SBC 10-K & 10-Q changes, risk factors and insider trading

Although we currently anticipate that our available funds and cash flow from operations will be sufficient to meet our cash needs for the foreseeable future, we may require additional financing.financing to meet our long-term liquidity needs as we continue to execute our business strategy. Our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance and condition of the capital markets at the time we seek financing. We cannot assure you that additional financing will be available to itus on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences, or privileges senior to the rights of our common stock, and the existing stockholders may experience dilution.

The financial performance of our franchisees and other alliance partners can negatively impact our business.

As all of theDecember MC’s31, clinics,2025, exceptour subsidiaries provide management services to clinics operated by the MCs under a combination of franchisor-franchisee contracts with seven medical corporations and service contracts with Medical Corporation Association Furinkai andFurinkai, Medical Corporation Association Junikai Junikai, Medical Corporation Misakikai and oneGeneral clinicIncorporated locatedAssociation inMiotokai. Vietnam, were franchised as of December 31, 2024,Accordingly, our financial results are dependent in significant part upon the operational and financial success of our franchisees.franchisees and other MCs with whom we have service contracts. To the extent we are unable to increase the number of franchise clinic locations in certain locations, are prevented from increasing franchise clinic locations due to historical performance, government regulations, licensing, registrations, or other factors, we will have a material negative impact on future revenues. Our revenue model and cash flows rely heavily on franchise management service fees as well as the expiration of clinic customer reward points. A significant reduction in the total number of new franchisee clinics opened would have a material adverse effect on future revenues. We have established operational standards and guidelines for our franchisees; however, we have limited control over how our franchisees’ businesses are run. While we are responsible for the anticipated success of our entire system of clinics and for taking a longer-term view with respect to system improvements, our franchisees have individual business strategies and objectives, which might conflict with our interests. Our franchisees may not be able to secure adequate financing to open or continue operating their clinics. If they incur too much debt or if economic or sales trends deteriorate such that they are unable to repay existing debt, our franchisees could experience financial distress or even bankruptcy. If a significant number of franchisees become financially distressed, it could harm our operating results through reduced management services revenues and the impact on our profitability could be greater than the percentage decrease in the management services revenues. Closure of franchised clinics would reduce our management services revenues and other sources of income and could negatively impact margins, since we may not be able to reduce fixed costs which we continue to incur.

The interests of our franchisees and other alliance partners may conflict with ours or yours in the future and we could face liability from our franchisees and other alliance partners or related to our relationship with our franchisees.franchisees and other alliance partners.

In addition, various statelaws and federal lawsregulations govern our relationship with our franchisees and our potential addition of a franchise clinic location. A franchisee and/or a government agency may bring legal action against us based on the franchisee/franchisor relationships that could result in the award of damages to franchisees and/or the imposition of fines or other penalties against us.

We could face liability from or as a result of our franchisees.franchisees and other alliance partners.

The MCs, even though considered related parties, are independent business operators and are not our employees. Generally speaking, the Company does not exercise control over the day-to-day operations of their clinics (except to the extent governed by our management services contracts). In addition, the CEO of the Company is not able to exert influence over the MC. This is because he neither has any equity interest of the MC nor is a member (or shain) or a director of the MC. In particular, however, the immediate family membersrelatives of our CEO are able to exert influence over the MC to the extent of the voting rights, since they are shain of the MC. The immediate family membersrelatives of our CEO are members of the following MCs for which we provide services:

The immediate family membersrelatives of our CEO account for two-thirds of the general meeting of membermembers (or shain), which is the highest decision-making body in these MCs.

Franchisees may not have access to the financial or management resources that they need to open the clinics contemplated by their agreements with us or be able to find suitable sites on which to develop them. Franchisees may not be able to negotiate an acceptable lease or purchase terms for clinic sites, obtain the necessary permits and government approvals or meet constructionrenovation schedules. Any of these problems could slow our growth and reduce our franchise revenues. Additionally, our franchisees typically depend on financing from banks and other financial institutions, which may not always be available to them, in order to construct and open new clinics. For these reasons, franchisees may not be able to meet the new clinic opening dates required under the franchise agreements.

If we are unable to obtain, maintain or protect intellectual property rights, in Japan, in Vietnam, in Singapore, in the U.S.U.S., in Thailand and throughout the world, we may not be able to compete effectively in our market or globally.

Finally, our patent portfolio encompasses entireall pending patent applications and unpatented intellectual property in various jurisdictions, and the pending patent applications encompassing each of the different technology areas may be assigned different relative and future values, either based on commercial relevance, patent position strength, patent coverage, claim scope, or any other variables associated with intellectual property. That is, some aspects of our patent portfolio may be more valuable than other aspects of our patent portfolio. Inability to obtain patents encompassing critical technologies could more adversely impact our business than inability to obtain patents encompassing other aspects of our business. Thus, adverse events experienced within specific patent portfolios could critically hamper our ability to commercialize and conduct business in these key technology areas.

Adverse publicity concerning our failure or perceived failure to comply with legal and regulatory requirements, alleged accounting or financial reporting irregularities, regulatory scrutiny and further regulatory action or litigation could harm our reputation and cause the trading price of our common stock to decline and fluctuate significantly. The negative publicity and the resulting decline of the trading price of our common stock may lead to the filing of stockholder class action lawsuits against us and some of our senior executive officers, and may potentially have further severe impact on the market price of our common stock and divert management’s attention from the day-to-day operations of our company. Our management team plans to conduct additional procedures and actions to mitigate risks of the short seller allegations that the Company may be subject to. WeLegacy hadSBC is not a publicly listed entity and has not been the subject of short seller allegations, and this risk factor is discussing allegations that may potentially occur in the future with regard to the Company. As it is in short sellers’ interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions and allegations regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks on public entities have, in the past, led to selling of shares in the market. Much of the scrutiny and negative publicity in such circumstances has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to stockholder lawsuits and/or SEC enforcement actions. Such a situation could be costly and time-consuming, and could divert management’s attention from the day-to-day operations of our company. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact the market price of our securities and our business operations. However, we may be constrained in the manner in which we can proceed against the relevant short sellers by principles of freedom of speech, applicable state law or issues of commercial confidentiality.

We are a relatively young company with a short operating history, and we may not be able to sustain our rapid growth, effectively manage our growthit or implement our business strategies.

Our franchisee and other alliance clinics may not be successful in competing in the cosmetic clinic industry.

We operate in the cosmetic clinic industry by providing management services to our franchisee and other alliance clinics. Companies engaged in businesses similar to those of our franchisee and other alliance clinics are entering the market one after another, and competition is fierce, with a wide range of cosmetic products and service formats. Our policy is to continue to respond to customer needs and enhance its services. However, if these efforts do not produce the anticipated results, or if the emergence of competitor clinics offering cosmetic services leads to customers leaving our franchisee and other alliance clinics, leading to a decrease in revenues generated by our franchisee and other alliance clinics, then our business and performance may be affected since we receive substantial revenue from the MCs as part of our compensation for management services.

Many of our franchisee and other alliance clinics’ current and potential competitors, particularly international competitors, have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, promotion, and support of their clinics.

We expect competition in our industry to intensify in the future in light of increased demand for cosmetic services. Factors affecting competition include, among others, ability to innovate, service quality, reliability, safety, pricing, and customer service. Increased competition may lead to lower revenues generated by our franchisee and other alliance clinics, which may result in downward price pressure and adversely affect our business, financial condition, operating results and prospects, since we receive substantial revenue from the MCs as part of our compensation for management services.

We cannot be sure that one or more of these parties to the Non-Competition Agreements will not compete with the Company or solicit its employees or clients in the future. Even if ultimately resolved in its favor, any litigation associated with the Non-Competition Agreements could be time consuming, costly and distract management’s focus from operating the Company’s business. Moreover, states and foreign jurisdictions may interpret restrictions on competition narrowly and in favor of employees. Therefore, certain restrictions on competition or solicitation may be unenforceable. In addition, the Company may not pursue legal remedies if it determines that preserving cooperation and a professional relationship with the former employee, or other concerns, outweigh the benefits of any possible legal recourse or the likelihood of success does not justify the costs of pursuing a legal remedy. Furthermore, the term of the Non-Competition Agreements expires two years following the Closing. Upon expiration of the term, Dr. Aikawa, Ryoji Murata, Yuya Yoshida and Akira Komatsu, each of whom areis current or former key personnel of Legacy SBC, and continue to be key personnel of the Company, may solicit employees or customers or clients of the Company. Such persons, because they have worked for Legacy SBC and the Company, may be able to compete more effectively with the Company, or be more successful in soliciting its employees and clients, than unaffiliated third parties.

Any significant change in the franchisee clinic customer reward program at our franchisee and other alliance clinics could have a negative impact on our business.

We depend on the customer reward program at our franchisee clinicand other alliance clinics. Effective June 1, 2025, the Company revised the customer rewardrewards program. The customer’s points expire if the customer does not make any additional qualifiedeligible purchasepayment at a participating clinic within aone year.year from the customer’s last eligible payment (subject to certain exclusions and the existence of certain clinics that do not participate in the program). Accordingly, at the time that a customer’s points expire, the Company earns 1 yen (approximately $0.0067$0.0064) for each customer point that expires. Any material disruption to or changes to the franchisee clinic customer reward program at our franchisee and other alliance clinics could harm our brand and adversely affect our operating results. Further, if thecustomers’ practices at our franchisee clinics’and customersother practicesalliance clinics change and the number of reward points that remain unused and expire decreases, then our business and operating results could be adversely affected.

We depend on our and our franchisees’ and other alliance partners’ operating systems to operate. Any material disruption to or slowdown of our operating systems could cause delays in our management services, which could harm our brand and adversely affect our operating results.

Problems with our telecommunications network providers could adversely affect our services. Our telecommunications network providers could decide to cease providing services to us without adequate notice. Any change in service levels of our telecommunications network or any errors, defects, disruptions or other performance problems with our operating systems or infrastructure could harm our brand and potentially affect our franchisee clinicsand other alliance clinics’ access to our management services. If changes in technology cause our operating systems or infrastructure to become obsolete, or if our operating systems are inadequate to support our growth, we could lose customers, and our business and operating results could be adversely affected.

A cybersecurity breach could harm our reputation, deter customers and potential customers from buying products or services from our franchisee and other alliance clinics, and result in regulatory penalties due to the sensitive nature of our franchisee and other alliance clinics’ customers’ medical information. In addition, any such breach could cause us to incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits and result in the imposition of material penalties and fines.

We may be exposed to significant product liability claims if the cosmetic products, medical equipment, and medical supplies that we sell do not perform as expected. Any defects in the cosmetic products, medical equipment, and medical supplies that we sell thator we sell or the misuse of the cosmetic products, medical equipment, and medical supplies that we sell could also result in injury, death or property damage. Our risks in this area are reduced due to the fact that we only act as a seller of the cosmetic products and not as the developer or manufacturer. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about the cosmetic products, medical equipment, and medical supplies that we sell and our business and inhibit or prevent the sale of current and future cosmetic products, medical equipment, and medical supplies by us. Since we are not the developer or manufacturer of the cosmetic products, medical equipment, and medical supplies that we sell, we do not have insurance coverage to cover potential product liability claims. Even if a claim is without merit or subsequently disproven, the claim could nevertheless diminish our brand and divert management’s attention and resources, which could have a negative impact on our business, financial condition and result of operations.

Our franchisee clinicsand other alliance clinics, and our clinicclinics in Vietnam and Singapore depend on a continuous supply of utilities, such as electricity and water, to operate. Any disruption to the supply of electricity or other utilities may disrupt the services that are provided at our franchisee and other alliance clinics and our clinics in Vietnam and Singapore. This could adversely affect our ability to provide cosmetic services to the customers of our franchisee and other alliance clinics and our clinics in Vietnam and Singapore, and consequently may have an adverse effect on our business and results of operations since we receive substantial revenue from the MCs as part of our compensation for management services. In addition, fire, natural disasters, pandemics or extreme weather, including droughts, floods, typhoons or other storms, or excessive cold or heat, could cause power outages, fuel shortages, water shortages, damage to our franchisee and other alliance clinics and our clinics in Vietnam and Singapore, or disruption of transportation channels, any of which could impair or interfere with the operations of our franchisee and other alliance clinics and our clinics in Vietnam and Singapore. We cannot assure you that such events will not happen in the future or that we will be able to take adequate measures to mitigate the likelihood or potential impact of such events, or to effectively respond to such events if they occur.

Our business and prospects are heavily dependent on our ability to build, maintain and strengthen the Shonan Beauty Clinic brand. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a larger mass of customers for our franchisee and other alliance clinics. Promoting and positioning our brand will likely depend significantly on our franchisee and other alliance clinics’ ability to provide high-quality cosmetic treatments and engage with the customers as intended. In addition, we expect that our ability to develop, maintain and strengthen the Shonan Beauty Clinic brand will also depend heavily on the success of our branding efforts. Such efforts mainly include advertising for the franchisee and other alliance clinics as part of the management services that we provide to the MCs. To promote our brand, we may be required to change our branding practices, which could result in substantially increased expenses. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.

Our Shonan Beauty Clinic brand could be subject to adverse publicity if incidents related to the services provided at our franchisee and other alliance clinics or our clinics in Vietnam or Singapore have occurred, whether or not we are at fault. In particular, given the popularity of social media, including Facebook, X (formerly Twitter), TikTok, LinkedinLinkedIn and Instagram in Japan, any negative publicity, regardless of its truthfulness, could quickly proliferate and harm consumer perceptions of and confidence in our brand. Furthermore, we may be affected by adverse publicity related to our franchisees or other partners, whether or not such publicity is related to their collaboration with us. Our ability to successfully position our brand could also be adversely affected by perceptions of the quality of the services at our franchisee and other alliance clinics and our clinics in Vietnam and Singapore. In addition, from time to time, the services at our franchisee and other alliance clinics and our clinics in Vietnam and Singapore are evaluated and reviewed by third party customers. Any unfavorable reviews could adversely affect consumer perceptions of our brand and the quality of services provided at our franchisee and other alliance clinics and our clinics in Vietnam and Singapore.

We believe that the cosmetic services provided at our franchisee and other alliance clinics and our clinics in Vietnam, SingaporeVietnam and United StatesSingapore are generally safe, however, there is a possibility of risk when undergoing any cosmetic procedure. On rare occasions, a cosmetic procedure may not go as planned, which may result in an adverse reaction, injury, accidents, casualty, or damages, and subject us to lawsuits.

Also, negative public perceptions regarding the safety of cosmetic procedures, even if such incident does not involve our franchisee and other alliance clinics or our clinics in Vietnam,Vietnam Singaporeand or United States,Singapore, could seriously harm our business. While we have implemented safety procedures related to the provision of cosmetic services at our franchisee and other alliance clinics and our clinic, a safety issue related to the cosmetic services provided could disrupt our operations, which could have a negative impact on our business, financial condition and result of operations or could lead to adverse publicity.

If our franchisee and other alliance clinics or our clinics in Vietnam or Singapore fail to comply with environmental and work safety laws and regulations, the Company and the franchisee and other alliance clinics could become subject to fines or penalties or incur costs that could harm our business.

The Company, its subsidiaries, and the MCs are subject to numerous environmental and work safety laws and regulations. For more details, see “Part I, Item 1. Business — Government Regulation and Environmental Matters” in this Annual Report. The Company, its subsidiaries, and the MCs also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. Environmental and social laws and regulations have tended to become increasingly stringent. There has been increased global focus on environmental and social issues and it is possible that countries may potentially adopt more stringent standards or new regulations in these areas. To the extent regulatory changes occur in the future, they could result in, among other things, increased costs to the Company, its subsidiaries, and the MCs. In addition, the Company, its subsidiaries, and the MCs may incur substantial costs in order to comply with current or future environmental and work safety laws and regulations. These current or future laws and regulations may impair our franchisee and other alliance clinic growth efforts. The Company, its subsidiaries, and the MCs’ failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions, which could directly result in a material adverse effect with respect to the Company and/or its subsidiaries, since we receive substantial revenue from the MCs as part of our compensation for management services.

If our business partners, independent contractors, suppliers, or franchisee and other alliance clinics fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity beyond our own control.

Our reputation is sensitive to allegations of unethical business practices. We do not control the business practices of our business partners, independent contractors, suppliers, or franchisee and other alliance clinics (except to the extent of the guidelines that we provided to the franchisee and other alliance clinics). Accordingly, we cannot guarantee their compliance with ethical business practices, such as environmental responsibilities, fair wage practices, and compliance with child labor laws, among others. A lack of demonstrated compliance could lead us to seek alternative business partners, independent contractors, or suppliers, which could increase our costs and result in disruptions of our operations. Violation of labor or other laws by our business partners, independent contractors, suppliers, or franchisee and other alliance clinics or the divergence of their labor or other practices from those generally accepted as ethical in the markets in which we do business could also attract negative publicity, diminish our brand image and reduce demand for cosmetic services at our franchisee and other alliance clinics and our clinics in Vietnam and Singapore.

Concerns or claims about our practices with regard to the processing of personal information or other privacy-related matters, even if unfounded, could damage our reputation and results of operations. In Japan, governmental authorities have enacted a series of laws and regulations to enhance the protection of privacy and data. We may need to adjust our business to comply with data security requirements and other laws and regulations from time to time. In Japan, the Act on the Protection of Personal Information (the “APPI”) and its related guidelines impose various requirements on businesses, including us, that use databases containing personal information. Under the APPI, the Company, its subsidiaries, and the MCs are required to lawfully use personal information we have obtained within the purpose of use we have specified and takentake appropriate measures to maintain the security of such personal information. The Company, its subsidiaries, and the MCs are also restricted from providing the personal information of a person (the “principal”) to third parties without the consent of the principal. In addition, in the event of a leak, loss, damage or other incident concerning the security of personal data that is likely to harm an individual’s rights and interests as provided in the relevant regulation, the relevant business operator is required to report the incident to the Personal Information Protection Commission and, in certain circumstances, notify the affected individuals (Article 26 of the APPI). The APPI also includes regulations relating to the handling of sensitive personal data and anonymousanonymized personal data information and the transfer of personal information to foreign countries. A Personal Information Handling Business Operator (as defined below) shall not transfer a person’s personal data to third parties, including its affiliated entities without the prior consent of the principal unless an exception applies (Article 27, Paragraph 1 of the APPI). Except in certain cases prescribed under the APPI, transfers of personal data to a party outside Japan generally require the principal’s consent, and prescribed information regarding the foreign data protection regime and the recipient’s safeguards must be provided when obtaining such consent (Article 28 of the APPI). A failure by the MCs to comply with the APPI may harm our franchised brand and directly result in a reduction of the Company’s revenue, since we receive substantial revenue from the MCs as part of our compensation for management services.

Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, it is possible that our practices, offerings or platform could fail to meet all of the requirements imposed on us by such laws, regulations or obligations. Any failure on our part to comply with applicable laws or regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in unauthorized access, collection, transfer, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing customers of our franchisee and other alliance clinics and our clinics in Vietnam and Singapore from obtaining services or result in investigations, fines, suspension of our app, or other penalties by government authorities and private claims or litigation, any of which could materially adversely affect our business, financial condition and results of operations. In addition, the interpretation and application of the aforementioned laws and regulations are often uncertain and in flux. Our practice may become inconsistent with these laws and regulations.

Our platform and internal systems depend on the ability of software and hardware developed and maintained internally and/or by third parties to store, retrieve, process and manage immense amounts of data, including personal information or other privacy-related matters. The software and hardware on which we rely may now or in the future contain, undetected programming errors, bugs, or vulnerabilities which may result in errors or compromise our ability to protect the data of our users and in turn adversely affect our business, financial condition and operationoperating results. Any systems failure or compromise of security that results in the unauthorized access to or release of the data, photo or messaging history of our users could significantly limit the adoption of our services, as well as harm our reputation and brand, result in litigation against us, liquidation and other damages, regulatory investigations and penalties, and we could be subject to material liability.

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. The Company and its subsidiaries are primarily focused on providing comprehensive management services to franchisee clinics,clinics. includingThese butservices not limited toinclude advertising and marketing needs across various platforms (such as social media networks), staff management (such as recruitment and training), booking reservationsand reservation services for franchisee clinic customers,customers. We also support franchisee clinics through assistance with franchisee employee housing rentals and facility rentals, constructionleasehold improvement services 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.tools.

Our wholly owned subsidiaries,subsidiary, SBC Medical Group Co., Ltd., a JapanJapanese corporation (“SBC Medical Sub”), L’Angeor Cosmetique Co., Ltd., a“SBC Japan corporation (“Lange Sub”), and Shobikai Co., Ltd., a Japan corporation (“Shobikai Sub”), are eachis designated as a “medical service corporation” in Japan.. In Japan, a medical service corporation is a legal entity that provides management serviceservices to “medical corporations”. The management services are conducted through franchisor-franchisee contracts and/or service contracts between certain subsidiaries of the Company (SBC Medical Sub, Lange Sub, and Shobikai Sub) and the medical corporations (and, where applicable, other entities) that own alldomestic 241 of thefranchisee treatment centers in Japan. These clinicstreatment centers provide includeservices including 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, cosmeticalcosmetic dental procedures, tattoo removal, lasik eye surgery, lateral canthoplasty, brow lift procedures, androgenetic alopecia treatment, and cheek sagging prevention methods. Separately, we also enter into franchise arrangements with certain independently operated clinics in Japan pursuant to our Partner Doctor Independence Support Program Agreements, which differ in certain respects from our arrangements with the medical corporations and/or general incorporated associations.

There are currently six medical corporations that theThe Company’s subsidiaries have entered into franchisor-franchisee contracts and service contracts, contracts with seven medical corporations, consisting of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, Medical Corporation Jukeikai andJukeikai, Medical Corporation Ritz Cosmetic Surgery.Surgery and, effective as of June 2025, Medical Corporation Association Furinkai. 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; and in July 2025 with Medical Corporation Misakikai and General Incorporated Association Miotokai, following the acquisition of MB career lounge Co., Ltd. (collectively with the sixseven franchisee medical corporations, the “Medical Corporations and/or General Incorporated Associations” or “MCs”). All of the Medical Corporations and General Incorporated Associations 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.Corporations or General Incorporated Associations. 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 thesix Medicalfranchisee Corporationsmedical (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai).corporations. 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 Japanese Medical Care Act and in the articles of incorporation of each of the Medical Corporations (except Medical Corporation Association Furinkai andFurinkai, Medical Corporation Association JunikaiJunikai, Medical Corporation Misakikai and General Incorporated Association Miotokai), 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 or General Incorporated Associations per the requirements of the Japanese Medical Care Act.

For the years ended December 31, 20242025 and 2023,2024, we generated revenues of $205,415,542$173,607,489 and $193,542,423,$205,415,542, respectively, we reported net income attributable to SBC Medical Group Holdings Incorporated of $46,614,275$50,985,613 and $39,370,036,$46,614,275, respectively, and cash flowflows provided by operating activities of $20,582,933$24,668,496 and $50,670,322,$20,582,933, respectively. As of December 31, 2024,2025, we had retained earnings of $ 189,463,007.$240,448,620.

Our primary mission is to provide quality comprehensive management services to the Medical CorporationsMCs 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,Vietnam and the United States,Singapore, and by growing our presence globally.

Further information regarding our business is provided in “Part 1,I, Item 1. Business” of this Annual Report.

Comparison ofThe Results of Operations for the Years Ended December 31, 2024 and 2023 The following table summarizes our operating income as reflected in our audited consolidated statements of operations and comprehensive income for the years ended December 31, 20242025 and 2023,2024, and presents information regarding amounts and percentage changes during those periods.

Revenues, net, increaseddecreased by 6.13%15.48% from $193,542,423 for the year ended December 31, 2023 to $205,415,542 for the year ended December 31, 2024.2024 to $173,607,489 for the year ended December 31, 2025.

Japanese Yen (“JPY”) against the U.S. dollar depreciatedappreciated during the year ended December 31, 2024,2025, compared to the year ended December 31, 2023.2024. The spotaverage rate against the dollar was 156.7890149.6233 yen onfor the year ended December 31, 20242025 compared to 141.0350 yen on December 31, 2023 and the average rate against the dollar was 151.4405 yen for the year ended December 31, 2024 compared to 140.5261 yen for the same period in 2023.2024. For the years ended December 31, 20242025 and 2023,2024, we generated net revenues of $173,607,489 (JPY25,976 million) and $205,415,542 (JPY31,108 million) and $193,542,423 (JPY 27,198 million), respectively. For the years ended December 31, 2024 and 2023,respectively, we reported net income of $51,045,023 (JPY7,636 million) and $46,689,892 (JPY7,059 million) and $38,560,606 (JPY 5,419JPY7,071 million), respectively. Overall, the unfavorablefavorable impacts of the year-to-yearperiod-to-period foreign exchange rate changes on net revenues and net income were $15,954,241$2,083,191 and $3,545,053,$620,557, respectively, for the year ended December 31, 2024.2025.

The rental servicesprocurement revenue for the year ended December 31, 20242025 increased to $16,141,714$56,053,171 by $8,804,946$1,238,772, or 120.01%2.26%, from $7,336,768$54,814,399 for the same periodyear inended 2023.December 31, 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 depreciationappreciation of  JPY.

Cost of revenues,revenues for the year ended December 31, 2024,2025 was $49,365,035$46,323,767 compared to $56,238,385$49,365,035 for the sameyear periodended inDecember 2023.31, 2024. The decrease by $6,873,350 or 12.22% was mainly due to the Company’s effort of the cost reduction for the year ended December 31, 2024,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 significantlyof decreased.revenues decreased overall, despite a partial offset from higher purchase costs resulting from the demand for replacing laser hair removal equipment from the MCs.

Gross profit, profit for the year ended December 31, 2024,2025 was $156,050,507$127,283,722 compared to $137,304,038$156,050,507 for the sameyear periodended December 31, 2024. The decrease in 2023. The increase in gross profit by $18,746,469$28,766,785 or 13.65%18.43% was mainly due to the increasedecrease in franchising revenue and management services revenue with a relatively high gross margin as a result of the factors described above, offset by the decrease in management services revenue as a result of the factors described above.

The operating expenses increaseddecreased to $59,797,324 for the year ended December 31, 2025 by $25,949,473, or 30.26%, from $85,746,797 for the year ended December 31, 20242024. byThe $19,102,825 or 28.66% from $66,643,972 for the same period in 2023.The increase in operating expensesdecrease was mainly attributeddue to the increasedecrease in impairment loss on intangible asset,asset and the increase decrease in stock-based compensation, andpartially offset by the increase in consulting and professional service fees, partially offset by the decrease in depreciation and amortization expenses.fees.

Stock-based compensation relateswas recognized as an expense for the year ended December 31, 2024 related to the warrants issued to thea service provider that supported SBC’s listing process. TheseNo warrantssuch wereexpense issued in November 2022 and became exercisable upon the consummation of business combination with Pono Two Capital, Inc., and the fair value was recognized asfor anthe expense.year ended December 31, 2025.

As a result of the foregoing, we reported a net income of $51,045,023 for the year ended December 31, 2025, representing an increase of $4,355,131 or 9.33% from $46,689,892 for the year ended December 31, 2024, representing an increase of $8,129,286 from $38,560,606 for the year ended December 31, 2023.2024.

Net Income (Loss) Attributable to Non-controlling Interests

Net Income income attributable to non-controlling interests was $59,410 for the year ended December 31, 2025, as compared to net income attributable to non-controlling interests of $75,617 for the year ended December 31, 2024, as compared to the net loss attributable to non-controlling interests of $809,430 for the year ended December 31, 2023, which was mainly due to the disposal of Cellpro on January 1, 2024.

The Company evaluates its capital allocation practices with the objective of enhancing shareholderstockholder 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. Additionally, the Company continues to evaluate alternative methods for deployment of capital, including in the form of dividends to stockholders and repurchases of shares of common stock. The actual timing, manner and value of any such options will depend on several factors, including the market price of our stock, general market and economic conditions, our liquidity requirements, applicable legal requirement and other business considerations.

The following table provides a summary of our cash flows for the yearsperiods indicated.

During the year ended December 31, 2024, net cash used in investing activities of $10,102,410 was mainly the result of payments made on behalf of a related partyparties of $5.6 million, cash paid for acquisition of a subsidiary, net of cash received of $4.2 million, purchase of property and equipment of $2.6 million and purchase of convertible note of $1.7 million, partially offset by repayments from related parties of $6.6 million. During the year ended December 31, 2023, net cash provided by investing activities of $1,793,631 was mainly the result of proceeds from disposal of property and equipment of $8.0 million, sales of short-term investments of $4.1 million, and proceeds from surrender of life insurance policies of 4.0 million, and offset by payments made for the purchase of property and equipment of $8.5 million, purchase of short-term investments of $2.1 million and advances to related parties of $2.3 million.

During the year ended December 31, 2024,2025, net cash provided by financing activities of $22,965,400$38,292,183 was mainly due to the result of proceeds from reverse recapitalization, net of transaction costs of $11.7 million, borrowings from abank long-termand loanothers of $6.6$34.8 million and borrowings from related parties of $5.5 million. During the year ended December 31, 2023, net cash provided by financing activities of $6,135,368 was the result of borrowings from related parties of $12.3 million and deemed contribution in connection with the price modification on disposal of property and equipment of $9.6$10.4 millionmillion, and offset by repaymentsrepurchase of long-termcommon loansstock of $8.7 million and repayments to related parties of $7.7$5.0 million.

Investing in our securities involves a high degree of risk. In addition to the information in this Quarterly Report, these risks are more fully described under “Part I, Item 1A. Risk Factors” of the Annual Report. ThereExcept as set forth below, 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.

The following discussion and analysis summarize the significant factors affecting our operating results, financial condition, liquidity, and cash flows for the periods presented below. The following discussion and analysis 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”).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 II, Item 1A. Risk Factors” of this Quarterly Report, “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, together with its consolidated subsidiaries and VIE,its VIE (prior to its deconsolidation), following the Business Combination.

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.

The Company’s subsidiaries have entered into franchisor-franchisee contracts and service contracts (including business consignment agreements of the same nature) with seven medical corporations, consisting of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, Medical Corporation Jukeikai, Medical Corporation Ritz Cosmetic Surgery and, effective as of June 2025, Medical Corporation Association Furinkai. In addition, the Company has entered into service contracts since September 2023 with Medical Corporation Association Furinkai and Medical Corporation Association Junikai; and in July 2025 with Medical Corporation Misakikai and General Incorporated Association Miotokai, following the acquisition of MB career lounge Co., Ltd. (collectively with the seven franchisee medical corporations, the “Medical Corporations and/or General Incorporated Associations” or “MCs”). All of the Medical Corporations and General Incorporated Associations are deemed to be related parties of the Company since relatives of the CEO of the Company are the members* of general meetings of members** of the Medical Corporations or General Incorporated Associations. 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 interests*** of six franchisee medical corporations. Although the Company, through SBC Medical Sub, has an equity 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 Japanese Medical Care Act and in the articles of incorporation (except Medical Corporation Association Furinkai, Medical Corporation Association Junikai, Medical Corporation Misakikai and General Incorporated Association Miotokai), the Company or SBC Medical Sub does not have voting control over the corporate actions at general meetings of members** of the Medical Corporations or General Incorporated Associations per the requirements of the Japanese Medical Care Act.

For the three months ended MarchJune 31,30, 2026 and 2025, we generated revenues of $43,060,562$49,188,068 and $47,328,701,$43,358,847, respectively, and we reported net income attributable to SBC Medical Group Holdings Incorporated of $11,308,071$10,692,822 and $21,502,446,$2,458,240, respectively. For the six months ended June 30, 2026 and 2025, we generated revenues of $92,248,630 and $90,687,548, respectively, and we reported net income attributable to SBC Medical Group Holdings Incorporated of $22,000,893 and $23,960,686, respectively, and cash flows provided by (used in) operating activities of $9,231,938$31,741,248 and $1,928,621,$(6,411,168), respectively. As of MarchJune 31,30, 2026, we had retained earnings of $251,756,691.$262,449,513.

Comparison of Results of Operations for the Three Months Ended MarchJune 31,30, 2026 and 2025

Because we acquired control of Waqoo, Inc. ("“Waqoo"”) on December 19, 2025 and consolidated the financial information of Waqoo and its subsidiary on a three-month reporting lag, Waqoo’s results of operations did not materially impact our consolidated results for the three months ended June 30, 2026 include Waqoo’s results of operations for the period from January 1, 2026 to March 31, 2026. For comparative purposes, the 2025 segment amounts presented in the tables below relate entirely to the SBC Core Segment, as Waqoo was not consolidated during those periods.

The following table summarizes our operatingresults incomeof operations as reflected in our unaudited consolidated statements of operations and comprehensive income for the three months ended MarchJune 31,30, 2026 and 2025, and presents information regarding amounts and percentage changes during those periods.

Revenues, net, decreasedincreased by 9.02%13.44% from $47,328,701$43,358,847 for the three months ended MarchJune 31,30, 2025 to $43,060,562$49,188,068 for the three months ended MarchJune 31,30, 2026.

Japanese Yen (“JPY”) depreciated against the U.S. dollar during the three months ended MarchJune 31,30, 2026, compared to the three months ended MarchJune 31,30, 2025. The average rate against the dollar for the SBC Core Segment was 156.9101159.3346 yen for the three months ended MarchJune 31,30, 2026 compared to 152.5417144.0297 yen for the same period in 2025. Financial results for the Waqoo Segment are consolidated on a three-month lag basis, and the average rate applied for its reporting period was 156.9101 yen. For the three months ended MarchJune 31,30, 2026 and 2025, we generated net revenues of $43,060,562$49,188,068 (JPY 6,7577,826 million) and $47,328,701$43,358,847 (JPY 7,2206,245 million), respectively, and we reported net income of $11,329,020$11,162,291 (JPY 1,7781,781 million) and $21,491,950$2,439,852 (JPY 3,252310 million), respectively. Overall, the unfavorable impacts of the period-to-period foreign exchange rate changes on net revenues and net income were $1,233,130$4,747,098 and $324,425,$1,322,609, respectively, for the three months ended MarchJune 31,30, 2026.

Franchising revenue for the three months ended MarchJune 31,30, 2026 decreased to $9,091,740$9,515,061 by $6,627,542,$492,520, or 42.16%,4.92%, from $15,719,282$10,007,581 for the same period in 2025. This decrease was mainly due to the revisiondepreciation of the fee structure for determining service fees for each clinic of MCs based on the size, scale and performance of each clinic effective as of April 1, 2025. JPY.

The procurement revenue for the three months ended MarchJune 31,30, 2026 decreased to $12,344,366$13,401,040 by $1,988,417,$2,355,479, or 13.87%,14.95%, from $14,332,783$15,756,519 for the same period in 2025. This decrease was mainly due to a decline in orders from MCs for medical materials, reflecting a temporary increase in procurement activities associated with the business expansion of MCs in the same period of the prior year.year as well as the depreciation of JPY.

The management services revenue for the three months ended MarchJune 31,30, 2026 increased to $11,929,791$12,849,245 by $3,201,688,$7,710,667, or 36.68%,150.05%, from $8,728,103$5,138,578 for the same period in 2025. This increase was mainly due to the lower point redemption,redemptions, which waswere accounted for as a reduction of loyalty program management revenue, resulting from the revision of program policy effective in June 2025, partially offset by the decrease resulting from the revisiondepreciation of the fee structure for determining service fees for each clinic of MCs based on the size, scale and performance of each clinic effective as of April 1, 2025. JPY.

The rental services revenue for the three months ended MarchJune 31,30, 2026 decreased to $3,435,922$3,875,860 by $2,204,592,$2,975,316, or 39.08%,43.43%, from $5,640,514$6,851,176 for the same period in 2025. This decrease was mainly due to a decline in revenue from rentals of laser hair removal equipment to existing clinics, as the prior-year period included a higher level of such rentals primarily associated with clinic openings.openings and equipment upgrades at existing clinics, as well as the depreciation of JPY.

Gross profit for the three months ended MarchJune 31,30, 2026 was $30,346,734$35,977,316 compared to $37,733,084$30,010,577 for the same period in 2025. The decreaseincrease in gross profit by $7,386,350$5,966,739 or 19.58%19.88% was mainly due to the inclusion of gross profit from the Waqoo Segment and an increase in management services revenue, partially offset by a decrease in franchisingprocurement revenuerevenue, withwhich has a relatively high gross margin as a result of the factors described above.margin.

Operating expenses for the three months ended MarchJune 31,30, 2026 and 2025 were as follows:

The operatingOperating expenses decreasedincreased to $12,626,719$17,016,766 for the three months ended MarchJune 31,30, 2026 by $904,291,$1,560,381, or 6.68%,10.10%, from $13,531,010$15,456,385 for the same period in 2025. The decreaseincrease was mainly due to the decrease in office, utility and other expenses and the depreciation of JPY, partially offset by the increase in consulting and professional service fees.fees and salaries and welfare, partially offset by the decrease in advertising expense.

Office, utilityConsulting and otherprofessional expensesservice decreasedfees increased by $373,185,$1,247,116, or 24.60%,32.16%, to $1,144,002$5,125,152 for the three months ended MarchJune 31,30, 2026 from $1,517,187$3,878,036 for the same period in 2025, mainly due to $1.4 million transaction costs incurred by the decreaseCompany in insuranceconnection expenses.with the secondary public offering of common stock sold by the Company’s CEO, which was completed in April 2026.

Other income (expenses) for the three months ended MarchJune 31,30, 2026 and 2025, were as follows:

Other income (expenses), net was $1,136,596$594,136 for the three months ended MarchJune 31,30, 2026 compared to $7,249,333$(1,013,831) for the same period in 2025. The decreaseincrease in other income (expense) byof $6,112,737$1,607,967, or 84.32%158.60%, was mainly due to a gain on redemption of life insurance policies of $8,746,138 in 2025, partially offset by foreign currency exchange gain resulting from the depreciation of the Japanese Yen.

Income tax expense for the three months ended MarchJune 31,30, 2026 was $7,527,591$7,823,743 compared to $9,959,457$11,100,509 for the same period in 2025. The decrease in income tax expense byof $2,431,866$3,276,766, or 24.42%29.52%, was mainly due to the decreaseabsence of a significant tax expense recognized in incomethe beforethree incomemonths taxes.ended June 30, 2025, which was associated with a deemed contribution treated as a taxable gain under Japanese tax law.

As a result of the foregoing, we reported net income of $11,329,020$11,162,291 for the three months ended MarchJune 31,30, 2026, representing aan decreaseincrease of $10,162,930$8,722,439, or 47.29%357.50%, from $21,491,950$2,439,852 for the three months ended MarchJune 31,30, 2025.

Net Income (Loss) Attributable to Non-controlling Interests

Net income attributable to non-controlling interests was $20,949$469,469 for the three months ended MarchJune 31,30, 2026, as compared to net loss attributable to non-controlling interests of $10,496$18,388 for the three months ended MarchJune 31,30, 2025.