What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-15 compared with 2024-11-13 · 238 added, 526 removed, 110 unchanged (87% of the section changed)

1 unchanged sentence

following discussion and analysis summarize the significant factors affecting our operating results, financial condition, liquidity,

and cash flows for the periods presented below.

The following discussion and analysis should be read in conjunction with our consolidated

financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).

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

“us” or “our” refers to SBC Medical Group, Inc.

(formerly known as SBC Medical Group Holdings Incorporated)

prior to the consummation of the Business Combination and to the Combined Entity and its consolidated subsidiaries following the

Business Combination.

Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements.

Forward-looking statements are not historical facts or

statements of current conditions, but instead represent only the Company’s beliefs regarding future events and performance, many

of which, by their nature, are inherently uncertain and outside of the Company’s control.

These forward-looking statements reflect

the Company’s current views with respect to, among other things, the Company’s financial performance;

growth in revenue and

business prospects and opportunities;

and capital deployment plans and liquidity.

In some cases, forward-looking statements

can be identified by the use of words such as “may,” “should,” “expects,” “anticipates,”

“contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,”

“potential,” or “hopes” or the negative of these or similar terms.

The Company cautions readers not to place undue

reliance upon any forward-looking statements, which are current only as of the date of this Quarterly Report and are subject to various

risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify.

The forward-looking statements

are based on management’s current expectations and are not guarantees of future performance.

The Company does not undertake or accept

any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations

or any change in events, conditions, or circumstances on which any such statement is based, except as required by law.

Factors that may

cause actual results to differ materially from current expectations may emerge from time to time, and it is not possible for the Company

to predict all of them;

such factors include, among other things, changes in global, regional, or local economic, business, competitive,

market and regulatory conditions, and those listed under the heading “Risk Factors” and elsewhere in the Company’s filings

with the SEC, which are accessible on the SEC’s website at www.sec.gov.

and cash flows for the periods presented below, which should be read in conjunction with the unaudited consolidated financial

statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).

forward-looking statements contained herein are based on management’s judgment, assumptions made by management and information

currently available to it.

Actual results could differ materially from those discussed or implied in the forward-looking statements

as a result of various factors, including those described elsewhere in this Quarterly Report and the Annual Report, particularly in

“Part I, Item 1A.

Risk Factors” of the Annual Report and the section entitled “Cautionary Note Regarding

Forward-Looking Statements” herein.

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

“SBC,” “we,” “us” or “our” refers to Legacy SBC (defined below) and its consolidated

subsidiaries and variable interest entity (“VIE”), prior to the consummation of the Business Combination and to SBC

Medical Group Holdings Incorporated and its consolidated subsidiaries and VIE, following the Business Combination.

Medical Group, Inc.

2 unchanged sentences

to cosmetic treatment centers mainly in Japan.

September 17, 2024, Legacy SBC consummated its going-public business combination with Pono Capital Two, Inc.

Combination”).

In connection with the closing of the Business Combination, Pono Capital Two, Inc.

changed its name to SBC

Medical Group Holdings Incorporated and the Company’s common stock began trading on Nasdaq under the ticker symbol

The Company and its subsidiaries are primarily focused on providing comprehensive management

6 unchanged sentences

program), and payment tools for the franchisee clinics.

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

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

wholly owned subsidiary, SBC Medical Group Co., Ltd., a Japan corporation (“SBC Medical Sub”, or “SBC Japan”) is

designated as a “medical service corporation” in Japan.

In Japan, a medical service corporation is a legal entity that provides

management service to “medical corporations”.

The management services are conducted through franchisor-franchisee contracts

and/or service contracts between certain subsidiaries of the Company (SBC Medical Sub, Lange Sub, and Shobikai Sub) and the medical corporations

that own all 224 of the treatment centers in Japan as of September 30, 2024, which operate under the brand name “Shonan Beauty

These clinics provide include but are not limited to breast augmentation, liposuction, rejuvenation treatments (including

treatment of wrinkles, acne, scars, cellulite, excess fat, discoloration, and signs of aging), laser skin toning and spot removal, eyes

double fold surgery, rhinoplasty, treatment of osmidrosis and hyperhidrosis, hair transplants, gynecological formation treatments, laser

hair removal, face line surgeries, cosmetical dental procedures, tattoo removal, lasik eye surgery, lateral canthoplasty, brow lift procedures,

androgenetic alopecia treatment, and cheek sagging prevention methods.

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

contracts, consisting of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation

Aikeikai, Medical Corporation Jukeikai and Medical Corporation Ritz Cosmetic Surgery.

In addition, the Company has entered into service

contracts since September 2023 with two additional medical corporations, Medical Corporation Association Furinkai and Medical Corporation

Association Junikai (collectively with the six franchisee medical corporations, the “Medical Corporations” or “MCs”).

All of the Medical Corporations are deemed to be related parties of the Company since relatives of the CEO of the Company are the members

(or shain ) of general meetings of members of the Medical Corporations.

The CEO of the Company was previously a member of the six

franchisee Medical Corporations until he ceased being a member in July 2023.

The Company, through SBC Medical Sub, owns equity “deposit”

interests (or mochibun ) of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association

Although the Company, through SBC Medical Sub, has an equity “deposit” interest to the rights to receive a distribution

of residual assets in proportion to the amount of contribution in certain circumstances as provided in the articles of incorporation

of each of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai), the

Company or SBC Medical Sub does not have voting control over the corporate actions at general meetings of members (or shain ) of

the Medical Corporations per the requirements of the Japanese Medical Care Act.

the three months ended September 30, 2024 and 2023, we generated revenues of $53,084,883 and $47,278,685, respectively, we reported net

income attributable to SBC Medical Group Holdings Incorporated of $2,832,894 and $8,356,414, respectively.

For the nine months ended

September 30, 2024 and 2023, we generated revenues of $160,995,005 and $131,192,729, respectively, we reported net income attributable

to SBC Medical Group Holdings Incorporated of $40,075,054 and $25,027,776, respectively, and cash flow provided by operating activities

of $27,886,231 and $22,753,983, respectively.

As of September 30, 2024, we had retained earnings of $182,923,786.

In Japan, a medical service corporation is a legal entity that

provides management service to “medical corporations”.

The management services are conducted through

franchisor-franchisee contracts and/or service contracts between SBC Medical Sub and the medical corporations that own all 251 of

the treatment centers in Japan as of March 31, 2025 .

These clinics provide include but are not limited to breast augmentation, liposuction, rejuvenation treatments (including treatment

of wrinkles, acne, scars, cellulite, excess fat, discoloration, and signs of aging), laser skin toning and spot removal, eyes double

fold surgery, rhinoplasty, treatment of osmidrosis and hyperhidrosis, hair transplants, gynecological formation treatments, laser

hair removal, face line surgeries, cosmetical dental procedures, tattoo removal, lasik eye surgery, lateral canthoplasty, brow lift

procedures, androgenetic alopecia treatment, and cheek sagging prevention methods.

Company’s subsidiaries have entered into franchisor-franchisee contracts and service contracts with six medical corporations, consisting

of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, Medical Corporation

Jukeikai and Medical Corporation Ritz Cosmetic Surgery.

In addition, the Company has entered into service contracts since September 2023

with two additional medical corporations, Medical Corporation Association Furinkai and Medical Corporation Association Junikai (collectively

with the six franchisee medical corporations, the “Medical Corporations” or “MCs”).

All of the Medical Corporations

are deemed to be related parties of the Company since relatives of the CEO of the Company are the members (or shain ) of general

meetings of members of the Medical Corporations.

The CEO of the Company was previously a member of the six franchisee Medical Corporations

until he ceased being a member in July 2023.

The Company, through SBC Medical Sub, owns equity “deposit” interests (or mochibun )

of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai).

Company, through SBC Medical Sub, has an equity “deposit” interest to the rights to receive a distribution of residual assets

in proportion to the amount of contribution in certain circumstances as provided in the articles of incorporation of each of the Medical

Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai), the Company or SBC Medical

Sub does not have voting control over the corporate actions at general meetings of members (or shain ) of the Medical Corporations

per the requirements of the Japanese Medical Care Act.

the three months ended March 31, 2025 and 2024, we generated revenues of $47,328,701 and $54,808,042, respectively, we reported net income

attributable to SBC Medical Group Holdings Incorporated of $21,502,446 and $18,757,752, respectively, and cash flows provided by operating

activities of $1,928,621 and $3,682,175, respectively.

As of March 31, 2025, we had retained earnings of $210,965,453.

primary mission is to provide quality comprehensive management services to the Medical Corporations and expand our “Shonan Beauty

1 unchanged sentence

We plan to achieve the mission by maintaining and strengthening our market position and brand in the cosmetic medical

treatment management market in Japan, Vietnam, and the United States, and by growing our presence globally.

treatment management market in Japan, Vietnam, Singapore and the United States, and by growing our presence globally.

of Operations

of Results of Operations for the Three Months Ended September 30, 2024 and 2023

of Results of Operations for the Three Months Ended March 31, 2025 and 2024

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

income for the three months ended September 30, 2024 and 2023, and presents information regarding amounts and percentage changes

during those periods.

income for the three months ended March 31, 2025 and 2024, and presents information regarding amounts and percentage changes during those

For the Three Months Ended

September 30,

Revenues, net (including net revenues provided to related parties)

Cost of revenues

$ (7,479,341 )

Cost of revenues (including cost of revenues from related parties)

Operating expenses

Income from operations

Other income (expenses)

Income before income taxes

Income tax expense

net income (loss) attributable to non-controlling interests

net loss attributable to non-controlling interests

Net income attributable to SBC Medical Group Holdings Incorporated

$ (5,523,520 )

net generated from different revenue streams consist of the following:

For the Three Months Ended

September 30,

Royalty income

Procurement services

Management services

Franchising revenue

Procurement revenue

Management services revenue

Rental services revenue

$ (7,479,341 )

Rental services

net, increased by 12.28% from $47,278,685 for the three months ended September 30, 2023 to $53,084,883 for the three months ended September

net, decreased by 13.65% from $54,808,042 for the three months ended March 31, 2024 to $47,328,701 for the three months ended March 31,

Yen (“JPY”) against the U.S.

dollar slightly depreciated for the three months ended September 30, 2024, compared to the

three months September 30, 2023.

For the three months ended September 30, 2024 and 2023, we generated net revenues of $53,084,883

(JPY7,908 million) and $47,278,685 (JPY6,718 million), respectively, we reported net income of $2,834,467 (JPY389 million) and

$8,057,791 (JPY1,149 million), respectively.

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

on net revenues was $2,570,776 and favorable impact on net income was $108,549, for the three months ended September 30,

main reasons for the variance of $5,806,198 in revenues, net per revenue stream are as follows:

income for the three months ended September 30, 2024 increased to $15,688,528 by $7,081,529, or 82.28%, from $8,606,999 for the same

dollar slightly depreciated during the three months ended March 31, 2025, compared to the three

months March 31, 2024.

The spot rate against the dollar was 149.4840 yen on Marh 31, 2025 compared to 151.3380 yen on March 31, 2024

and the average rate against the dollar was 152.5417 yen for the three months ended March 31, 2025 compared to 148.4462 yen for the same

period in 2024.

This increase was mainly due to authorizing the six MCs, which are our main recurring customers, to use our patents and

trademarks starting from September 2023, as well as the business expansion of the MCs.

procurement services revenue for the three months ended September 30, 2024 increased to $17,571,299 by $8,611,610, or 96.12%, from $8,959,689

for the same period in 2023.

This increase was mainly due to the increased demand on advertising services and medical materials due to

the business expansion of MCs.

The management services revenue

for the three months ended September 30, 2024 decreased to $12,110,764 by $10,858,423, or 47.27%, from $22,969,187 for the same period

This decrease was mainly due to the revenue generated by dispatching staff to MCs to provide clinic operation services were discontinued

since September 2024, because the Company plans to merge Shobikai Sub to another subsidiary and the related license, held by Shobikai

Sub, to conduct such staff dispatching business will be invalid after the merger.

rental services revenue for the three months ended September 30, 2024 increased to $4.124,774 by $2,786,971, or 208.32%, from $1,337,803

for the same period.

This increase was mainly due to the increased demand for medical equipment from MCs due to the business expansion

other revenues for the three months ended September 30, 2024 decreased to $3,589,518 by $1,815,489, or 33.59%, from $5,405,007 for the

same period in 2023.

This decrease was mainly due to the decrease in demand for leasehold improvement services .

of revenues for the three months ended September 30, 2024 was $9,845,793 compared to $13,780,309 for the same period in 2023.

decrease was mainly due to the discontinuation of clinic operation staff supporting services provide by Shobikai Sub to MCs since

September 2024, and the Company then terminated the employment of the related staff.

As a result, labor cost significantly decreased.

profit for the three months ended September 30, 2024 was $43,239,090 compared to $33,498,376 for the same period in 2023.

in gross profit by $9,740,714 or 29.08% was mainly due to the increase in royalty income and procurement services with a relatively high

gross margin as a result of the factors described above, offset by the decrease in management services revenue as a result of the factors

described above.

expenses for the three months ended September 30, 2024 and 2023 were as follows:

For the Three Months Ended

September 30,

Salaries and welfare

Depreciation and amortization expense

Consulting and professional service fees

Advertising expense

Taxes and dues

Recruiting expense

Lease expense

Office, utility and other expenses

Misappropriation loss

Stock-based compensation

operating expenses increased to $29,404,487 for the three months ended September 30, 2024 by $15,929,353, or 118.21%, from $13,475,134

for the same period in 2023.

The increase was mainly due to the increase in stock-based compensation, the increase in consulting and

professional service fees and the increase in office, utility and other expenses, partially offset by the decrease in depreciation and

amortization expenses.

Stock-based compensation relate to the warrants issued

to the service provider that supported SBC’s listing process.

These warrants were issued in November 2022 and became exercisable upon

the consummation of business combination with Pono Two Capital, Inc., and the fair value was recognized as an expense.

and professional service fees increased by $4,157,001, or 455.20%, to $5,070,231 for the three months ended September 30, 2024 from $913,230

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

utility and other expenses increased by $1,175,844, or 94.40%, to $2,421,455 for the three months ended September 30, 2024 from $1,245,611

for the same period in 2023, mainly due to the insurance expense recognized due to the decrease in the cash surrender

values of the corporate-owned life insurance policies and administrative expenses increased in preparation for the listing.

and amortization expense decreased by $2,204,482, or 76.30%, to $684,926 for the three months ended September 30, 2024 from

$2,889,408 for the same period in 2023, mainly because the decrease in amortization expense incurred from the intangible assets

owned by Cell Pro Japan Co., Ltd.(“Cellpro”), a former subsidiary of the Company, due to the disposal of Cellpro on

January 1, 2024.

Income (Expenses)

income (expenses) for the three months ended September 30, 2024 and 2023, were as follows:

For the Three Months Ended

September 30,

Interest income

Interest expense

Other expenses

$ (1,773,563 )

particular, the other income was $65,922 for the three months ended September 30, 2024, as compared to $1,138,869 for the three

months ended September 30, 2023, mainly due to the income from the surrender of life insurance policies.

The other expense was

$795,158 for the three months ended September 30, 2024, as compared to $98,314 for the three months ended September 30, 2023, mainly

due to the increase in unrealized loss from the Company’s investment in a public entity with readily determinable fair

tax expense for the three months ended September 30, 2024 was $10,273,384 compared to $13,012,262 for the same period in 2023.

in income tax expense by $2,738,878 or 21.05% was mainly due to the impact of a temporary increase in listing-related expenses recorded

in conjunction with the listing.

The decrease was in line with the decrease in income before tax generated by the major operating entities

in the three months ended September 30, 2024 as compared with September 30, 2023.

effective tax rate was 78.38% and 61.76% for the three months ended September 30, 2024 and 2023, respectively.

The decrease of 16.62

percentage points was mainly due to the recognition of stock-based compensation of $12,807,455 in the three months ended September 30,

2024 while no such expense was recorded in the three months ended September 30, 2023.

a result of the foregoing, we reported a net income of $2,834,467 for the three months ended September 30, 2024, representing a decrease

of $5,223,324 or 64.82% from $8,057,791 for the three months ended September 30, 2023.

Income (Loss) Attributable to Non-controlling Interests

income attributable to non-controlling interests was $1,573 for the three months ended September 30, 2024, as compared to a net loss

attributable to non-controlling interests of $298,623 for the three months ended September 30, 2023, mainly due to the disposal of Cellpro

on January 1, 2024.

of Results of Operations for the Nine Months Ended September 30, 2024, and 2023

following table summarizes our operating income as reflected in our consolidated statements of operations and comprehensive income for the nine months ended September 30, 2024 and 2023, and presents information regarding amounts and percentage changes during those

For the Nine Months Ended

September 30,

Revenues, net (including net revenues provided to related parties)

$ 160,995,005

$ 131,192,729

Cost of revenues

Operating expenses

Income from operations

Income before income taxes

Income tax expense

net income (loss) attributable to

non-controlling interests

Net income attributable to SBC Medical Group Holdings Incorporated

net generated from different revenue streams consist of the following:

For the Nine Months Ended

September 30,

Royalty income

Procurement services

Management services

Rental services

$ 160,995,005

$ 131,192,729

net, increased by 22.72% from $131,192,729 for the nine months ended September 30, 2023 to $160,995,005 for the nine months ended September

Yen (“JPY”) against the U.S.

dollar depreciated during the nine months ended September 30, 2024, compared to the nine months

ended September 30, 2023.

For the nine months ended September 30, 2024 and 2023, we generated net revenues of $160,995,005 (JPY24,331 million)

and $131,192,729 (JPY18,118 million), respectively, we reported net income of $40,142,008 (JPY6,067 million) and $24,330,964 (JPY3,360

million), respectively.

Overall, the unfavorable impacts of the period-to-period foreign exchange rate changes on net revenues and net

income were $15,184,893 and $3,786,155, respectively, for the nine months ended September 30, 2024.

For the three months ended March 31, 2025 and 2024, we generated net revenues of $47,328,701 (JPY7,220 million) and $54,808,042

(JPY8,136 million), respectively, we reported net income of $21,491,950 (JPY3,252 million) and $18,750,216 (JPY2,783 million), respectively.

Overall, the unfavorable impacts of the period-to-period foreign exchange rate changes on net revenues and net income were $1,305,757 and

$412,787, respectively, for the three months ended March 31, 2025.

main reasons for the variance of $7,479,341 in revenues, net per revenue stream are as follows:

royalty income for the nine months ended September 30, 2024 increased to $45,425,052 by $19,979,012, or 78.52%, from $25,446,040 for

revenue for the three months ended March 31, 2025 increased to $15,719,282 by $609,014, or 4.03%, from $15,110,268 for the same period

This increase was mainly due to the business expansion of the MCs, partially offset by the depreciation of JPY.

procurement revenue for the three months ended March 31, 2025 increased to $14,332,783 by $1,136,799, or 8.61%, from $13,195,984 for

the same period in 2024.

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

of MCs to a fixed amount for each clinic of MCs since April 2023 combined with an increase in the number of clinics operated by MCs,

(ii) authorizing the six MCs, which are our main recurring customers, to use our patents and trademarks starting from September 2023,

and (iii) the business expansion of the MCs, partially offset by the depreciation of JPY.

procurement services revenue for the nine months ended September 30, 2024 increased to $44,303,891 by $9,640,957, 27.81%, from $34,662,934

for the same period in 2023.

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

of MCs, partially offset by the depreciation of JPY.

management services revenue for the nine months ended September 30, 2024 decreased to $44,471,031 by $9,222,917, or 17.18%, from $53,693,948

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

partially offset by the depreciation of JPY.

Services Revenue

management services revenue for the three months ended March 31, 2025 decreased to $8,728,103 by $6,926,567, or 44.25%, from

$15,654,670 for the same period in 2024.

This decrease was mainly due to (i) the discontinuation of clinic operation staff supporting services provided by Shobikai Sub to MCs since

September 2024 and (ii) the depreciation of JPY, partially offset by (i) the increase in revenue generated from management consulting services

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

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

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

supporting services that had been provided by Shobikai Sub to MCs since the third quarter of 2024, because the Company completed the

merger of Shobikai Sub with and into Lange Sub and the related business license, held by Shobikai Sub, became invalid upon the

merger in January 2025 and (ii) the depreciation of JPY, partially offset by (i) the business expansion of MCs and (ii) the increase

in the number of the clinics of MCs.

rental services revenue for the nine months ended September 30, 2024 increased to $11,195,888 by $6,514,675, or 139.17%, from $4,681,213

Services Revenue

rental services revenue for the three months ended March 31, 2025 increased to $5,640,514 by $2,022,573, or 55.90%, from $3,617,941

for the same period in 2024.

1 unchanged sentence

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

other revenues for the nine months ended September 30, 2024 increased to $15,599,143 by $2,890,549, or 22.74%, from $12,708,594 for the

same period in 2023.

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

depreciation of JPY.

of revenues for the nine months ended September 30, 2024 was $38,816,865 compared to $37,256,066 for the same period in 2023.

revenue increased by $29,802,276, or 22.72%, for the nine months ended September 30, 2024 compared to same period in 2023, cost of revenues

only increase by $1,560,799 or 4.19% mainly due to the Company’s effort of the cost reduction for the nine months ended September

30, 2024, as well as the revenue generated by providing clinic operation supporting

services by Shobikai Sub to MCs were discontinued since September 2024, and the Company then terminated the employment of the related

other revenues for the three months ended March 31, 2025 decreased to $2,908,019 by $4,321,160, or 59.77%, from $7,229,179 for the same

period in 2024.

This decrease was mainly due to the disposal of its subsidiaries, Kijimadairakanko Inc.

and Skynet Academy Co., Ltd.,

in December 2024, offset by revenues from Aesthetic Healthcare Holdings Pte.

and its subsidiaries,

which were acquired in November 2024.

of revenues for the three months ended March 31, 2025 was $9,595,617 compared to $15,288,667 for the same period in 2024.

was mainly due to the Company’s effort of the cost reduction, as well as the discontinuation of clinic operation supporting

services provided by Shobikai Sub to MCs since the third quarter of 2024, and the Company then terminated the employment of the related

As a result, labor cost significantly decreased.

profit for the nine months ended September 30, 2024 was $122,178,140 compared to $93,936,663 for the same period in 2023.

in gross profit by $28,241,477 or 30.06% was mainly due to the increase in royalty income and procurement services with a relatively

high gross margin as a result of the factors described above, offset by the decrease in management services revenue as a result of the

factors described above.

expenses for the nine months ended September 30, 2024 and 2023 were as follows:

For the Nine Months Ended

September 30,

profit for the three months ended March 31, 2025 was $37,733,084 compared to $39,519,375 for the same period in 2024.

in gross profit by $1,786,291 or 4.52% was mainly due to the decrease in management services revenue and other revenues with

relatively high gross margin as a result of the factors described above.

expenses for the three months ended March 31, 2025 and 2024 were as follows:

For the Three Months Ended

Salaries and welfare

6 unchanged sentences

Office, utility and other expenses

Misappropriation loss

Stock-based compensation

operating expenses increased to $56,592,092 for the nine months ended September 30, 2024 by $9,326,188, or 19.73%, from $47,265,904 for

$ (1,527,480 )

operating expenses decreased to $13,531,010 for the three months ended March 31, 2025 by $1,527,480, or 10.14%, from $15,058,490 for

the same period in 2024.

The increase was mainly due to the increase in stock-based compensation and the increase in consulting and professional

service fees, partially offset by the decrease in depreciation and amortization expenses.

compensation related to the warrants issued to the service provider that supported our listing process.

These warrants were issued in

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

as an expense.

and professional service fees increased by $4,378,501, or 74.20%, to $10,279,107 for the nine months ended September 30, 2024 from $5,900,606

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

and amortization expense decreased by $6,751,582, or 77.93%, to $1,912,284 for the nine months ended September 30, 2024 from $8,663,866

for the same period in 2023, mainly because the decrease in amortization expense incurred from the intangible assets owned by Cellpro,

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

The decrease was mainly due to the decrease in recruiting expense, depreciation and amortization

expense, and office, utility and other expenses partially offset by the increase in consulting and professional service fee.

expense decreased by $512,678, or 67.72%, to $244,377 for the three months ended March 31, 2025 from $757,055 for the same period in

2024, mainly due to the one-time recruiting advertisement expenses incurred in the same period of the prior year.

and amortization expense decreased by $507,299, or 52.37%, to $461,405 for the three months ended March 31, 2025 from $968,704 for the

same period in 2024, mainly due to the disposal of two subsidiaries, Kijimadairakanko Inc.

and Skynet Academy Co., Ltd., in December 2024.

utility and other expenses decreased by $1,174,486, or 43.63%, to $1,517,187 for the three months ended March 31, 2025 from $2,691,673

for the same period in 2024, mainly due to the insourcing of debt collection activities for customer loans receivable since January 2025 and the disposal of two subsidiaries in December 2024.

and professional service fees increased by $667,321, or 25.37%, to $3,298,082 for the three months ended March 31, 2025 from

$2,630,761 for the same period in 2024, mainly due to the increase in legal, tax, and market research expenses associated with the

Company’s listing.

Income (Expenses)

income (expenses) for the nine months ended September 30, 2024 and 2023, were as follows:

For the Nine Months ended

September 30,

income (expenses) for the three months ended March 31, 2025 and 2024, were as follows:

For the Three Months Ended

Interest income

1 unchanged sentence

Other expenses

Gain on redemption of life insurance policies

Gain on disposal of subsidiary

$ (1,533,011 )

particular, other income was $721,894 for the nine months ended September 30, 2024, as compared to $3,875,723 for the same period in

2023, mainly due to the income from surrender of life insurance policies;

other expenses was $2,746,450 for the

nine months ended September 30, 2024, as compared to $581,239 for the nine months ended September 30, 2023, mainly due to the unrealized

loss from the Company’s investment in a public entity with readily determinable fair value;

and gain on disposal of subsidiary

was $3,813,609 for the nine months ended September 30, 2024, as compared to nil for the same period in 2023, mainly due to the disposal

of Cellpro on January 1, 2024.

tax expense, for the nine months ended September 30, 2024, was $27,254,478 compared to $25,683,244 for the same period in 2023.

in income tax expense by $1,571,234 or 6.12% was mainly due to an increase in income before tax of the major operating entities as a

result of an increase in related-party revenues compared to the same period in 2023.

effective tax rate was 40.44% and 51.35% for the nine months ended September 30, 2024 and 2023, respectively.

The decrease of 10.91 percentage

points was mainly due to the $8.7 million enterprise tax paid by the Company in the nine

months ended September 30, 2024, which is tax deductible, while only $3 million enterprise tax was paid in the nine months ended September

a result of the foregoing, we reported a net income of $40,142,008 for the nine months ended September 30, 2024, representing an increase

of $15,811,044, or 64.98%, from $24,330,964 for the nine months ended September 30, 2023.

Income (Loss) Attributable to Non-controlling Interests

income attributable to non-controlling interests was $66,954 for the nine months ended September 30, 2024, as compared to a net loss

attributable to non-controlling interests of $696,812 for the nine months ended September 30, 2023, mainly due to the disposal of Cellpro

on January 1, 2024.

and Sources of Funds

of September 30, 2024, the Company had $137,393,070 in cash and cash equivalents compared to $103,022,932 as of December 31, 2023.

addition, the Company had $29,779,783 in accounts receivable as of September 30, 2024 compared to $35,113,749 as of December 31, 2023.

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

by customers.

of September 30, 2024, the Company’s working capital balance was $129,679,294.

In assessing liquidity, management monitors and

analyzes the Company’s cash and cash equivalents, ability to generate sufficient future earnings, and operating and capital

investment commitments.

The Company believes that its current cash and cash equivalents from operations and borrowings from banks

will be sufficient to meet its working capital needs for the next 12 months from the date of issuance of the unaudited financial

statements included in this Quarterly Report.

To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our

business strategy, we anticipate that they will be obtained through the incurrence of indebtedness, equity financings or a combination

of these potential sources of funds.

While we face uncertainties regarding the size and timing of our fundraising, which will be affected

by general economic, financial, and other factors that may be beyond our control, we believe

that we will be able to continue to meet our current business needs through the use of cash flows generated from operations and stockholder

working capital, as needed.

The Company evaluates its capital allocation practices

with the objective of enhancing shareholder value, while considering performance, the business environment, macroeconomic conditions and

other relevant factors.

The Company expects to deploy capital for investment opportunities that align with its growth strategy, selectively

pursuing prospects in the expanding global medical aesthetics market.

Flows for the nine months ended September 30, 2024 and 2023

particular, a gain on the redemption of life insurance policies was recorded due to the maturity of

four corporate-owned life insurance policies.

A gain on disposal of subsidiary in the prior year was recorded due to the disposal of

Cell Pro Japan Co., Ltd.

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

tax expense for the three months ended March 31, 2025 was $9,959,457 compared to $8,451,984 for the same period in 2024.

in income tax expense by $1,507,473 or 17.84% was mainly due to the higher income before tax.

effective tax rate was 31.67% and 31.07% for the three months ended March 31, 2025 and 2024, respectively.

a result of the foregoing, we reported a net income of $21,491,950 for the three months ended March 31, 2025, representing an increase

of $2,741,734 or 14.62% from $18,750,216 for the three months ended March 31, 2024.

Net Loss Attributable to Non-controlling Interests

loss attributable to non-controlling interests was $10,496 for the three months ended March 31, 2025, as compared to $7,536 for the three months ended March 31, 2024.

and Capital Resources

of March 31, 2025, the Company had $132,055,823 in cash and cash equivalents compared to $125,044,092 as of December 31, 2024.

the Company had $32,191,368 in accounts receivable as of March 31, 2025 compared to $30,260,113 as of December 31, 2024.

The Company’s

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

of March 31, 2025, the Company’s working capital balance was $166,630,721.

In assessing liquidity, management monitors and analyzes

the Company’s cash and cash equivalents, ability to generate sufficient future earnings, and operating and capital investment commitments.

The Company believes that its current cash and cash equivalents from operations and borrowings from banks will be sufficient to meet

its working capital needs for the next 12 months from the date of issuance of the unaudited financial statements included in this Quarterly

the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate

that they will be obtained through the incurrence of indebtedness, equity financings or a combination of these potential sources of funds.

While we face uncertainties regarding the size and timing of our fundraising, which will be affected by general economic, financial,

and other factors that may be beyond our control, we believe that we will be able to continue to meet our current business needs through

the use of cash flows generated from operations and stockholder working capital, as needed.

Company evaluates its capital allocation practices with the objective of enhancing shareholder value, while considering performance,

the business environment, macroeconomic conditions and other relevant factors.

The Company expects to deploy capital for investment opportunities

that align with its growth strategy, selectively pursuing prospects in the expanding global medical aesthetics market.

Flows for the three months ended March 31, 2025 and 2024

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

For the Nine Months Ended

September 30,

For the Three Months Ended

Net cash provided by operating activities

Net cash provided by (used in) investing activities

$ (1,753,554 )

Net cash provided by financing activities

Effect of changes in foreign currency exchange rate

(11,982,793 )

Net cash used in investing activities

Net cash used in financing activities

Effect of exchange rate changes

Net change in cash and cash equivalents

2 unchanged sentences

$ 132,055,823

cash provided by operating activities for the nine months ended September 30, 2024 was $27,886,231 as compared to the amount of

$22,753,983 net cash provided by operating activities for the nine months ended September 30, 2023, reflecting an increase of

The increase was mainly due to an increase in net income of $15.8 million and stock-based compensation of $12.8 million,

and increase in changes in accounts receivable - related parties of $25.0 million, customer loans receivable of $12.9 million and

accrued retirement compensation expense - related party of $22.1 million, and offset by a decrease in

changes in finance lease receivables - related parties of $20.7 million, accounts payable of $17.2 million, notes payable - related

parties of $14.0 million, accrued liabilities and other current liabilities of $9.3 million and income tax payable of $17.1

the nine months ended September 30, 2024, net cash used in investing activities of $5,554,039 was mainly the result of purchase of property and equipment of $2.0 million, purchase of convertible note of $1.7 million, disposal of subsidiary, net of cash

disposed of $0.8 million, and payments made on behalf of a related party of $5.2 million, and offset by repayment from related parties of $6.0 million.

During the nine months ended September 30,

2023, net cash provided by investing activities of $8,659,196 was mainly the result of proceeds from disposal of property and equipment

of $8.0 million, proceeds from sales of short-term investments of $4.1 million, and proceeds from surrender of life insurance policies

of $4.0 million, and offset by purchase of property and equipment of $2.3 million, purchase of short-term investments of $2.1 million,

purchase of intangible assets of $1.7 million, purchase of convertible note of $1.0 million, and advances to related parties of $1.0

the nine months ended September 30, 2024, net cash provided by financing activities of $11,584,038 was mainly due to the proceeds

from recapitalization of Pono Shares net of transaction costs of $11.7 million.

During the nine months ended September 30, 2023, net

cash provided by financing activities of $6,262,589 was the result of borrowings from related parties of $12.3 million, deemed

contribution in connection with disposal of property and equipment of $9.6 million, and offset by repayments of long-term loans of

$8.7 million and repayments to related parties of $7.6 million.

November 12, 2024, the Company entered into an agreement to acquire 100% equity interest of Aesthetic Healthcare Holdings, a company

incorporated in Singapore and principally engaged in medical aesthetics business, with a cash consideration of approximately SGD$7.8

million (equivalent to approximately US$6.0 million).

As of the date of this report, the transaction has not yet been completed.

Misappropriations

of Funds and Restatements

January 2024, in connection with a routine tax examination of the Company’s income tax returns, the Japanese tax authority discovered

misappropriations of Company funds by a former director of general affairs and legal department of L’Ange Cosmetique Co., Ltd.,

which is a subsidiary of the Company (the “former director”), not a relative of the CEO of the Company or any identified

related party, who received kickbacks from multiple vendors of SBC Japan (collectively with the former director, the “participants”)

possibly beginning as early as 2012 until the misappropriations were discovered.

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.

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

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

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

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

The amount misappropriated prior to April 2016 could not

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

to be material based on current estimates.

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

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

misappropriated amounts, excluding the consumption tax, representing advertising services purchased on behalf of a related-party MC,

were originally included in the revenues reported on a net basis.

After discovery of the misappropriations, the amounts were restated

as a misappropriation loss.

Company has restated its previously reported consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated

statements of operations and comprehensive income (loss) and cash flows for the years then ended, based on the results of its investigation

and substantive validation procedures.

The Company has also restated its previously reported unaudited consolidated balance sheets for

the nine months ended September 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, and the related unaudited consolidated

statements of operations and comprehensive income (loss) and cash flows for the periods then ended.

Company has seventy-two leases classified as operating leases for offices and sublease purposes.

of September 30, 2024, the future maturity of lease liabilities is as follows:

cash provided by operating activities was $1,928,621 for the three months ended March 31, 2025, mainly derived from net income of

$21,491,950 for the period, reconciled by a gain on redemption of life insurance policies of $8,746,138 and deferred income tax

expense of $7,016,227, and net changes in operating assets and liabilities, which mainly included an increase in finance lease

receivables – related parties of $2,779,253, a decrease in customer loans receivable of $4,501,760, an increase in prepaid

expenses and other current assets of $3,150,243, an increase in accounts payable of $3,235,017, a decrease in advances from

customers – related parties of $2,114,829, and a decrease in income tax payable of $17,635,239.

cash provided by operating activities was $3,682,175 for the three months ended March 31, 2024, mainly derived from net income of

$18,750,216 for the period, reconciled by a gain on disposal of subsidiary of $3,813,609, and net changes in operating assets and

liabilities, which mainly included a decrease in accounts receivable – related parties of $4,775,935, a decrease in accounts

payable of $8,937,435, and a decrease in income tax payable of $6,552,783.

the three months ended March 31, 2025, net cash used in investing activities of $978,807 was mainly the result of purchase of long-term

investments of $0.6 million, and prepayments for property and equipment of $0.5 million, offset by proceeds from disposal of property

and equipment of $0.3 million.

During the three months ended March 31, 2024, net cash used in investing activities of $3,394,122 was

mainly the result of purchase of convertible note of $1.7 million, disposal of subsidiary, net of cash disposed of $0.8 million, and

purchase of property and equipment of $0.7 million.

the three months ended March 31, 2025, net cash used in financing activities of $280,380 was mainly due to the repayments of finance

lease liabilities of $0.2 million.

During the three months ended March 31, 2024, net cash used in financing activities of $40,227 was

mainly due to the repayments of long-term loans of $0.03 million.

January 2025, the Company effected a merger in which SBC Medical Group Co., Ltd.

(“SBC Japan”) and Shobikai Co., Ltd.

(“Shobikai Sub”) merged with and into L’Ange Cosmetique Co., Ltd.

(“L’Ange Sub”).

As a result, the

separate corporate existence of SBC Japan and Shobikai Sub ceased, with L’Ange Sub continuing as the surviving company.

the merger, L’Ange Sub changed its name to SBC Medical Group Co., Ltd., which is herein referred to as “ SBC

Medical Sub,” or “SBC Japan.”

Changes to Service Fee Structure

as of April 1, 2025, the Company revised the fee structure to pursue a long-term growth strategy aimed at expanding and stabilizing the

business foundation by creating an environment that can better facilitate the establishment of new clinics by MCs.

This updated fee structure

introduces a more tailored, performance-based approach to determining service fees for each clinic, based on several key criteria:

service category (facility type):

The type of medical services provided by the clinic (for example, cosmetic medicine, dermatology,

hair restoration (AGA) treatment, fertility treatment, insured medical care, or other specialized fields).

The length of time since the clinic’s opening (with newly established clinics in their first year of operation recognized

in a dedicated category).

The clinic’s revenue for the given month.

The number of patients the clinic has served over the past year.

factors collectively determine each clinic’s tier classification (e.g., as a small, medium, or large clinic), as defined in the

updated service agreement’s appendix.

Under this system, each clinic is assigned to an appropriate tier based on its profile, and

a corresponding fixed monthly fee is applied according to the schedule set forth in the contract.

Notably, clinics offering cosmetic

medical services are categorized using a more granular tier system reflecting their scale, with tiers ranging from newly opened clinics

in their first year up to “super-large” clinics.

In contrast, clinics focusing on other types of medical services (such as

dermatology, AGA hair restoration, fertility treatments, or dental and orthopedic care) are classified into the standard small, medium,

or large clinic tiers.

This tiered approach ensures that service fees are aligned with each clinic’s size and performance, supporting

newer and smaller clinics as they grow while accommodating the higher capacities of larger established clinics.

the revised fee structure had been applied starting in April 2024, it is estimated that total revenues for fiscal year 2024 would have

decreased by approximately 10%.

However, the Company expects the impact on total revenues and income from operations for fiscal year

2025 to be offset by the absence of one-time losses that were recorded in fiscal year 2024, mainly included impairment loss on intangible

asset and stock-based compensation.

Nevertheless, the ultimate financial impact remains uncertain and will depend on a number of factors,

many of which are beyond the Company’s control.

Share Repurchase Program

On May 12, 2025, the Company’s board of directors

approved a share repurchase program with an aggregate purchase limit of up to USD 5 million.

The repurchase period will begin on May

20, 2025 and continue through May 20, 2026, unless extended or terminated earlier depending on the progress.

The program will be funded

by surplus cash and future free cash flow.

The Company believes its current share price undervalues its business performance, the

growth potential of the aesthetic-medical market, and its position as an industry leader.

The repurchase program is intended to return

capital to shareholders and signal confidence in the Company’s valuation.

It also aims to reduce shares outstanding and enhance

capital efficiency.

Company holds a significant number of leases classified as operating leases for offices and sublease purposes, and finance leases for certain medical equipment.

of March 31, 2025, the future maturity of lease liabilities is as follows:

Years ending December 31,

Finance Lease

Operating Lease

Remaining of 2025

1 unchanged sentence

imputed interest

Total operating lease liabilities

Total lease liabilities

and Other Borrowings

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

of September 30, 2024, future minimum borrowing payments are as follows:

of March 31, 2025, future minimum borrowing payments are as follows:

Years ending December 31,

Remaining of 2025

2029 and thereafter

Sheet Arrangements (Off-Balance Sheet Transactions)

are no off-balance sheet arrangements as of September 30, 2024 and December 31, 2023.

are no off-balance sheet arrangements as of March 31, 2025 and December 31, 2024.

Exchange Rate Risk

10 unchanged sentences

of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

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

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

and estimates used in preparation of our consolidated financial statements.

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

and other disclosures included in this Quarterly Report.

When reviewing our consolidated financial statements, you should consider our

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

of reported results to changes in conditions and assumptions.

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

“Revenue from Contracts with Customers”.

determine revenue recognition for contracts with customers, the Company performs the following five steps:

(i) identify the contract(s)

with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable

consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price

to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance

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

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

The Company does not have significant remaining unfulfilled performance

obligations or contract balances.

Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or

agent in the transaction.

The determination of whether the Company acts as a principal or an agent in a transaction is based on the evaluation

of whether (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) the Company

has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer

and (iii) the Company has discretion in establishing the price for the specified good or service.

If the terms of a transaction do not

indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated

revenues are recognized on a net basis.

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

Company currently generates its revenue from the following main sources:

Company generates franchising revenue (royalty income) by licensing its intellectual properties, including but not limited to the Company’s

brand name (“Shonan Beauty Clinic”), trade name, patents, and trademarks, as a franchisor pursuant to franchise agreements

with certain MCs (the “MCs”) in Japan.

Prior to April 2023, royalty income is based on a percentage of sales and recognized

at the time when the related sales occurred;

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

since September

2023, it is based on a fixed amount to each MC and a fixed amount to each clinic of the MCs and recognized over time as services are

Services Revenue

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.

recognizes revenue based on actual payments and will return the over-collection resulting from such discounts to MCs.

Services Revenue

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

services to MCs.

program management services

Company awards loyalty points on behalf of MCs to MCs’ customers, who earn loyalty points from each qualified purchase made at

the loyalty program participating clinics of MCs, in exchange for a handling fee.

The revenue is based on a percentage of the related

payment amount made by MCs’ customers and is recognized when the loyalty points are awarded.

the time loyalty points are awarded, a MC pays the Company cash in an amount equivalent to the awarded loyalty points, which is recorded

as advances from customers.

When a MC’s customers redeem the loyalty points, the Company returns the cash back to the MC in an

amount equivalent to the redeemed loyalty points.

The awarded loyalty points expire if a MC’s customer does not make any additional

qualified purchase at a participating clinic within a year.

The Company accumulates and tracks the points on behalf of MCs until the

loyalty points expire, at which time the Company recognizes an amount equivalent to the expired loyalty points as revenue, which is normally

not significant.

Company also awards certain points to MCs’ customers on behalf of MCs for free in order to increase the volume of MC’s sales,

from which the Company earns other types of revenues, such as 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.

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

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

The Company recognizes the revenue over the time when services are rendered.

supporting services

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

recognizes the revenue over the time when services are rendered.

consulting services

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

recognizes the revenue over the time when services are rendered.

Services Revenue

Company generates rental income from operating leases and sales-type leases, which is accounted for under ASC Topic 842.

Operating lease

revenue is generally recognized on straight-line basis over the terms of the lease agreements and sales-type leases revenue is generally

recognized on the lease commitment date.

Company generates other miscellaneous revenues such as 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

Investments in MCs — Related Parties

investments in MCs — related parties represent the payments to obtain equity interests of the MCs in Japan, made by the Company

through SBC Japan, a company designated as a MSC in Japan.

In accordance with the Japanese Medical Care Act and articles of incorporation

of the MCs, which are non-profit organizations, the equity interest holders of MCs are prohibited from receiving any profit distribution

from MCs but have the right to receive distribution of the residual assets of the MCs in proportion to the amount of their contribution.

As of the balance sheet dates, the investments represent probable future benefit to be realized at the time of dissolution of MCs or

the equity interests being sold.

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

of cash flows.

The MCs are considered related parties as the relatives of the Chief Executive Officer (“CEO”) of the Company

being the Members of the MCs.

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

at cost, less impairment, and adjusted for observable price changes.

The Company reviews the investments in MCs for impairment whenever

events or changes in circumstances indicate that the carrying amount may not be recoverable, especially the investments in Medical Corporation

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

majority of the Company’s investments in MCs balance.

Consideration of Investments in MC Jukeikai and MC Ritz

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

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

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

As the Company provides comprehensive

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

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

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

As of December

31, 2023, the carrying value of the investments in the two MCs was higher than their net assets, respectively, because the Company acquired

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

growth and expansion of the MCs.

The two MCs have been generating net income since the acquisition dates through the year ended December

During the year ended December 31, 2023, as part of their plan of expansion, the MCs opened several new clinics and incurred

one-time expenses to set up those clinics and more selling, general, and administrative expenses, such as payroll, rent, and advertising

The net losses incurred by the two MCs for the year ended December 31, 2023 associated with the opening of new clinics are

considered temporary.

The Company expects that the MCs’ sales will grow gradually over the next few years and that the MCs will

be able to generate net income in the next one to two years.

As of December 31, 2023, the Company did not observe any other-than-temporary

impairment indicators.

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

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

of the net economic benefit to be received by MCs.

Management applies significant judgment and assumptions related to estimation, including

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

future cash flows, and the discounted rate.

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

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

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

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

Stock-based Compensation

Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation — Stock Compensation”,

under which the Company determines whether stock-based compensation awards should be classified and accounted for as an equity award.

There were no liability awards granted during any of the periods stated herein.

For all grants of stock-based compensation classified

as equity awards, the cost of services received from employees and non-employees in exchange for awards is recognized in the consolidated

statements of operations and comprehensive income based on the estimated fair value of those awards on the grant date and amortized on

a straight-line basis over the requisite service period or vesting period.

The Company records forfeitures and cancellations as they

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

financial statements using the binomial option pricing model, and the equity value as of the grant date was estimated using 1) income

approach with the discounted cash flow valuation method, which requires management to make significant estimates and assumptions related

to forecasted revenues and cash flows and the discount rates, and 2) market approach with metrics of publicly traded companies or historically

completed transactions of comparable businesses.

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

the fair value.

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

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

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

We believe that there have been no material

changes to our critical accounting policies and estimates from those disclosed in “Part II, Item 7.

Management’s Discussion

and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” of our Annual Report

on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 28, 2025.

Growth Company

26 unchanged sentences

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the

information otherwise required under this item.

We are a smaller reporting company as defined by Rule

12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis