Daniel went to Cobra Kia to learn to fight. He just got his ass kicked by Johnny

When he showed up he heard Kreese give the moto. Fear, defeat, mercy…

Then he saw Johnny who was #1 student got scared/frustrated and left.

After that scene he tried to stand up to them on his own and got his ass kicked even worse, and was saved by Miagi.

Mr. Miagi went with Daniel back to Cobra Kia to end feud and made deal to "Fight it out" once and for all.

We are seeing the prep before the fight?