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Item 4. Controls and Procedures

2025-05-15 compared with 2024-11-13 · 41 added, 128 removed, 1 unchanged (99% of the section changed)

CONTROLS AND PROCEDURES

of Disclosure Controls and Procedures

management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure

controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly

Based on this evaluation, management concluded that our disclosure controls and procedures were not effective as

of September 30, 2024 to provide reasonable assurance that information required to be disclosed in periodic SEC filings is recorded,

processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is

accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to

allow timely decisions regarding required disclosure.

Specifically, as previously disclosed, as of the fiscal year ended December 31,

2023, and as described below, we identified material weaknesses in our internal control over financial reporting.

the identified material weaknesses, we believe that our condensed consolidated financial statements and other information contained in

this Quarterly Report fairly present, in all material respects, our business, financial condition, and results of operations for the

periods presented.

remain committed to ongoing improvements in our disclosure controls and internal control over financial reporting, as outlined in the

remediation plan below.

material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that

there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely

connection with the discovery of the misappropriations of funds as described in more details under “—Item 2.

Discussion and Analysis of Financial Condition and Results of Operations—Misappropriations of Funds and Restatements”, we

have identified material weaknesses as of December 31, 2023, which remain un-remediated as of September 30, 2024, in our internal control

over financial reporting resulting from our failure to maintain an effective control environment, risk assessment processes and monitoring

system of internal control failed to detect the misappropriations of funds due to the following material weaknesses of SBC Medical Group,

(formerly known as SBC Medical Group Holdings Incorporated), a Delaware corporation and subsidiary of the Company:

Environment .

We did not maintain an effective control environment that fully emphasized the establishment of adherence to

effective internal control over financial reporting throughout SBC Medical Group, Inc.’s management.

We did not give sufficient

consideration to the risk of senior management override of internal control.

SBC Medical Group, Inc.

had not ensured that certain

personnel were adequately trained to properly execute critical internal control.

We did not effectively implement or maintain control activities, such as ensuring a sufficient functioning of

the mechanism of reconciliation of invoices to contracts and multi-level approvals of contracts, invoices and payments.

did not maintain sufficient segregation of duties with respect to certain activities of its former director of the general

affairs and legal department at L’Ange Cosmetique Co., Ltd.

SBC Medical Group, Inc.

did not maintain adequate monitoring and

oversight of the activities of our former director permitting the misappropriation of assets by the former director.

We did not have an effective risk assessment process and the related documentation.

and Communication .

We did not adequately communicate to all employees of the organization information regarding the importance

of internal control over financial reporting and employees’ duties and responsibilities, including segregation of duties.

We did not maintain effective monitoring controls related to the evaluation and testing of our internal control

over financial reporting.

addition, the Company completed its business combination in September 2024.

Prior to the business combination, the Company operated as

a private corporation with limited accounting personnel and supervisory resources necessary to support its accounting processes

and address its internal control over financial reporting requirements.

As a result, the existing internal control are no longer sufficient

to meet the post-business combination financial reporting demands, and the Company is actively updating these controls.

The design and

implementation of internal control over financial reporting in a post-business combination environment has required, and will continue

to require, significant time and resources from management and other personnel.

the process of assessing the Company’s internal control, management identified the following additional material

weaknesses in our internal control over financial reporting:

● Lack of well-established procedures to identify, approve and report related party transactions.

of sufficient financial reporting and accounting personnel to formalize, design, implement

and operate key controls over financial reporting process in order to report financial information

in accordance with U.S.

GAAP and SEC reporting requirements.

of well-established procedures to ensure all the services provided by subcontractors or vendors

are reviewed and verified before the approval of payments.

● Lack of well-established

procedures to prevent and detect fraudulent transactions or override of control activities, specifically

failure to maintain sufficient segregation of duties with respect to certain activities of its former director

of general affairs and legal department of one of its subsidiaries and failure to maintain adequate monitoring

and oversight of the work performed by this former director.

respect to the material weaknesses identified in connection with the misappropriations of

funds, management has implemented, or is in the process of implementing, the following changes

to SBC Medical Group, Inc.’s internal control systems and procedures:

We established a related party policy in September 2024 to identify, approve, and report related party transactions;

and implemented the corresponding procedures since November 2024.

will clarify the organization structure and employee positions promoting (i) segregation of duties, (ii) monitoring and oversight,

(iii) reconciliation of invoices to contracts and (iv) multi-level approvals of contracts, invoices and payments.

will communicate to all employees of the organization information regarding the importance of internal control and employees’

duties and responsibilities, including segregation of duties.

have initiated a project led by our Chief Officer of Internal Control and Internal Audit Office, and aided by outside consultants,

to fully document our processes to serve as the basis for activities during 2024 to assess our fraud risks and evaluate and test our

internal control over financial reporting.

have updated our delegation of authority over our banking activities, and are establishing a treasury function that will improve

the segregation of duties surrounding the general manager role to better safeguard cash.

management is fully committed to addressing the control deficiencies that contributed to the material weaknesses in a post-business combination

The steps we have already taken in 2024, and those we plan to take in 2025, are as follows:

added accounting and finance personnel to strengthen our team.

This has allowed us to enhance segregation of duties in the preparation

and review of financial reporting, while improving oversight, structure, and reporting lines.

have improved our controls related to the preparation and review of complex accounting measurements, the application of GAAP, and

our financial statement disclosures.

We believe that this will ensure more accurate and timely reporting.

have engaged external consultants with expertise in SOX (The Sarbanes-Oxley Act of 2002) compliance to assist us in the design,

implementation, and documentation of internal control that address key financial reporting risks.

These consultants will also help

ensure appropriate evidence of the performance of our controls, including the accuracy and completeness of financial

As applicable to each material weakness, the material weaknesses will not be considered remediated until our remediation

plans have been fully implemented, the applicable controls operate for a sufficient period of time, and we have concluded, through testing,

that the newly implemented and enhanced controls are operating effectively.

the direction of our Audit Committee, management will continue to enhance corporate oversight at the process level, ensuring proper assignment

of authority, responsibility, and accountability.

We anticipate completing the implementation of key control enhancements by the end

of 2025, which we expect to further strengthen our financial reporting oversight.

Furthermore, we believe these efforts will remediate

the identified material weakness and substantially improve our internal control over financial reporting.

have continued the process of, and are focused on, further enhancing effective internal control measures to improve our internal

control over financial reporting and to remediate the identified material weakness.

We are committed to the continuous improvement

of our internal control over financial reporting and will continue to diligently review our internal control over financial

As we continue to evaluate and refine our internal control over financial reporting, we may adjust our remediation plans

or take additional steps to address control deficiencies as necessary.

Limitation on the Effectiveness of Internal Control

effectiveness of any system of internal control over financial reporting is subject to inherent limitations.

These include the exercise

of judgment in designing, implementing, and operating controls, as well as the inherent inability to completely eliminate the risk of

misconduct or error.

Accordingly, while we aim to establish robust controls, any system, no matter how well designed and operated, can

provide only reasonable assurance of achieving the desired control objectives.

Additionally,

the design of our disclosure controls and procedures is impacted by resource constraints and the necessity for management to balance

the benefits of potential controls against their associated costs.

Moreover, projections of effectiveness into future periods are

subject to risks that controls may become inadequate over time due to evolving conditions or diminished compliance.

We will continue

to monitor and enhance our internal control as necessary or appropriate, but we cannot provide assurance that these improvements

will fully eliminate all risks of material misstatement.

in Internal Control over Financial Reporting

than the remediation efforts described above, there have been no material changes in our internal control over financial reporting during

the three months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal

control over financial reporting.

II - OTHER INFORMATION

Evaluation of Disclosure Controls and Procedures

Our management, with the participation

of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as

defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report.

Based on this evaluation,

management concluded that our disclosure controls and procedures were not effective as of March 31, 2025 to provide reasonable assurance

that information required to be disclosed in reports filed or submitted by us under the Exchange Act is recorded, processed, summarized

and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated

to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding

required disclosure.

Despite the identified

material weaknesses, we believe that our unaudited consolidated financial statements and other information contained in this

Quarterly Report fairly present, in all material respects, our financial condition, and results of operations for the periods

We remain committed to

ongoing improvements in our disclosure controls and internal control over financial reporting, including execution of the

remediation plan disclosed under “Part II, Item 9A.

Controls and Procedures”

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

The material weaknesses previously identified in the Annual Report

remained un-remediated as of March 31, 2025.

Inherent Limitation on the Effectiveness of Internal Control

The effectiveness of any system

of internal control over financial reporting is subject to inherent limitations.

These include the exercise of judgment in designing,

implementing, and operating controls, as well as the inherent inability to completely eliminate the risk of misconduct or error.

while we aim to establish robust controls, any system, no matter how well designed and operated, can provide only reasonable assurance

of achieving the desired control objectives.

Additionally, the design of our

disclosure controls and procedures is impacted by resource constraints and the necessity for management to balance the benefits of potential

controls against their associated costs.

Moreover, projections of effectiveness into future periods are subject to risks that controls

may become inadequate over time due to evolving conditions or diminished compliance.

We will continue to monitor and enhance our internal

control as necessary or appropriate, but we cannot provide assurance that these improvements will fully eliminate all risks of material

misstatement.

Changes in Internal Control over Financial Reporting

Other than the remediation efforts

described above, there have been no material changes in our internal control over financial reporting (as such term is defined in Rule

13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2025, that have materially affected, or are reasonably

likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

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 4. Controls and Procedures