SBC Medical Group Holdings Inc 10-K

Item 8. Financial Statements and Supplementary Data. SBC MEDICAL GROUP HOLDINGS INCORPORATED INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 206 ) F-2 Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3 Consolidated Statements of Operations and Comprehensive Income for the year s ended December 31, 2024 and 2023 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the year s ended December 31, 2024 and 2023 F-6 Consolidated Statements of Cash Flows for the year s ended December 31, 2024 and 2023 F-7 Notes to Consolidated Financial Statements F-9 F- 1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of SBC Medical Group Holdings Incorporated Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SBC Medical Group Holdings Incorporated and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America . Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ MaloneBailey, LLP www.malonebailey.com We have served as the Company’s auditor since 2023. Tokyo, Japan March 28, 2025 F- 2 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED CONSOLIDATED BALANCE SHEETS 2024 2023 As of December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 125,044,092 $ 103,022,932 Accounts receivable 1,413,433 1,437,077 Accounts receivable – related parties 28,846,680 33,676,672 Accounts receivable 28,846,680 33,676,672 Inventories 1,494,891 3,090,923 Finance lease receivables, current – related parties 5,992,585 6,143,564 Customer loans receivable, current 10,382,537 8,484,753 Prepaid expenses and other current assets 11,276,802 10,050,005 Total current assets 184,451,020 165,905,926 Non-current assets: Property and equipment, net 8,771,902 13,582,017 Intangible assets, net 1,590,052 19,739,276 Long-term investments, net 3,049,972 849,434 Goodwill, net 4,613,784 3,590,791 Finance lease receivables, non-current – related parties 8,397,582 3,420,489 Operating lease right-of-use assets 5,267,056 5,919,937 Deferred tax assets 9,798,071 — Customer loans receivable, non-current 5,023,551 6,444,025 Long-term prepayments 1,745,801 4,099,763 Long-term investments in MCs – related parties 17,820,910 19,811,555 Other assets 15,553,453 15,442,058 Total non-current assets 81,632,134 92,899,345 Total assets $ 266,083,154 $ 258,805,271 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 13,875,179 $ 26,531,944 Accounts payable – related party 659,044 — Accounts payable 659,044 — Current portion of long-term loans 96,824 156,217 Notes payable, current – related parties 26,255 3,369,203 Advances from customers 820,898 2,074,457 Advances from customers – related parties 11,739,533 23,058,175 Advances from customers 11,739,533 23,058,175 Income tax payable 18,705,851 8,782,930 Operating lease liabilities, current 4,341,522 3,885,812 Accrued liabilities and other current liabilities 8,103,194 21,009,009 Due to related party 2,823,590 3,583,523 Total current liabilities 61,191,890 92,451,270 F- 3 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED CONSOLIDATED BALANCE SHEETS — (Continued) As of December 31, 2024 2023 Non-current liabilities: Long-term loans 6,502,682 1,062,722 Notes payable, non-current – related parties 5,334 11,948,219 Deferred tax liabilities 926,023 6,013,565 Operating lease liabilities, non-current 1,241,526 2,444,316 Other liabilities 1,193,541 1,074,930 Total non-current liabilities 9,869,106 22,543,752 Total liabilities 71,060,996 114,995,022 Stockholders’ equity: Preferred stock ($ 0.0001 par value, 20,000,000 shares authorized; no shares issued and outstanding as of December 31, 2024 and 2023) ** — — Common stock ($ 0.0001 par value, 400,000,000 shares authorized, 103,020,816 and 94,192,433 shares issued, 102,750,816 and 94,192,433 shares outstanding as of December 31, 2024 and 2023, respectively) ** 10,302 9,419 Additional paid-in capital ** 62,513,923 36,879,281 Treasury stock (at cost, 270,000 and nil shares as of December 31, 2024 and 2023, respectively) ( 2,700,000 ) — Retained earnings 189,463,007 142,848,732 Accumulated other comprehensive loss ( 54,178,075 ) ( 37,578,255 ) Total SBC Medical Group Holdings Incorporated stockholders’ equity 195,109,157 142,159,177 Non-controlling interests ( 86,999 ) 1,651,072 Total stockholders’ equity 195,022,158 143,810,249 Total liabilities and stockholders’ equity $ 266,083,154 $ 258,805,271 ** Retrospectively restated for effect of reverse recapitalization on September 17, 2024. The accompanying notes are an integral part of these consolidated financial statements. F- 4 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME 2024 2023 For the Years Ended December 31, 2024 2023 Revenues, net – related parties $ 195,173,889 $ 182,738,049 Revenues, net 10,241,653 10,804,374 Total revenues, net 205,415,542 193,542,423 Cost of revenues (including cost of revenues from a related party of $ 8,472,202 and $ 2,842,588 for the years ended December 31, 2024 and 2023, respectively) 49,365,035 56,238,385 Gross profit 156,050,507 137,304,038 Operating expenses: Selling, general and administrative expenses 57,665,140 66,234,942 Stock-based compensation 13,022,692 — Impairment loss on intangible asset 15,058,965 — Misappropriation loss — 409,030 Total operating expenses 85,746,797 66,643,972 Income from operations 70,303,710 70,660,066 Other income (expenses): Interest income 19,943 86,748 Interest expense ( 28,300 ) ( 45,292 ) Other income (including other income from related parties of $ 2,673,077 and nil for the years ended December 31, 2024 and 2023, respectively) 4,810,008 3,623,332 Other expenses ( 5,463,153 ) ( 745,519 ) Gain on disposal of subsidiary 3,813,609 — Total other income 3,152,107 2,919,269 Income before income taxes 73,455,817 73,579,335 Income tax expense 26,765,925 35,018,729 Net income 46,689,892 38,560,606 Less: net income (loss) attributable to non-controlling interests 75,617 ( 809,430 ) Net income attributable to SBC Medical Group Holdings Incorporated $ 46,614,275 $ 39,370,036 Other comprehensive loss: Foreign currency translation adjustment $ ( 16,557,607 ) $ ( 12,855,686 ) Reclassification of unrealized gain on available-for-sale debt security to net income when realized, net of tax effect of nil and $ 3,869 for the years ended December 31, 2024 and 2023, respectively — ( 8,760 ) Total comprehensive income 30,132,285 25,696,160 Less: comprehensive income (loss) attributable to non-controlling interests 117,830 ( 948,896 ) Comprehensive income attributable to SBC Medical Group Holdings Incorporated $ 30,014,455 $ 26,645,056 Net income per share attributable to SBC Medical Group Holdings Incorporated** Basic and diluted $ 0.48 $ 0.42 Weighted average shares outstanding** Basic and diluted 96,561,041 94,192,433 ** Retrospectively restated for effect of reverse recapitalization on September 17, 2024. The accompanying notes are an integral part of these consolidated financial statements. F- 5 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Number Amount Capital* Number Amount Earnings Loss Equity Interests Equity Common Stock * Additional Paid-in Treasury Stock Retained Accumulated Other Comprehensive Total SBC Medical Group Holdings Incorporated Stockholders’ Non- controlling Total Stockholders’ Number Amount Capital * Number Amount Earnings Loss Equity Interests Equity Balance as of December 31, 2022, previously reported 1 $ — $ 26,624,694 — $ — $ 103,478,696 $ ( 24,853,275 ) $ 105,250,115 $ 2,599,968 $ 107,850,083 Effect of reverse recapitalization 11 — — — — — — — — — Balance as of December 31, 2022, restated 12 — 26,624,694 — — 103,478,696 ( 24,853,275 ) 105,250,115 2,599,968 107,850,083 Issuance of common stock * 94,192,421 9,419 ( 8,614 ) — — — — 805 — 805 Net income — — — — — 39,370,036 — 39,370,036 ( 809,430 ) 38,560,606 Reclassification of unrealized gain on available-for-sale debt security to net income when realized, net of tax effect of $ 3,869 — — — — — — ( 8,760 ) ( 8,760 ) — ( 8,760 ) Deemed contribution in connection with disposal of property and equipment — — 9,620,453 — — — — 9,620,453 — 9,620,453 Deemed contribution in connection with disposal of reorganization — — 642,748 — — — — 642,748 — 642,748 Foreign currency translation adjustment — — — — — — ( 12,716,220 ) ( 12,716,220 ) ( 139,466 ) ( 12,855,686 ) Balance as of December 31, 2023 94,192,433 9,419 36,879,281 — — 142,848,732 ( 37,578,255 ) 142,159,177 1,651,072 143,810,249 Balance 94,192,433 9,419 36,879,281 — — 142,848,732 ( 37,578,255 ) 142,159,177 1,651,072 143,810,249 Disposal of subsidiary — — — — — — — — ( 1,221,795 ) ( 1,221,795 ) Reverse recapitalization, net of transaction costs 5,080,820 508 8,407,380 — — — — 8,407,888 — 8,407,888 Issuance of common stock to settle convertible note 270,000 27 2,699,973 ( 270,000 ) ( 2,700,000 ) — — — — — Issuance of common stock as incentive shares 339,565 34 ( 34 ) — — — — — — — Stock-based compensation — — 13,022,692 — — — — 13,022,692 — 13,022,692 Issuance of common stock from exercise of stock warrants 3,137,998 314 31,060 — — — — 31,374 — 31,374 Deemed contribution in connection with disposal of subsidiaries — — 1,473,571 — — — — 1,473,571 ( 634,106 ) 839,465 Net income — — — — — 46,614,275 — 46,614,275 75,617 46,689,892 Foreign currency translation adjustment — — — — — — ( 16,599,820 ) ( 16,599,820 ) 42,213 ( 16,557,607 ) Balance as of December 31, 2024 103,020,816 $ 10,302 $ 62,513,923 ( 270,000 ) $ ( 2,700,000 ) $ 189,463,007 $ ( 54,178,075 ) $ 195,109,157 $ ( 86,999 ) $ 195,022,158 Balance 103,020,816 $ 10,302 $ 62,513,923 ( 270,000 ) $ ( 2,700,000 ) $ 189,463,007 $ ( 54,178,075 ) $ 195,109,157 $ ( 86,999 ) $ 195,022,158 * Retrospectively restated for effect of share issuances on September 8, 2023. The accompanying notes are an integral part of these consolidated financial statements. F- 6 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS 2024 2023 For the Years Ended December 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 46,689,892 $ 38,560,606 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 3,799,377 12,246,942 Non-cash lease expense 3,870,198 3,297,824 Provision for (reversal of) credit losses ( 402,196 ) 370,754 Stock-based compensation 13,022,692 — Impairment loss on property and equipment — 204,026 Impairment loss on intangible asset 15,058,965 — Impairment loss on long-term investment 529,596 — Realized gain on short-term investments — ( 223,164 ) Fair value change of long-term investments 2,617,435 — Gain on disposal of subsidiary ( 3,813,609 ) — Loss (gain) on disposal of property and equipment and intangible assets 511,947 ( 249,532 ) Deferred income taxes ( 14,417,087 ) 4,113,395 Changes in operating assets and liabilities: Accounts receivable ( 733,219 ) ( 596,069 ) Accounts receivable – related parties 1,350,413 ( 22,402,301 ) Inventories 1,124,805 ( 1,825,942 ) Finance lease receivables – related parties ( 5,991,486 ) 16,575,319 Customer loans receivable 18,477,327 413,867 Prepaid expenses and other current assets ( 2,268,209 ) 4,102,808 Long-term prepayments 1,910,274 ( 3,539,280 ) Other assets ( 1,692,642 ) ( 1,328,682 ) Accounts payable ( 9,588,067 ) 12,201,755 Accounts payable – related party 682,320 — Notes payable – related parties ( 34,756,754 ) ( 23,816 ) Advances from customers ( 1,476,240 ) 461,043 Advances from customers – related parties ( 9,144,031 ) ( 4,264,184 ) Advances from customers ( 9,144,031 ) ( 4,264,184 ) Income tax payable 11,228,429 13,359,434 Operating lease liabilities ( 3,950,587 ) ( 3,158,619 ) Accrued liabilities and other current liabilities ( 12,096,825 ) 4,452,022 Accrued retirement compensation expense – related party — ( 22,082,643 ) Other liabilities 40,215 4,759 NET CASH PROVIDED BY OPERATING ACTIVITIES 20,582,933 50,670,322 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ( 2,564,643 ) ( 8,543,351 ) Purchase of intangible assets — ( 1,683,030 ) Purchase of convertible note ( 1,700,000 ) ( 1,000,000 ) Prepayments for property and equipment ( 843,740 ) ( 981,567 ) Advances to related parties ( 622,804 ) ( 2,283,020 ) Payments made on behalf of a related party ( 5,572,564 ) — Purchase of short-term investments — ( 2,106,720 ) Purchase of long-term investments ( 331,496 ) — Long-term investments in MCs – related parties — ( 26,780 ) Cash received (paid) for acquisition of subsidiaries, net of cash acquired ( 4,236,009 ) 722,551 Long-term loans to others ( 172,411 ) ( 926,020 ) Repayments from related parties 6,597,564 1,912,266 Repayments from others 176,109 581,274 Proceeds from sales of short-term investments — 4,127,261 Proceeds from surrender of life insurance policies — 3,954,760 Disposal of subsidiaries, net of cash disposed of ( 832,416 ) — Proceeds from disposal of property and equipment — 8,046,007 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ( 10,102,410 ) 1,793,631 F- 7 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued) As of December 31, 2024 2023 CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from a long-term loan 6,603,253 — Borrowings from related parties 5,481,787 12,310,106 Proceeds from reverse recapitalization, net of transaction costs 11,707,417 — Proceeds from issuance of common stock — 10 Proceeds from exercise of stock warrants 31,374 — Repayments of long-term loans ( 119,017 ) ( 8,730,942 ) Repayments to related parties ( 739,414 ) ( 7,707,007 ) Deemed contribution in connection with disposal of property and equipment — 9,620,453 Deemed contribution in connection with reorganization — 642,748 NET CASH PROVIDED BY FINANCING ACTIVITIES 22,965,400 6,135,368 Effect of changes in foreign currency exchange rate ( 11,424,763 ) ( 7,314,383 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 22,021,160 51,284,938 CASH AND CASH EQUIVALENTS AS OF THE BEGINNING OF THE YEAR 103,022,932 51,737,994 CASH AND CASH EQUIVALENTS AS OF THE END OF THE YEAR $ 125,044,092 $ 103,022,932 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest expense $ 28,300 $ 45,292 Net cash paid for income taxes $ 30,239,002 $ 17,842,407 NON-CASH INVESTING AND FINANCING ACTIVITIES Property and equipment transferred from long-term prepayments $ 597,602 $ 7,681,830 An intangible asset transferred from long-term prepayments $ — $ 17,666,115 Deemed contribution in connection with disposal of subsidiaries $ 1,473,571 $ — Settlement of loan payable to a related party in connection with disposal of property and equipment $ — $ 4,163,604 Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ — $ 2,305,199 Remeasurement of operating lease liabilities and right-of-use assets due to lease modifications $ 2,908,554 $ 2,110,079 Issuance of common stock from conversion of convertible note $ 2,700,000 $ — Settlement of loan payable to a related party in connection with issuance of common stock $ — $ 795 Non-cash purchase consideration for an asset acquisition $ — $ 705,528 Issuance of promissory notes to related parties in connection with loan services provided $ 20,524,499 $ 15,396,709 The accompanying notes are an integral part of these consolidated financial statements. F- 8 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS Business Overview SBC Medical Group Holdings Incorporated (“SBC Holding”) was originally incorporated under the laws of the state of Delaware on March 11, 2022 as a special purpose acquisition corporation under the name Pono Two Capital, Inc. (“Pono”) for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. SBC Medical Group, Inc. (formerly known as SBC Medical Group Holdings Incorporated, “SBC USA”, “Legacy SBC”), through its consolidated subsidiaries and variable interest entity (“VIE”), is principally engaged in medical industry to provide comprehensive management services to the medical corporations and their clinics, including but not limited to licensure of the use of the trademark and brand name of “Shonan Beauty Clinic”, sales of medical equipment, medical consumables procurement services, and management of customer’s loyalty program, etc. Reverse Recapitalization On September 17, 2024, Pono consummated the merger transaction pursuant to the agreement by and among Pono, Pono Two Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of Pono, and SBC USA (the “Merger Agreement”), whereby Merger Sub merged with and into SBC USA, the separate corporation existence of Merger Sub ceased and SBC USA survived the merger as a wholly owned subsidiary of Pono (“Pono Merger”). In connection with the consummation of Pono Merger, Pono changed its name to “SBC Medical Group Holdings Incorporated” and SBC USA changed its name to “SBC Medical Group, Inc.” and, among other transactions contemplated by the Merger Agreement, the existing equity holders of SBC USA exchanged their equity interests of SBC USA for equity interests of Pono. On September 17, 2024, the Company received net cash of $ 11,707,417 from Pono Merger. The Company also assumed $ 416,799 in prepaid expenses and other current assets, $ 1,108 in accounts payable, $ 14,431 in income tax payable, $ 2,700,000 in convertible note payable, which was subsequently converted to 270,000 shares upon the consummation of Pono Merger, $ 1,000,789 in accrued liabilities and other current liabilities, common stock of $ 508 and additional paid-in capital of $ 8,407,380 . The total funds from Pono Merger of $ 11,707,417 were available to repay certain indebtedness, transaction costs and for general corporate purposes, which primarily consisted of investment banking, legal, accounting, and other professional fees as follows: SCHEDULE OF PROCEEDS FROM MERGER Cash—Pono working capital cash $ 766,735 Cash—Pono trust 16,731,409 Less: transaction costs and advisory fees 5,790,727 Net proceeds from Pono Merger $ 11,707,417 Pono Merger was accounted for as a reverse recapitalization under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). SBC USA was determined to be the accounting acquirer and Pono was treated as the acquired company for financial reporting purposes. Accordingly, the financial statements of the combined company represent a continuation of the financial statements of SBC USA. Unless the context indicates otherwise, any references herein to the “Company”, “we”, “us” and “our” refer to 1) SBC USA and its consolidated subsidiaries and VIE prior to the consummation of Pono Merger and to 2) SBC Holding and its consolidated subsidiaries and VIE following Pono Merger; and reference herein to “Pono” refers to SBC Holding prior to the consummation of Pono Merger. Reorganization In June 2020 and April 2022, SBC Inc., a company incorporated in Japan in June 2007, and Advice Innovation Co., Ltd., a company incorporated in Japan in December 2018, were merged with and into SBC Medical Group Co., Ltd. (“SBC Japan”), respectively, with SBC Japan being the surviving entity in such mergers. SBC Japan is a company incorporated in Japan in September 2017 and previously known as Aikawa Medical Management Co., Ltd. In April 2023, SBC Japan acquired 100 % equity interest of L’Ange Cosmetique Co., Ltd. (“L’Ange Sub”), a company incorporated in Japan in June 2003, and Shobikai Co., Ltd. (“Shobikai Sub”), a company incorporated in Japan in June 2014, through share exchange. As a result, L’Ange Sub and Shobikai Sub become wholly owned subsidiaries of SBC Japan. In August 2023, SBC Japan and L’Ange Sub disposed of their entire equity interest in Ai Inc. and Lange Inc., respectively, both incorporated in the Federated States of Micronesia in January 2022, for cash. As a result, Ai Inc. and Lange Inc. cease to be subsidiaries of the Company, with the related investment in capital being treated as a deemed distribution and the disposal proceeds treated as a deemed contribution. In September 2023, SBC USA acquired 100 % equity interest of SBC Japan through share exchange with one share of its common stock. As a result, SBC Japan becomes a wholly owned subsidiary of SBC USA. The above reorganization has been accounted for as a recapitalization among entities under common control since the same controlling shareholder controlled these entities before and after the reorganization. The consolidation of the Company has been accounted for at historical cost and prepared on the basis as if the transactions had become effective as of the beginning of the earliest period presented in the accompanying consolidated financial statements. F- 9 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS (cont.) Corporate Structure As of December 31, 2024, the Company’s major subsidiaries and VIE are as follows: SCHEDULE OF MAJOR SUBSIDIARIES Name Place of Incorporation Date of Incorporation or Acquisition Percentage of™ Ownership Principal Activities SBC Medical Group, Inc. United States January 20, 2023 100 % Investment holding SBC Medical Group Co., Ltd. Japan September 29, 2017 100 % Franchising, procurement and management services for the medical corporations L’Ange Cosmetique Co., Ltd. Japan June 18, 2003 100 % Management and rental services for the medical corporations Shobikai Co., Ltd. Japan June 4, 2014 100 % Procurement, management and rental services for the medical corporations Liesta Co., Ltd. Japan December 15, 2020 100 % Real estate brokerage services SBC Sealane Co., Ltd. Japan June 7, 2022 100 % Construction services SBC Marketing Co., Ltd. Japan June 30, 2022 100 % Marketing services Medical Payment Co., Ltd. Japan June 30, 2022 75 % Loan services SBC Medical Consulting Co., Ltd. Japan August 2, 2022 100 % Human resource services Shoubikai Medical Vietnam Co., Ltd. Vietnam August 29, 2013 100 % Cosmetic clinic SBC Healthcare Inc. United States December 16, 2019 100 % Management services for cosmetic clinic in the United States SBC Irvine, LLC * United States December 27, 2018 100 % Management services for cosmetic clinic in the United States Aesthetic Healthcare Holdings Pte. Ltd. Singapore November 20, 2024 100 % Investment holding Wen & Weng Family Clinic Pte. Ltd.** Singapore November 20, 2024 100 % General outpatient medical services Wen & Weng Medical Group Pte. Ltd.** Singapore November 20, 2024 100 % Healthcare-related businesses Rochor Clinic Pte. Ltd.** Singapore November 20, 2024 100 % General outpatient medical services Dermasolutions Pte. Ltd.** Singapore November 20, 2024 100 % Cosmetic and dermatological treatments and products Dermasolutions Services Pte. Ltd.** Singapore November 20, 2024 100 % Cosmetic services and products Aikawa Medical Management, Inc. United States May 10, 2017 VIE Management services for cosmetic clinic in the United States * A subsidiary of SBC Healthcare Inc. ** Subsidiaries of Aesthetic Healthcare Holdings Pte. Ltd. (“AHH”) NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the financial statements of the Company, its subsidiaries, and consolidated VIE for which the Company is the primary beneficiary. The results of the subsidiaries are consolidated from the date on which the Company obtained control and continues to be consolidated until the date that such control ceases. All significant transactions and balances among the Company’s subsidiaries, including the VIE, have been eliminated upon consolidation. The Company reports AHH and its subsidiaries on a three-month calendar lag allowing for the timely preparation of financial statements. This three-month reporting lag is with the exception of significant transactions or events that occur during the intervening period , if any. Variable Interest Entities In accordance with ASC Topic 810, “Consolidation”, the Company identifies its variable interests and analyzes to determine if the entity in which the Company has a variable interest is a VIE. Determination if a variable interest is a VIE includes both quantitative and qualitative consideration. For those entities determined to be VIEs within the scope of the VIE model, a further quantitative and qualitative analysis is performed to determine if the Company is deemed the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant. The Company would consolidate those entities in which it is determined to be the primary beneficiary. The Company based its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and the relevant development, operating management and financial agreements. F- 10 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) The Company evaluates its relationship with its VIE on an ongoing basis to determine whether it continues to be the primary beneficiary of its consolidated VIE, or whether it has become the primary beneficiary of the VIE it does not consolidate. Voting Model If a legal entity fails to meet any of the three characteristics of a VIE, we then evaluate such entity under the voting model. Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting rights and that other equity holders do not have substantive participating rights. Assessment of Medical Corporations in Japan SBC Japan, L’Ange Sub and Shobikai Sub are each designated as a medical service corporation (the “MSC”) to provide services to the Medical Corporations (the “MCs”) in Japan. To maintain and strengthen the business relationship and to secure the source of revenues from the MCs, the Company acquired equity interests in the following MCs throughout the years. SCHEDULE OF ACQUIRED EQUITY INTERESTS Name of the MC Percentage of Equity Interest Acquired Percentage of Voting Interest Held Medical Corporation Shobikai 100 % 0 % Medical Corporation Kowakai 100 % 0 % Medical Corporation Nasukai 100 % 0 % Medical Corporation Aikeikai 100 % 0 % Medical Corporation Jukeikai 100 % 0 % Medical Corporation Ritz Cosmetic Surgery 100 % 0 % As non-profit organizations, MCs are required to comply with the medical-related laws and regulations of the Japanese Medical Care Act (the “Act”, “Medical Care Act”). In accordance with the Act, the highest authority of MCs is its general meeting of members (the “Members”), with each Member having one voting right. The Company, through the MSCs, has no right to elect the Members, no decision-making ability and no right to dividend or any profit distribution, but has the right to receive distribution of the residual assets of the MCs. Since the not-for-profit entities scope exception to the variable interest model is applicable to the MCs, the Company evaluates its business relationship, franchisor-franchisee agreements and/or services agreements with the MCs in Japan under the voting model. The Company has concluded that consolidation of the MCs is not appropriate for the periods presented as it does not have a majority voting interest in the Members of the MCs nor does it have a controlling financial interest in the MCs. The equity interests in the MCs held by the Company are recorded as long-term investments in MCs — related parties on the consolidated balance sheets. The transactions between the Company and the MCs are disclosed in Note 18 Related Party Transactions. (b) Foreign Currency The Company maintains its books and record in its local currency, Japanese YEN (“JPY” or “¥”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations. The reporting currency of the Company is the United States Dollars (“US$” or “$”), and the accompanying financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translations of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive loss within the statements of changes in stockholders’ equity. Translation of amounts from local currency of the Company into US$1 has been made at the following exchange rates: SCHEDULE OF LOCAL CURRENCY EXCHANGE RATES December 31, 2024 December 31, 2023 Current JPY: US$1 exchange rate 156.7890 141.0350 Average JPY: US$1 exchange rate 151.4405 140.5261 Exchange rate 151.4405 140.5261 F- 11 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) (c) Non-controlling Interests Non-controlling interests in the consolidated balance sheets represent the portion of the equity in the subsidiaries not attributable, directly or indirectly, to the Company. The portion of the income or loss applicable to the non-controlling interests in subsidiaries is also separately reflected in the statements of operations. (d) Use of Estimates In preparing the consolidated financial statements in conformity with U.S. GAAP, management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, useful lives and impairment of long-lived assets, impairment of goodwill, impairment of long-term investments in MCs — related parties, valuation of stock-based compensation, valuation allowance of deferred tax assets, uncertain income tax positions, the recognition and measurement of impairment of investments in securities, allowance for credit losses, implicit interest rate of operating leases, valuation of intangible assets acquired in a business combination. Management bases its estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis. Actual results could differ from those estimates. (e) Business Combinations and Asset Acquisitions Business combinations are recorded using the acquisition method of accounting. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible assets acquired and non-controlling interest, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred. Consideration transferred in a business acquisition is measured at the fair value as of the date of acquisition. Transaction costs directly attributable to the acquisition are expensed as incurred. If investment involves the acquisition of an asset or group of assets that does not meet the definition of a business, the transaction is accounted for as an asset acquisition. An asset acquisition is recorded at cost, which includes capitalized transaction costs, and does not result in the recognition of goodwill. The cost of the acquisition is allocated to the assets acquired on the basis of relative fair values. Fair value is determined based upon the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, and generally are determined using Level 2 inputs and Level 3 inputs. The determination of fair value involves the use of significant judgment and estimates. The Company utilizes the assistance of a third-party appraiser to determine the fair value as of the date of an acquisition. In a business combination or asset acquisition, the Company may recognize identifiable intangibles that meet either or both the contractual legal criterion or the separability criterion. (f) Cash and Cash Equivalents Cash and cash equivalents include cash on hand and deposits in banks and other financial institutions that are unrestricted as to withdrawal or use, and which have original maturities of three months or less. The Company maintains bank accounts in the United States, Japan, Singapore and Vietnam. (g) Accounts Receivable Accounts receivable represent the Company’s right to an amount of consideration that is unconditional (only the passage of time is required before payment of the consideration is due). The Company’s accounts receivable balances are unsecured, bear no interest and are due upon normally within a year from the date of the sale. F- 12 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) The Company adopted Accounting Standards Updates (“ASU”) No. 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments on January 1, 2021. The allowance for credit losses reflects the Company’s current estimate of credit losses expected to be incurred over the life of the receivables. The Company considers various factors in establishing, monitoring, and adjusting its allowance for credit losses including the aging of receivables and aging trends, customer creditworthiness and specific exposures related to particular customers. The Company also monitors other risk factors and forward-looking information, such as country specific risks and economic factors that may affect a customer’s ability to pay in establishing and adjusting its allowance for credit losses. Accounts receivable balances are written off after all collection efforts have ceased. (h) Inventories Inventories, mainly consist of medical supplies, beauty and skincare products and PC equipment, are stated at the lower of cost or estimated net realizable value, with cost computed on the first-in, first-out (“FIFO”) basis. The Company records inventory reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. Inventory reserves are recorded based on inventory obsolescence trends, historical experience and application of the specific identification method, if any. (i) Finance Lease Receivables Finance lease receivables, which result from sales-type leases, are measured at the discounted present value of (i) future minimum lease payments, (ii) any residual value not subject to a bargain purchase option, as finance lease receivables on its consolidated balance sheets, and (iii) accrued interest on the balance of the finance lease receivables based on the interest rate inherent in the applicable lease over the term of the leases. Management periodically evaluates individual customer’s financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Finance lease receivables are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2024 and 2023, the Company determined no allowance for doubtful accounts was necessary for finance lease receivables. (j) Customer Loans Receivable and Note Payables — Related Parties In February 2023, the Company started to provide loan services to certain customers of the related-party MCs (“End Customers”). When a loan is granted to finance an End Customer’s purchase, the Company issues a promissory note to the MC to pay off the purchase transaction on behalf of the End Customer, and the End Customer is required to repay the Company in monthly installments. The loans provided to the End Customers are unsecured, interest-bearing, and due in three months to five years, depending on the End Customers’ choice of the loan service term. The Company records the customer loans receivables at gross loan receivables less unamortized costs of issuance fees or discounts, which are amortized over the life of the loan to interest income. During the years ended December 31, 2024 and 2023, the Company generated interest income of $ 1,075,094 and $ 112,619 , respectively, from the loan services, which were included in revenues. F- 13 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) Management periodically evaluates individual End Customer’s financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Customer loans receivable is charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. During the years ended December 31, 2024 and 2023, the Company recorded $ 169,968 and nil allowance for doubtful accounts, respectively, for customer loans receivable. The Company repays each promissory note issued to the MCs when the End Customer fully repays the corresponding loan receivable or at an earlier date agreed by the parties. The promissory notes are unsecured, bear no interest, and are due in three months to five years, depending on the term of the loans provided to the corresponding End Customers. (k) Property and Equipment, Net Property and equipment are measured using the cost model and are stated at cost less accumulated depreciation. Acquisition cost includes mainly the costs directly attributable to the acquisition. Depreciation is calculated using the straight-line and declining methods over the following estimated useful lives: SCHEDULE OF PROPERTY AND EQUIPMENT ESTIMATED USEFUL LIVES Depreciation Method Useful Life Land Not depreciated — Buildings and facilities attached to buildings Straight-line method 3 – 47 years Machinery, equipment and automobiles Declining balance method 2 – 15 years Aircraft Declining balance method 2 – 8 years Software* Straight-line method 5 years * Represents software that is non-detachable to the hardware. The costs incurred for assets that were still under construction as of the year-end were reported as construction in progress. No provision for depreciation is made on the assets under construction until such time as the relevant assets are completed and ready for their intended use. Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value of the item disposed and proceeds realized thereon. (l) Intangible Assets, Net Intangible assets with an indefinite life are not amortized and are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired. Intangible assets with finite lives are initially recorded at cost and amortized on a straight-line basis over the estimated economic useful lives of the respective assets. Acquired intangible assets from business combination are recognized and measured at fair value at the time of acquisition. Those assets represent assets with finite lives are further amortized on a straight-line basis over the estimated economic useful lives of the respective assets. The estimated useful lives of intangible assets are as follows: SCHEDULE OF ESTIMATED USEFUL LIVES OF INTANGIBLE ASSETS Useful Life Patent use right 16 years Trademarks 20 years Customer Relationships 3 – 4 years Others 3 years F- 14 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) (m) Goodwill, Net Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired in the business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. The Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. When performing the annual impairment test, the Company has the option of performing a qualitative or quantitative assessment to determine if an impairment has occurred. If a qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would be required to perform a quantitative impairment analysis for goodwill. The quantitative analysis requires a comparison of the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The fair value is generally determined using the income approach with the discounted cash flow valuation method, which requires management to make significant estimates and assumptions related to forecasted revenues and cash flows and the discount rates. (n) Impairment of Long-lived Assets Other Than Goodwill Long-lived assets with finite lives, primarily property and equipment, intangible assets, and operating lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. (o) Long-term Investments, Net Investments in equity securities with readily determinable fair values The Company holds investments in equity securities of publicly listed companies, for which the Company does not have significant influence. Investments in equity securities with readily determinable fair values are measured at fair value and any changes in fair value are recognized in other income (expenses). Investments in privately held companies and organizations that do not report Net Asset Value (the “NAV”) per share The Company’s long-term investments in privately held entities that do not report NAV per share are accounted for using a measurement alternative, under which these investments are measured at cost, adjusted for observable price changes and impairments, with changes recognized in other income (expenses). The Company recognizes both realized and unrealized gain and losses in its consolidated statements of operations and comprehensive income, classified with other income (expenses). Unrealized gains and losses represent observable price changes for investments in privately held entities that do not report NAV per share. Realized gains and losses represent the difference between proceeds received upon disposition of investments and their historical or adjusted cost. Impairments are realized losses, which result in an adjusted cost, and represent charges to reduce the carrying values of investments in privately held entities that do not report NAV per share, if impairments are deemed other than temporary, to their estimated fair values. (p) Long-term Prepayments Long-term prepayments consist primarily of prepayments made for purchasing property and equipment, cloud-based services, and deferred consumption tax. (q) Long-term Investments in MCs — Related Parties Long-term investments in MCs — related parties represent the payments to obtain equity interests of the MCs in Japan, made by the Company through SBC Japan, a company designated as a MSC in Japan. In accordance with the Act and articles of incorporation of the MCs, which are non-profit organizations, the equity interest holders of MCs are prohibited from receiving any profit distribution from MCs but have the right to receive distribution of the residual assets of the MCs in proportion to the amount of their contribution. As of the balance sheet dates, the investments represent probable future economic benefit to be realized at the time of dissolution of MCs or the equity interests being sold. F- 15 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) The investments in MCs — related parties are accounted for using a measurement alternative, under which these investments are measured at cost, less impairment, and adjusted for observable price changes. The Company reviews the investments in MCs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The payments made for such investments are classified as investing activities in the consolidated statements of cash flows. The MCs are considered related parties as the relatives of the Chief Executive Officer (“CEO”) of the Company being the Members of the MCs. Also see Note 2(a) for further details. (r) Corporate-owned Life Insurance Policies The Company has purchased corporate-owned life insurance policies to insure its CEO and a key officer of the Company. Management considers these policies to be operating assets. These insurance policies are recorded at their cash surrender values, included in other assets in the consolidated balance sheets with change in cash surrender value during the period recorded in selling, general and administrative expenses. (s) Lease The Company determines if an arrangement is or contains a lease at inception or modification of the arrangement. An arrangement is or contains a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period in exchange for consideration. Control over the use of the identified assets means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. The Company classifies its leases as either finance leases or operating leases if it is the lessee, or sale-type, direct financing, or operating leases if it is the lessor. The following criteria is used to determine if a lease is a finance lease (as a lessee) or sales-type or direct financing lease (as a lessor): (i) ownership is transferred from lessor to lessee by the end of the lease term; (ii) an option to purchase is reasonably certain to be exercised; (iii) the lease term is for the major part of the underlying asset’s remaining economic life; (iv) the present value of lease payments equals or exceeds substantially all of the fair value of the underlying assets; or (v) the underlying asset is specialized and is expected to have no alternative use at the end of the lease term. If any of the above criteria is met, the Company accounts for the lease as a finance, a sales-type, or a direct financing lease. If none of the criteria is met, the Company accounts for the lease as an operating lease. Lessee accounting The Company recognizes right-of-use assets and lease liabilities for all leases other than those with a term of twelve months or less as the Company has elected to apply the short-term lease recognition exemption. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term. Lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are classified and recognized at the commencement date of a lease. Lease liabilities are measured based on the present value of fixed lease payments over the lease term. Right-of-use assets consist of (i) initial measurement of the lease liability; (ii) lease payments made to the lessor at or before the commencement date less any lease incentives received; and (iii) initial direct costs incurred by the Company. As the rates implicit on the Company’s leases for which it is the lessee are not readily determinable, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. When determining the incremental borrowing rate, the Company assesses multiple variables such as lease term, collateral, economic conditions, and its creditworthiness. F- 16 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) From time to time, we may enter into sublease agreements with third parties. Our subleases generally do not relieve us of our primary obligations under the corresponding head lease. As a result, we account for the head lease based on the original assessment at lease inception. We determine if the sublease arrangement is either a sales-type, direct financing, or operating lease at inception of the sublease. If the total remaining lease cost on the head lease for the term of the sublease is greater than the anticipated sublease income, the right-of-use asset is assessed for impairment. Our subleases are generally operating leases and we recognize sublease income on a straight-line basis over the sublease term. Lessor accounting — operating leases The Company accounts for the revenue from its lease contracts by utilizing the single component accounting policy. This policy requires the Company to account for, by class of underlying asset, the lease component and nonlease component(s) associated with each lease as a single component if two criteria are met. (i) the timing and pattern of transfer of the lease component and the nonlease component(s) are the same; and (ii) the lease component would be classified as an operating lease if it were accounted for separately. Lease components consist primarily of fixed rental payments, which represent scheduled rental amounts due under our leases. Nonlease components consist primarily of tenant recoveries representing reimbursements of rental operating expenses, including recoveries for utilities, repairs and maintenance and common area expenses. If the lease component is the predominant component, we account for all revenues under such lease as a single component in accordance with the lease accounting standard. Conversely, if the nonlease component is the predominant component, all revenues under such lease are accounted for in accordance with the revenue recognition accounting standard. Our operating leases qualify for the single component accounting, and the lease component in each of our leases is predominant. Therefore, we account for all revenues from our operating leases under the lease accounting standard and classify these revenues as rental income. The Company commences recognition of rental income related to the operating leases at the date the property is ready for its intended use by the tenant and the tenant takes possession or controls the physical use of the leased asset. Income from rentals related to fixed rental payments under operating leases is recognized on a straight-line basis over the respective operating lease terms. Amounts received currently but recognized as revenue in future periods are classified in other liabilities in the Company’s consolidated balance sheets. Lessor accounting — sales-type leases The Company purchases medical equipment from vendors and leases them to its customers, who are required to pay installments throughout the term of the leases. The lease agreements include lease payments that are fixed, do not contain residual value guarantees or variable lease payments. The lease terms are based on the non-cancellable term of the lease and the buyer may have options to terminate the lease in advance when meets certain conditions. The customers obtain control of the medical equipment when they physically possess the equipment. The Company recognizes sales from sales-type leases equal to the present value of the minimum lease payments discounted using the implicit interest rate in the lease and cost of sales equal to carrying amount of the asset being leased and any initial direct costs incurred, less the present value of the unguaranteed residual. Interest income from the leases is recognized over the lease terms and included in revenues, net. The Company excludes from the measurement of its lease revenues any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer. (t) Revenue Recognition The Company recognizes revenue from franchising services, procurement services, management services and other services or product sales under ASC Topic 606, “Revenue from Contracts with Customers”. F- 17 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of consumption tax and applicable local government levies, if any. The consumption tax on sales is calculated at 10% of gross sales. The Company does not have significant remaining unfulfilled performance obligations or contract balances. The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction. The determination of whether the Company acts as a principal or an agent in a transaction is based on the evaluation of whether (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis. The Company recognizes revenue from rental services under ASC Topic 842, “Leases”. The Company currently generates its revenue from the following main sources: Franchising Revenue The Company generates franchising revenue (royalty income) by licensing its intellectual properties, including but not limited to the Company’s brand name (“Shonan Beauty Clinic”), trade name, patents, and trademarks, as a franchisor pursuant to franchise agreements with the medical corporations (the “MCs”) in Japan. Prior to April 2023, royalty income was 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 rendered. Procurement Revenue The Company generates procurement services revenue by purchasing primarily advertising services and medical materials from qualified vendors on behalf of MCs to maintain brand quality consistency. Procurement services revenue is recognized at the point in time upon the delivery of products or over time as services are performed. Occasionally, the Company receives vendor discounts on certain large purchases. It recognizes revenue based on actual payments and will return the over-collection resulting from such discounts to MCs. Management Services Revenue The Company provides loyalty program management services, labor supporting services, function supporting services, and management consulting services to MCs. Loyalty program management services The Company awards loyalty points on behalf of MCs to MCs’ customers, who earn loyalty points from each qualified purchase made at the loyalty program participating clinics of MCs, in exchange for a handling fee. The revenue is based on a percentage of the related payment amount made by MCs’ customers and is recognized when the loyalty points are awarded. At the time loyalty points are awarded, a MC pays the Company cash in an amount equivalent to the awarded loyalty points, which is recorded as advances from customers. When a MC’s customers redeem the loyalty points, the Company returns the cash back to the MC in an amount equivalent to the redeemed loyalty points. The awarded loyalty points expire if a MC’s customer does not make any additional qualified purchase at a participating clinic within a year. The Company accumulates and tracks the points on behalf of MCs until the loyalty points expire, at which time the Company recognizes an amount equivalent to the expired loyalty points as revenue, which is normally not significant. F- 18 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) The Company also awards certain points to MCs’ customers on behalf of MCs for free in order to increase the volume of MC’s sales, from which the Company earns other types of revenues, such as royalty income. When a MC’s customers redeem such points, the Company reimburses MC in an amount equivalent to the used free points and records it as a reduction of the revenue recognized. The Company is an agent in the management of loyalty programs, and as a result, revenues are recognized net of the cost of redemptions. Labor supporting services The Company generates revenue by dispatching staff to MCs to provide a range of services, primarily including 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. Function supporting services The revenue is derived from providing functional supporting services to MCs, such as accounting and human resources services. The Company recognizes the revenue over the time when services are rendered. Management consulting services The Company generates revenue by providing consulting services to MCs in relation to business operations of cosmetic dermatology. The Company recognizes the revenue over the time when services are rendered. Rental Services Revenue The Company generates rental income from operating leases and sales-type leases, which is accounted for under ASC Topic 842. Operating lease revenue is generally recognized on straight-line basis over the terms of the lease agreements and sales-type leases revenue is generally recognized on the lease commitment date. Also see Note 2(s). Other Revenues The 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. (u) Cost of Revenues Cost of revenues primarily consists of costs of goods sold associated with sales-type leases, rent expenses associated with operating subleases, salaries and related expenses for personnel directly involved in delivery of services to customers, and allocation of indirect costs such as corporate overhead. (v) Advertising Expenses Advertising expenses consist primarily of costs of promotion and marketing for the Company’s image and services and are included in selling, general and administrative expenses. The Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance with the ASC 720-35, “Advertising Costs”. The advertising expenses were $ 2,782,944 and $ 3,367,608 for the years ended December 31, 2024 and 2023, respectively. F- 19 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) (w) Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable and customer loans receivable. The Company places its cash and cash equivalents with financial institutions. The Company does not require collateral or other security to support financial instruments subject to credit risk. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable. For the year ended December 31, 2024, customer A, B and C represent 26 %, 23 % and 23 % of the Company’s total revenues, respectively. For the year ended December 31, 2023, customer A, B, C and D represent 29 %, 24 %, 23 % and 11 % of the Company’s total revenues, respectively. As of December 31, 2024, customer A, B, C and D represent 17 %, 28 %, 26 % and 10 % of the Company’s total outstanding accounts receivable, respectively. As of December 31, 2023, customer A, B, C and D represent 26 %, 24 %, 22 % and 13 % of the Company’s total outstanding accounts receivable, respectively. For the year ended December 31, 2024, no vendor accounts for more than 10 % of the Company’s total purchase. For the year ended December 31, 2023, vendor A and B represent 14 % and 12 % of the Company’s total purchase, respectively. As of December 31, 2024, vendor A and B represent 12 % and 15 % of the Company’s total outstanding accounts payable, respectively. As of December 31, 2023, vendor A, B and C represent 19 %, 14 % and 14 % of the Company’s total outstanding accounts payable, respectively. (x) Segment Reporting ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Management determined the Company’s operations constitute a single reporting segment. (y) Comprehensive Income or Loss ASC Topic 220, “Comprehensive Income,” establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in stockholders’ equity during a period from non-owner sources. (z) Net Income Per Share Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted net income per share reflects the potential dilution that could occur if stock options and other commitments to issue common shares were exercised or equity awards vest resulting in the issuance of common shares that could share in the net income of the Company. (aa) Stock Based Compensation The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation — Stock Compensation”, under which the Company determines whether stock-based compensation awards should be classified and accounted for as an equity award. There were no liability awards granted during any of the periods stated herein. For all grants of stock-based compensation classified as equity awards, the cost of services received from employees and non-employees in exchange for awards is recognized in the consolidated statements of operations and comprehensive income based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures and cancellations as they occur. F- 20 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) (bb) Related Parties and Transactions The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC Topic 850, “Related Party Disclosures,” and other relevant ASC standards. Parties, which can be an entity or individual, are considered to be related if they have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence. Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. (cc) Income Taxes Income taxes are accounted for using an asset and liability method in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized. The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. Under the provisions of ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income. F- 21 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) (dd) Fair Value Measurements The Company performs fair value measurements in accordance with ASC Topic 820. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value: ● Level 1: quoted prices in active markets for identical assets or liabilities; ● Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or ● Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. As of December 31, 2024 and 2023, the carrying values of current assets and current liabilities approximated their fair values reported in the consolidated balance sheets due to the short-term maturities of these instruments. Debt that bears variable interest rates index to prime also approximates fair value as it reprices when market interest rates change. Assets measured at fair value on a recurring basis as of December 31, 2024 and 2023 are summarized below. SCHEDULE OF FAIR VALUE ON A RECURRING BASIS Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Unobservable Inputs (Level 3) Fair Value at December 31, 2024 Fair Value Measurements as of December 31, 2024 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Unobservable Inputs (Level 3) Fair Value at December 31, 2024 Long-term investments: Equity investments at fair value with readily determinable fair value $ 2,478,531 — — $ 2,478,531 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Unobservable Inputs (Level 3) Fair Value at December 31, 2023 Fair Value Measurements as of December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Unobservable Inputs (Level 3) Fair Value at December 31, 2023 Long-term investments: Equity investments at fair value with readily determinable fair value — — — — (ee) Commitments and Contingences Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. (ff) Recent Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU No. 2023-09 is effective for public entities for annual reporting periods beginning after December 15, 2023, on a retrospective basis. Early adoption is permitted. The Company adopted this standard on December 31, 2024. See Note 20 for relevant segment disclosures. F- 22 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvement to Income Tax Disclosures” to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024, on a prospective basis. Early adoption is permitted. In addition, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2023-09. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU No. 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” to improve disclosures about the nature of expenses in commonly presented financial statement captions. ASU 2024-03 is effective for all public business entities for annual reporting periods beginning after December 15, 2026, on either a prospective or retrospective basis. Early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures. NOTE 3 — VARIABLE INTEREST ENTITY A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The Company followed ASC Topic 810, “Consolidation”, utilizing a qualitative approach, and determined that it is the primary beneficiary of its VIE, Aikawa Medical Management, Inc. (“AMM”) and consolidated the result of operations, financial conditions, and cash flows of AMM in the consolidated financial statements. The following amounts and balances of AMM were included in the Company’s consolidated financial statements of December 31, 2024 and 2023 and for the years then ended: SCHEDULE OF CONSOLIDATED FINANCIAL STATEMENTS OF VARIABLE INTEREST ENTITY 2024 2023 As of December 31, 2024 2023 ASSETS Current assets Cash and cash equivalents $ 41,247 $ 28,934 Accounts receivable 20,076 26,916 Prepaid expenses and other current assets 32,493 11,074 Total Current Assets 93,816 66,924 Property and equipment, net 1,799,372 1,799,372 Loans receivable from subsidiaries of the Company 3,122,157 3,060,581 Other assets 2,275 2,275 Total Non-Current Assets 4,923,804 4,862,228 Total Assets $ 5,017,620 $ 4,929,152 LIABILITIES Current Liabilities Accounts payable $ 18,904 $ 17,942 Accrued liabilities and other current liabilities 17,824 17,824 Due to related party 2,797,018 2,875,408 Total Current Liabilities 2,833,746 2,911,174 Loan payable to a subsidiary of the Company 8,245,328 9,157,660 Total Non-current Liabilities 8,245,328 9,157,660 Total Liabilities $ 11,079,074 $ 12,068,834 F- 23 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 — VARIABLE INTEREST ENTITY (cont.) 2024 2023 For the Years Ended December 31, 2024 2023 Revenues $ 269,800 $ 163,146 Cost of revenues $ 56,510 $ 61,647 Total operating expenses $ 402,397 $ 128,549 Net loss $ ( 47,782 ) $ ( 27,050 ) Net cash provided by (used in) operating activities $ ( 182,991 ) $ 202,624 Net cash provided by (used in) investing activities $ 195,000 $ ( 90,000 ) Net cash used in financing activities $ ( 78,390 ) $ ( 158,714 ) NOTE 4 — BUSINESS COMBINATION AND ASSET ACQUISITION Business Combination and Goodwill The Company accounted for business combination using the acquisition method of accounting under ASC Topic 805. The total purchase price was allocated to the tangible and identifiable intangible assets acquired, liabilities assumed and non-controlling interest based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. The determination of fair values involves the use of significant judgments and estimates. The judgments used to determine the estimated fair value assigned to assets acquired and liabilities assumed, and the intangible asset useful lives, as well as the expected future revenue from the identifiable intangible assets and related discount rates, can materially impact the Company’s consolidated financial statements. Significant inputs and assumptions used for the model included the amount and timing of expected future revenues and discount rates. Aesthetic Healthcare Holdings Pte. Ltd. On November 20, 2024, the Company acquired 100 % equity interest in Aesthetic Healthcare Holdings Pte. Ltd. (“AHH”) and its subsidiaries, which operate medical aesthetics clinics in Singapore, with a cash consideration of 7.80 million Singapore Dollars ($ 5,725,590 ). The Company aimed to enter the medical aesthetics industry in the Singaporean market through this acquisition. The purchase price allocation was determined by the Company with assistance of a third-party valuation. The purchase price was allocated on the acquisition date as follows: SCHEDULE OF PURCHASE PRICE CONSIDERATION Cash and cash equivalents $ 1,489,581 Inventories 259,086 Prepaid expense and other current assets 114,379 Property and equipment, net 650,119 Intangible assets, net 1,534,349 Operating lease right-of-use assets 1,187,640 Long-term prepayments 398,834 Other assets 352,802 Accounts payable ( 399,037 ) Accrued liabilities and other current liabilities ( 354,557 ) Advance from customers ( 726,857 ) Operating lease liabilities, current ( 832,314 ) Current portion of long-term loans ( 35,742 ) Income tax payable ( 47,229 ) Deferred tax liabilities ( 345,269 ) Operating lease liabilities, non-current ( 405,107 ) Other liabilities ( 269,155 ) Total identifiable net assets 2,571,523 Goodwill 3,154,067 Total purchase consideration $ 5,725,590 The intangible assets identified in conjunction with the acquisition of AHH primarily consist of trademarks, which will be amortized over a useful life of twenty years on a straight-line basis. F- 24 Table of Contents Pro forma results of operations for the business combination have not been presented because they are not material to the consolidated statements of operations and comprehensive income for the years ended December 31, 2024 and 2023. The Company consolidates AHH and its subsidiaries’ financial information on a three-month reporting lag. Accordingly, given the acquisition closing date of November 20, 2024, the operating results of AHH for the period subsequent to the acquisition date will be recorded in the Company’s consolidated financial statements beginning 2025. The Company’s policy is to perform its annual impairment testing on goodwill for its reporting unit at the end of each fiscal year or more frequently if events or changes in circumstances indicate that an impairment may exist. The Company did not recognize any impairment loss on goodwill during the years ended December 31, 2024 and 2023. Asset Acquisition The following acquisition did not meet the definition of a business combination under ASC Topic 805, so the Company accounted for the transaction as asset acquisition. In an asset acquisition, goodwill is not recognized, but rather any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets. In addition, related transaction expenses are capitalized and allocated to the net assets acquired on a relative fair value basis. Kijimadairakanko Inc. On April 3, 2023, the Company acquired 100 % equity interest of Kijimadairakanko Inc. (“Kijima”), a company operating ski resorts and tourism-related business, with a cash consideration of JPY 1,026,152 ($ 7,029 ). Meanwhile, the Company’s preexisting loans of JPY 103,000,000 ($ 705,528 ) to Kijima were considered effectively settled upon the acquisition. The settlement amount was included in the total purchase consideration summarized as follows: SCHEDULE OF TOTAL PURCHASE CONSIDERATION Cash consideration $ 7,029 Effective settlement of preexisting loans 705,528 Total consideration $ 712,557 The following table summarizes the amounts for the Kijima acquisition which were allocated to the fair value of aggregated net assets acquired: SCHEDULE OF FAIR VALUE OF AGGREGATED NET ASSETS ACQUIRED Cash and cash equivalents $ 729,580 Accounts receivable 36,389 Inventories 17,636 Prepaid expenses and other current assets 5,717 Property and equipment, net 889,397 Other assets 30,983 Accounts payable ( 143,340 ) Advances from customers ( 647,061 ) Income tax payable ( 1,250 ) Long-term loans ( 205,494 ) Net assets acquired $ 712,557 The assets in the purchase price allocation are stated at fair value based on estimates of fair value using available information and making assumptions management believes are reasonable. The results of operations, financial position and cash flows of Kijima have been included in the Company’s consolidated financial statements since the date of acquisition. F- 25 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 — DISPOSAL OF SUBSIDIARIES Cellpro Japan Co., Ltd. On January 1, 2024, the Company disposed of its subsidiary, Cellpro Japan Co., Ltd. (“Cellpro”), to Waqoo Inc. (“Waqoo”), a Japanese company listed on the Tokyo Stock Exchange, of which the CEO of the Company is a non-controlling shareholder with more than 10 % ownership interest, in exchange for 353,600 shares of Waqoo’s common stock through a share exchange agreement. The disposal of Cellpro did not constitute a strategic shift that would have a major effect on the Company’s operations and financial results. As a result, the results of operations for Cellpro were not reported as discontinued operations. During the year ended December 31, 2024, the Company recognized a gain of $ 3,813,609 on the disposal of Cellpro. After the stock exchange, SBC Japan became a shareholder with less than 10 % ownership interest of Waqoo. The common stock of Waqoo was recorded as an investment in a public entity with readily determinable fair value, which was included in long-term investments. Also see Note 10 for further details. Kijimadairakanko Inc. and Skynet Academy Co., Ltd. On December 23, 2024, the Company disposed of its subsidiary, Kijimadairakanko Inc. (“Kijima”) to SBC Inc., formerly known as SBC China Inc., a company controlled by the CEO of the Company, who is also the controlling shareholder of the Company, for a cash consideration of JPY 1. In connection with this transaction, Kijima’s existing loans of JPY 826,000,000 ($ 5,268,227 ) from SBC Inc. were deemed effectively settled as a result of the disposal. The settlement amount was included in the total disposal consideration summarized as follows: SCHEDULE OF TOTAL SALES CONSIDERATION Cash consideration $ 0 Effective settlement of existing loans 5,268,227 Total consideration $ 5,268,227 On December 23, 2024, the Company disposed of its subsidiary, Skynet Academy Co., Ltd. (“Skynet”), to Hariver Inc., a company controlled by the CEO of the Company, who is also the controlling shareholder of the Company, for a cash consideration of JPY 70,000,000 ($ 446,460 ). The consideration received in excess of the net book value of net assets disposed, totaling $ 1,473,571 for Kijima and Skynet , was included as a deemed contribution in connection with disposal of subsidiaries in the Company’s consolidated statements of changes in stockholders’ equity, including the derecognition of goodwill of $ 1,724,040 . The disposal of Kijima and Skynet did not constitute a strategic shift that would have a major effect on the Company’s operations and financial results. As a result, the results of operations for Kijima and Skynet were not reported as discontinued operations. NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETS As of December 31, 2024 and 2023, prepaid expenses and other current assets consist of the following: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS December 31, 2024 December 31, 2023 Advances to suppliers $ 9,693,043 $ 6,497,608 Convertible note receivable * — 1,000,000 Other receivables ** 1,558,223 2,390,276 Others 25,536 162,121 Total $ 11,276,802 $ 10,050,005 * In May 2023, the Company purchased from Pono, a special purpose acquisition company, a convertible promissory note (“Pono Promissory Note”) in aggregate principal amount of $ 1,000,000 , which will automatically convert into shares of Class A common stock of Pono at a conversion price of $ 10.00 per unit immediately prior to the expected Pono Merger. In February 2024, the Company and Pono entered into an Amendment to the Note Purchase Agreement, which increased the principal amount of the convertible promissory note from $ 1,000,000 to $ 2,700,000 . On September 17, 2024, upon the consummation of Pono Merger, the promissory note was converted into 270,000 common shares. See Note 16 for further details. ** Represent a refundable deposit to be returned by a supplier, reimbursement receivables from a business partner, and other miscellaneous receivables. F- 26 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 — FINANCE LEASE RECEIVABLES As of December 31, 2024 and 2023, finance lease receivables consist of the following: SCHEDULE OF FINANCE LEASE RECEIVABLES December 31, 2024 December 31, 2023 Future minimum lease payments receivable $ 14,427,511 $ 9,586,741 Estimated residual value — — Gross finance lease receivables 14,427,511 9,586,741 Less: unearned interest income ( 37,344 ) ( 22,688 ) Finance lease receivables $ 14,390,167 $ 9,564,053 Finance lease receivables, current $ 5,992,585 $ 6,143,564 Finance lease receivables, non-current $ 8,397,582 $ 3,420,489 As of December 31, 2024, maturities of the Company’s gross finance lease receivables are as follow: SCHEDULE OF MATURITIES OF THE FINANCE LEASE RECEIVABLES Years ending December 31, 2025 $ 6,000,609 2026 5,505,139 2027 2,921,763 Thereafter — Total $ 14,427,511 NOTE 8 — PROPERTY AND EQUIPMENT, NET As of December 31, 2024 and 2023, property and equipment, net consist of the following: SCHEDULE OF PROPERTY AND EQUIPMENT December 31, 2024 December 31, 2023 Land $ 2,008,132 $ 1,799,443 Buildings and facilities attached to buildings 5,373,424 8,412,348 Machinery, equipment and automobiles 4,312,270 5,539,542 Aircraft 3,510,376 4,091,772 Software 4,811,260 3,778,911 Construction in progress — 591,306 Subtotal 20,015,462 24,213,322 Less: accumulated depreciation ( 8,749,391 ) ( 8,231,990 ) Less: accumulated impairment ( 2,494,169 ) ( 2,399,315 ) Property and equipment, net $ 8,771,902 $ 13,582,017 In August 2023, the Company disposed of certain properties to General Incorporated Association SBC, an entity controlled by the CEO of the Company, who is the sole stockholder of the Company. The payment in excess of the net book value received from General Incorporated Association SBC of $ 9,620,453 was included as a deemed contribution in connection with disposal of property and equipment in the Company’s consolidated statements of changes in stockholders’ equity. Depreciation expense was $ 2,726,348 and $ 6,586,036 for the years ended December 31, 2024 and 2023, respectively. The Company recognized an impairment loss of nil and $ 204,026 , and a gain on disposal of property and equipment of $ 325,761 and $ 249,532 for the years ended December 31, 2024 and 2023, respectively. F- 27 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 — INTANGIBLE ASSETS, NET INTANGIBLE ASSETS, NET As of December 31, 2024 and 2023, intangible assets, net consist of the following: SCHEDULE OF INTANGIBLE ASSETS December 31, 2024 December 31, 2023 Assembled workforce $ — $ 8,976,567 Patent use right 16,582,795 18,435,140 Trademarks 1,237,820 — Customer Relationships 192,911 — Others 159,321 212,190 Subtotal 18,172,847 27,623,897 Less: accumulated amortization ( 2,072,849 ) ( 7,884,621 ) Less: accumulated impairment ( 14,509,946 ) — Intangible assets, net $ 1,590,052 $ 19,739,276 Amortization expense was $ 1,073,029 and $ 5,660,906 for the years ended December 31, 2024 and 2023, respectively. The Company recognized an impairment loss of $ 15,058,965 on patent use right for the year ended December 31, 2024. Estimated future amortization expense related to intangible assets as of December 31, 2024 is as follows: SCHEDULE OF FUTURE AMORTIZATION EXPENSE OF INTANGIBLE ASSETS For the Years Ended December 31, Amortization Expenses 2025 $ 133,945 2026 160,734 2027 160,734 2028 78,365 2029 61,891 Thereafter 994,383 Total $ 1,590,052 NOTE 10 — LONG-TERM INVESTMENTS, NET As of December 31, 2024 and 2023, long-term investments, net consist of the following: SCHEDULE OF LONG-TERM INVESTMENTS December 31, 2024 December 31, 2023 Investments in private entities or organizations that do not report NAV per share: Entities or organizations without observable price changes $ 1,719,770 $ 1,557,366 Investment in a public entity with readily determinable fair value – related party 2,478,531 — Less: accumulated impairment ( 1,148,329 ) ( 707,932 ) Long-term investments, net $ 3,049,972 $ 849,434 The Company recognized a realized gain on available-for-sale debt securities of nil and $ 223,164 for the years ended December 31, 2024 and 2023, respectively. In January 2024, in connection with the disposal of Cellpro, the Company acquired 353,600 shares of common stock of Waqoo, representing less than a 10 % ownership interest, a related-party company listed on the Tokyo Stock Exchange. During the year ended December 31, 2024, the Company recognized an unrealized loss of $ 2,617,435 on the investment in Waqoo. The Company recognized an impairment loss of $ 529,596 and nil on long-term investments in privately held entities that do not repot NAV per share for the years ended December 31, 2024 and 2023, respectively. F- 28 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 — OTHER ASSETS As of December 31, 2024 and 2023, other assets consist of the following: SCHEDULE OF OTHER ASSETS December 31, 2024 December 31, 2023 Security deposits $ 2,921,855 $ 3,049,112 Corporate-owned life insurance policies 11,563,720 11,529,700 Long-term loans receivable, primarily student loans 578,995 647,641 Others 488,883 215,605 Total $ 15,553,453 $ 15,442,058 NOTE 12 — ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES As of December 31, 2024 and 2023, accrued liabilities and other current liabilities consist of the following: SCHEDULE OF ACCRUED AND OTHER CURRENT LIABILITIES December 31, 2024 December 31, 2023 Individual income tax withheld on behalf of employees $ 859,446 $ 943,195 Wages and bonus payables 3,173,679 6,264,711 Consumption tax payable 3,827,080 12,968,580 Liabilities assumed in connection with purchase of property and equipment 25,312 656,508 Excise and franchise tax payable 15,095 — Others 202,582 176,015 Total $ 8,103,194 $ 21,009,009 NOTE 13 — LONG-TERM LOANS As of December 31, 2024 and 2023, the Company’s long-term loans from banks and other financial institution consist of following: SCHEDULE OF LONG TERM LOANS Indebtedness Weighted Average Interest Rate* Weighted Average Years to Maturity* December 31, 2024 December 31, 2023 Guaranteed loans Fixed rate loans 0.04 % 0.08 $ 185,766 $ 575,191 Variable rate loans 1.15 % 2.83 6,377,998 289,226 Subtotal 1.19 % 2.91 6,563,764 864,417 Unsecured loans Fixed rate loans 0.01 % 0.00 35,742 354,522 Subtotal 0.01 % 0.00 35,742 354,522 Total long-term loans 1.20 % 2.91 6,599,506 1,218,939 Less: current portion ( 96,824 ) ( 156,217 ) Non-current portion $ 6,502,682 $ 1,062,722 * Pertained to information for loans outstanding as of December 31, 2024. F- 29 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 — LONG-TERM LOANS (cont.) The Company borrowed loans from various banks and a financial institution for working capital purposes. Interest expense was $ 28,300 and $ 45,292 for the years ended December 31, 2024 and 2023, respectively. The guaranteed information of the Company’s outstanding loans as of December 31, 2024 and 2023 consists of the following: SCHEDULE OF OUTSTANDING LOANS December 31, 2024 December 31, 2023 Co-guaranteed by CEO of subsidiaries within the Company’s organizational structure and Tokyo Credit Guarantee Association $ 185,766 $ 747,474 Co-guaranteed by CEO of a subsidiary within the Company’s organizational structure and Kanagawa Credit Guarantee Association $ — $ 116,943 Guaranteed by a subsidiary within the Company’s organizational structure $ 6,377,998 $ — As of December 31, 2024, future minimum payments for long-term loans are as follows: SCHEDULE OF MATURITIES OF LONG TERM DEBT Years ending December 31, Principal Repayment 2025 $ 96,824 2026 66,580 2027 6,436,102 2028 — 2029 and thereafter — Total $ 6,599,506 NOTE 14 — OPERATING LEASES — AS A LESSEE The Company has entered into operating leases for offices and sublease purposes, with terms ranging from two to seven years. The estimated effect of lease renewal and termination options, as applicable, that are reasonably certain to be exercised in the determination of the lease term and initial measurement of right-of-use assets and lease liabilities was included in the consolidated financials. During the years ended December 31, 2024 and 2023, certain operating leases were guaranteed by related parties of the Company. Operating lease expenses for lease payments are recognized on a straight-line basis over the lease term. Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheets. The components of lease costs are as follows: SCHEDULE OF LEASE COSTS 2024 2023 For the Years Ended December 31, 2024 2023 Operating lease costs $ 3,877,048 $ 4,056,387 Short-term lease costs 286,009 757,457 Total lease costs $ 4,163,057 $ 4,813,844 F- 30 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 — OPERATING LEASES — AS A LESSEE (cont.) The following table presents supplemental information related to the Company’s operating leases: SCHEDULE OF SUPPLEMENTAL INFORMATION OPERATING LEASES 2024 2023 For the Years Ended December 31, 2024 2023 Operating cash flows from operating leases $ 4,105,434 $ 4,005,952 Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ — $ 2,305,199 Remeasurement of operating lease liabilities and right-of use assets due to lease modifications $ 2,908,554 $ 2,110,079 Weighted average remaining lease term (years) 1.66 2.30 Weighted average discount rate (per annum) 0.65 % 0.19 % As of December 31, 2024, the future maturity of lease liabilities is as follows: SCHEDULE OF MATURITY OF LEASE LIABILITIES Years ending December 31, Lease Payment 2025 $ 4,361,879 2026 712,869 2027 263,412 2028 109,906 2029 109,906 Thereafter 54,950 Total undiscounted lease payments 5,612,922 Less: imputed interest ( 29,874 ) Total operating lease liabilities $ 5,583,048 NOTE 15 — INCOME TAXES United States SBC Holding, SBC USA, SBC Healthcare Inc., SBC Irvine, LLC, and Aikawa Medical Management, Inc. are incorporated in the United States and subject to federal income tax rate at 21 % and California state income tax rate at 6.98 %. Japan The Company conducts its major businesses in Japan and is subject to tax in this jurisdiction. During the years ended December 31, 2024 and 2023, substantially all the taxable income of the Company is generated in Japan. As a result of its business activities, the Company files tax returns that are subject to examination by the local tax authority. Income taxes in Japan applicable to the Company are imposed by the national, prefectural, and municipal governments, and in the aggregate resulted in an effective statutory rate of approximately 34.69 % and 34.69 % for the years ended December 31, 2024 and 2023, respectively. Vietnam Shoubikai Medical Vietnam Co., Ltd. is incorporated in Vietnam and subject to income tax rate at 20 % statutory tax rate with respect to the assessable profits generated from Vietnam. Singapore Aesthetic Healthcare Holdings Pte. Ltd. and its subsidiaries are incorporated in Singapore and subject to income tax rate at 17 % statutory tax rate with respect to the assessable profits generated from Singapore. F- 31 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 — INCOME TAXES (cont.) For the years ended December 31, 2024 and 2023, the Company’s income tax expenses are as follows: SCHEDULE OF INCOME TAX EXPENSES 2024 2023 For the Years Ended December 31, 2024 2023 Current $ 41,183,012 $ 30,905,334 Deferred ( 14,417,087 ) 4,113,395 Total $ 26,765,925 $ 35,018,729 From October 2023, the Company underwent a tax examination conducted by the Japanese tax authority for the income tax returns filed by SBC Japan for the years ended March 31, 2016 through March 31, 2023, the income tax returns filed by L’Ange Sub for the years ended February 28, 2021 through February 28, 2023, and the income tax returns filed by Shobikai Sub for the years ended March 31, 2021 through March 31, 2023. The tax examination was completed, and the subsidiaries of the Company filed the amended tax returns or received the correction notices from the Japanese tax authority in May 2024. There was no material difference between the final result and the income tax liabilities recorded by the Company for the year ended December 31, 2023. A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of operations and comprehensive income to the statutory federal tax rates for the years ended December 31, 2024 and 2023 are as follows: SCHEDULE OF FEDERAL INCOME TAX RATE 2024 2023 For the Years Ended December 31, 2024 2023 Statutory federal rate 21.00 % 34.69 % State income tax expense, net of federal income tax effect 6.98 % — Effect of income tax rate difference under different tax jurisdictions 8.79 % 0.59 % Expenses not deductible for tax purpose 0.46 % ( 1.88 )% Effect of change in valuation allowance 2.10 % 12.04 % Effect of tax payments and dues ( 3.27 )% ( 1.38 )% Other adjustments 0.38 % 3.53 % Effective tax rate 36.44 % 47.59 % The tax effects of temporary differences that give rise to the deferred income tax assets and liabilities on December 31, 2024 and 2023 are presented below: SCHEDULE OF NET DEFERRED TAX ASSETS AND LIABILITIES December 31, 2024 December 31, 2023 Deferred income tax assets Revenue and expense adjustments $ 2,317,931 $ 4,142,338 Change in cash surrender value of life insurance policies 370,625 ( 1,168,097 ) Lease liabilities 1,507,518 2,195,824 Net operating losses carried forward 13,543,915 7,397,655 Impairment on intangible asset 5,498,205 — Fair value change of long-term investments 877,026 — Others 178,597 220,885 Total deferred income tax assets 24,293,817 12,788,605 Less: valuation allowance ( 8,640,332 ) ( 7,397,655 ) Total deferred income tax assets, net $ 15,653,485 $ 5,390,950 F- 32 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 — INCOME TAXES (cont.) December 31, 2024 December 31, 2023 Deferred income tax liabilities Revenue and expense adjustments $ ( 2,602,712 ) $ ( 9,131,874 ) Change in cash surrender value of life insurance policies ( 1,720,120 ) — Right-of-use assets ( 1,415,168 ) ( 2,053,535 ) Intangible assets acquired through business acquisition ( 354,739 ) — Others ( 688,698 ) ( 219,106 ) Total deferred income tax liabilities $ ( 6,781,437 ) $ ( 11,404,515 ) Deferred income tax assets, net $ 9,798,071 $ — Deferred income tax liabilities, net $ ( 926,023 ) $ ( 6,013,565 ) The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Company regularly assesses the ability to realize its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The Company weighs all available positive and negative evidence, including its earnings history and results of recent operations, projected future taxable income, and tax planning strategies. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth. The adjustments of a valuation allowance against deferred tax assets may cause greater volatility in the effective tax rate in the periods in which the valuation allowance is adjusted. Based upon the level of historical taxable profit and projections for future taxable profit over the periods for which the deferred tax assets are deductible, management believes it is probable that the Company will utilize the benefits of these deferred tax assets as of December 31, 2024 and 2023. Uncertainty of estimates of future taxable profit could increase due to changes in the economic environment surrounding the Company, effects by market conditions, effects of currency fluctuations or other factors. Uncertain tax positions The Company evaluates each uncertain tax position (including the applicability of interest and penalties) based on technical merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2024 and 2023, the management considered the Company did not have any significant unrecognized uncertain tax positions. The Company does not participate in any significant increases or decreases in unrecognized tax benefits in the next twelve months from December 31, 2024. Open tax years in Japan are five years. The Company’s income tax returns filed in Japan for the tax years prior March 31, 2023 were examined by the relevant tax authorities. F- 33 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 — SHAREHOLDERS’ EQUITY The Company is authorized to issue 400,000,000 shares of common stock, par value of $ 0.0001 per share (“Common Stock”), and 20,000,000 shares of undesignated preferred stock, par value of $ 0.0001 per share. Shares issued under Pono Merger On September 17, 2024, upon the consummation of Pono Merger, the Company issued 94,192,433 shares of common stock to the former shareholder of SBC USA as merger consideration, and the Company gave effect to the issuance of 5,080,820 shares of common stock for the Class A common stock that were previously issued by Pono and outstanding at the closing date of Pono Merger. In addition, Pono Promissory Note of $ 2,700,000 was automatically converted to 270,000 shares of common stock, held by SBC USA, which were recorded as treasury stock on the consolidated balance sheets. On September 18, 2024, the Company issued 339,565 shares of common stock for no proceeds as follows: (i) 83,250 shares to Wolverine Flagship Fund Trading Limited, (ii) 96,030 shares to Amethyst Arbitrage International Master Fund, (iii) 100,000 shares to Radcliffe SPAC Master Fund, L.P. and (iv) 60,285 shares to Verition Multi-Strategy Master Fund Ltd. as incentive shares pursuant to the Non-Redemption Agreements, entered into in May 2023, by and among Pono, Mehana Capital LLC and certain unaffiliated stockholders, including Wolverine Flagship Fund Trading Limited, Amethyst Arbitrage International Master Fund, Radcliffe SPAC Master Fund, L.P. and Verition Multi-Strategy Master Fund Ltd (“Non-Redemption Agreements”). As of December 31, 2024 and December 31, 2023, there were 103,020,816 and 94,192,433 shares issued, 102,750,816 and 94,192,433 shares outstanding, respectively, and no preferred stock issued and outstanding, after giving retrospective effects of reverse recapitalization on September 17, 2024. Stock-based compensation On November 18, 2022 (“Effective Date”), the Company entered into a Common Stock Purchase Warrant Agreement (the “Warrant Agreement”) with HeartCore Enterprise, Inc. (“HeartCore”) pursuant to which it agreed to compensate HeartCore with common stock purchase warrants (the “Warrants”) in exchange for professional services to be provided by HeartCore in connection with its merger or other transaction with a special purpose acquisition company (“SPAC”) wherein the Company becomes a subsidiary of the SPAC (the “Merger”). The Warrants were fully vested as of the Effective Date, however, HeartCore can exercise the Warrants in 10 years only upon the Company’s consummation of the Merger or the occurrence of other fundamental events defined in the Warrant Agreement to purchase 2.7 % of the fully diluted shares of the Company’s common stock as of the date of the Merger, for an exercise price per share of $ 0.01 . As the performance condition of exercisability was satisfied upon the consummation of Pono Merger, the Company recognized stock-based compensation of $ 13,022,692 during the year ended December 31, 2024. On September 27, 2024, the Warrants were fully exercised, and 3,137,998 shares of common stock were issued. In January 2024, the Company terminated 449,190 common stock options granted to doctors of related-party MCs (the “Holders”) in September 2023. In connection with the termination, the Company entered into a common stock purchase warrant agreement (the “Warrant Agreement III”) pursuant to which the Company issued to the Holders warrants to acquire an equal number of shares of common stock as previously subject to the options issued to each of the Holders in September 2023. The warrants may be exercised on the three-month, fifteen-month, and twenty-seven-month anniversary of the date of the Company completes its merger or other transaction with a special purpose acquisition company (“SPAC”) wherein the Company becomes a subsidiary of the SPAC (the “Merger”) or the occurrence of other fundamental events defined in the Warrant Agreement III (the “Trigger Date”), to acquire an amount equal to one-third of the applicable shares of common stock, respectively, with an exercise price per share of $ 0.0001 . The warrants were fully vested on the grant date and will expire on the tenth anniversary of the Trigger Date. In June and July 2024, the Company terminated all common stock options and warrants ever granted, except for Warrants granted to HeartCore in November 2022. As of December 31, 2024 and 2023, there were nil and 1,131,810 common stock options and warrants granted to related parties of the Company, respectively. F- 34 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 — SHAREHOLDERS’ EQUITY (cont.) The following table summarizes the stock option/warrant activities and related information for the years ended December 31, 2024 and 2023: SCHEDULE OF STOCK OPTION/WARRANTS ACTIVITIES Number of Warrants* Weighted Average Exercise Price Weighted Average Remaining Term (Years) Intrinsic Value As of January 1, 2023 3,137,998 $ 0.01 10.00 $ — Granted 1,781,000 0.0001 10.00 — Exercised — — — — Forfeited — — — — As of December 31, 2023 4,918,998 $ 0.0064 10.00 $ — Granted 449,190 0.0001 10.00 — Additions pursuant to Pono Merger ** 12,134,375 11.50 5.00 — Exercised ( 3,137,998 ) 0.01 — — Forfeited/Cancelled ( 2,230,190 ) 0.0001 — — As of December 31, 2024 ** 12,134,375 $ 11.50 4.80 $ — Vested and exercisable as of December 31, 2024 12,134,375 $ 11.50 4.80 $ — * The number of Warrants granted to HeartCore was updated to reflect the adjustment upon the consummation of Pono Merger. ** As of December 31, 2024, there were 12,134,375 warrants issued by Pono, prior to Pono Merger, among which 11,500,000 warrants were issued through its initial public offering (“IPO”) (“Public Warrants”) and 634,375 were issued through a private placement (“Placement Warrants”). Each warrant entitles the registered holder to purchase one share of common stock at a price of $ 11.50 per share at any time commencing on October 17, 2024 until October 17, 2029, or earlier upon redemption or liquidation. The fair value of the stock-based compensation recognized in the consolidated financial statements was estimated using the binomial option pricing model, and based on the equity value 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, with the assistance of an independent valuation specialist. The Company applied a weighting to the income approach and market approach to determine the fair value. NOTE 17 — DISAGGREGATION OF REVENUES Revenues generated from different revenue streams consist of the following: SCHEDULE OF DISAGGREGATION OF REVENUE 2024 2023 For the Years Ended December 31, 2024 2023 Franchising revenue $ 61,033,032 $ 42,103,380 Procurement revenue 54,814,399 53,186,662 Management services revenue 53,113,155 72,282,549 Rental services revenue 16,141,714 7,336,768 Others 20,313,242 18,633,064 Total $ 205,415,542 $ 193,542,423 F- 35 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 — DISAGGREGATION OF REVENUES (cont.) During the years ended December 31, 2024 and 2023, the Company recognized revenue of $ 1,970,889 and $ 973,866 from the opening balance of advances from customers, respectively; and revenue of nil and $ 1,382,803 from the opening balance of advances from customers — related parties, respectively. As of December 31, 2024 and 2023, and for the years then ended, substantially all of our long-lived assets and revenues generated were attributed to the Company’s operation in Japan. NOTE 18 — RELATED PARTY TRANSACTIONS The related parties that had material transactions for the years ended December 31, 2024 and 2023 consist of the following: Name of Related Parties Nature of Relationship as of December 31, 2024 Yoshiyuki Aikawa Controlling shareholder, director and CEO of the Company Yoshiko Aikawa Representative director of subsidiaries of the Company Mizuho Yamashita Director of a subsidiary of the Company Medical Corporation Shobikai The relatives of the CEO of the Company being the Members of the MC Medical Corporation Kowakai The relatives of the CEO of the Company being the Members of the MC Medical Corporation Nasukai The relatives of the CEO of the Company being the Members of the MC Medical Corporation Aikeikai The relatives of the CEO of the Company being the Members of the MC Medical Corporation Jukeikai The relatives of the CEO of the Company being the Members of the MC Medical Corporation Ritz Cosmetic Surgery The relatives of the CEO of the Company being the Members of the MC Medical Corporation Association Junikai The relatives of the CEO of the Company being the Members of the MC Medical Corporation Association Furinkai The relatives of the CEO of the Company being the Members of the MC Japan Medical & Beauty Inc. Controlled by the CEO of the Company SBC Inc., previously known as SBC China Inc. Controlled by the CEO of the Company Hariver Inc. Controlled by the CEO of the Company General Incorporated Association SBC The CEO of the Company being the Member of General Incorporated Association SBC Public Interest Foundation SBC Medical Promotion Foundation The relative of CEO of the Company being a Member of Public Interest Foundation SBC Medical Promotion Foundation AI Med Inc. The CEO of the Company is a principal shareholder of AI Med Inc. Amulet Inc. Controlled by Mizuho Yamashita, a director of a subsidiary of the Company SBC Irvine MC Significantly influenced by the Company SBC Tokyo Medical University, previously known as Ryotokuji University The CEO of the Company is the chairman of SBC Tokyo Medical University SBC Shonan Osteopathic Clinic Inc. The CEO of the Company is a principal shareholder of SBC Shonan Osteopathic Clinic Inc. Waqoo Inc. The CEO of the Company is a principal shareholder of Waqoo Inc. General Incorporated Association Taiseikai The relatives of CEO of the Company being the Members of General Incorporated Association Taiseikai Skynet Academy Co., Ltd.* Controlled by the CEO of the Company Kijimadairakanko Inc.* Controlled by the CEO of the Company * Former subsidiaries of the Company that were disposed of to companies controlled by the CEO of the Company on December 23, 2024. F- 36 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 — RELATED PARTY TRANSACTIONS (cont.) During the years ended December 31, 2024 and 2023, the transactions with related parties are as follows: SCHEDULE OF RELATED PARTY TRANSACTIONS Revenues from related parties 2024 2023 For the Years Ended December 31, Revenues from related parties 2024 2023 Medical Corporation Shobikai $ 53,862,520 $ 56,554,316 Medical Corporation Kowakai 46,756,189 45,115,149 Medical Corporation Nasukai 46,355,437 45,893,461 Medical Corporation Aikeikai 17,997,072 21,521,302 Medical Corporation Jukeikai 5,666,907 4,518,846 Medical Corporation Ritz Cosmetic Surgery 7,435,446 2,603,405 Japan Medical & Beauty Inc. 39,620 488,023 Hariver Inc. 19,810 21,740 SBC Inc., previously known as SBC China Inc. 2,512 467 Public Interest Foundation SBC Medical Promotion Foundation 107 387 General Incorporated Association SBC 801 569 SBC Tokyo Medical University, previously known as Ryotokuji University 45,286 231,191 Yoshiyuki Aikawa 98,445 67,516 Mizuho Yamashita — 19,214 Amulet Inc. — 3,587 AI Med Inc. 787 556,397 SBC Irvine MC 1,204,107 1,298,539 Medical Corporation Association Furinkai 11,708,183 2,923,608 Medical Corporation Association Junikai 3,923,228 851,105 General Incorporated Association Taiseikai 692 — SBC Shonan Osteopathic Clinic Co., Ltd. 56,740 69,227 Total $ 195,173,889 $ 182,738,049 Revenue transactions with related parties $ 195,173,889 $ 182,738,049 F- 37 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 — RELATED PARTY TRANSACTIONS (cont.) As of December 31, 2024 and 2023, the balances with related parties are as follows: Accounts receivable December 31, 2024 December 31, 2023 Medical Corporation Shobikai $ 5,091,430 $ 9,251,427 Medical Corporation Nasukai 8,552,722 8,447,448 Medical Corporation Kowakai 7,742,251 7,841,059 Medical Corporation Aikeikai 3,071,378 4,661,649 Medical Corporation Jukeikai 993,944 1,358,213 Medical Corporation Association Furinkai 1,263,602 1,039,074 Medical Corporation Ritz Cosmetic Surgery 817,283 520,891 Medical Corporation Association Junikai 283,298 348,187 Japan Medical & Beauty Inc. — 139,767 SBC Tokyo Medical University, previously known as Ryotokuji University 536 66,546 AI Med Inc. 33 2,329 SBC Inc., previously known as SBC China Inc. 137 45 Public Interest Foundation SBC Medical Promotion Foundation 36 37 SBC Shonan Osteopathic Clinic Co., Ltd. 4 — SBC Irvine MC 693,850 — Kijimadairakanko Inc. 336,176 — Total $ 28,846,680 $ 33,676,672 Accounts receivable with related parties $ 28,846,680 $ 33,676,672 Finance lease receivables December 31, 2024 December 31, 2023 Medical Corporation Shobikai $ 1,877,291 $ 2,568,709 Medical Corporation Kowakai 2,490,705 2,779,347 Medical Corporation Nasukai 3,872,683 2,019,117 Medical Corporation Aikeikai 1,047,821 1,782,124 Medical Corporation Ritz Cosmetic Surgery 2,479,771 79,439 Medical Corporation Jukeikai 500,244 335,317 Medical Corporation Association Furinkai 1,891,412 — Medical Corporation Association Junikai 197,452 — SBC Shonan Osteopathic Clinic Co., Ltd. 32,788 — Total $ 14,390,167 $ 9,564,053 Finance lease receivables $ 14,390,167 $ 9,564,053 Less: current portion ( 5,992,585 ) ( 6,143,564 ) Finance lease receivables Less: current portion ( 5,992,585 ) ( 6,143,564 ) Non-current portion $ 8,397,582 $ 3,420,489 Finance lease receivables Non-current portion $ 8,397,582 $ 3,420,489 Due from related party, net December 31, 2024 December 31, 2023 SBC Irvine MC $ 2,836,013 $ 3,238,209 Less: allowance for credit loss ( 2,836,013 ) ( 3,238,209 ) Total $ — $ — Due from related party, net $ — $ — Long-term investments in MCs - related parties December 31, 2024 December 31, 2023 Medical Corporation Shobikai $ 6,378 $ 7,090 Medical Corporation Kowakai 6,378 7,090 Medical Corporation Nasukai 6,378 7,090 Medical Corporation Aikeikai 6,378 7,090 Medical Corporation Jukeikai 6,859,913 7,626,184 Medical Corporation Ritz Cosmetic Surgery 10,935,485 12,157,011 Total $ 17,820,910 $ 19,811,555 Long-term investments in MCs – related parties $ 17,820,910 $ 19,811,555 F- 38 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 — RELATED PARTY TRANSACTIONS (cont.) Accounts payable December 31, 2024 December 31, 2023 Japan Medical & Beauty Inc. $ 659,044 $ — Total $ 659,044 $ — Accounts payable $ 659,044 $ — Advances from customers December 31, 2024 December 31, 2023 Medical Corporation Shobikai $ 5,076,300 $ 13,438,645 Medical Corporation Kowakai 1,801,034 4,237,765 Medical Corporation Nasukai 1,745,069 4,117,597 Medical Corporation Aikeikai 379,931 1,168,947 Medical Corporation Jukeikai 140,170 85,044 Medical Corporation Ritz Cosmetic Surgery 45,701 10,177 SBC Shonan Osteopathic Clinic Co., Ltd. 16,395 — Medical Corporation Association Furinkai 940,007 — Medical Corporation Association Junikai 1,594,926 — Total $ 11,739,533 $ 23,058,175 Advances from customers $ 11,739,533 $ 23,058,175 Notes payable – related parties December 31, 2024 December 31, 2023 Medical Corporation Shobikai $ 4,653 $ 5,264,101 Medical Corporation Kowakai 14,672 3,855,650 Medical Corporation Nasukai 8,827 4,099,032 Medical Corporation Aikeikai 2,236 1,561,642 Medical Corporation Jukeikai — 268,552 Medical Corporation Ritz Cosmetic Surgery 1,201 268,445 Total $ 31,589 $ 15,317,422 Notes payable – related parties $ 31,589 $ 15,317,422 Less: current portion ( 26,255 ) ( 3,369,203 ) Notes payable – related parties Less: current portion ( 26,255 ) ( 3,369,203 ) Non-current portion $ 5,334 $ 11,948,219 Notes payable – related parties Non-current portion $ 5,334 $ 11,948,219 Due to related party December 31, 2024 December 31, 2023 Yoshiyuki Aikawa $ 2,823,590 $ 3,583,523 Total $ 2,823,590 $ 3,583,523 Due to related party $ 2,823,590 $ 3,583,523 Allowance for credit loss movement December 31, 2024 December 31, 2023 Beginning balance $ 3,238,209 $ 2,867,455 Provision for credit loss 622,804 370,754 Reversal of credit loss ( 1,025,000 ) — Ending balance $ 2,836,013 $ 3,238,209 Other income December 31, 2024 December 31, 2023 Medical Corporation Shobikai $ 999,350 $ — Medical Corporation Kowakai 568,092 — Medical Corporation Nasukai 764,809 — Medical Corporation Aikeikai 316,352 — Medical Corporation Jukeikai 24,474 — Total $ 2,673,077 $ — Other income $ 2,673,077 $ — The balances of due to and due from related parties represent the outstanding loans to and from related parties, respectively, as of December 31, 2024 and 2023. These loans are non-secured, interest-free and due on demand. In February 2023, the Company paid off the retirement compensation expense accrued to Yoshiko Aikawa. During the years ended December 31, 2024 and 2023, the Company purchased medical equipment and cosmetics of $ 8,472,202 and $ 2,842,588 , respectively, from Japan Medical & Beauty Inc., which was recognized and included in the cost of revenues. Also see Note 2(a), 5, 8, 10, 13, 14, 16, 17 and 21 for more transactions with related parties. F- 39 Table of Contents SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 — MISAPPROPRIATION LOSS In 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”), 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. The 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. Shortly after this discovery, the Company engaged independent legal counsel and forensic consultants to investigate the misappropriations. The investigation, which was completed in March 2024, revealed that the participants had misappropriated approximately JPY 632 million ($ 5.6 million), including consumption tax, from the Company of which the former director received approximately JPY 335 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. The 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 funds. The misappropriated amounts, excluding the consumption tax, representing advertising service s 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 . NOTE 20 — SEGMENT REPORTING The Company’s chief operating decision maker (“CODM”), Chief Executive Officer, reviews consolidated results of operations to make decisions, therefore the Company views its operations and manages its business as a single operating segment. The Company’s revenues for its single operating segment are derived from providing comprehensive management services to MCs and their clinics. The accounting policies for the single operating segment are the same as those described in Note 2. The CODM evaluates performance for the Company’s single operating segment and decides how to allocate resources based on the Company’s consolidated net income that is reported in the consolidated statements of operations and comprehensive income as net income. The measure of segment assets is reported on the consolidated balance sheets as total assets. The CODM allocates resources across the Company based on consolidated net income derived during the annual budgeting process and throughout the year in monitoring actual results compared to budget and updated forecasts. These results are used to assess segment performance. The operating segment financial information regularly reviewed by the CODM, inclusive assets, revenues, expenses, profit or loss, and noncash items are presented on a consolidated basis in the same amount and using the same captions as those included in the consolidated statements of operations and comprehensive income, consolidated balance sheets, and consolidated statements of cash flows. There are no additional segment expense categories regularly provided to the CODM. Therefore, there are also no amounts classified as other segment items requiring disclosure. NOTE 21 — COMMITMENT As of December 31, 2024 and 2023, a subsidiary of the Company provided a guarantee on the debt of its CEO in the amounts of $ 262,095 and $ 329,155 , respectively. As of December 31, 2024 and 2023, the Company did not record a liability in the consolidated balance sheets for the guarantee because it was not probable that the Company would be required to make payments under the guarantee. NOTE 22 — SUBSEQUENT EVENTS In January 2025, the Company effected a merger in which SBC Japan and Shobikai Sub merged with and into L’Ange Sub. As a result, the separate corporate existence of SBC Japan and Shobikai Sub ceased, with L’Ange Sub continuing as the surviving company. Following the merger, L’Ange Sub changed its name to SBC Medical Group Co., Ltd. In February 2025, the Company issued 860,435 shares of common stock, with no proceeds, to Mehana Capital LLC as incentive shares pursuant to the Non-Redemption Agreements. F- 40 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.