate. Actual costs may vary significantly
depending upon a variety of factors, including the site and size of the restaurant and conditions in the local real estate and labor
markets.
Restaurant
Management and Operations
Restaurant
Management and Employees
Our
restaurants typically employ one restaurant manager, one or two supervisors, and approximately 8 to 12 additional team members. Managers,
supervisors and management trainees are cross-trained throughout the restaurant in order to create competency across critical restaurant
functions, both in the dining area and in the kitchen.
In
addition, our senior operations team monitors restaurants in real-time from our headquarters using our remote management system of approximately
eight cameras installed in each restaurant. These team members are responsible for different components of the restaurant: cleanliness,
service, and food quality.
Training
and Employee Programs
We
devote significant resources to identifying, selecting, and training restaurant-level employees. Our training covers leadership, team
building, food safety certification, alcohol safety programs, sexual harassment training, and other topics. Management trainees undergo
training for approximately 8 to 16 weeks in order to develop a deep understanding of our operations. In addition, we are developing extensive
training manuals that cover all aspects of restaurant-level operations.
Our
traveling “opening team” provides training to team members in advance of opening a new restaurant. We believe the opening
team facilitates a smooth opening process and efficient restaurant operations from the first day a restaurant opens to the public. The
opening team is typically on-site at new restaurants from two weeks before opening to four weeks after opening.
Food
Preparation, Quality and Safety
We
are committed to consistently providing our guests high quality, freshly prepared food. For other items we believe hand preparation achieves
the best quality. Hand preparation of menu items includes, but is not limited to, frying tempura, slicing meat and fish and making pork
bone broth. We believe guests can taste the difference in freshly prepared food and that adhering to these standards is a competitive
advantage for our brand.
Food
safety is essential to our success and we have established procedures to help ensure that our guests enjoy safe, quality food. We require
each employee to complete food handler safety certification upon hiring. We have taken various additional steps to mitigate food quality
and safety risks, including undergoing internal safety audits. We also consider food safety and quality assurance when selecting our
distributors and suppliers.
Menu
We
offer a diverse menu, including our signature ramen dishes, as well as sushi rolls, bento boxes, and other Japanese cuisine. The menu
appeals to a wide range of customers, and we continue to improve upon the quality, taste and presentation. Additionally, we are able
to serve the menu in a delivery and pickup format, as our food is designed to be enjoyed on premise or at customers’ homes or offices.
We have entered the catering business through relationships with businesses who place large format orders (i.e., Bento boxes for corporate
meetings or office lunches), for delivery or pick-up. We expect that our catering business, which has a higher-than-average order value,
to grow due to the early success we have experienced in the corporate channel.
New Menu Introductions
We
focus advertising efforts on new menu offerings to broaden our appeal to guests and drive traffic. Our menu changes twice per year to
introduce new items and remove underperforming items. We promote these new menu additions through various social media platforms, our
website and in-restaurant signage.
Marketing
and Advertising
We
use a variety of marketing and advertising channels to build brand awareness, attract new guests, increase dining frequency, support
new restaurant openings, and promote Yoshiharu as an authentic Japanese restaurant with high-quality cuisine and a distinctive dining
experience. Our primary advertising channels include digital, social, and print.
Social
Media
We
maintain a presence on several social media platforms including Facebook and Instagram, allowing us to regularly communicate with guests,
alert guests of new offerings, and conduct promotions. Our dining experience is built to provide our guests social media shareable moments,
which we believe extends our advertising reach.
Suppliers
We
carefully select suppliers based on product quality and authenticity and their understanding of our brand, and we seek to develop long-term
relationships with them. All supply arrangements are negotiated and managed at the Yoshiharu corporate-level.
Food.
Our Vice President of Operations identifies and procures high-quality ingredients at competitive prices. Each store separately makes
an order to the specific vendor, and the invoices are submitted and paid by Yoshiharu at the corporate-level. We source mainly through
the following Japanese-related distributors: JFC, a subsidiary of Kikkoman Corporation, Wismettac, a subsidiary of Nishimoto Co., Ltd.,
and Mutual Trading Co., Inc., a California corporation.
Paper.
Our Vice President of Operations negotiates long term supply agreements for our logo-branded paper including takeout bags and bowls,
chopsticks, as well as uniforms. We make a portion of our purchases annually in bulk at fixed prices, and deliver them to our warehouse
in Anaheim, California. Each restaurant Manager receives the necessary paper supplies from our warehouse.
Management
Information Systems
We
utilize systems provided by Toast, Inc. for point of sale, contactless ordering, handheld ordering, online ordering and delivery, as
well as marketing and payroll management. We believe that Toast’s systems provide us and our customers with streamlined operations
and allows us to efficiently turn tables and improve the sales conversion cycle, while reducing third-party commissions for online orders.
Restaurant
Industry Overview
According
to the National Restaurant Association (the “NRA”), restaurant industry sales in 2024 were over $1.1 trillion, up from $1.0
trillion in 2024 and is forecast to grow to $1.5 trillion in 2025.
The
restaurant industry is divided into several primary segments, including limited-service and full-service restaurants, which are generally
categorized by price, quality of food, service, and location. Yoshiharu sits at the intersection of these two segments offering the experience
and food quality of a full-service restaurant and the speed of service of a limited-service restaurant. We primarily compete with other
full-service restaurants, which, according to the NRA, had approximately $353 billion of sales in calendar year 2024, up from $324 billion
in 2023. The limited-service segment generated approximately $421 billion in calendar year 2024, or a roughly $26 billion increase from
the prior year.
We
believe that increased multiculturalism in the United States, driven in part by growth in the Asian demographic, contributes to a favorable
macro environment for Yoshiharu’s future growth. According to the U.S. Census Bureau, the Asian population is projected to be one
of the fastest growing demographics in the United States, increasing in size from 22.4 million people in calendar year 2019 to 46 million
people by calendar year 2060. During this time, the Asian population’s share of the nation’s total population is projected
to increase by 100%, from approximately 7% to 14%.
Additionally,
we believe that Yoshiharu is well-positioned to grow our share of the restaurant market as consumers seek quality, value, healthier options,
and authentic global and regional cuisine in their dining choices. According to the National Restaurant Association 2024 State of the
Industry report, roughly 47% of family and casual dining restaurants plan to add new menu items identified as healthy or nutritious in
2024.
We
cannot provide assurance that we will benefit from these long-term demographic trends, although we believe the projected growth in the
Asian population and the Asian influence on dining trends will result in an increase in demand for Japanese and Asian foods.
Competition
We
face significant competition from a variety of locally owned restaurants regional, and national chain restaurants offering both Asian
and non-Asian cuisine, as well as takeaway options from grocery stores. Direct competition for Yoshiharu comes primarily from Asian restaurants
including other ramen noodles restaurants. Jinya Ramen Bar operates approximately 40 locations in the United States and also franchises
their restaurants. We believe that we compete primarily based on product quality, dining experience, ambience, location, convenience,
value perception, and price. Our competition continues to intensify as competitors increase the breadth and depth of their product offerings
and open new restaurants.
Seasonality
Due
to Yoshiharu’s menu breadth and diversification of offerings, we do not experience significant seasonality.
Employees
As
of December 31, 2024, we had approximately 259 employees, of whom 10 were exempt employees and the remainder were non-exempt employees.
None of our employees are unionized or covered by collective bargaining agreements, and we consider our current employee relations to
be good.
Government
Regulation and Environmental Matters
We
are subject to extensive and varied federal, state and local government regulation, including regulations relating, among others, to
public and occupational health and safety, nutritional menu labeling, healthcare, the environment, sanitation and fire prevention. We
operate each of our restaurants in accordance with standards and procedures designed to comply with applicable codes and regulations.
However, an inability to obtain or retain health department or other licenses would adversely affect our operations. Although we have
not experienced, and do not anticipate, any significant difficulties, delays or failures in obtaining required licenses, permits or approvals,
any such problem could delay or prevent the opening of, or adversely impact the viability of, a particular restaurant or group of restaurants.
Additionally, difficulties, delays or failure to retain or renew licenses, permits or approvals, or increased compliance costs due to
changed regulations, could adversely affect operations at existing restaurants.
In
addition, in order to develop and construct restaurants, we must comply with applicable zoning, land use and environmental regulations.
Federal and state environmental regulations have not had a material effect on our operations to date, but more stringent and varied requirements
of local governmental bodies with respect to zoning, land use and environmental factors could delay or even prevent construction and
increase development costs for new restaurants. We are also required to comply with the accessibility standards mandated by the U.S.
Americans with Disabilities Act, which generally prohibits discrimination in accommodation or employment based on disability. We may
in the future have to modify restaurants, for example, by adding access ramps or redesigning certain architectural fixtures, to provide
service to or make reasonable accommodations for disabled persons. While these expenses could be material, our current expectation is
that any such actions will not require us to expend substantial funds.
Alcoholic
beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal
authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control
regulations relate to numerous aspects of daily operations of our restaurants, including minimum age of patrons and employees, hours
of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors,
inventory control and handling, storage and dispensing of alcoholic beverages. We are also subject in certain states to “dram shop”
statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully
served alcoholic beverages to the intoxicated person. We carry liquor liability coverage as part of our existing comprehensive general
liability insurance.
Further,
we are subject to the U.S. Fair Labor Standards Act, the U.S. Immigration Reform and Control Act of 1986, the Occupational Safety and
Health Act and various other federal and state laws governing similar matters including minimum wages, overtime, workplace safety and
other working conditions. Significant numbers of our food service and preparation personnel are paid at rates related to the applicable
minimum wage, and further increases in the minimum wage or other changes in these laws could increase our labor costs. Our ability to
respond to minimum wage increases by increasing menu prices will depend on the responses of our competitors and guests. Our distributors
and suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs of goods and services
supplied by us. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging
violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters.
There
has been increased regulation of certain food establishments in the United States, such as the requirements to maintain a Hazard Analysis
and Critical Control Points (“HACCP”) system. HACCP refers to a management system in which food safety is addressed through
the analysis and control of potential hazards from production, procurement and handling, to manufacturing, distribution and consumption
of the finished product. Many states have required restaurants to develop and implement HACCP systems and the U.S. government continues
to expand the sectors of the food industry that must adopt and implement HACCP programs. We cannot assure you that we will not have to
expend additional time and resources to comply with new food safety requirements either required by current or future federal food safety
regulation or legislation. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability
of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise harm our business.
A
number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose to consumers
certain nutritional information or have enacted legislation restricting the use of certain types of ingredients in restaurants. Many
of these requirements are inconsistent or interpreted differently from one jurisdiction to another. These requirements may be different
or inconsistent with requirements that we are subject to under the the Patient Protection and Affordable Care Act of 2010, as amended
by the Health Care and Education Reconciliation Act, (collectively, the “ACA,”), which establishes a uniform, federal requirement
for certain restaurants to post nutritional information on their menus. Specifically, the ACA requires chain restaurants with 20 or more
locations in the United States operating under the same name and offering substantially the same menus to publish the total number of
calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of
a total daily calorie intake. The ACA also requires covered restaurants to provide to consumers, upon request, a written summary of detailed
nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability of this
information upon request. While our ability to adapt to consumer preferences is a strength of our concepts, the effect of such labeling
requirements on consumer choices, if any, is unclear at this time.
We
are subject to federal, state and local environmental laws and regulations concerning waste disposal, pollution, protection of the environment,
and the presence, discharge, storage, handling, release and disposal of, or exposure to, hazardous or toxic substances (“environmental
laws”). These environmental laws can provide for significant fines and penalties for non-compliance and liabilities for remediation,
sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of
the hazardous or toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries
and property damage associated with releases of, or actual or alleged exposure to, such substances. We are not aware of any environmental
laws that will materially affect our earnings or competitive position, or result in material capital expenditures relating to our restaurants.
However, we cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be administered,
interpreted or enforced, or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating
to, environmental laws. It is possible that we will become subject to environmental liabilities at our properties, and any such liabilities
could materially affect our business, financial condition or results of operations.
We
are also subject to laws and regulations relating to information security, privacy, cashless payments, gift cards and consumer credit,
protection and fraud, and any failure or perceived failure to comply with these laws could harm our reputation or lead to litigation,
which could adversely affect our business, financial condition or results of operations.
Furthermore,
we are subject to import laws and tariffs which could impact our ability to source and secure food products, other supplies and equipment
necessary to operate our restaurants.
For
a discussion of the various risks we face from regulation and compliance matters, see “Risk Factors.”
Intellectual
Property and Trademarks
Yoshiharu
Holdings Co., our wholly owned subsidiary, owns a number of patents, trademarks and service marks registered or pending with the U.S.
Patent and Trademark Office (“PTO”) including the following registrant trademarks: YOSHIHARU RAMEN (Trademark Reg. No. 5030823)
and Design Mark YOSHIHARU RAMEN (Trademark Reg. No. 5045588). In addition, we have registered the Internet domain name www.yoshiharuramen.com.
The information on, or that can be accessed through, our website is not part of this Report.
We
believe that the trademarks, service marks and other intellectual property rights that we license from Yoshiharu Holdings Co. have significant
value and are important to the marketing and reputation of our brand. It is our policy to pursue registration of our intellectual property
whenever possible and to oppose vigorously any infringement thereof. However, we cannot predict whether steps taken to protect such rights
will be adequate or whether Yoshiharu Holdings Co. will take steps to enforce such rights with regard to any intellectual property that
we license from them. See “Risk Factors—Risks Related to Our Business and Industry—We may become involved in lawsuits
involving Yoshiharu Holdings Co. as the owner of intellectual property, or us as a licensee of intellectual property from Yoshiharu Holdings
Co., to protect or enforce our intellectual property rights, which could be expensive, time consuming, and unsuccessful.” We
are aware of third-party restaurants with names similar to our restaurant name in certain limited geographical areas such as in California.
However, we believe such uses will not adversely affect us.
Legal
Proceedings
We
are currently not involved in litigation that we believe will have a materially adverse effect on our financial condition or results
of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency,
self- regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries
threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s
subsidiaries’ officers or directors in their capacities as such, in which an adverse decision is expected to have a material adverse
effect.
Item
1A. Risk Factors.
Risks
Related to Our Business
We
have incurred operating losses and may not be profitable in the future. Our plans to maintain and increase liquidity may not be successful.
We
incurred a net loss of $2.7 million and $3.0 million for the years ended December 31, 2024 and 2023, respectively. We must raise capital
through the sale of equity in order to continue to sustain our operations.
On
January 5, 2024, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Alumni Capital
LP, a Delaware limited partnership (“Alumni”) whereby we sold to Alumni 45,000 shares of Class A Common Stock in exchange
for $118 thousand on November 20, 2024. This Purchase Agreement terminated on December 31, 2024.
On
January 6, 2025, the Company issued and sold to Crom Structured Opportunities Fund I, LP, a Delaware limited partnership (“Crom”)
a 10% OID promissory note in the aggregate principal amount of $1,100,000 (the “Note”) for a purchase price of $1,000,000.
The Company repaid such Note on March 7, 2025 with the proceeds from a loan made to the Company on or about March 6, 2025. Also on January
6, 2025, we entered into an equity purchase agreement (the “Purchase Agreement”) with Crom (the “Investor”) pursuant
to which the Company shall have the right, but not the obligation, to sell to the Investor up to $10,000,000 (the “ELOC Shares”)
of the Company’s Class A common stock, $0.0001 par value per share (“Class A Common Stock”). However, we have
not yet been able to access capital under this agreement since we must first register shares issuable under the Purchase Agreement, which
we may only do after the filing of this Annual Report on Form 10-K.
On March 12,
2025, we entered into private placements with three investors for the sale of Class A common stock at a price of $2.50 per share for gross
proceeds of $714,000. However, we are obligated to register those shares and if we fail to do so in accordance with those agreements,
we may be forced to repurchase those shares at the price we had sold them for. On March 17, 2025 we sold penny warrants at a price of
$2.50 per share for gross proceeds of $1,200,000. We are obligated to register the shares underlying such warrants and if we fail to do
so in accordance with those agreements, we may be forced to repurchase those warrants for the price we sold them for.
Furthermore,
on August 21, 2024, we received a notification letter (the “Letter”) from the Nasdaq Listing Qualifications Staff of The Nasdaq
Stock Market LLC (“Nasdaq”) notifying the Company that its amount of stockholders’ equity has fallen below the $2,500,000
required minimum for continued listing set forth in Nasdaq Listing Rule 5550(b)(1). On February 18, 2025, we received another notification
letter (the “2nd Letter”) from Nasdaq notifying the Company that it has scheduled the Company’s securities for delisting
from The Nasdaq Capital Market. Pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 series, we appealed Nasdaq’s
determination to a Hearings Panel (the “Panel”) and a hearing request has stayed the suspension of the Company’s securities
and the filing of the Form 25-NSE pending the Panel’s decision after a hearing scheduled for April 1, 2025. If we fail to remedy
our stockholder deficiency prior to April 1, 2025, we will be required to convince Nasdaq that we have a viable plan to correct the deficiency.
If Nasdaq rejects our plan, we may be delisted, which will make it more difficult for us to raise capital in order to sustain our operations.
Notwithstanding our current belief that our expected cash flow from operations, and the
proceeds from the Purchase Agreement and from the private placements set forth above (including our belief that we will satisfy our
registration requirements so that we are not forced to redeem the equity previously sold to such private placement investors) will
be adequate to fund operating lease obligations, capital expenditures and working capital obligations for at least the next 12
months and thereafter, there are no assurances that we will be able to do so. If we fail to generate adequate capital, we may be
forced to curb our operations or cease to continue our operations altogether.
Our
long-term success is highly dependent on our ability to successfully identify and secure appropriate sites and timely develop and expand
our operations in existing and new markets.
One
of the key means of achieving our growth strategies will be through opening and operating new restaurants on a profitable basis for the
foreseeable future. We opened two new restaurants in 2023 and in 2024, respectively, we currently have two new locations under construction/development.
We identify target markets where we can enter or expand, taking into account numerous factors such as the locations of our current restaurants,