SBC 10-Q
SBC Medical Group Holdings Inc (SBC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission File Number:
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(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 | ||
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| 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 ☐
No
The number of shares of registrant’s Common Stock outstanding as of April 30, 2025 was , after deducting 270,000 shares of treasury stock.
Website and Social Media Disclosure
SBC Medical Group Holdings Incorporated uses its website (https://sbc-holdings.com/en) to distribute company information and makes available free of charge a variety of information for investors, including our filings with the Securities and Exchange Commission (“SEC”), as soon as reasonably practicable after electronically filing that material with, or furnishing it, to the SEC. The information that we post on our website may be deemed material. Accordingly, investors should monitor our website, in addition to following our press releases, filings with the SEC, and public conference calls and webcasts. In addition, investors may opt in to automatically receive email alerts and other information about us when enrolling their email address by visiting the “Email Alerts” section under the “Resources” tab on our website. We do not incorporate the information contained on, or accessible through, our website or related social media channels into this Quarterly Report on Form 10-Q (“Quarterly Report”).
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions of the management of the Company. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations.
Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” or similar expressions, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:
| ● | future financial performance of the Company; | |
| ● | changes in the market and level of demand for our products and services; | |
| ● | the expansion plans and opportunities of the Company; | |
| ● | the ability of the Company to access additional capital; | |
| ● | the ability of the Company maintain the listing of the Company’s common stock on Nasdaq; | |
| ● | public securities’ potential liquidity and trading; | |
| ● | the impact from the outcome of any known and unknown litigation; | |
| ● | the ability of the Company to forecast and maintain an adequate rate of revenue growth and appropriately plan its expenses; | |
| ● | expectations regarding future expenditures of the Company; | |
| ● | the future mix of revenue and effect on gross margins of the Company; | |
| ● | the attraction and retention of qualified directors, officers, employees and key personnel of the Company; | |
| ● | the ability to protect and enhance the Company’s corporate reputation and brand; | |
| ● | expectations concerning the relationships and actions of the Company and its affiliates with third parties; | |
| ● | the impact from future regulatory, judicial, and legislative changes in the Company’s industry; | |
| ● | the ability to locate and acquire complementary products or product candidates and integrate those into the Company’s business; | |
| ● | future arrangements with, or investments in, other entities or associations; | |
| ● | intense competition and competitive pressures from other companies in the industries in which the Company operates; | |
| ● | the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; and | |
| ● | other factors detailed under “Part I, Item 1A. Risk Factors” of the Annual Report on Form 10-K filed with the SEC by the Company on March 28, 2025 (the “Annual Report”). |
These forward-looking statements are based on information available as of the date of this Quarterly Report, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements.
New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can the Company assess the impact of all such risk factors on the business of the Company, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. As a result of a number of known and unknown risks and uncertainties, the actual results or performance of the Company may be materially different from those expressed or implied by these forward-looking statements. These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Quarterly Report are more fully described elsewhere in this Quarterly Report and the Annual Report, particularly in “Part I, Item 1A. Risk Factors” of the Annual Report.
SBC Medical Group Holdings Incorporated
FORM 10-Q FOR THE QUARTER ENDED
March 31, 2025
Table of Contents
| Page | ||
| PART I - FINANCIAL INFORMATION | F-1 | |
| Item 1. | Financial Statements | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 9 |
| Item 4. | Controls and Procedures | 9 |
| PART II - OTHER INFORMATION | 10 | |
| Item 1. | Legal Proceedings | 10 |
| Item 1A. | Risk Factors | 10 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 10 |
| Item 3. | Defaults Upon Senior Securities | 10 |
| Item 4. | Mine Safety Disclosures | 10 |
| Item 5. | Other Information | 10 |
| Item 6. | Exhibits | 11 |
| Signatures | 12 | |
| i |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SBC MEDICAL GROUP HOLDINGS INCORPORATED
INDEX TO FINANCIAL STATEMENTS
| F-1 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
UNAUDITED CONSOLIDATED BALANCE SHEETS
March 31, 2025 | December 31, 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Accounts receivable – related parties | ||||||||
| Inventories | ||||||||
| Finance lease receivables, current – related parties | ||||||||
| Customer loans receivable, current | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long-term investments, net | ||||||||
| Goodwill, net | ||||||||
| Finance lease receivables, non-current – related parties | ||||||||
| Operating lease right-of-use assets | ||||||||
| Finance lease right-of-use assets | ||||||||
| Deferred tax assets | ||||||||
| Customer loans receivable, non-current | ||||||||
| Long-term prepayments | ||||||||
| Long-term investments in MCs – related parties | ||||||||
| Other assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable – related parties | ||||||||
| Current portion of long-term loans | ||||||||
| Notes and other payables, current – related parties | ||||||||
| Advances from customers | ||||||||
| Advances from customers – related parties | ||||||||
| Income tax payable | ||||||||
| Operating lease liabilities, current | ||||||||
| Finance lease liabilities, current | ||||||||
| Accrued liabilities and other current liabilities | ||||||||
| Due to related party | ||||||||
| Total current liabilities | ||||||||
| F-2 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
UNAUDITED CONSOLIDATED BALANCE SHEETS — (Continued)
March 31, 2025 | December 31, 2024 | |||||||
| Non-current liabilities: | ||||||||
| Long-term loans | ||||||||
| Notes and other payables, non-current – related parties | ||||||||
| Deferred tax liabilities | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Finance lease liabilities, non-current | ||||||||
| Other liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock ($ par value, shares authorized; shares issued and outstanding as of March 31, 2025 and December 31, 2024) | ||||||||
| Common stock ($ par value, shares authorized, and shares issued, and shares outstanding as of March 31, 2025 and December 31, 2024, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock (at cost, shares as of March 31, 2025 and December 31, 2024) | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total SBC Medical Group Holdings Incorporated stockholders’ equity | ||||||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-3 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues, net – related parties | $ | $ | ||||||
| Revenues, net | ||||||||
| Total revenues, net | ||||||||
| Cost of revenues (including cost of revenues from related parties of $ | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Income from operations | ||||||||
| Other income (expenses): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Other expenses | ( | ) | ( | ) | ||||
| Gain on redemption of life insurance policies | ||||||||
| Gain on disposal of subsidiary | ||||||||
| Total other income | ||||||||
| Income before income taxes | ||||||||
| Income tax expense | ||||||||
| Net income | ||||||||
| Less: net loss attributable to non-controlling interests | ( | ) | ( | ) | ||||
| Net income attributable to SBC Medical Group Holdings Incorporated | $ | $ | ||||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | $ | $ | ( | ) | ||||
| Total comprehensive income | ||||||||
| Less: comprehensive loss attributable to non-controlling interests | ( | ) | ( | ) | ||||
| Comprehensive income attributable to SBC Medical Group Holdings Incorporated | $ | $ | ||||||
| Net income per share attributable to SBC Medical Group Holdings Incorporated* | ||||||||
| Basic and diluted | $ | $ | ||||||
| Weighted average shares outstanding* | ||||||||
| Basic and diluted | ||||||||
| * |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-4 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024
| Common Stock | Additional Paid-in | Treasury Stock | Retained | Accumulated Other Comprehensive | Total SBC Medical Group Holdings Incorporated Stockholders’ | Non- controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Number | Amount | Capital | Number | Amount | Earnings | Loss | Equity | Interests | Equity | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Issuance of common stock as incentive shares | ( | ) | — | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Retained | Accumulated Other Comprehensive | Total SBC Medical Group Holdings Incorporated Stockholders’ | Non- controlling | Total Stockholders’ | ||||||||||||||||||||||||||
| Number | Amount | Capital | Earnings | Loss | Equity | Interests | Equity | |||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Disposal of subsidiary | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net income (loss) | — | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-5 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Non-cash lease expense | ||||||||
| Provision for credit losses | ||||||||
| Fair value change of long-term investments | ||||||||
| Gain on disposal of subsidiary | ( | ) | ||||||
| Gain on redemption of life insurance policies | ( | ) | ||||||
| Gain on disposal of property and equipment | ( | ) | ||||||
| Deferred income taxes | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Accounts receivable – related parties | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Finance lease receivables – related parties | ( | ) | ( | ) | ||||
| Customer loans receivable | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Long-term prepayments | ||||||||
| Other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accounts payable – related parties | ||||||||
| Notes and other payables – related parties | ( | ) | ( | ) | ||||
| Advances from customers | ( | ) | ( | ) | ||||
| Advances from customers – related parties | ( | ) | ( | ) | ||||
| Income tax payable | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued liabilities and other current liabilities | ( | ) | ||||||
| Other liabilities | ( | ) | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of convertible note | ( | ) | ||||||
| Prepayments for property and equipment | ( | ) | ||||||
| Advances to related parties | ( | ) | ||||||
| Purchase of long-term investments | ( | ) | ||||||
| Long-term loans to others | ( | ) | ( | ) | ||||
| Repayments from related parties | ||||||||
| Repayments from others | ||||||||
| Disposal of subsidiary, net of cash disposed of | ( | ) | ||||||
| Proceeds from disposal of property and equipment | ||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| F-6 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Borrowings from related parties | ||||||||
| Repayments of long-term loans | ( | ) | ( | ) | ||||
| Repayments of finance lease liabilities | ( | ) | ||||||
| Repayments to related parties | ( | ) | ( | ) | ||||
| NET CASH USED IN FINANCING ACTIVITIES | ( | ) | ( | ) | ||||
| Effect of exchange rate changes | ( | ) | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AS OF THE BEGINNING OF THE PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AS OF THE END OF THE PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Property and equipment transferred from long-term prepayments | $ | $ | ||||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Finance lease right-of-use assets obtained in exchange for finance lease liabilities | $ | $ | ||||||
| Remeasurement of operating lease liabilities and right-of-use assets due to lease modifications | $ | $ | ||||||
| Payables to related parties in connection with loan services provided | $ | $ | ||||||
| Issuance of common stock as incentive shares | $ | $ | ||||||
| Redemption proceeds receivable on life insurance policies | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-7 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS
Business Overview
SBC Medical Group Holdings Incorporated (“SBC Holding”) was originally incorporated under the laws of the state of Delaware on March 11, 2022 as a special purpose acquisition corporation under the name Pono Two Capital, Inc. (“Pono”) for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
SBC Medical Group, Inc. (formerly known as SBC Medical Group Holdings Incorporated, “SBC USA”, “Legacy SBC”), through its consolidated subsidiaries and variable interest entity (“VIE”), is principally engaged in medical industry to provide comprehensive management services to the medical corporations and their clinics, including but not limited to licensure of the use of the trademark and brand name of “Shonan Beauty Clinic”, sales of medical equipment, medical consumables procurement services, and management of customer’s loyalty program, etc.
Reverse Recapitalization
On September 17, 2024, Pono consummated the merger transaction pursuant to the agreement by and among Pono, Pono Two Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of Pono, and SBC USA (the “Merger Agreement”), whereby Merger Sub merged with and into SBC USA, the separate corporation existence of Merger Sub ceased and SBC USA survived the merger as a wholly owned subsidiary of Pono (“Pono Merger”). In connection with the consummation of Pono Merger, Pono changed its name to “SBC Medical Group Holdings Incorporated” and SBC USA changed its name to “SBC Medical Group, Inc.” and, among other transactions contemplated by the Merger Agreement, the existing equity holders of SBC USA exchanged their equity interests of SBC USA for equity interests of Pono.
On September 17, 2024, the Company
received net cash of $
The total funds from Pono Merger
of $
| Cash—Pono working capital cash | $ | |||
| Cash—Pono trust | ||||
| Less: transaction costs and advisory fees | ||||
| Net proceeds from Pono Merger | $ |
Pono Merger was accounted for as a reverse recapitalization under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). SBC USA was determined to be the accounting acquirer and Pono was treated as the acquired company for financial reporting purposes. Accordingly, the financial statements of the combined company represent a continuation of the financial statements of SBC USA.
Unless the context indicates otherwise, any references herein to the “Company”, “we”, “us” and “our” refer to 1) SBC USA and its consolidated subsidiaries and VIE, prior to the consummation of Pono Merger, and to 2) SBC Holding and its consolidated subsidiaries and VIE, following Pono Merger; and reference herein to “Pono” refers to SBC Holding prior to the consummation of Pono Merger.
Reorganization
In June 2020 and April 2022, SBC Inc., a company incorporated in Japan in June 2007, and Advice Innovation Co., Ltd., a company incorporated in Japan in December 2018, were merged with and into SBC Medical Group Co., Ltd. (“SBC Japan”), respectively, with SBC Japan being the surviving entity in such mergers. SBC Japan is a company incorporated in Japan in September 2017 and previously known as Aikawa Medical Management Co., Ltd.
In April 2023, SBC Japan acquired
In August 2023, SBC Japan and L’Ange Sub disposed of their entire equity interest in Ai Inc. and Lange Inc., respectively, both incorporated in the Federated States of Micronesia in January 2022, for cash. As a result, Ai Inc. and Lange Inc. cease to be subsidiaries of the Company, with the related investment in capital being treated as a deemed distribution and the disposal proceeds treated as a deemed contribution.
In September 2023, SBC USA acquired
The above reorganization has been accounted for as a recapitalization among entities under common control since the same controlling shareholder controlled these entities before and after the reorganization. The consolidation of the Company has been accounted for at historical cost and prepared on the basis as if the transactions had become effective as of the beginning of the earliest period presented in the accompanying consolidated financial statements.
Corporate Structure
As of March 31, 2025, the Company’s major subsidiaries and VIE are as follows:
| Name | Place of Incorporation | Date of Incorporation or Acquisition | Percentage of Ownership | Principal Activities | ||||||
| SBC Medical Group, Inc. | % | |||||||||
| SBC Medical Group Co., Ltd.* | % | |||||||||
| F-8 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS (cont.)
| Name | Place of Incorporation | Date of Incorporation or Acquisition | Percentage of Ownership | Principal Activities | ||||||
| Liesta Co., Ltd. | % | |||||||||
| SBC Sealane Co., Ltd. | % | |||||||||
| SBC Marketing Co., Ltd. | % | | ||||||||
| Medical Payment Co., Ltd. | % | |||||||||
| SBC Medical Consulting Co., Ltd. | % | |||||||||
| Shoubikai Medical Vietnam Co., Ltd. | % | |||||||||
| SBC Healthcare Inc. | % | |||||||||
| SBC Irvine, LLC | % | |||||||||
| Aesthetic Healthcare Holdings Pte. Ltd. | % | |||||||||
| Wen & Weng Family Clinic Pte. Ltd.** | % | |||||||||
| Wen & Weng Medical Group Pte. Ltd.** | % | |||||||||
| Rochor Clinic Pte. Ltd.** | % | |||||||||
| Dermasolutions Pte. Ltd.** | % | |||||||||
| Dermasolutions Services Pte. Ltd.** | % | |||||||||
| SBC MEDICAL APAC PTE. LTD. | % | |||||||||
| Aikawa Medical Management, Inc. | VIE | |||||||||
| * |
| ** |
|
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
The unaudited consolidated financial statements do not include all of the information and disclosure required by U.S. GAAP for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments consisting of a normal recurring nature considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2024.
The unaudited consolidated financial statements include the financial statements of the Company, its subsidiaries, and consolidated VIE for which the Company is the primary beneficiary. The results of the subsidiaries are consolidated from the date on which the Company obtained control and continue to be consolidated until the date that such control ceases. All significant transactions and balances among the Company’s subsidiaries, including the VIE, have been eliminated upon consolidation.
The Company reports AHH and its subsidiaries, which were acquired in November 2024, on a three-month calendar lag allowing for the timely preparation of financial statements. This three-month reporting lag is with the exception of significant transactions or events that occur during the intervening period, if any.
Variable Interest Entities
In accordance with ASC Topic 810, “Consolidation”, the Company identifies its variable interests and analyzes to determine if the entity in which the Company has a variable interest is a VIE. Determination if a variable interest is a VIE includes both quantitative and qualitative consideration. For those entities determined to be VIEs within the scope of the VIE model, a further quantitative and qualitative analysis is performed to determine if the Company is deemed the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant.
| F-9 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company would consolidate those entities in which it is determined to be the primary beneficiary. The Company based its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and the relevant development, operating management and financial agreements.
The Company evaluates its relationship with its VIE on an ongoing basis to determine whether it continues to be the primary beneficiary of its consolidated VIE, or whether it has become the primary beneficiary of the VIE it does not consolidate.
Voting Model
If a legal entity fails to meet any of the three characteristics of a VIE, we then evaluate such entity under the voting model. Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting rights and that other equity holders do not have substantive participating rights.
Assessment of Medical Corporations in Japan
SBC Japan is designated as a medical service corporation (the “MSC”) to provide services to the Medical Corporations (the “MCs”) in Japan. To maintain and strengthen the business relationship and to secure the source of revenues from the MCs, the Company acquired equity interests in the following MCs throughout the years.
| Name of the MC | Percentage of Equity Interest Acquired | Percentage of Voting Interest Held | ||||||
| Medical Corporation Shobikai | % | % | ||||||
| Medical Corporation Kowakai | % | % | ||||||
| Medical Corporation Nasukai | % | % | ||||||
| Medical Corporation Aikeikai | % | % | ||||||
| Medical Corporation Jukeikai | % | % | ||||||
| Medical Corporation Ritz Cosmetic Surgery | % | % | ||||||
As non-profit organizations, MCs are required to comply with the medical-related laws and regulations of the Japanese Medical Care Act (the “Act”, “Medical Care Act”). In accordance with the Act, the highest authority of MCs is its general meeting of members (the “Members”), with each Member having one voting right. The Company, through the MSCs, has no right to elect the Members, no decision-making ability and no right to dividend or any profit distribution, but has the right to receive distribution of the residual assets of the MCs.
Since the not-for-profit entities scope exception to the variable interest model is applicable to the MCs, the Company evaluates its business relationship, franchisor-franchisee agreements and/or services agreements with the MCs in Japan under the voting model. The Company has concluded that consolidation of the MCs is not appropriate for the periods presented as it does not have a majority voting interest in the Members of the MCs nor does it have a controlling financial interest in the MCs. The equity interests in the MCs held by the Company are recorded as long-term investments in MCs — related parties on the unaudited consolidated balance sheets. The transactions between the Company and the MCs are disclosed in Note 16 Related Party Transactions.
(b) Foreign Currency
The Company maintains its books and record in its local currency, mainly Japanese YEN (“JPY” or “¥”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited statements of operations.
| F-10 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The reporting currency of the Company is the United States Dollars (“US$” or “$”), and the accompanying financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translations of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive loss within the unaudited statements of changes in stockholders’ equity.
Translation of amounts from local currency of the Company into US$1 has been made at the following exchange rates:
March 31, 2025 | March 31, 2024 | |||||||
| Current JPY:US$1 exchange rate | ||||||||
| Average JPY:US$1 exchange rate | ||||||||
(c) Use of Estimates
In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the unaudited consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, useful lives and impairment of long-lived assets, impairment of goodwill, impairment of long-term investments in MCs — related parties, valuation allowance of deferred tax assets, uncertain income tax positions, the recognition and measurement of impairment of investments in securities, allowance for credit losses and implicit interest rate of operating and finance leases. Management bases its estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis. Actual results could differ from those estimates.
(d) Customer Loans Receivable, and Notes and Other Payables — Related Parties
In February 2023, the Company started to provide loan services to certain customers of the related-party MCs (“End Customers”). Once a loan is granted to finance an End Customer’s purchase, the End Customer is required to repay the Company in monthly installments. The loans provided to the End Customers are unsecured, interest-bearing, and due in three months to five years, depending on the End Customers’ choice of the loan service term.
The Company records the customer
loans receivables at gross loan receivables less unamortized costs of issuance fees or discounts, which are amortized over the life of
the loan to interest income. During the three months ended March 31, 2025 and 2024, the Company generated interest income of $
Management periodically evaluates
individual End Customer’s financial condition, credit history and the current economic conditions to make adjustments in the allowance
when necessary. Customer loans receivable is charged off against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. During the three months ended March 31, 2025 and 2024, the Company recorded $
Prior to January 2025, when a loan was granted to an End Customer, the Company issued a promissory note to the related party MC to settle the purchase transaction on behalf of the End Customer. The Company repays each promissory note when the corresponding loan is fully repaid by the End Customer or earlier if mutually agreed. These promissory notes are unsecured and bear no interest. Starting in January 2025, instead of issuing a promissory note to the MC upon loan issuance, the Company pays the transaction amount directly in cash on behalf of the End Customer in the month following the purchase.
| F-11 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(e) Goodwill, Net
Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired in the business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test.
The Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit.
When performing the annual impairment test, the Company has the option of performing a qualitative or quantitative assessment to determine if an impairment has occurred. If a qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would be required to perform a quantitative impairment analysis for goodwill. The quantitative analysis requires a comparison of the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The fair value is generally determined using the income approach with the discounted cash flow valuation method, which requires management to make significant estimates and assumptions related to forecasted revenues and cash flows and the discount rates.
(f) Impairment of Long-lived Assets Other Than Goodwill
Long-lived assets with finite lives, primarily property and equipment, intangible assets, operating lease right-of-use assets and finance lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.
(g) Long-term Investments, Net
Investments in equity securities with readily determinable fair values
The Company holds investments in equity securities of publicly listed companies, for which the Company does not have significant influence. Investments in equity securities with readily determinable fair values are measured at fair value and any changes in fair value are recognized in other income (expenses).
| F-12 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Investments in privately held companies and organizations that do not report Net Asset Value (the “NAV”) per share
The Company’s long-term investments in privately held entities that do not report NAV per share are accounted for using a measurement alternative, under which these investments are measured at cost, adjusted for observable price changes and impairments, with changes recognized in other income (expenses).
The Company recognizes both realized and unrealized gain and losses in its unaudited consolidated statements of operations and comprehensive income, classified with other income (expenses). Unrealized gains and losses represent observable price changes for investments in privately held entities that do not report NAV per share. Realized gains and losses represent the difference between proceeds received upon disposition of investments and their historical or adjusted cost. Impairments are realized losses, which result in an adjusted cost, and represent charges to reduce the carrying values of investments in privately held entities that do not report NAV per share, if impairments are deemed other than temporary, to their estimated fair values.
(h) Long-term Investments in MCs — Related Parties
Long-term investments in MCs — related parties represent the payments to obtain equity interests of the MCs in Japan, made by the Company through SBC Japan, a company designated as a MSC in Japan. In accordance with the Act and articles of incorporation of the MCs, which are non-profit organizations, the equity interest holders of MCs are prohibited from receiving any profit distribution from MCs but have the right to receive distribution of the residual assets of the MCs in proportion to the amount of their contribution. As of the balance sheet dates, the investments represent probable future economic benefit to be realized at the time of dissolution of MCs or the equity interests being sold.
The investments in MCs — related parties are accounted for using a measurement alternative, under which these investments are measured at cost, less impairment, and adjusted for observable price changes. The Company reviews the investments in MCs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The payments made for such investments are classified as investing activities in the unaudited consolidated statements of cash flows. The MCs are considered related parties as the relatives of the Chief Executive Officer (“CEO”) of the Company being the Members of the MCs. Also see Note 2(a) for further details.
(i) Leases
The Company determines if an arrangement is or contains a lease at inception or modification of the arrangement. An arrangement is or contains a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period in exchange for consideration. Control over the use of the identified assets means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.
The Company classifies its leases as either finance leases or operating leases if it is the lessee, or sales-type, direct financing, or operating leases if it is the lessor. The following criteria is used to determine if a lease is a finance lease (as a lessee) or sales-type or direct financing lease (as a lessor):
| (i) | ownership is transferred from lessor to lessee by the end of the lease term; | |
| (ii) | an option to purchase is reasonably certain to be exercised; | |
| (iii) | the lease term is for the major part of the underlying asset’s remaining economic life; | |
| (iv) | the present value of lease payments equals or exceeds substantially all of the fair value of the underlying assets; or | |
| (v) | the underlying asset is specialized and is expected to have no alternative use at the end of the lease term. |
| F-13 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
If any of the above criteria is met, the Company accounts for the lease as a finance, a sales-type, or a direct financing lease. If none of the criteria is met, the Company accounts for the lease as an operating lease.
Lessee accounting
The Company recognizes right-of-use assets and lease liabilities for all leases other than those with a term of twelve months or less as the Company has elected to apply the short-term lease recognition exemption. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term. Lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are classified and recognized at the commencement date of a lease. Lease liabilities are measured based on the present value of fixed lease payments over the lease term. Right-of-use assets consist of (i) initial measurement of the lease liability; (ii) lease payments made to the lessor at or before the commencement date less any lease incentives received; and (iii) initial direct costs incurred by the Company.
As the rates implicit on the Company’s leases for which it is the lessee are not readily determinable, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. When determining the incremental borrowing rate, the Company assesses multiple variables such as lease term, collateral, economic conditions, and its creditworthiness.
From time to time, we may enter into sublease agreements with third parties. Our subleases generally do not relieve us of our primary obligations under the corresponding head lease. As a result, we account for the head lease based on the original assessment at lease inception. We determine if the sublease arrangement is either a sales-type, direct financing, or operating lease at inception of the sublease. If the total remaining lease cost on the head lease for the term of the sublease is greater than the anticipated sublease income, the right-of-use asset is assessed for impairment. Our subleases are generally operating leases and we recognize sublease income on a straight-line basis over the sublease term.
Lessor accounting — operating leases
The Company accounts for the revenue from its lease contracts by utilizing the single component accounting policy. This policy requires the Company to account for, by class of underlying asset, the lease component and nonlease component(s) associated with each lease as a single component if two criteria are met.
| (i) | the timing and pattern of transfer of the lease component and the nonlease component(s) are the same; and | |
| (ii) | the lease component would be classified as an operating lease if it were accounted for separately. |
Lease components consist primarily of fixed rental payments, which represent scheduled rental amounts due under our leases. Nonlease components consist primarily of tenant recoveries representing reimbursements of rental operating expenses, including recoveries for utilities, repairs and maintenance and common area expenses.
If the lease component is the predominant component, we account for all revenues under such lease as a single component in accordance with the lease accounting standard. Conversely, if the nonlease component is the predominant component, all revenues under such lease are accounted for in accordance with the revenue recognition accounting standard. Our operating leases qualify for the single component accounting, and the lease component in each of our leases is predominant. Therefore, we account for all revenues from our operating leases under the lease accounting standard and classify these revenues as rental income.
The Company commences recognition of rental income related to the operating leases at the date the property is ready for its intended use by the tenant and the tenant takes possession or controls the physical use of the leased asset. Income from rentals related to fixed rental payments under operating leases is recognized on a straight-line basis over the respective operating lease terms. Any amounts received but will be recognized as revenue in future periods are classified as advances from customers in the Company’s unaudited consolidated balance sheets.
| F-14 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Lessor accounting — sales-type leases
The Company purchases medical equipment from vendors and leases them to its customers, who are required to pay installments throughout the term of the leases. The lease agreements include lease payments that are fixed, do not contain residual value guarantees or variable lease payments. The lease terms are based on the non-cancellable term of the lease and the buyer may have options to terminate the lease in advance when meets certain conditions. The customers obtain control of the medical equipment when they physically possess the equipment.
The Company recognizes sales from sales-type leases equal to the present value of the minimum lease payments discounted using the implicit interest rate in the lease and cost of sales equal to carrying amount of the asset being leased and any initial direct costs incurred, less the present value of the unguaranteed residual. Interest income from the leases is recognized over the lease terms and included in revenues, net.
The Company excludes from the measurement of its lease revenues any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer.
(j) Revenue Recognition
The Company recognizes revenue from franchising services, procurement services, management services and other services or product sales under ASC Topic 606, “Revenue from Contracts with Customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of consumption tax and applicable local government levies, if any. The consumption tax on sales is calculated at 10% of gross sales. The Company does not have significant remaining unfulfilled performance obligations or contract balances.
The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction. The determination of whether the Company acts as a principal or an agent in a transaction is based on the evaluation of whether (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.
The Company recognizes revenue from rental services under ASC Topic 842, “Leases”.
The Company currently generates its revenue from the following main sources:
Franchising Revenue
The Company generates franchising revenue (royalty income) by licensing its intellectual properties, including but not limited to the Company’s brand name (“Shonan Beauty Clinic”), trade name, patents, and trademarks, as a franchisor pursuant to franchise agreements with the medical corporations (the “MCs”) in Japan. It recognizes revenue based on a fixed amount to each MC and a fixed amount to each clinic of the MCs and recognized over time as services are rendered.
| F-15 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Procurement Revenue
The Company generates procurement services revenue by purchasing primarily advertising services and medical materials from qualified vendors on behalf of MCs to maintain brand quality consistency. Procurement services revenue is recognized at the point in time upon the delivery of products or over time as services are performed. Occasionally, the Company receives vendor discounts on certain large purchases. It recognizes revenue based on actual payments and will return the over-collection resulting from such discounts to MCs.
Management Services Revenue
The Company provides loyalty program management services, labor supporting services, function supporting services, and management consulting services to MCs.
Loyalty program management services
The Company awards loyalty points on behalf of MCs to MCs’ customers, who earn loyalty points from each qualified purchase made at the loyalty program participating clinics of MCs, in exchange for a handling fee. The revenue is based on a percentage of the related payment amount made by MCs’ customers and is recognized when the loyalty points are awarded.
At the time loyalty points are awarded, a MC pays the Company cash in an amount equivalent to the awarded loyalty points, which is recorded as advances from customers. When a MC’s customers redeem the loyalty points, the Company returns the cash back to the MC in an amount equivalent to the redeemed loyalty points. The awarded loyalty points expire if a MC’s customer does not make any additional qualified purchase at a participating clinic within a year. The Company accumulates and tracks the points on behalf of MCs until the loyalty points expire at which time the Company recognizes an amount equivalent to the expired loyalty points as revenue, which is normally not significant.
The Company also awards certain points to MCs’ customers on behalf of MCs for free in order to increase the volume of MC’s sales, from which the Company earns other types of revenues, such as royalty income. When a MC’s customers redeem such points, the Company reimburses MC in an amount equivalent to the used free points and records it as a reduction of the revenue recognized.
The Company is an agent in the management of loyalty programs, and as a result, revenues are recognized net of the cost of redemptions.
Labor supporting services
The Company generates revenue by dispatching staff to MCs to provide a range of services, primarily including IT, and administrative services. The Company recognizes the revenue over the time when services are rendered.
Function supporting services
The revenue is derived from providing functional supporting services to MCs, such as accounting and human resources services. The Company recognizes the revenue over the time when services are rendered.
Management consulting services
The Company generates revenue by providing consulting services to MCs in relation to business operations of cosmetic dermatology. The Company recognizes the revenue over the time when services are rendered.
| F-16 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Rental Services Revenue
The Company generates rental income from operating leases and sales-type leases, which is accounted for under ASC Topic 842. Operating lease revenue is generally recognized on straight-line basis over the terms of the lease agreements and sales-type leases revenue is generally recognized on the lease commitment date. Also see Note 2(i).
Other Revenues
The Company generates other miscellaneous revenues such as medicine dispensed sales revenue, brokerage services revenue, construction services revenue, interest income, beauty and health services revenue, etc. These revenues are recognized when the Company satisfies performance obligations.
(k) Advertising Expenses
Advertising expenses consist
primarily of costs of promotion and marketing for the Company’s image and services and are included in selling, general and administrative
expenses. The Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance
with the ASC 720-35, “Advertising Costs”. The advertising expenses were $
(l) Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable, finance lease receivables and customer loans receivable. The Company places its cash and cash equivalents with financial institutions. The Company does not require collateral or other security to support financial instruments subject to credit risk. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
For the three months ended March
31, 2025, customer A, B and C represent
As of March 31, 2025, customer
A, B, C and D account for
For the three
months ended March 31, 2025, no vendor accounts for more than
As of March 31,
2025, vendor A and B each represent
(m) Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
Management determined the Company’s operations constitute a single reporting segment.
(n) Related Parties and Transactions
The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC Topic 850, “Related Party Disclosures,” and other relevant ASC standards.
Parties, which can be an entity or individual, are considered to be related if they have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence.
| F-17 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
(o) Fair Value Measurements
The Company performs fair value measurements in accordance with ASC Topic 820. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1: quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or |
| ● | Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. |
As of March 31, 2025 and December 31, 2024, the carrying values of current assets and current liabilities approximated their fair values reported in the unaudited consolidated balance sheets due to the short-term maturities of these instruments. Debt that bears variable interest rates index to prime also approximates fair value as it reprices when market interest rates change.
Assets measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024 are summarized below.
| Fair Value Measurements as of March 31, 2025 | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Fair Value at March 31, 2025 | |||||||||||||
| Long-term investments: | ||||||||||||||||
| Equity investments at fair value with readily determinable fair value | $ | $ | ||||||||||||||
| Fair Value Measurements as of December 31, 2024 | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Fair Value at December 31, 2024 | |||||||||||||
| Long-term investments: | ||||||||||||||||
| Equity investments at fair value with readily determinable fair value | $ | $ | ||||||||||||||
| F-18 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(p) Stock-Based Compensation
The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation — Stock Compensation”, under which the Company determines whether stock-based compensation awards should be classified and accounted for as an equity award. There were no liability awards granted during any of the periods stated herein. For all grants of stock-based compensation classified as equity awards, the cost of services received from employees and non-employees in exchange for awards is recognized in the consolidated statements of operations and comprehensive income based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures and cancellations as they occur.
(q) Recent Accounting Pronouncements
In December 2023, the FASB issued ASU No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, which requires entities that hold crypto assets to subsequently measure such assets at fair value with changes recognized in net income each reporting period. This accounting update also improves the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. ASU 2023-08 is effective for all entities for annual periods beginning after December 15, 2024, including interim periods within those fiscal years. The Company adopted ASU 2023-08 on January 1, 2025. As of March 31, 2025, the Company has never held any crypto assets and, therefore, the adoption of this accounting standard had no impact on its consolidated financial statements or related disclosures.
In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-09, “Income Taxes (Topic 740): Improvement to Income Tax Disclosures” to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024, and for annual periods beginning after December 15, 2025 for all other entities, on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.
NOTE 3 — VARIABLE INTEREST ENTITY
A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE.
The Company followed ASC Topic 810, “Consolidation”, utilizing a qualitative approach, and determined that it is the primary beneficiary of its VIE, Aikawa Medical Management, Inc. (“AMM”) and consolidated the result of operations, financial conditions, and cash flows of AMM in the consolidated financial statements.
| F-19 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — VARIABLE INTEREST ENTITY (cont.)
The following amounts and balances of AMM were included in the Company’s unaudited consolidated financial statements as of March 31, 2025 and December 31, 2024 and for the three months ended March 31, 2025 and 2024:
| March 31, 2025 | December 31, 2024 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Loans receivables from subsidiaries of the Company | ||||||||
| Other assets | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities and other current liabilities | ||||||||
| Due to related party | ||||||||
| Total Current Liabilities | ||||||||
| Loan payable to a subsidiary of the Company | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | $ | $ | ||||||
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | $ | $ | ||||||
| Total operating expenses | $ | $ | ||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Net cash provided by (used in) operating activities | $ | ( | ) | $ | ||||
| Net cash provided by (used in) investing activities | $ | $ | ( | ) | ||||
| Net cash used in financing activities | $ | ( | ) | $ | ( | ) | ||
| F-20 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of March 31, 2025 and December 31, 2024, prepaid expenses and other current assets consist of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Advances to suppliers | $ | $ | ||||||
| Redemption proceeds receivable on life insurance policies | ||||||||
| Other receivables* | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
| * |
NOTE 5 — FINANCE LEASE RECEIVABLES
As of March 31, 2025 and December 31, 2024, finance lease receivables consist of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Future minimum lease payments receivable | $ | $ | ||||||
| Estimated residual value | ||||||||
| Gross finance lease receivables | ||||||||
| Less: unearned interest income | ( | ) | ( | ) | ||||
| Finance lease receivables | $ | $ | ||||||
| Finance lease receivables, current | $ | $ | ||||||
| Finance lease receivables, non-current | $ | $ | ||||||
As of March 31, 2025, maturities of the Company’s gross finance lease receivables are as follows:
| Years ending December 31, | ||||
| Remaining of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 and thereafter | ||||
| Total | $ | |||
| F-21 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — PROPERTY AND EQUIPMENT, NET
As of March 31, 2025 and December 31, 2024, property and equipment, net consist of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Land | $ | $ | ||||||
| Buildings and facilities attached to buildings | ||||||||
| Machinery, equipment and automobiles | ||||||||
| Aircraft | ||||||||
| Software | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Less: accumulated impairment | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense was $
The Company
recognized a gain on disposal of property and equipment of $
NOTE 7 — INTANGIBLE ASSETS, NET
As of March 31, 2025 and December 31, 2024, intangible assets, net consist of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Patent use right | $ | $ | ||||||
| Trademarks | ||||||||
| Customer Relationships | ||||||||
| Others | ||||||||
| Subtotal | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Less: accumulated impairment | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization expense was $
Estimated future amortization expense related to intangible assets as of March 31, 2025 is as follows:
| Years ending December 31, | Amortization Expense | |||
| Remaining of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
| F-22 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — LONG-TERM INVESTMENTS, NET
As of March 31, 2025 and December 31, 2024, long-term investments, net consist of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Investments in private entities or organizations that do not report NAV per share: | ||||||||
| Entities or organizations without observable price changes | $ | $ | ||||||
| Investment in a public entity with readily determinable fair value – related party | ||||||||
| Investment in a public entity with readily determinable fair value | ||||||||
| Less: accumulated impairment | ( | ) | ( | ) | ||||
| Long-term investments, net | $ | $ | ||||||
The Company
recognized an unrealized loss of $
The Company recognized an unrealized gain of $on long-term investment in a public entity with readily determinable fair value for the three months ended March 31, 2025.
NOTE 9 — OTHER ASSETS
As of March 31, 2025 and December 31, 2024, other assets consist of the following:
| March 31, 2025 |
December 31, 2024 |
|||||||
| Security deposits | $ | $ | ||||||
| Corporate-owned life insurance policies | ||||||||
| Long-term loans receivable, primarily student loans | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
NOTE 10 — ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES
As of March 31, 2025 and December 31, 2024, accrued liabilities and other current liabilities consist of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Individual income tax withheld on behalf of employees | $ | $ | ||||||
| Wages and bonus payables | ||||||||
| Consumption tax payable | ||||||||
| Liabilities assumed in connection with purchase of property and equipment | ||||||||
| Excise and franchise tax payable | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
| F-23 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 — LONG-TERM LOANS
As of March 31, 2025 and December 31, 2024, the Company’s long-term loans from banks and other financial institution consist of the following:
| Indebtedness | Weighted Average Interest Rate* | Weighted Average Years to Maturity* | March
31, | December 31, 2024 | ||||||||||||
| Guaranteed loans | ||||||||||||||||
| Fixed rate loan | % | $ | $ | |||||||||||||
| Variable rate loans | % | |||||||||||||||
| Subtotal | % | |||||||||||||||
| Unsecured loan | ||||||||||||||||
| Fixed rate loan | — | |||||||||||||||
| Subtotal | — | |||||||||||||||
| Total long-term loans | % | |||||||||||||||
| Less: current portion | ( | ) | ( | ) | ||||||||||||
| Non-current portion | $ | $ | ||||||||||||||
| * |
The Company borrowed loans from various banks and a financial institution for working capital purposes.
Interest
expense was $
The guarantee information of the Company’s outstanding loans as of March 31, 2025 and December 31, 2024 consists of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Co-guaranteed by CEO of subsidiaries within the Company’s organizational structure and Tokyo Credit Guarantee Association | $ | $ | ||||||
| Guaranteed by a subsidiary within the Company’s organizational structure | $ | $ | ||||||
As of March 31, 2025, future minimum payments for long-term loans are as follows:
| Years ending December 31, | Principal Repayment | |||
| Remaining of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| Thereafter | — | |||
| Total | $ | |||
| F-24 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — LEASES — AS A LESSEE
The Company has entered into operating leases for offices and sublease purposes, with terms ranging from two to seven years, and finance leases for certain medical equipment, with terms of four years. The estimated effect of lease renewal and termination options, as applicable, that are reasonably certain to be exercised in the determination of the lease term and initial measurement of right-of-use assets and lease liabilities was included in the unaudited consolidated financial statements.
During the three months ended March 31, 2025 and 2024, certain operating leases were guaranteed by related parties of the Company.
Operating lease expenses for lease payments are recognized on a straight-line basis over the lease term. Finance lease costs include amortization, which is recognized on a straight-line basis over the expected life of the leased assets, and interest expenses, which are recognized following an effective interest rate method. Leases with an initial term of twelve months or less are not recorded on the unaudited consolidated balance sheets.
The components of lease costs are as follows:
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Finance lease costs: | ||||||||
| Amortization of finance lease right-of-use assets | $ | $ | ||||||
| Interest on finance lease liabilities | ||||||||
| Total finance lease costs | ||||||||
| Operating lease costs | ||||||||
| Short-term lease costs | ||||||||
| Total lease costs | $ | $ | ||||||
The following table presents supplemental information related to the Company’s leases:
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Operating cash flows from finance leases | ||||||||
| Financing cash flows from finance leases | ||||||||
| Non-cash information: | ||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | ||||||||
| Finance lease right-of-use assets obtained in exchange for finance lease liabilities | ||||||||
| Remeasurement of operating lease liabilities and right-of-use assets due to lease modifications | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Operating leases | ||||||||
| Finance leases | — | |||||||
| Weighted average discount rate (per annum) | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | |||||||
| F-25 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — LEASES — AS A LESSEE (cont.)
As of March 31, 2025, the future maturity of operating and finance lease liabilities is as follows:
| Years ending December 31, | Operating Leases | Finance Leases | ||||||
| Remaining of 2025 | $ | $ | ||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total undiscounted lease payments | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Present value of lease liabilities | ||||||||
| Less: lease liabilities, current | ( | ) | ( | ) | ||||
| Lease liabilities, non-current | $ | $ |
NOTE 13 — INCOME TAXES
United States
SBC Holding, SBC USA, SBC Healthcare
Inc., SBC Irvine, LLC, and Aikawa Medical Management, Inc. are incorporated in the United States and subject to federal income tax rate
at
Japan
The Company conducts
its major businesses in Japan and is subject to tax in this jurisdiction. During the three months ended March 31, 2025 and 2024, substantially
all the taxable income of the Company is generated in Japan. As a result of its business activities, the Company files tax returns that
are subject to examination by the local tax authority. Income taxes in Japan applicable to the Company are imposed by the national, prefectural,
and municipal governments, and in the aggregate resulted in an effective statutory rate of approximately
| F-26 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 — INCOME TAXES (cont.)
Vietnam
Shoubikai Medical Vietnam Co.,
Ltd. is incorporated in Vietnam and subject to income tax rate at
Singapore
Aesthetic
Healthcare Holdings Pte. Ltd. and its subsidiaries, and SBC MEDICAL APAC PTE. LTD. are incorporated in Singapore and subject to
income tax rate at
For the three months ended March 31, 2025 and 2024, the Company’s income tax expenses are as follows:
For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Current | $ | $ | ||||||
| Deferred | ( | ) | ||||||
| Total | $ | $ | ||||||
The effective tax rate was
NOTE 14 — SHAREHOLDERS’ EQUITY
The Company is authorized to issue shares of common stock, par value of $ per share (“Common Stock”), and shares of undesignated preferred stock, par value of $ per share.
In February 2025, the Company issued shares of common stock, with no proceeds, to Mehana Capital LLC as incentive shares pursuant to the Non-Redemption Agreements entered into in May 2023 by and among Pono, Mehana Capital LLC, and certain unaffiliated stockholders, including Wolverine Flagship Fund Trading Limited, Amethyst Arbitrage International Master Fund, Radcliffe SPAC Master Fund, L.P., and Verition Multi-Strategy Master Fund Ltd.
As of March 31, 2025 and December 31, 2024, there were and shares issued, and shares outstanding, respectively, and preferred stock issued and outstanding.
| F-27 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 — SHAREHOLDERS’ EQUITY (cont.)
Stock-based compensation
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Term (Years) | Intrinsic Value | |||||||||||||
| As of January 1, 2024 | $ | $ | ||||||||||||||
| Granted | — | |||||||||||||||
| Exercised | — | |||||||||||||||
| Forfeited/Cancelled | ( | ) | — | — | ||||||||||||
| As of March 31, 2024 | $ | $ | ||||||||||||||
| As of January 1, 2025 | $ | $ | ||||||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | — | |||||||||||||||
| Forfeited/Cancelled | — | — | ||||||||||||||
| As of March 31, 2025 | $ | $ | ||||||||||||||
| Vested and exercisable as of March 31, 2025 | $ | $ | ||||||||||||||
NOTE 15 — DISAGGREGATION OF REVENUES
Revenues generated from different revenue streams consist of the following:
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Franchising revenue | $ | $ | ||||||
| Procurement revenue | ||||||||
| Management services revenue | ||||||||
| Rental services revenue | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
During the three months ended
March 31, 2025 and 2024, the Company recognized revenue of $
As of March 31, 2025 and December 31, 2024, and for the three months ended March 31, 2025 and 2024, substantially all of our long-lived assets and revenues generated are attributed to the Company’s operations in Japan.
| F-28 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 — RELATED PARTY TRANSACTIONS
The related parties had material transactions for the three months ended March 31, 2025 and 2024 consist of the following:
| Name of Related Parties | Nature of Relationship as of March 31, 2025 | |
| Yoshiyuki Aikawa | Controlling shareholder, director and CEO of the Company | |
| Medical Corporation Shobikai | The relatives of CEO of the Company being the Members of the MC | |
| Medical Corporation Kowakai | The relatives of CEO of the Company being the Members of the MC | |
| Medical Corporation Nasukai | The relatives of CEO of the Company being the Members of the MC | |
| Medical Corporation Aikeikai | The relatives of CEO of the Company being the Members of the MC | |
| Medical Corporation Jukeikai | The relatives of CEO of the Company being the Members of the MC | |
| Medical Corporation Ritz Cosmetic Surgery | The relatives of CEO of the Company being the Members of the MC | |
| Medical Corporation Association Junikai | The relatives of CEO of the Company being the Members of the MC | |
| Medical Corporation Association Furinkai | The relatives of CEO of the Company being the Members of the MC | |
| Japan Medical & Beauty Inc. | Controlled by the CEO of the Company | |
| SBC Inc. | Controlled by the CEO of the Company | |
| Hariver Inc. | Controlled by the CEO of the Company | |
| Public Interest Foundation SBC Medical Promotion Foundation | The relative of CEO of the Company being a Member of Public Interest Foundation SBC Medical Promotion Foundation | |
| AI Med Inc. | The CEO of the Company is a principal shareholder of AI Med Inc. | |
| SBC Irvine MC | Significantly influenced by the Company | |
| SBC Tokyo Medical University | The CEO of the Company is the chairman of SBC Tokyo Medical University | |
| SBC Shonan Osteopathic Clinic Inc. | The CEO of the Company is a principal shareholder of SBC Shonan Osteopathic Clinic Inc. | |
| Skynet Academy Co., Ltd. | Controlled by the CEO of the Company | |
| Kijimadairakanko Inc. | Controlled by the CEO of the Company |
| F-29 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 — RELATED PARTY TRANSACTIONS (cont.)
During the three months ended March 31, 2025 and 2024, the transactions with related parties are as follows:
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues, net | ||||||||
| Medical Corporation Shobikai | $ | $ | ||||||
| Medical Corporation Kowakai | ||||||||
| Medical Corporation Nasukai | ||||||||
| Medical Corporation Aikeikai | ||||||||
| Medical Corporation Jukeikai | ||||||||
| Medical Corporation Ritz Cosmetic Surgery | ||||||||
| Japan Medical & Beauty Inc. | ||||||||
| Hariver Inc. | ||||||||
| SBC Inc. | ||||||||
| Public Interest Foundation SBC Medical Promotion Foundation | ||||||||
| SBC Tokyo Medical University | ||||||||
| Yoshiyuki Aikawa | ||||||||
| AI Med Inc. | ||||||||
| SBC Irvine MC | ||||||||
| Medical Corporation Association Furinkai | ||||||||
| Medical Corporation Association Junikai | ||||||||
| SBC Shonan Osteopathic Clinic Inc. | ||||||||
| Skynet Academy Co., Ltd. | ||||||||
| Kijimadairakanko Inc. | ||||||||
| Total | $ | $ | ||||||
| For the Three Months Ended March 31, | ||||||||
| Cost of revenues | 2025 | 2024 | ||||||
| Japan Medical & Beauty Inc. | $ | $ | ||||||
| Kijimadairakanko Inc. | ||||||||
| SBC Tokyo Medical University | ||||||||
| Total | $ | $ | ||||||
As of March 31, 2025 and December 31, 2024, the balances with related parties are as follows:
| Accounts receivable | March 31, 2025 | December 31, 2024 | ||||||
| Medical Corporation Shobikai | $ | $ | ||||||
| Medical Corporation Nasukai | ||||||||
| Medical Corporation Kowakai | ||||||||
| Medical Corporation Aikeikai | ||||||||
| Medical Corporation Jukeikai | ||||||||
| Medical Corporation Association Furinkai | ||||||||
| Medical Corporation Ritz Cosmetic Surgery | ||||||||
| Medical Corporation Association Junikai | ||||||||
| SBC Tokyo Medical University | ||||||||
| AI Med Inc. | ||||||||
| SBC Inc. | ||||||||
| Public Interest Foundation SBC Medical Promotion Foundation | ||||||||
| SBC Shonan Osteopathic Clinic Inc. | ||||||||
| SBC Irvine MC | ||||||||
| Kijimadairakanko Inc. | ||||||||
| Total | $ | $ | ||||||
| F-30 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 — RELATED PARTY TRANSACTIONS (cont.)
| Finance lease receivables | March 31, 2025 | December 31, 2024 | ||||||
| Medical Corporation Shobikai | $ | $ | ||||||
| Medical Corporation Kowakai | ||||||||
| Medical Corporation Nasukai | ||||||||
| Medical Corporation Aikeikai | ||||||||
| Medical Corporation Ritz Cosmetic Surgery | ||||||||
| Medical Corporation Jukeikai | ||||||||
| Medical Corporation Association Furinkai | ||||||||
| Medical Corporation Association Junikai | ||||||||
| SBC Shonan Osteopathic Clinic Inc. | ||||||||
| Total | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Non-current portion | $ | $ | ||||||
| Due from related party, net | March 31, 2025 | December 31, 2024 | ||||||
| SBC Irvine MC | $ | $ | ||||||
| Less: allowance for credit loss | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| Long-term investments in MCs – related parties | March 31, 2025 | December 31, 2024 | ||||||
| Medical Corporation Shobikai | $ | $ | ||||||
| Medical Corporation Kowakai | ||||||||
| Medical Corporation Nasukai | ||||||||
| Medical Corporation Aikeikai | ||||||||
| Medical Corporation Jukeikai | ||||||||
| Medical Corporation Ritz Cosmetic Surgery | ||||||||
| Total | $ | $ | ||||||
| Accounts payable | March 31, 2025 | December 31, 2024 | ||||||
| Japan Medical & Beauty Inc. | $ | $ | ||||||
| SBC Tokyo Medical University | ||||||||
| Kijimadairakanko Inc. | ||||||||
| Total | $ | $ | ||||||
| Advances from customers | March 31, 2025 | December 31, 2024 | ||||||
| Medical Corporation Shobikai | $ | $ | ||||||
| Medical Corporation Kowakai | ||||||||
| Medical Corporation Nasukai | ||||||||
| Medical Corporation Aikeikai | ||||||||
| Medical Corporation Jukeikai | ||||||||
| Medical Corporation Ritz Cosmetic Surgery | ||||||||
| SBC Shonan Osteopathic Clinic Inc. | ||||||||
| Medical Corporation Association Furinkai | ||||||||
| Medical Corporation Association Junikai | ||||||||
| Total | $ | $ | ||||||
| F-31 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 — RELATED PARTY TRANSACTIONS (cont.)
| Notes and other payables – related parties | March 31, 2025 | December 31, 2024 | ||||||
| Medical Corporation Shobikai | $ | $ | ||||||
| Medical Corporation Kowakai | ||||||||
| Medical Corporation Nasukai | ||||||||
| Medical Corporation Aikeikai | ||||||||
| Medical Corporation Jukeikai | ||||||||
| Medical Corporation Ritz Cosmetic Surgery | ||||||||
| Total | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Non-current portion | $ | $ | ||||||
| Due to related party | March 31, 2025 | December 31, 2024 | ||||||
| Yoshiyuki Aikawa | $ | $ | ||||||
| Total | $ | $ | ||||||
| For the Three Months Ended March 31, | ||||||||
| Allowance for credit loss movement | 2025 | 2024 | ||||||
| Beginning balance | $ | $ | ||||||
| Provision for credit loss | ||||||||
| Reversal of credit loss | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
The balances of due to and due from related parties represent the outstanding loans to and from related parties, respectively, as of March 31, 2025 and December 31, 2024. These loans are non-secured, interest-free and due on demand.
Also see Note 2(a), 8, 11, 12, 15 and 18 for more transactions with related parties.
NOTE 17 — SEGMENT REPORTING
The Company’s chief operating decision maker (“CODM”), Chief Executive Officer, reviews consolidated results of operations to make decisions, therefore the Company views its operations and manages its business as a single operating segment. The Company’s revenues for its single operating segment are substantially all derived from providing comprehensive management services to MCs and their clinics.
The accounting policies for the single operating segment are the same as those described in Note 2. The CODM evaluates performance for the Company’s single operating segment and decides how to allocate resources based on the Company’s consolidated net income that is reported in the unaudited consolidated statements of operations and comprehensive income as net income. The measure of segment assets is reported on the unaudited consolidated balance sheets as total assets. The CODM allocates resources across the Company based on consolidated net income derived during the annual budgeting process and throughout the year in monitoring actual results compared to budget and updated forecasts. These results are used to assess segment performance.
The operating segment financial information regularly reviewed by the CODM, inclusive assets, revenues, expenses, profit or loss, and noncash items are presented on a consolidated basis in the same amount and using the same captions as those included in the unaudited consolidated statements of operations and comprehensive income, unaudited consolidated balance sheets, and unaudited consolidated statements of cash flows. There are no additional segment expense categories regularly provided to the CODM. Therefore, there are also no amounts classified as other segment items requiring disclosure.
NOTE 18 — COMMITMENT
As of March 31, 2025 and
December 31, 2024, a subsidiary of the Company provided a guarantee on the debt of its CEO in the amounts of $
NOTE 19 — SUBSEQUENT EVENTS
In April 2025,
the Company purchased 5 Bitcoins for approximately $
In May 2025, the
Company’s board of directors approved a share repurchase plan, authorizing the repurchases of up to $
| F-32 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis summarize the significant factors affecting our operating results, financial condition, liquidity, and cash flows for the periods presented below, which should be read in conjunction with the unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”). The forward-looking statements contained herein are based on management’s judgment, assumptions made by management and information currently available to it. Actual results could differ materially from those discussed or implied in the forward-looking statements as a result of various factors, including those described elsewhere in this Quarterly Report and the Annual Report, particularly in “Part I, Item 1A. Risk Factors” of the Annual Report and the section entitled “Cautionary Note Regarding Forward-Looking Statements” herein.
Unless the context otherwise requires, any reference in this section of this Quarterly Report to the “Company,” “SBC,” “we,” “us” or “our” refers to Legacy SBC (defined below) and its consolidated subsidiaries and variable interest entity (“VIE”), prior to the consummation of the Business Combination and to SBC Medical Group Holdings Incorporated and its consolidated subsidiaries and VIE, following the Business Combination.
Overview
SBC Medical Group, Inc. (formerly known as SBC Medical Group Holdings Incorporated), a Delaware corporation and subsidiary of the Company (“Legacy SBC”) is a management company headquartered in Irvine, California and Tokyo, Japan, that provides management services to cosmetic treatment centers mainly in Japan.
On September 17, 2024, Legacy SBC consummated its going-public business combination with Pono Capital Two, Inc. (“Business Combination”). In connection with the closing of the Business Combination, Pono Capital Two, Inc. changed its name to SBC Medical Group Holdings Incorporated and the Company’s common stock began trading on Nasdaq under the ticker symbol “SBC”.
The Company and its subsidiaries are primarily focused on providing comprehensive management services to franchisee clinics, including but not limited to advertising and marketing needs across various platforms (such as social media networks), staff management (such as recruitment and training), booking reservations for franchisee clinic customers, assistance with franchisee employee housing rentals and facility rentals, construction and design of franchisee clinics, medical equipment and medical consumables procurement (resale), the provision of cosmetic products to franchisee clinics for resale to clinic customers, licensure of the use of patent-pending and non-patented medical technologies, trademark and brand use, IT software solutions (including but not limited to remote medical consultations), management of the franchisee clinic’s customer rewards program (customer loyalty point program), and payment tools for the franchisee clinics.
Our wholly owned subsidiary, SBC Medical Group Co., Ltd., a Japan corporation (“SBC Medical Sub”, or “SBC Japan”) is designated as a “medical service corporation” in Japan. In Japan, a medical service corporation is a legal entity that provides management service to “medical corporations”. The management services are conducted through franchisor-franchisee contracts and/or service contracts between SBC Medical Sub and the medical corporations that own all 251 of the treatment centers in Japan as of March 31, 2025. These clinics provide include but are not limited to breast augmentation, liposuction, rejuvenation treatments (including treatment of wrinkles, acne, scars, cellulite, excess fat, discoloration, and signs of aging), laser skin toning and spot removal, eyes double fold surgery, rhinoplasty, treatment of osmidrosis and hyperhidrosis, hair transplants, gynecological formation treatments, laser hair removal, face line surgeries, cosmetical dental procedures, tattoo removal, lasik eye surgery, lateral canthoplasty, brow lift procedures, androgenetic alopecia treatment, and cheek sagging prevention methods.
The Company’s subsidiaries have entered into franchisor-franchisee contracts and service contracts with six medical corporations, consisting of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, Medical Corporation Jukeikai and Medical Corporation Ritz Cosmetic Surgery. In addition, the Company has entered into service contracts since September 2023 with two additional medical corporations, Medical Corporation Association Furinkai and Medical Corporation Association Junikai (collectively with the six franchisee medical corporations, the “Medical Corporations” or “MCs”). All of the Medical Corporations are deemed to be related parties of the Company since relatives of the CEO of the Company are the members (or shain) of general meetings of members of the Medical Corporations. The CEO of the Company was previously a member of the six franchisee Medical Corporations until he ceased being a member in July 2023. The Company, through SBC Medical Sub, owns equity “deposit” interests (or mochibun) of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai). Although the Company, through SBC Medical Sub, has an equity “deposit” interest to the rights to receive a distribution of residual assets in proportion to the amount of contribution in certain circumstances as provided in the articles of incorporation of each of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai), the Company or SBC Medical Sub does not have voting control over the corporate actions at general meetings of members (or shain) of the Medical Corporations per the requirements of the Japanese Medical Care Act.
| 1 |
Financial Overview
For the three months ended March 31, 2025 and 2024, we generated revenues of $47,328,701 and $54,808,042, respectively, we reported net income attributable to SBC Medical Group Holdings Incorporated of $21,502,446 and $18,757,752, respectively, and cash flows provided by operating activities of $1,928,621 and $3,682,175, respectively. As of March 31, 2025, we had retained earnings of $210,965,453.
Our primary mission is to provide quality comprehensive management services to the Medical Corporations and expand our “Shonan Beauty Clinic” brand. We plan to achieve the mission by maintaining and strengthening our market position and brand in the cosmetic medical treatment management market in Japan, Vietnam, Singapore and the United States, and by growing our presence globally.
Results of Operations
Comparison of Results of Operations for the Three Months Ended March 31, 2025 and 2024
The following table summarizes our operating income as reflected in our unaudited consolidated statements of operations and comprehensive income for the three months ended March 31, 2025 and 2024, and presents information regarding amounts and percentage changes during those periods.
| For the Three Months Ended March 31, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Amount | % of revenue | Amount | % of revenue | Amount | % | |||||||||||||||||||
| Revenues, net (including net revenues provided to related parties) | $ | 47,328,701 | 100.00 | % | $ | 54,808,042 | 100.00 | % | $ | (7,479,341 | ) | (13.65 | )% | |||||||||||
| Cost of revenues (including cost of revenues from related parties) | 9,595,617 | 20.27 | % | 15,288,667 | 27.89 | % | (5,693,050 | ) | (37.24 | )% | ||||||||||||||
| Gross profit | 37,733,084 | 79.73 | % | 39,519,375 | 72.11 | % | (1,786,291 | ) | (4.52 | )% | ||||||||||||||
| Operating expenses | 13,531,010 | 28.59 | % | 15,058,490 | 27.48 | % | (1,527,480 | ) | (10.14 | )% | ||||||||||||||
| Income from operations | 24,202,074 | 51.14 | % | 24,460,885 | 44.63 | % | (258,811 | ) | (1.06 | )% | ||||||||||||||
| Other income | 7,249,333 | 15.32 | % | 2,741,315 | 5.00 | % | 4,508,018 | 164.45 | % | |||||||||||||||
| Income before income taxes | 31,451,407 | 66.46 | % | 27,202,200 | 49.63 | % | 4,249,207 | 15.62 | % | |||||||||||||||
| Income tax expense | 9,959,457 | 21.04 | % | 8,451,984 | 15.42 | % | 1,507,473 | 17.84 | % | |||||||||||||||
| Net income | 21,491,950 | 45.41 | % | 18,750,216 | 34.21 | % | 2,741,734 | 14.62 | % | |||||||||||||||
| Less: net loss attributable to non-controlling interests | (10,496 | ) | (0.02 | )% | (7,536 | ) | (0.01 | )% | (2,960 | ) | 39.28 | % | ||||||||||||
| Net income attributable to SBC Medical Group Holdings Incorporated | $ | 21,502,446 | 45.43 | % | $ | 18,757,752 | 34.22 | % | $ | 2,744,694 | 14.63 | % | ||||||||||||
Revenues, Net
Revenues, net generated from different revenue streams consist of the following:
| For the Three Months Ended March 31, | Variance | |||||||||||||||
| 2025 | 2024 | Amount | % | |||||||||||||
| Franchising revenue | $ | 15,719,282 | $ | 15,110,268 | $ | 609,014 | 4.03 | % | ||||||||
| Procurement revenue | 14,332,783 | 13,195,984 | 1,136,799 | 8.61 | % | |||||||||||
| Management services revenue | 8,728,103 | 15,654,670 | (6,926,567 | ) | (44.25 | )% | ||||||||||
| Rental services revenue | 5,640,514 | 3,617,941 | 2,022,573 | 55.90 | % | |||||||||||
| Others | 2,908,019 | 7,229,179 | (4,321,160 | ) | (59.77 | )% | ||||||||||
| Total | $ | 47,328,701 | $ | 54,808,042 | $ | (7,479,341 | ) | (13.65 | )% | |||||||
Revenues, net, decreased by 13.65% from $54,808,042 for the three months ended March 31, 2024 to $47,328,701 for the three months ended March 31, 2025.
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Japanese Yen (“JPY”) against the U.S. dollar slightly depreciated during the three months ended March 31, 2025, compared to the three months March 31, 2024. The spot rate against the dollar was 149.4840 yen on Marh 31, 2025 compared to 151.3380 yen on March 31, 2024 and the average rate against the dollar was 152.5417 yen for the three months ended March 31, 2025 compared to 148.4462 yen for the same period in 2024. For the three months ended March 31, 2025 and 2024, we generated net revenues of $47,328,701 (JPY7,220 million) and $54,808,042 (JPY8,136 million), respectively, we reported net income of $21,491,950 (JPY3,252 million) and $18,750,216 (JPY2,783 million), respectively. Overall, the unfavorable impacts of the period-to-period foreign exchange rate changes on net revenues and net income were $1,305,757 and $412,787, respectively, for the three months ended March 31, 2025.
The main reasons for the variance of $7,479,341 in revenues, net per revenue stream are as follows:
Franchising Revenue
Franchising revenue for the three months ended March 31, 2025 increased to $15,719,282 by $609,014, or 4.03%, from $15,110,268 for the same period in 2024. This increase was mainly due to the business expansion of the MCs, partially offset by the depreciation of JPY.
Procurement Revenue
The procurement revenue for the three months ended March 31, 2025 increased to $14,332,783 by $1,136,799, or 8.61%, from $13,195,984 for the same period in 2024. This increase was mainly due to the increased demand on medical materials due to the business expansion of MCs, partially offset by the depreciation of JPY.
Management Services Revenue
The management services revenue for the three months ended March 31, 2025 decreased to $8,728,103 by $6,926,567, or 44.25%, from $15,654,670 for the same period in 2024. This decrease was mainly due to (i) the discontinuation of clinic operation staff supporting services that had been provided by Shobikai Sub to MCs since the third quarter of 2024, because the Company completed the merger of Shobikai Sub with and into Lange Sub and the related business license, held by Shobikai Sub, became invalid upon the merger in January 2025 and (ii) the depreciation of JPY, partially offset by (i) the business expansion of MCs and (ii) the increase in the number of the clinics of MCs.
Rental Services Revenue
The rental services revenue for the three months ended March 31, 2025 increased to $5,640,514 by $2,022,573, or 55.90%, from $3,617,941 for the same period in 2024. This increase was mainly due to the increased demand for medical equipment from MCs due to the business expansion of MCs, partially offset by the depreciation of JPY.
Others
The other revenues for the three months ended March 31, 2025 decreased to $2,908,019 by $4,321,160, or 59.77%, from $7,229,179 for the same period in 2024. This decrease was mainly due to the disposal of its subsidiaries, Kijimadairakanko Inc. and Skynet Academy Co., Ltd., in December 2024, offset by revenues from Aesthetic Healthcare Holdings Pte. Ltd. and its subsidiaries, which were acquired in November 2024.
Cost of Revenues
Cost of revenues for the three months ended March 31, 2025 was $9,595,617 compared to $15,288,667 for the same period in 2024. The decrease was mainly due to the Company’s effort of the cost reduction, as well as the discontinuation of clinic operation supporting services provided by Shobikai Sub to MCs since the third quarter of 2024, and the Company then terminated the employment of the related staff. As a result, labor cost significantly decreased.
Gross Profit
Gross profit for the three months ended March 31, 2025 was $37,733,084 compared to $39,519,375 for the same period in 2024. The decrease in gross profit by $1,786,291 or 4.52% was mainly due to the decrease in management services revenue and other revenues with relatively high gross margin as a result of the factors described above.
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Operating Expenses
Operating expenses for the three months ended March 31, 2025 and 2024 were as follows:
| For the Three Months Ended March 31, | Variance | |||||||||||||||
| 2025 | 2024 | Amount | % | |||||||||||||
| Salaries and welfare | $ | 6,441,742 | $ | 6,513,841 | $ | (72,099 | ) | (1.11 | )% | |||||||
| Depreciation and amortization expense | 461,405 | 968,704 | (507,299 | ) | (52.37 | )% | ||||||||||
| Consulting and professional service fees | 3,298,082 | 2,630,761 | 667,321 | 25.37 | % | |||||||||||
| Advertising expense | 682,166 | 711,630 | (29,464 | ) | (4.14 | )% | ||||||||||
| Taxes and dues | 245,462 | 100,056 | 145,406 | 145.32 | % | |||||||||||
| Recruiting expense | 244,377 | 757,055 | (512,678 | ) | (67.72 | )% | ||||||||||
| Lease expense | 640,589 | 684,770 | (44,181 | ) | (6.45 | )% | ||||||||||
| Office, utility and other expenses | 1,517,187 | 2,691,673 | (1,174,486 | ) | (43.63 | )% | ||||||||||
| Total | $ | 13,531,010 | $ | 15,058,490 | $ | (1,527,480 | ) | (10.14 | )% | |||||||
The operating expenses decreased to $13,531,010 for the three months ended March 31, 2025 by $1,527,480, or 10.14%, from $15,058,490 for the same period in 2024. The decrease was mainly due to the decrease in recruiting expense, depreciation and amortization expense, and office, utility and other expenses partially offset by the increase in consulting and professional service fee.
Recruiting expense decreased by $512,678, or 67.72%, to $244,377 for the three months ended March 31, 2025 from $757,055 for the same period in 2024, mainly due to the one-time recruiting advertisement expenses incurred in the same period of the prior year.
Depreciation and amortization expense decreased by $507,299, or 52.37%, to $461,405 for the three months ended March 31, 2025 from $968,704 for the same period in 2024, mainly due to the disposal of two subsidiaries, Kijimadairakanko Inc. and Skynet Academy Co., Ltd., in December 2024.
Office, utility and other expenses decreased by $1,174,486, or 43.63%, to $1,517,187 for the three months ended March 31, 2025 from $2,691,673 for the same period in 2024, mainly due to the insourcing of debt collection activities for customer loans receivable since January 2025 and the disposal of two subsidiaries in December 2024.
Consulting and professional service fees increased by $667,321, or 25.37%, to $3,298,082 for the three months ended March 31, 2025 from $2,630,761 for the same period in 2024, mainly due to the increase in legal, tax, and market research expenses associated with the Company’s listing.
Other Income (Expenses)
Other income (expenses) for the three months ended March 31, 2025 and 2024, were as follows:
| For the Three Months Ended March 31, | Variance | |||||||||||||||
| 2025 | 2024 | Amount | % | |||||||||||||
| Interest income | $ | 55,333 | $ | 17,689 | $ | 37,644 | 212.81 | % | ||||||||
| Interest expense | (6,207 | ) | (3,008 | ) | (3,199 | ) | 106.35 | % | ||||||||
| Other income | 151,328 | 349,681 | (198,353 | ) | (56.72 | )% | ||||||||||
| Other expenses | (1,697,259 | ) | (1,436,656 | ) | (260,603 | ) | 18.14 | % | ||||||||
| Gain on redemption of life insurance policies | 8,746,138 | — | 8,746,138 | 100.00 | % | |||||||||||
| Gain on disposal of subsidiary | — | 3,813,609 | (3,813,609 | ) | (100.00 | )% | ||||||||||
| Total | $ | 7,249,333 | $ | 2,741,315 | $ | 4,508,018 | 164.45 | % | ||||||||
In particular, a gain on the redemption of life insurance policies was recorded due to the maturity of four corporate-owned life insurance policies. A gain on disposal of subsidiary in the prior year was recorded due to the disposal of Cell Pro Japan Co., Ltd. (“Cellpro”), a former subsidiary of the Company, on January 1, 2024.
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Income Tax Expense
Income tax expense for the three months ended March 31, 2025 was $9,959,457 compared to $8,451,984 for the same period in 2024. The increase in income tax expense by $1,507,473 or 17.84% was mainly due to the higher income before tax.
The effective tax rate was 31.67% and 31.07% for the three months ended March 31, 2025 and 2024, respectively.
Net Income
As a result of the foregoing, we reported a net income of $21,491,950 for the three months ended March 31, 2025, representing an increase of $2,741,734 or 14.62% from $18,750,216 for the three months ended March 31, 2024.
Net Loss Attributable to Non-controlling Interests
Net loss attributable to non-controlling interests was $10,496 for the three months ended March 31, 2025, as compared to $7,536 for the three months ended March 31, 2024.
Liquidity and Capital Resources
As of March 31, 2025, the Company had $132,055,823 in cash and cash equivalents compared to $125,044,092 as of December 31, 2024. In addition, the Company had $32,191,368 in accounts receivable as of March 31, 2025 compared to $30,260,113 as of December 31, 2024. The Company’s accounts receivable includes balances due from customers for the services and goods provided by the Company and accepted by customers.
As of March 31, 2025, the Company’s working capital balance was $166,630,721. In assessing liquidity, management monitors and analyzes the Company’s cash and cash equivalents, ability to generate sufficient future earnings, and operating and capital investment commitments. The Company believes that its current cash and cash equivalents from operations and borrowings from banks will be sufficient to meet its working capital needs for the next 12 months from the date of issuance of the unaudited financial statements included in this Quarterly Report.
To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of indebtedness, equity financings or a combination of these potential sources of funds. While we face uncertainties regarding the size and timing of our fundraising, which will be affected by general economic, financial, and other factors that may be beyond our control, we believe that we will be able to continue to meet our current business needs through the use of cash flows generated from operations and stockholder working capital, as needed.
The Company evaluates its capital allocation practices with the objective of enhancing shareholder value, while considering performance, the business environment, macroeconomic conditions and other relevant factors. The Company expects to deploy capital for investment opportunities that align with its growth strategy, selectively pursuing prospects in the expanding global medical aesthetics market.
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Cash Flows for the three months ended March 31, 2025 and 2024
The following table provides a summary of our cash flows for the periods indicated.
| For the Three Months Ended March 31, | Variance | |||||||||||||||
| 2025 | 2024 | Amount | % | |||||||||||||
| Net cash provided by operating activities | $ | 1,928,621 | $ | 3,682,175 | $ | (1,753,554 | ) | (47.62 | )% | |||||||
| Net cash used in investing activities | (978,807 | ) | (3,394,122 | ) | 2,415,315 | (71.16 | )% | |||||||||
| Net cash used in financing activities | (280,380 | ) | (40,227 | ) | (240,153 | ) | 596.99 | % | ||||||||
| Effect of exchange rate changes | 6,342,297 | (7,089,208 | ) | 13,431,505 | (189.46 | )% | ||||||||||
| Net change in cash and cash equivalents | 7,011,731 | (6,841,382 | ) | 13,853,113 | (202.49 | )% | ||||||||||
| Cash and cash equivalents as of the beginning of the period | 125,044,092 | 103,022,932 | 22,021,160 | 21.38 | % | |||||||||||
| Cash and cash equivalents as of the end of the period | $ | 132,055,823 | $ | 96,181,550 | $ | 35,874,273 | 37.30 | % | ||||||||
Operating Activities
Net cash provided by operating activities was $1,928,621 for the three months ended March 31, 2025, mainly derived from net income of $21,491,950 for the period, reconciled by a gain on redemption of life insurance policies of $8,746,138 and deferred income tax expense of $7,016,227, and net changes in operating assets and liabilities, which mainly included an increase in finance lease receivables – related parties of $2,779,253, a decrease in customer loans receivable of $4,501,760, an increase in prepaid expenses and other current assets of $3,150,243, an increase in accounts payable of $3,235,017, a decrease in advances from customers – related parties of $2,114,829, and a decrease in income tax payable of $17,635,239.
Net cash provided by operating activities was $3,682,175 for the three months ended March 31, 2024, mainly derived from net income of $18,750,216 for the period, reconciled by a gain on disposal of subsidiary of $3,813,609, and net changes in operating assets and liabilities, which mainly included a decrease in accounts receivable – related parties of $4,775,935, a decrease in accounts payable of $8,937,435, and a decrease in income tax payable of $6,552,783.
Investing Activities
During the three months ended March 31, 2025, net cash used in investing activities of $978,807 was mainly the result of purchase of long-term investments of $0.6 million, and prepayments for property and equipment of $0.5 million, offset by proceeds from disposal of property and equipment of $0.3 million. During the three months ended March 31, 2024, net cash used in investing activities of $3,394,122 was mainly the result of purchase of convertible note of $1.7 million, disposal of subsidiary, net of cash disposed of $0.8 million, and purchase of property and equipment of $0.7 million.
Financing Activities
During the three months ended March 31, 2025, net cash used in financing activities of $280,380 was mainly due to the repayments of finance lease liabilities of $0.2 million. During the three months ended March 31, 2024, net cash used in financing activities of $40,227 was mainly due to the repayments of long-term loans of $0.03 million.
Recent Developments
Subsidiary Merger
In January 2025, the Company effected a merger in which SBC Medical Group Co., Ltd. (“SBC Japan”) and Shobikai Co., Ltd. (“Shobikai Sub”) merged with and into L’Ange Cosmetique Co., Ltd. (“L’Ange Sub”). As a result, the separate corporate existence of SBC Japan and Shobikai Sub ceased, with L’Ange Sub continuing as the surviving company. Following the merger, L’Ange Sub changed its name to SBC Medical Group Co., Ltd., which is herein referred to as “SBC Medical Sub,” or “SBC Japan.”
Changes to Service Fee Structure
Effective as of April 1, 2025, the Company revised the fee structure to pursue a long-term growth strategy aimed at expanding and stabilizing the business foundation by creating an environment that can better facilitate the establishment of new clinics by MCs. This updated fee structure introduces a more tailored, performance-based approach to determining service fees for each clinic, based on several key criteria:
| 1. | Medical service category (facility type): The type of medical services provided by the clinic (for example, cosmetic medicine, dermatology, hair restoration (AGA) treatment, fertility treatment, insured medical care, or other specialized fields). | |
| 2. | Operational tenure: The length of time since the clinic’s opening (with newly established clinics in their first year of operation recognized in a dedicated category). | |
| 3. | Monthly revenue: The clinic’s revenue for the given month. | |
| 4. | Patient volume: The number of patients the clinic has served over the past year. |
These factors collectively determine each clinic’s tier classification (e.g., as a small, medium, or large clinic), as defined in the updated service agreement’s appendix. Under this system, each clinic is assigned to an appropriate tier based on its profile, and a corresponding fixed monthly fee is applied according to the schedule set forth in the contract. Notably, clinics offering cosmetic medical services are categorized using a more granular tier system reflecting their scale, with tiers ranging from newly opened clinics in their first year up to “super-large” clinics. In contrast, clinics focusing on other types of medical services (such as dermatology, AGA hair restoration, fertility treatments, or dental and orthopedic care) are classified into the standard small, medium, or large clinic tiers. This tiered approach ensures that service fees are aligned with each clinic’s size and performance, supporting newer and smaller clinics as they grow while accommodating the higher capacities of larger established clinics.
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If the revised fee structure had been applied starting in April 2024, it is estimated that total revenues for fiscal year 2024 would have decreased by approximately 10%. However, the Company expects the impact on total revenues and income from operations for fiscal year 2025 to be offset by the absence of one-time losses that were recorded in fiscal year 2024, mainly included impairment loss on intangible asset and stock-based compensation. Nevertheless, the ultimate financial impact remains uncertain and will depend on a number of factors, many of which are beyond the Company’s control.
Share Repurchase Program
On May 12, 2025, the Company’s board of directors approved a share repurchase program with an aggregate purchase limit of up to USD 5 million. The repurchase period will begin on May 20, 2025 and continue through May 20, 2026, unless extended or terminated earlier depending on the progress. The program will be funded by surplus cash and future free cash flow.
The Company believes its current share price undervalues its business performance, the growth potential of the aesthetic-medical market, and its position as an industry leader. The repurchase program is intended to return capital to shareholders and signal confidence in the Company’s valuation. It also aims to reduce shares outstanding and enhance capital efficiency.
Contractual Obligations
Lease Agreements
The Company holds a significant number of leases classified as operating leases for offices and sublease purposes, and finance leases for certain medical equipment.
As of March 31, 2025, the future maturity of lease liabilities is as follows:
| Years ending December 31, | Finance Lease | Operating Lease | ||||||
| Remaining of 2025 | $ | 119,274 | $ | 3,584,559 | ||||
| 2026 | 127,335 | 1,190,693 | ||||||
| 2027 | 73,283 | 398,265 | ||||||
| 2028 | 41,538 | 127,386 | ||||||
| 2029 | 6,732 | 115,276 | ||||||
| Thereafter | — | 57,638 | ||||||
| Total undiscounted lease payments | 368,162 | 5,473,817 | ||||||
| Less: imputed interest | (15,058 | ) | (29,844 | ) | ||||
| Total lease liabilities | $ | 353,104 | $ | 5,443,973 | ||||
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Bank and Other Borrowings
The Company borrowed loans from various banks and a financial institution for working capital purpose.
As of March 31, 2025, future minimum borrowing payments are as follows:
| Years ending December 31, | Principal Repayment | |||
| Remaining of 2025 | $ | 47,423 | ||
| 2026 | 66,950 | |||
| 2027 | 6,750,622 | |||
| 2028 | — | |||
| 2029 and thereafter | — | |||
| Total | $ | 6,864,995 | ||
Off-Balance Sheet Arrangements (Off-Balance Sheet Transactions)
There are no off-balance sheet arrangements as of March 31, 2025 and December 31, 2024.
Foreign Exchange Rate Risk
We are exposed to foreign currency exchange rate fluctuations because our business is primarily conducted in Japan and most of our revenues and costs are denominated in Japanese yen, whereas our reporting currency is U.S. dollar. The weakening of the Japanese yen against the U.S. dollar would have a negative impact on our financial results and vice versa.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.
We believe that there have been no material changes to our critical accounting policies and estimates from those disclosed in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 28, 2025.
Emerging Growth Company
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we will take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
Smaller Reporting Company
Additionally, we are a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250 million as of the last business day of our second fiscal quarter, or (ii) our annual revenue exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our second fiscal quarter. If we continue to be a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from these certain reduced disclosure requirements that are available to smaller reporting companies.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. Based on this evaluation, management concluded that our disclosure controls and procedures were not effective as of March 31, 2025 to provide reasonable assurance that information required to be disclosed in reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Despite the identified material weaknesses, we believe that our unaudited consolidated financial statements and other information contained in this Quarterly Report fairly present, in all material respects, our financial condition, and results of operations for the periods presented.
We remain committed to ongoing improvements in our disclosure controls and internal control over financial reporting, including execution of the remediation plan disclosed under “Part II, Item 9A. Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 28, 2025. The material weaknesses previously identified in the Annual Report remained un-remediated as of March 31, 2025.
Inherent Limitation on the Effectiveness of Internal Control
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations. These include the exercise of judgment in designing, implementing, and operating controls, as well as the inherent inability to completely eliminate the risk of misconduct or error. Accordingly, while we aim to establish robust controls, any system, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Additionally, the design of our disclosure controls and procedures is impacted by resource constraints and the necessity for management to balance the benefits of potential controls against their associated costs. Moreover, projections of effectiveness into future periods are subject to risks that controls may become inadequate over time due to evolving conditions or diminished compliance. We will continue to monitor and enhance our internal control as necessary or appropriate, but we cannot provide assurance that these improvements will fully eliminate all risks of material misstatement.
Changes in Internal Control over Financial Reporting
Other than the remediation efforts described above, there have been no material changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may be subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. We are not currently a party to any material litigation or other legal proceedings brought against us. We are also not aware of any legal proceeding, investigation or claim, or other legal exposure that has a more than remote possibility of having a material adverse effect on our business, financial condition or results of operations.
ITEM 1A. RISK FACTORS
Investing in our securities involves a high degree of risk. These risks are more fully described under “Part I, Item 1A. Risk Factors” of the Annual Report in addition to the information in this Quarterly Report. There have been no material changes to the risk factors set forth in the Annual Report. Any of these factors could result in a material adverse effect on our results of operations or financial condition.
Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. If any such risks materialize, it could have a material adverse effect on our business, financial condition, results of operations, and growth prospects and cause the trading price of our securities to decline. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During the quarter ended
March 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act)
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ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.
The agreements and other documents filed as exhibits to this Quarterly Report are not intended to provide factual information or other disclosures other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual statement of affairs as of the date they were made or at any other time.
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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.
| SBC Medical Group Holdings Incorporated | ||
| Dated: May 15, 2025 | /s/ Yuya Yoshida | |
| Name: | Yuya Yoshida | |
| Title: | Chief Financial Officer | |
| (Authorized Signatory and Principal Financial Officer) | ||
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