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Item 7. Management’s Discussion and Analysis

2025-03-28 compared with 2024-03-19 · 502 added, 294 removed, 1 unchanged (100% of the section changed)

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

in this report (the “Annual Report”) to “we,” “us,” “Pono,” or the

“Company” refer to Pono Capital Two,

References to our “management” or our “management team” refer to

our officers and directors, and references to the “Sponsor” refer to Mehana Capital LLC .

The following discussion and analysis of the Company’s financial condition and results of operations should be read in

conjunction with the consolidated financial statements and the notes thereto contained

elsewhere in this Annual Report.

Certain information contained in the discussion and analysis set forth below includes

forward-looking statements that involve risks and uncertainties.

Please see “Special Note Regarding Forward-Looking

Statements” elsewhere in this report for a description of these risks and uncertainties.

are a blank check company incorporated in Delaware on March 11, 2022 formed for the purpose of entering into a merger, share exchange,

asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.

We intend to effectuate

our initial business combination using cash from the proceeds of our initial public offering (the “Initial Public Offering”)

and the sale of the private placement units, the proceeds of the sale of our shares in connection with our initial business combination

pursuant to the shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination

of the foregoing or other sources.

January 31, 2023, the Company entered into an Agreement and Plan of Merger, as amended and restated on June 21, 2023 (the “Merger

Agreement”), by and among the Company, Pono Two Merger Sub, Inc., a Delaware corporation incorporated in January 2023, and a wholly-owned

subsidiary of the Company (“Merger Sub”), SBC Medical Group Holdings Incorporated, a Delaware corporation (“SBC”),

Mehana Capital, LLC, in its capacity as Purchaser Representative, and Yoshiyuki Aikawa, in his personal capacity and his capacity as

Seller Representative.

to the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement (the “Closing”), Merger

Sub will merge with and into SBC, with SBC continuing as the surviving corporation.

The transactions contemplated by the Merger Agreement

are referred to herein as the “Business Combination.”

a condition to closing of the Business Combination, SBC will complete certain restructuring transactions pursuant to which SBC Medical

Group Co., Ltd., a Japanese corporation (“SBC-Japan”) and certain affiliated service companies, medical corporations, and

other entities, which collectively carry on the business of SBC-Japan and such other related entities, will become subsidiaries of SBC.

consideration for the Business Combination, the holders of SBC securities collectively will be entitled to receive from the Company,

in the aggregate, a number of the Company’s securities with an aggregate value equal to (a) $1,000,000,000, minus (b) the amount,

if any, by which $3,000,000 exceeds SBC’s Net Working Capital, plus (c) the amount, if any, by which SBC’s Net Working Capital

exceeds $3,000,000, minus (d) the aggregate amount of any outstanding indebtedness (minus cash held by SBC) of SBC at Closing, minus

(e) specified transaction expenses of SBC associated with the Business Combination.

connection with the Merger Agreement, 1,200,000 Sponsor Shares will be issued to the Sponsor on the date that is the earlier of (a) the

six (6) month anniversary of the Closing or (b) the expiration of the “Founder Shares Lock-up Period” (as defined in the

Company’s Insider Letter with the initial stockholders);

provided that, the Sponsor in its sole discretion may direct Pono to issue

all or a portion of the Sponsor Shares on such earlier or later date as it shall determine (which date shall not be earlier than the

May 5, 2023, the Company held a special meeting of stockholders (the “Special Meeting”), and the chairman adjourned the Special

Meeting to May 8, 2023.

On May 8, 2023, the Company held the Special Meeting.

During the Special Meeting, stockholders approved an amendment

to the Company’s amended and restated certificate of incorporation (i) to extend the date by which the Company has to consummate

a business combination from May 9, 2023 to February 9, 2024 for no additional amount to be paid by the Sponsor into the Trust Account,

and (ii) to provide for the right of a holder of Class B common stock to convert such shares into shares of Class A common stock on a

one-for-one basis prior to the closing of a business combination at the election of the holder.

As approved by the stockholders of the

Company, the Company filed an amendment to its Amended and Restated Certificate of Incorporation with the Delaware Secretary of State

on May 8, 2023.

The Company’s stockholders elected to redeem an aggregate of 9,577,250 shares of Class A common stock of the Company

in connection with the Special Meeting.

Following such redemptions, the amount of funds remaining in the trust account is approximately

connection with the Special Meeting, the Company and the Sponsor entered into non-redemption agreements with certain unaffiliated stockholders

owning, in the aggregate, 998,682 shares of the Company’s Class A common stock, pursuant to which such stockholders agreed, among

other things, not to redeem or exercise any right to redeem such public shares in connection with the Extension Amendment.

In connection

with the non-redemption agreements, the Sponsor agreed to transfer to the stockholders that entered into such agreements Sponsor Shares

upon the consummation of the Company’s initial business combination.

May 8, 2023, the Sponsor converted 2,874,999 Founder Shares of Class B common stock into 2,874,999 shares of Class A common stock.

September 8, 2023, Pono entered into the First Amendment to the A&R Merger Agreement (the “Amendment”) with the parties

Prior to the Amendment, the A&R Merger Agreement provided for the holders of SBC securities collectively to be entitled

to receive from Pono, in the aggregate, a number of Pono securities with an aggregate value equal to (the “Merger Consideration”)

(a) $1,200,000,000, minus (b) the amount, if any, by which $3,000,000 exceeds SBC’s Net Working Capital, plus (c) the amount, if

any, by which SBC’s Net Working Capital exceeds $3,000,000, minus (d) the aggregate amount of any outstanding indebtedness (minus

cash held by SBC) of SBC at Closing, minus (e) specified transaction expenses of SBC associated with the Business Combination.

to the Amendment, the $1,200,000,000 amount in the Merger Consideration calculation above was reduced to $1,000,000,000.

October 26, 2023, the parties entered into the Second Amendment to the A&R Merger Agreement (the “Second Amendment”)

with the parties thereto.

Prior to the Second Amendment, the Company’s board of directors as of the Closing was to be designated

(i) three persons designated prior to the Closing by SBC, two of whom must qualify as independent directors;

(ii) one person

designated prior to the Closing by the Company;

and (iii) one person mutually agreed upon and designated prior to the Closing by the

Company and SBC, who must qualify as an independent director.

Following the Second Amendment, the Company’s board of directors

as of the Closing will be designated as follows:

(i) three persons designated prior to the Closing by SBC, at least one of whom must

qualify as an independent director;

(ii) one person designated prior to the Closing by the Company, who must qualify as an independent

and (iii) one person mutually agreed upon and designated prior to the Closing by the Company and SBC, who must qualify as an

independent director.

December 28, 2023, the parties entered into the Third Amendment to the A&R Merger Agreement (the “Third Amendment”) with

the parties thereto.

The Third Amendment was entered into solely to extend the Outside Date (as defined in the A&R Merger Agreement)

from December 31, 2023 to March 31, 2024.

February 5, 2024, the Company held another special meeting of stockholders (the “Second Special Meeting”).

During the Second

Special Meeting, stockholders approved another amendment to the Company’s amended and restated certificate of incorporation to

extend the date by which the Company has to consummate a business combination (the “Combination Period”) from February 9,

2024 to November 9, 2024 for no additional amount to be paid by the Sponsor into the Trust Account.

As approved by the stockholders of

the Company, the Company filed another amendment to its Amended and Restated Certificate of Incorporation with the Delaware Secretary

of State on February 5, 2024.

The Company’s stockholders elected to redeem an aggregate of 273,334 shares of Class A common stock

of the Company in connection with the Second Special Meeting.

Following such redemptions, the amount of funds remaining in the trust

account is approximately $17.9 million.

connection with the Second Special Meeting, we entered into a non-redemption agreement with an unaffiliated investor (the

“Holder”) which agreed to acquire from public stockholders of the Company 1,500,000 to 1,700,000 shares of Class A

common stock in the open market, at a prices no higher than the redemption price per share payable to stockholders who exercise

redemption rights in connection with the stockholder vote to approve the Company’s proposed business combination with SBC,

prior to the Second Special Meeting and to agree to waive its redemption rights and hold the shares until after the closing of the

business combination.

In consideration of the Holder’s agreement to waive its redemption rights with respect to the shares,

and subject to (i) the Holder acquiring 1,500,000 to 1,700,000 shares of Class A common stock in the open market, and (ii)

Holder’s satisfaction of its other obligations under the non-redemption agreement, the Company, on the closing date of the

business combination, provided that Holder has continued to hold the Holder’s shares through the closing date, SBC and

Yoshiyuki Aikawa, the chief executive officer of SBC, shall cause to be issued or transferred to Holder a number of shares of Class

A common stock held by Dr.

Aikawa (the “Incentive Shares”), which will equal one (1) Incentive Share for each public

share purchased in the open market pursuant to the non-redemption agreement that is continuously owned by Holder until the closing

date of the business combination.

This non-redemption agreement terminates on the earliest to occur of (i) the closing date of the

business combination, (ii) the termination of the related business combination agreement, or (iii) April 30, 2024 (the

“Clearance Date”) if the Company has not cleared all SEC comments to its proxy statement in connection with the business

combination by that date.

On March 15, 2024, the parties to the non-redemption agreement entered into an amendment to the non-redemption agreement

to extend the Clearance Date to June 30, 2024, and to agree to close the business combination on or before August 31, 2024.

of Convertible Promissory Note

May 18, 2023, we entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with SBC.

On May 26, 2023, we issued

and sold to SBC a convertible promissory note (the “Note”) of $1,000,000 in aggregate principal amount (the “Principal

The Note is convertible into shares of our Class A common stock.

On May 26, 2023, the closing date of the purchase and

sale of the Note, SBC delivered the Note reflecting the Principal Amount and SBC deposited $1,000,000 by wire transfer into a specified

The Note does not bear interest (unless otherwise required by applicable law, in which event interest will accrue at the minimum

rate required by applicable law) and the Principal Amount may be prepaid at any time.

On February 27, 2024, we entered into an Amendment to the Note Purchase Agreement (the “Amended Note Purchase

Agreement”) with SBC, which increased the purchase price of the Note from $1,000,000 to $2,700,000.

prior to the merger being effected in connection with the consummation of the Business Combination, the outstanding Principal Amount

will be converted automatically into the number of shares of common stock equal to the quotient obtained by dividing (x) the Principal

Amount by (y) $10.00, subject to customary adjustments for any stock splits or combinations occurring prior to conversion.

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.

The following discussion and analysis should be read in conjunction with the consolidated financial statements

and related notes included elsewhere in this Annual 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 below and elsewhere in

this Annual Report, particularly in “Part I, Item 1A.

Risk Factors” and the section entitled “Cautionary Note Regarding

Forward-Looking Statements.”

context otherwise requires, any reference in this section of this Annual Report to the “Company,” “SBC,”

“we,” “us” or “our” refers to Legacy SBC and its consolidated subsidiaries and variable interest

entity (“VIE”), prior to the consummation of the Business Combination and to SBC Medical Group Holdings Incorporated, the Combined Entity and its consolidated subsidiaries and VIE following

the Business Combination.

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, 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.

wholly owned subsidiaries, SBC Medical Group Co., Ltd., a Japan corporation (“SBC Medical Sub”), L’Ange Cosmetique

Co., Ltd., a Japan corporation (“Lange Sub”), and Shobikai Co., Ltd., a Japan corporation (“Shobikai Sub”), are

each 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 certain subsidiaries of the Company (SBC Medical Sub, Lange Sub, and Shobikai Sub) and the

medical corporations that own all 241 of the treatment centers in Japan.

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.

are currently six medical corporations that the Company’s subsidiaries have entered into franchisor-franchisee contracts and service

contracts, 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

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.

the years ended December 31, 2024 and 2023, we generated revenues of $205,415,542 and $193,542,423, respectively, we reported net income

attributable to SBC Medical Group Holdings Incorporated of $46,614,275 and $39,370,036, respectively, and cash flow provided by operating

activities of $20,582,933 and $50,670,322, respectively.

As of December 31, 2024, we had retained earnings of $ 189,463,007.

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, and the United States, and by growing our presence globally.

information regarding our business is provided in “Part 1, Item 1.

Business” of this Annual Report.

of Operations

have neither engaged in a ny operations nor generated any revenues to date.

Our only activities

from March 11, 2022 (inception) through December 31, 2023 were organizational activities, those necessary to prepare for the Initial

Public Offering, described below, and, after our Initial Public Offering, identifying a target company for a business combination.

do not expect to generate any operating revenues until after the completion of our initial business combination.

We will generate non-operating

income in the form of interest income from the proceeds derived from the Initial Public Offering.

We incur expenses as a result of being

a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

the year ended December 31, 2023 , we had net income of $339,767, which resulted from interest and

dividend income on investments held in the Trust Account of $2,641,407, partially offset by operating and formation costs of $1,635,452,

franchise tax expense of $137,379, and income tax expense of $528,809.

the period from March 11, 2022 (inception) through December 31, 2022, we had net income of $552,813, which resulted from operating and

formation costs of $382,051, income tax expenses of $248,508 and franchise tax expenses of $161,644, partially offset by interest and

dividend income on investments held in the Trust Account for $1,345,016.

Capital Resources, and Going Concern

the year ended December 31, 2023 , net cash used in operating activities was $2,132,921, which

was due to interest and dividends earned on marketable securities held in the Trust Account of $2,641,407, offset by net income

of $339,767, and a change in operating assets and liabilities of $168,719.

the period from March 11, 2022 (inception) through December 31, 2022, net cash used in operating

activities was $462,816, which was due to interest earned on marketable securities held in the Trust Account of $1,345,016, offset by

net income of $552,813 and a change in operating assets and liabilities of $329,387.

the year ended December 31, 2023, net cash provided by investing activities was $101,010,630, which was due to proceeds from the Trust

Account for payment to redeeming shareholders of $100,078,879, proceeds from the Trust Account to pay franchise taxes of $931,751.

the period from March 11, 2022 (inception) through December 31, 2022 net cash used in investing activities was $117,875,000 which was

due to the investment of cash in the Trust Account.

the year ended December 31, 2023, net cash used in financing activities was $99,078,879, which was due to payment to redeeming shareholders

of $100,078,879, partially offset by proceeds from convertible promissory note of $1,000,000.

the period from March 11, 2022 (inception) through December 31, 2022, net cash provided by financing

activities was $118,823,380, which was due to the proceeds from the sale of Units (as defined below) (net of the underwriting discount)

of $113,045,000, proceeds from the sale of Placement Units (as defined below) of $6,343,750, and proceeds from the issuance of Class

B common stock to the Sponsor of $25,000, offset in part by payment of offering costs of $590,370.

registration statement for the Company’s Initial Public Offering was declared effective on August 4, 2022.

On August 9, 2022, the

Company consummated the Initial Public Offering of 11,500,000 units, (the “Units” and, with respect to the shares of Class

A common stock included in the Units sold, the “Public Shares”), including 1,500,000 Units issued pursuant to the exercise

of the underwriters’ over-allotment option in full, generating gross proceeds of $115,000,000.

Simultaneously

with the closing of the Initial Public Offering, the Company consummated the sale of 634,375 units (the “ Placement

Units ”) at a price of $10.00 per Placement Unit in a private placement to Mehana Capital

LLC (the “Sponsor”), including 63,000 Placement Units issued

pursuant to the exercise of the underwriters’ over-allotment option in full, generating gross proceeds of $6,343,750.

the closing of the Initial Public Offering on August 9, 2022, an amount of $117,875,000 ($10.25 per Unit) from the net proceeds of the

sale of the Units in the Initial Public Offering and the sale of the Placement

Units was placed in a trust account.

intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the funds

held in the trust account and not previously released to us to pay our taxes (which interest shall be net of taxes payable and excluding

deferred underwriting commissions) to complete our initial business combination.

We may withdraw interest to pay our taxes, if any.

annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the trust account.

We expect the interest earned on the amount in the trust account will be sufficient to pay our taxes.

We expect the only taxes payable

by us out of the funds in the trust account will be income and franchise taxes, if any.

To the extent that our common stock or debt is

used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account

will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our

growth strategies.

of December 31, 2023, the Company had $284,394 in cash held outside of the Trust Account, working capital deficit, net of income tax

payable and franchise tax payable of $1,129,417 and accumulated deficit of $5,995,269.

The Company has incurred and expects to continue

to incur significant costs in pursuit of the Company’s financing and acquisition plans.

For the year ended December 31, 2023 the

Company had loss from operations of $(1,772,831) and net cash used in operating activities was $2,132,921.

The Company has further satisfied

liquidity needs through a Convertible Promissory Note of $1,000,000.

The Company expects that it will need additional capital to satisfy

its liquidity needs beyond the net proceeds from the consummation of the Initial Public Offering held outside of the Trust Account for

paying existing accounts payable and consummating the Business Combination.

Although certain of the Company’s initial stockholders,

officers and directors or their affiliates have committed up to $1,500,000 Working Capital Loans (see Note 5) from time to time or at

any time, there is no guarantee that the Company will receive such funds.

In addition, the Company will have until November 9, 2024 to

consummate a business combination.

If a business combination is not consummated by November 9, 2024, less than one year after the date

these consolidated financial statements are issued, there will be a mandatory liquidation and subsequent dissolution

of the Company.

Management has determined that the mandatory liquidation, along with the lack of liquidity, should a business combination

not occur, and potential subsequent dissolution, raises substantial doubt about the Company’s ability to continue as a going concern.

No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after November

The Company intends to complete the initial business combination before the mandatory liquidation date.

However, there can be

no assurance that the Company will be able to consummate any business combination by November 9, 2024.

Sheet Arrangements

of December 31, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements.

and Stockholder Rights Agreement

holders of the Founder Shares and Placement Units (including securities contained therein) and Units (including securities contained

therein) that may be issued upon conversion of working capital loans and extension loans, and any shares of Class A common stock issuable

upon the exercise of the Placement Warrants and any shares of Class A common stock and warrants (and underlying Class A common stock)

that may be issued upon conversion of the Units issued as part of the working capital loans and extension loans and Class A common stock

issuable upon conversion of the Founder Shares, will be entitled to registration rights pursuant to a registration rights agreement signed

on the effective date of the Initial Public Offering, requiring the Company to register such securities for resale (in the case of the

Founder Shares, only after conversion to the Class A common stock).

The holders of these securities are entitled to make up to two demands,

excluding short form demands, that the Company registers such securities.

In addition, the holders have certain “piggy-back”

registration rights with respect to registration statements filed subsequent to the completion of the initial business combination and

rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act.

Administrative

Support Agreement

Company’s Sponsor has agreed, commencing from the date of the Initial Public Offering through the earlier of the Company’s

consummation of a business combination and its liquidation, to make available to the Company certain general and administrative services,

including office space, utilities and administrative services, as the Company may require from time to time.

The Company has agreed to

pay to Mehana Capital LLC, the Sponsor, $10,000 per month for these services to complete a business combination.

For the year ended December

31, 2023, $120,000 was incurred and paid to Mehana Capital LLC for these services.

For the period from March 11, 2022 (inception) through

December 31, 2022, $50,000 was paid to Mehana Capital LLC for these services.

Simultaneously

with the Initial Public Offering, the underwriters fully exercised the over-allotment option to purchase an additional 1,500,000 Units

at an offering price of $10.00 per Unit for an aggregate purchase price of $15,000,000.

underwriters were paid a cash underwriting discount of $0.17 per Unit, or $1,955,000 in the aggregate, upon the closing of the Initial

Public Offering.

In addition, $0.35 per unit, or $4,025,000 in the aggregate will be payable to the underwriters for deferred underwriting

The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event

that the Company completes a business combination, subject to the terms of the underwriting agreement.

Note - Related Party

April 25, 2022, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public

Offering pursuant to a promissory note (the “Promissory Note”).

This loan is non-interest bearing and payable on the earlier

of (i) March 31, 2023 or (ii) the date on which Company consummates the Initial Public Offering.

Prior to the Initial Public Offering,

the Company had borrowed $300,000 under the Promissory Note.

The outstanding balance under the Promissory Note of $300,000 was repaid

at the closing of the Initial Public Offering on August 9, 2022.

Accounting Estimates

prepare our consolidated financial statements in accordance with U.S.

generally accepted accounting principles, which require our management

to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the

balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods.

To the extent that there

are material differences between these estimates and actual results, our financial condition or results of operations would be affected.

We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our

circumstances and expectations for the future based on available information.

We evaluate these estimates on an ongoing basis.

consider an accounting estimate to be critical if:

(i) the accounting estimate requires us to make assumptions about matters that were

highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from

period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact

on our financial condition or results of operations.

There are items within our financial statement that require estimation but are not

deemed critical, as defined above.

a detailed discussion of our significant accounting policies and related judgments, see Note 2 of the Notes to Consolidated Financial

Statements in "Item 15.

Exhibits and Financial Statement Schedules" of this report.

Accounting Standards

December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures,” which requires

public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income

It also includes certain other amendments to improve the effectiveness of income tax disclosures.

The guidance is effective

for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted.

The accounting pronouncement

is not expected to have a material impact on our consolidated financial statements and related disclosures.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

required for smaller reporting companies.

STATEMENTS AND SUPPLEMENTARY DATA

information appears following Item 15 of this Report and is included herein by reference.

IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

of Results of Operations for the Years Ended December 31, 2024 and 2023

following table summarizes our operating income as reflected in our audited consolidated statements of operations and comprehensive income

for the years ended December 31, 2024 and 2023, and presents information regarding amounts and percentage changes during those periods.

the Years Ended December 31,

Revenues, net (including net revenues

provided to related parties)

$ 205,415,542

$ 193,542,423

Cost of revenues

Operating expenses

Income from operations

Income before income

Income tax expense

net income (loss)

attributable to non-controlling interests

income attributable to SBC Medical Group Holdings Incorporated

net generated from different revenue streams consist of the following:

the Years Ended

Franchising revenue

Procurement revenue

Management services revenue

(19,169,394 )

Rental services revenue

$ 205,415,542

$ 193,542,423

net, increased by 6.13% from $193,542,423 for the year ended December 31, 2023 to $205,415,542 for the year ended December 31, 2024.

Yen (“JPY”) against the U.S.

dollar depreciated during the year ended December 31, 2024, compared to the year ended December

The spot rate against the dollar was 156.7890 yen on December 31, 2024 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

For the years ended December 31, 2024 and 2023, we generated net revenues of $205,415,542 (JPY31,108 million) and $193,542,423

(JPY 27,198 million), respectively.

For the years ended December 31, 2024 and 2023, we reported net income of $46,689,892 (JPY7,059 million)

and $38,560,606 (JPY 5,419 million), respectively.

Overall, the unfavorable impacts of the year-to-year foreign exchange rate changes

on net revenues and net income were $15,954,241 and $3,545,053, respectively, for the year ended December 31, 2024.

main reasons for the variance of $11,873,119 in revenues, net per revenue stream are as follows:

revenue for the year ended December 31, 2024 increased to $61,033,032 by $18,929,652 or 44.96% from $42,103,380 for the same period in

This increase was mainly due to (i) a change in the billing base of royalty fees from a percentage of sales of MCs to a fixed amount

for each clinic of MCs since April 2023 combined with an increase in the number of clinics operated by MCs, (ii) authorizing the six

MCs, which are our main recurring customers, to use our patents and trademarks starting from September 2023, and (iii) the business expansion

of the MCs, partially offset by the depreciation of JPY.

procurement revenue for the year ended December 31, 2024 increased to $54,814,399 by $1,627,737 or 3.06% from $53,186,662 for the same

period in 2023.

This increase was mainly due to the increase in the demand on medical materials due to the business expansion of MCs,

partially offset by the depreciation of JPY.

Services Revenue

management services revenue for the year ended December 31, 2024 decreased to $53,113,155 by $19,169,394 or 26.52% from $72,282,549 for

the same period in 2023.

This decrease was mainly due to (i) the discontinuation of clinic operation staff supporting services provided

by Shobikai Sub to MCs since the third quarter of 2024, because the Company plans to merge Shobikai Sub with and into Lange Sub and the

related business license, held by Shobikai Sub, will be invalid upon the merger, (ii) a significant decline in loyalty program management

services revenue compared with 2023, primarily because the charge rate of handling fee decreased from 5% to 4%, and there were more free

point redemptions, and (iii) the depreciation of JPY, partially offset by (i) the increase in revenue generated from management consulting

services and loyalty program management services provided to two MCs that the Company started to conduct business since September 2023

(Medical Corporation Association Furinkai and Medical Corporation Association Junikai), (ii) the business expansion of MCs and (iii)

the increase in the number of the clinics of MCs.

Services Revenue

rental services revenue for the year ended December 31, 2024 increased to $16,141,714 by $8,804,946 or 120.01% from $7,336,768 for the

same period in 2023.

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.

other revenues for the year ended December 31, 2024 increased to $20,313,242 by $1,680,178 or 9.02% from $18,633,064 for the same period

This increase was mainly due to the business expansion of the subsidiary acquired in April 2023, partially offset by the depreciation

of revenues, for the year ended December 31, 2024, was $49,365,035 compared to $56,238,385 for the same period in 2023.

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, 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.

profit, for the year ended December 31, 2024, was $156,050,507 compared to $137,304,038 for the same period in 2023.

The increase in

gross profit by $18,746,469 or 13.65% was mainly due to the increase in franchising 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.

expenses for the years ended December 31, 2024 and 2023 were as follows:

the Years Ended

Salaries and welfare

Depreciation and amortization expense

Impairment loss on intangible asset

Consulting and professional service fees

Advertising expense

Taxes and dues

Recruiting expense

Lease expense

Office, utility and other expenses

Misappropriation loss

Stock-based compensation

operating expenses increased to $85,746,797 for the year ended December 31, 2024 by $19,102,825 or 28.66% from $66,643,972 for the same

period in 2023.The increase in operating expenses was mainly attributed to the increase in impairment loss on intangible asset, the

increase in stock-based compensation, and the increase in consulting and professional service fees, partially offset by the decrease

in depreciation and amortization expenses.

and amortization expense decreased to $2,258,364 by $8,666,088 or 79.33% for the year ended December 31, 2024 from $10,924,452 for the

same period in 2023, mainly because the decrease in amortization expense incurred from the intangible assets owned by Cell Pro Japan

(“Cellpro”), a former subsidiary of the Company, due to the disposal of Cellpro on January 1, 2024.

and professional service fees increased to $14,555,087 by $5,073,368 or 53.51% for the year ended December 31, 2024 from $9,481,719 for

the same period in 2023, mainly due to the increase of the professional service fees incurred related to the business combination transaction.

compensation relates to the warrants issued to the service provider that supported SBC’s listing process.

These warrants were issued

in November 2022 and became exercisable upon the consummation of business combination with Pono Two Capital, Inc., and the fair value

was recognized as an expense.

the year ended December 31, 2024, the Company fully impaired an intangible asset, patent use right, because the estimated cash flows

from the use and its eventual disposal of this intangible asset were determined to be negligible.

This conclusion was reached through a careful decision-making process and was approved by the Company’s board

of directors.

Income (Expenses)

income (expenses) for the years ended December 31, 2024 and 2023, were as follows:

the Years ended

Interest income

Interest expense

Other expenses

Gain on disposal of subsidiary

an unrealized loss was recognized from the Company’s investment in a public entity with readily determinable fair value under other expenses, a gain on disposal of subsidiary was recorded due to the disposal of Cellpro on January 1, 2024.

The total other

income (expenses) for the year ended December 31, 2024 was $3,152,107, compared to $2,919,269 for the same period in 2023, reflecting

only a minor overall fluctuation.

tax expense, for the year ended December 31, 2024, was $26,765,925 compared to $35,018,729 for the same period in 2023.

in income tax expense by $8,252,804 or 23.57% was mainly due to the increase in the deferred tax benefit as no valuation allowance on

deferred tax assets of Lange Sub was reserved during the year ended December 31, 2024.

It was mainly due to the merger among SBC Medical

Sub, Lange Sub and Shobikai Sub, with Lange Sub as the surviving entity after the merger, that expected to be effective in January 2025,

resulting in the potential ability of Lange Sub to generate income and utilize the carried forward net operating loss.

effective tax rate for the fiscal year ended December 31, 2024 was 36.44%, a decrease of 11.16% compared to the 47.59% rate for the fiscal

year ended December 31, 2023.

This decrease was mainly due to a reduction in valuation allowance on deferred tax assets as described

in the income tax expense comparison above.

a result of the foregoing, we reported a net income of $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.

Income (Loss) Attributable to Non-controlling Interests

Income attributable to non-controlling interests was $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

and Capital Resources

of December 31, 2024, the Company had $125,044,092 in cash and cash equivalents compared to $103,022,932 as of December 31, 2023.

addition, the Company had $30,260,113 in accounts receivable as of December 31, 2024 compared to $35,113,749 as of December 31, 2023.

The Company’s accounts receivable includes balances due from customers for the services and goods provided by the Company and accepted

by customers.

of December 31, 2024, the Company’s working capital balance was $123,259,130.

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 audited financial statements included in this Annual

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.

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.

Flows for the Years Ended December 31, 2024 and 2023

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

the Years ended

Net cash provided by operating

$ (30,087,389 )

Net cash provided by (used in) investing activities

(10,102,410 )

(11,896,041 )

Net cash provided by financing activities

Effect of changes in foreign

currency exchange rate

(11,424,763 )

Net change in cash and cash equivalents

(29,263,778 )

Cash and cash equivalents

as of the beginning of the period

Cash and cash equivalents

as of the end of the period

$ 125,044,092

$ 103,022,932

cash provided by operating activities for the year ended December 31, 2024 was $20,582,933, compared to net cash provided in operating

activities of $50,670,322 for the year ended December 31, 2023, reflecting a decrease of $30,087,389.

The decrease was mainly due to

a decrease in changes in notes payable - related parties of $34.7 million, finance lease receivables – related parties of $22.6

million and accounts payable of $21.8 million, partially offset by an increase in changes in accounts receivable - related parties of

$23.8 million and accrued retirement compensation expense – related party of $22.1 million.

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 party 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.

the year ended December 31, 2024, net cash provided by financing activities of $22,965,400 was the result of proceeds from reverse recapitalization,

net of transaction costs of $11.7 million, borrowings from a long-term loan of $6.6 million and borrowings from related parties of $5.5

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 disposal of property and equipment of $9.6 million and

offset by repayments of long-term loans of $8.7 million and repayments to related parties of $7.7 million.

Changes to Service Fee Structure

The Company has decided to

revise 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.

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, which were 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.

Insurance Policy Maturing

corporate-owned life insurance policies that the Company purchased to insure its CEO and a key officer will mature on March 29, 2025,

according to the contract term.

policies of these life insurances were structured so that the surrender value was equivalent to 50% of the initial premium before

the maturity of the contract and the initial premium was paid out in a lump sum at the inception of the contract.

The surrender

value as of the contract mature date agreed to be the initial premium or accumulated initial premium amount considering interest, which is larger.

of December 31, 2024, the insurance policies were recorded at their cash surrender values, included in other assets in the

consolidated balance sheets with changes in cash surrender value during the period recorded in selling, general and administrative

Company expected the maturity of these policies would result in a gain on surrender of life insurance policies of approximately $9.3

million in the first quarter of fiscal year 2025.

Misappropriations

January 2024, before the issuance of the Company’s consolidated financial statements as of December 31, 2023 and for the year

then ended, in connection with a routine tax examination of the Company’s income tax returns, the Japanese tax authority

discovered misappropriations of Company funds by a former director of general affairs and legal department of L’Ange

Cosmetique Co., Ltd., which is a subsidiary of the Company (the “former director”), not a relative of the CEO of the

Company or any identified related party, who received kickbacks from multiple vendors of SBC Japan (collectively with the former

director, the “participants”) possibly beginning as early as 2012 until the misappropriations were discovered.

former director was suspended immediately upon the discovery and was terminated effective February 23, 2024.

The Company has

commenced a criminal complaint in Tokyo against the participants, which was accepted by the police on February 25, 2025.

after this discovery, the Company engaged independent legal counsel and forensic consultants to investigate the misappropriations.

investigation, which was completed in March 2024, revealed that the participants had misappropriated approximately JPY632 million ($5.6

million), including consumption tax, from the Company of which the former director received approximately JPY335 million ($3.0 million),

between April 2016 and the discovery of the misappropriations in January 2024.

The amount misappropriated prior to April 2016 could not

be accurately determined because certain data for the period prior to April 2016 was unavailable, the Company does not expect such amount

to be material based on current estimates.

Company found no evidence that any other employee of the Company was aware of, or colluded in, the misappropriations of Company

funds or that there was any unlawful activity apart from that associated with the participants’ misappropriations of Company

The misappropriated amounts, excluding the consumption tax, representing advertising services purchased on behalf of a

related-party MC, were originally included in the revenues reported on a net basis.

After discovery of the misappropriations, the

amounts were reported as a misappropriation loss.

For the year ended December 31, 2023, the Company recorded

a misappropriation loss of $409,030.

Company has 95 leases classified as operating leases for offices and sublease purposes.

of December 31, 2024, the future maturity of lease liabilities is as follows:

Total undiscounted lease

imputed interest

operating lease liabilities

and Other Borrowings

Company borrowed loans from various banks and a financial institution for working capital purpose.

of December 31, 2024, future minimum borrowing payments are as follows:

2029 and thereafter

Sheet Arrangements (Off-Balance Sheet Transactions)

are no off-balance sheet arrangements as of December 31, 2024 and 2023.

Exchange Rate Risk

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.

The weakening of the Japanese yen against the

dollar would have a negative impact on our financial results and vice versa.

Accounting Policies and Estimates

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.

our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting

We believe that critical accounting policies as disclosed in this Annual Report reflect the more significant judgements and

estimates used in preparation of our consolidated financial statements.

following descriptions of critical accounting policies and estimates should be read in conjunction with our consolidated financial statements

and other disclosures included in this Annual Report.

When reviewing our consolidated financial statements, you should consider our selection

of critical accounting policies, the judgments and other uncertainties affecting the application of such policies and the sensitivity

of reported results to changes in conditions and assumptions.

Company recognizes revenue from franchising services, procurement services, management services and other services under ASC Topic 606,

“Revenue from Contracts with Customers”.

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

Revenue amount represents the invoiced value, net of consumption tax and applicable local government levies, if any.

consumption tax on sales is calculated at 10% of gross sales.

The Company does not have significant remaining unfulfilled performance

obligations or contract balances.

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.

Company recognizes revenue from rental services under ASC Topic 842, “Leases”.

Company currently generates its revenue from the following main sources:

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 certain MCs (the “MCs”) in Japan.

Prior to April 2023, Franchising Revenue is based on a percentage of sales and recognized

at the time when the related sales occurred;

since April 2023, it is based on a fixed amount to each clinic of the MCs;

since September

2023, it is 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

Company generates procurement revenue by purchasing primarily advertising services and medical materials from qualified vendors on behalf

of MCs to maintain brand quality consistency.

Procurement 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.

Services Revenue

Company provides loyalty program management services, labor supporting services, function supporting services and management consulting

services to MCs.

program management services

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.

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.

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 franchising revenue.

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.

Company is an agent in the management of loyalty programs, and as a result, revenues are recognized net of the cost of redemptions.

supporting services

Company generates revenue by dispatching staff to MCs to provide a range of services, primarily including clinic operation, IT, and administrative

services, among which, clinic operation service has been fully terminated since October 2024.

The Company recognizes the revenue over

the time when services are rendered.

supporting services

revenue is derived from providing functional supporting services to MCs, such as accounting and human resources services.

recognizes the revenue over the time when services are rendered.

consulting services

Company generates revenue by providing consulting services to MCs in relation to business operations of cosmetic dermatology.

recognizes the revenue over the time when services are rendered.

Services Revenue

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.

Company generates other miscellaneous revenues such as accommodation services income, medicine dispensed sales revenue, brokerage services

revenue, construction services revenue, pilot training services revenue, interest income, etc.

These revenues are recognized when the

Company satisfies performance obligations.

Investments in MCs — Related Parties

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 Japanese Medical Care 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 benefit to be realized at the time of dissolution of MCs or

the equity interests being sold.

The payments made for such investments are classified as investing activities in the 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.

investments in MCs — related parties are accounted for using a measurement alternative, under which the 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, especially the investments in Medical Corporation

Jukeikai (“MC Jukeikai”) and Medical Corporation Ritz Cosmetic Surgery (“MC Ritz”), which represent the vast

majority of the Company’s investments in MCs balance.

Consideration of Investments in MC Jukeikai and MC Ritz

these two MCs are non-profit entities, their principal operations are providing health care services and they derive primary source of

their revenue from the sale of goods and services, rather than the fund contributions.

indicator of impairment was noticed based on the Company’s qualitative assessment of impairment.

As the Company provides comprehensive

management services to these two MCs, including accounting and bookkeeping services, the Company has access to MCs’ unaudited financial

In addition to the external market conditions and trends within the MCs’ industry, the Company considered the MCs’

operating performance, such as sales, increase in sales, and net income (loss) when performing its qualitative assessment.

As of December

31, 2024, the carrying value of the investments in the two MCs was higher than their net assets, respectively, because the Company acquired

the equity interests with the considerations paid higher than the net asset values at the respective purchase dates due to the expected

growth and expansion of the MCs.

management’s additional internal analysis purposes, the Company estimates the residual values of the two MCs at dissolution when

needed, using the income approach with the discounted cash flow method, which estimates the fair values of the MCs by the present worth

of the net economic benefit to be received by MCs.

Management applies significant judgment and assumptions related to estimation, including

but not limited to the forecasted revenues, the selection of an expected EBITDA margin assumption for the forecast period, forecasted

future cash flows, and the discounted rate.

The Company currently expects the residual values at the dissolution of the MCs will not

be less than the carrying values of the investments in MCs.

The management is not aware of any legal or regulatory limitations on the

Company’s ability to realize the full amount of proceeds generated from a liquidation of the MCs.

Based Compensation

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

Company, with the assistance of an independent valuation specialist, determined the fair value of the warrants recognized in the consolidated

financial statements using the binomial option pricing model, and the equity value as of the grant date was estimated using 1) 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, and 2) market approach with metrics of publicly traded companies or historically

completed transactions of comparable businesses.

The Company applied a weighting to the income approach and market approach to determine

the fair value.

We believe the accounting estimate for valuation of stock-based compensation is a critical accounting estimate because

our estimates of fair value of stock-based compensation are based upon assumptions believed to be reasonable, but which are inherently

uncertain and, as a result, actual results may differ from estimates.

Growth Company

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.

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

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

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.

Quantitative and Qualitative Disclosures About Market Risk.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis