SBC Medical Group Holdings Inc 10-Q

ITEM 1. FINANCIAL STATEMENTS SBC MEDICAL GROUP HOLDINGS INCORPORATED INDEX TO FINANCIAL STATEMENTS Page Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024 (Unaudited) F-2 Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2025 and 2024 (Unaudited) F-4 Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2025 and 2024 (Unaudited) F-5 Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024 (Unaudited) F-6 Notes to Unaudited Consolidated Financial Statements F-8 F- 1 SBC MEDICAL GROUP HOLDINGS INCORPORATED UNAUDITED CONSOLIDATED BALANCE SHEETS June 30, 2025 December 31, 2024 ASSETS Current assets: Cash and cash equivalents $ 152,740,882 $ 125,044,092 Accounts receivable 2,350,368 1,413,433 Accounts receivable – related parties 48,920,843 28,846,680 Accounts receivable 48,920,843 28,846,680 Inventories 1,705,237 1,494,891 Finance lease receivables, current – related parties 9,128,931 5,992,585 Customer loans receivable, current 10,552,623 10,382,537 Prepaid expenses and other current assets 14,051,746 11,276,802 Other receivables – related parties 1,891,408 — Total current assets 241,342,038 184,451,020 Non-current assets: Property and equipment, net 8,058,016 8,771,902 Intangible assets, net 1,584,543 1,590,052 Long-term investments, net 3,593,087 3,049,972 Goodwill, net 5,011,511 4,613,784 Cryptocurrencies 535,882 — Finance lease receivables, non-current – related parties 13,197,979 8,397,582 Operating lease right-of-use assets 4,583,393 5,267,056 Finance lease right-of-use assets 516,932 — Deferred tax assets 2,343,302 9,798,071 Customer loans receivable, non-current 5,934,636 5,023,551 Long-term prepayments 1,755,292 1,745,801 Long-term investments in MCs – related parties 19,381,422 17,820,910 Long-term investments 19,381,422 17,820,910 Other assets 7,461,224 15,553,453 Total non-current assets 73,957,219 81,632,134 Total assets $ 315,299,257 $ 266,083,154 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 16,290,206 $ 13,875,179 Accounts payable – related parties 3,245,989 659,044 Accounts payable 3,245,989 659,044 Current portion of long-term loans 69,420 96,824 Notes and other payables, current – related parties 3,272,048 26,255 Advances from customers 512,123 820,898 Advances from customers – related parties 10,333,007 11,739,533 Advances from customers 10,333,007 11,739,533 Income tax payable 14,133,163 18,705,851 Operating lease liabilities, current 3,623,871 4,341,522 Finance lease liabilities, current 161,340 — Accrued liabilities and other current liabilities 6,229,797 8,103,194 Due to related party 2,810,647 2,823,590 Total current liabilities 60,681,611 61,191,890 F- 2 SBC MEDICAL GROUP HOLDINGS INCORPORATED UNAUDITED CONSOLIDATED BALANCE SHEETS — (Continued) June 30, 2025 December 31, 2024 Non-current liabilities: Long-term loans 7,031,506 6,502,682 Notes and other payables, non-current – related parties — 5,334 Deferred tax liabilities 353,517 926,023 Operating lease liabilities, non-current 1,208,516 1,241,526 Finance lease liabilities, non-current 164,721 — Other liabilities 1,206,815 1,193,541 Total non-current liabilities 9,965,075 9,869,106 Total liabilities 70,646,686 71,060,996 Stockholders’ equity: Preferred stock ($ 0.0001 par value, 20,000,000 shares authorized; no shares issued and outstanding as of June 30, 2025 and December 31, 2024) — — Common stock ($ 0.0001 par value, 400,000,000 shares authorized, 103,881,251 and 103,020,816 shares issued, 103,098,442 and 102,750,816 shares outstanding as of June 30, 2025 and December 31, 2024, respectively) 10,388 10,302 Additional paid-in capital 72,196,114 62,513,923 Treasury stock (at cost, 782,809 and 270,000 shares as of June 30, 2025 and December 31, 2024, respectively) ( 5,115,262 ) ( 2,700,000 ) Retained earnings 213,423,693 189,463,007 Accumulated other comprehensive loss ( 35,922,942 ) ( 54,178,075 ) Total SBC Medical Group Holdings Incorporated stockholders’ equity 244,591,991 195,109,157 Non-controlling interests 60,580 ( 86,999 ) Total stockholders’ equity 244,652,571 195,022,158 Total liabilities and stockholders’ equity $ 315,299,257 $ 266,083,154 The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 3 SBC MEDICAL GROUP HOLDINGS INCORPORATED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME 2025 2024 2025 2024 For the Three Months Ended June 30, For the Six Months Ended June 30, 2025 2024 2025 2024 Revenues, net – related parties $ 38,944,898 $ 51,039,038 $ 84,202,043 $ 101,509,245 Revenues, net 4,413,949 2,063,042 6,485,505 6,400,877 Total revenues, net 43,358,847 53,102,080 90,687,548 107,910,122 Cost of revenues (including cost of revenues from related parties of $ 4,669,602 and $ 3,616,103 for the three months ended June 30, 2025 and 2024, and $ 8,126,530 and $ 5,413,462 for the six months ended June 30, 2025 and 2024, respectively) 13,348,270 13,682,405 22,943,887 28,971,072 Gross profit 30,010,577 39,419,675 67,743,661 78,939,050 Operating expenses: Selling, general and administrative expenses (including selling, general and administrative expenses from related parties of $ 415,767 and nil for the three months ended June 30, 2025 and 2024, and $ 415,767 and nil for the six months ended June 30, 2025 and 2024, respectively) 15,456,385 12,129,115 28,987,395 27,187,605 Total operating expenses 15,456,385 12,129,115 28,987,395 27,187,605 Income from operations 14,554,192 27,290,560 38,756,266 51,751,445 Other income (expenses): Interest income 22,882 11,644 78,215 29,333 Interest expense ( 49,651 ) ( 7,424 ) ( 55,858 ) ( 10,432 ) Other income 33,771 306,291 185,099 655,972 Other expenses ( 1,132,465 ) ( 514,636 ) ( 2,829,724 ) ( 1,951,292 ) Gain on redemption of life insurance policies — — 8,746,138 — Change in fair value of cryptocurrencies 111,632 — 111,632 — Gain on disposal of subsidiary — — — 3,813,609 Total other income (expenses) ( 1,013,831 ) ( 204,125 ) 6,235,502 2,537,190 Income before income taxes 13,540,361 27,086,435 44,991,768 54,288,635 Income tax expense 11,100,509 8,529,110 21,059,966 16,981,094 Net income 2,439,852 18,557,325 23,931,802 37,307,541 Less: net income (loss) attributable to non-controlling interests ( 18,388 ) 72,917 ( 28,884 ) 65,381 Net income attributable to SBC Medical Group Holdings Incorporated $ 2,458,240 $ 18,484,408 $ 23,960,686 $ 37,242,160 Other comprehensive income (loss): Foreign currency translation adjustment $ 8,623,269 $ ( 9,046,549 ) $ 18,431,596 $ ( 19,240,401 ) Total comprehensive income 11,063,121 9,510,776 42,363,398 18,067,140 Less: comprehensive income (loss) attributable to non-controlling interests 184,411 22,000 147,579 ( 70,000 ) Comprehensive income attributable to SBC Medical Group Holdings Incorporated $ 10,878,710 $ 9,488,776 $ 42,215,819 $ 18,137,140 Net income per share attributable to SBC Medical Group Holdings Incorporated* Basic and diluted $ 0.02 $ 0.20 $ 0.23 $ 0.40 Weighted average shares outstanding* Basic and diluted 103,507,249 94,192,433 103,392,580 94,192,433 * Retrospectively restated for effect of reverse recapitalization on September 17, 2024. The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 4 SBC MEDICAL GROUP HOLDINGS INCORPORATED UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024 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, 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 Issuance of common stock as incentive shares 860,435 86 ( 86 ) — — — — — — — Net income (loss) — — — — — 21,502,446 — 21,502,446 ( 10,496 ) 21,491,950 Foreign currency translation adjustment — — — — — — 9,834,663 9,834,663 ( 26,336 ) 9,808,327 Balance as of March 31, 2025 103,881,251 10,388 62,513,837 ( 270,000 ) ( 2,700,000 ) 210,965,453 ( 44,343,412 ) 226,446,266 ( 123,831 ) 226,322,435 Net income (loss) — — — — — 2,458,240 — 2,458,240 ( 18,388 ) 2,439,852 Repurchase of common stock — — — ( 512,809 ) ( 2,415,262 ) — — ( 2,415,262 ) — ( 2,415,262 ) Deemed contribution in connection with price modification on disposal of property and equipment — — 9,682,277 — — — — 9,682,277 — 9,682,277 Foreign currency translation adjustment — — — — — — 8,420,470 8,420,470 202,799 8,623,269 Balance as of June 30, 2025 103,881,251 $ 10,388 $ 72,196,114 ( 782,809 ) $ ( 5,115,262 ) $ 213,423,693 $ ( 35,922,942 ) $ 244,591,991 $ 60,580 $ 244,652,571 Number Amount Capital Earnings Loss Equity Interests Equity Common Stock Additional Paid-in Retained Accumulated Other Comprehensive Total SBC Medical Group Holdings Incorporated Stockholders’ Non- controlling Total Stockholders’ Number Amount Capital Earnings Loss Equity Interests Equity 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 Disposal of subsidiary — — — — — — ( 1,221,795 ) ( 1,221,795 ) Net income (loss) — — — 18,757,752 — 18,757,752 ( 7,536 ) 18,750,216 Foreign currency translation adjustment — — — — ( 10,109,388 ) ( 10,109,388 ) ( 84,464 ) ( 10,193,852 ) Balance as of March 31, 2024 94,192,433 9,419 36,879,281 161,606,484 ( 47,687,643 ) 150,807,541 337,277 151,144,818 Balance 94,192,433 $ 9,419 $ 36,879,281 $ 161,606,484 $ ( 47,687,643 ) $ 150,807,541 $ 337,277 $ 151,144,818 Net income — — — 18,484,408 — 18,484,408 72,917 18,557,325 Foreign currency translation adjustment — — — — ( 8,995,632 ) ( 8,995,632 ) ( 50,917 ) ( 9,046,549 ) Balance as of June 30, 2024 94,192,433 $ 9,419 $ 36,879,281 $ 180,090,892 $ ( 56,683,275 ) $ 160,296,317 $ 359,277 $ 160,655,594 Balance 94,192,433 $ 9,419 $ 36,879,281 $ 180,090,892 $ ( 56,683,275 ) $ 160,296,317 $ 359,277 $ 160,655,594 The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 5 SBC MEDICAL GROUP HOLDINGS INCORPORATED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS 2025 2024 For the Six Months Ended June 30, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 23,931,802 $ 37,307,541 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization expense 1,264,405 1,849,422 Non-cash lease expense 2,185,744 1,923,890 Provision for credit losses 283,752 62,804 Fair value change of long-term investments 384,523 1,045,557 Gain on disposal of subsidiary — ( 3,813,609 ) Gain on redemption of life insurance policies ( 8,746,138 ) — Gain on disposal of property and equipment ( 10,804 ) ( 902 ) Change in fair value of cryptocurrencies ( 111,632 ) — Deferred income taxes 7,452,983 ( 3,322,728 ) Changes in operating assets and liabilities: Accounts receivable ( 789,577 ) ( 1,423,412 ) Accounts receivable – related parties ( 17,039,113 ) 5,843,499 Accounts receivable ( 17,039,113 ) 5,843,499 Inventories ( 717,972 ) 561,921 Finance lease receivables – related parties ( 6,482,967 ) ( 1,759,556 ) Customer loans receivable 8,081,703 7,521,267 Prepaid expenses and other current assets ( 1,349,225 ) ( 1,488,347 ) Long-term prepayments 211,988 ( 41,412 ) Other assets 85,907 ( 1,007,431 ) Accounts payable 1,165,217 ( 8,960,556 ) Accounts payable – related parties 2,455,865 — Notes and other payables – related parties ( 5,031,570 ) ( 5,101,368 ) Advances from customers ( 369,616 ) ( 755,977 ) Advances from customers – related parties ( 2,363,891 ) ( 4,663,233 ) Advances from customers ( 2,363,891 ) ( 4,663,233 ) Income tax payable ( 6,030,526 ) 5,462,133 Operating lease liabilities ( 2,275,398 ) ( 1,998,196 ) Accrued liabilities and other current liabilities ( 2,508,035 ) ( 4,444,172 ) Other liabilities ( 88,593 ) 77,625 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ( 6,411,168 ) 22,874,760 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ( 560,431 ) ( 1,565,333 ) Purchase of convertible note — ( 1,700,000 ) Prepayments for property and equipment ( 705,351 ) — Advances to related parties — ( 617,804 ) Payments made on behalf of related parties ( 1,836,541 ) ( 5,245,990 ) Purchase of long-term investments ( 652,555 ) — Purchase of cryptocurrencies ( 424,250 ) — Long-term loans to others ( 13,134 ) ( 62,489 ) Repayments from related parties 70,000 555,000 Repayments from others 56,307 44,748 Proceeds from redemption of life insurance policies 17,735,717 — Disposal of subsidiary, net of cash disposed of — ( 815,819 ) Proceeds from disposal of property and equipment 1,728,236 1,971 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 15,397,998 ( 9,405,716 ) F- 6 SBC MEDICAL GROUP HOLDINGS INCORPORATED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued) For the Six Months Ended June 30, 2025 2024 CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from related parties 15,000 — Repayments of long-term loans ( 74,256 ) ( 59,217 ) Repayments of finance lease liabilities ( 278,097 ) — Repayments to related parties ( 27,943 ) ( 50,124 ) Repurchase of common stock ( 2,415,262 ) — Deemed contribution in connection with price modification on disposal of property and equipment 9,682,277 — NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 6,901,719 ( 109,341 ) Effect of exchange rate changes 11,808,241 ( 12,679,865 ) NET CHANGE IN CASH AND CASH EQUIVALENTS 27,696,790 679,838 CASH AND CASH EQUIVALENTS AS OF THE BEGINNING OF THE PERIOD 125,044,092 103,022,932 CASH AND CASH EQUIVALENTS AS OF THE END OF THE PERIOD $ 152,740,882 $ 103,702,770 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest expense $ 55,858 $ 10,432 Cash paid for income taxes, net $ 19,637,454 $ 16,191,178 NON-CASH INVESTING AND FINANCING ACTIVITIES Property and equipment transferred from long-term prepayments $ 246,188 $ — Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 104,437 $ — Finance lease right-of-use assets obtained in exchange for finance lease liabilities $ 612,466 $ — Remeasurement of operating lease liabilities and right-of-use assets due to lease modifications $ 1,160,680 $ 1,376,034 Payables to related parties in connection with loan services provided $ 8,175,342 $ 16,085,387 Issuance of common stock as incentive shares $ 86 $ — The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 7 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED 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 Capital Two, 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 became 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 became 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. Corporate Structure As of June 30, 2025, 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 June 18, 2003 100 % Franchising, procurement, management and rental services for the medical corporations F- 8 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS (cont.) Name Place of Incorporation Date of Incorporation or Acquisition Percentage of Ownership Principal Activities 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 SBC MEDICAL APAC PTE. LTD. Singapore March 26, 2025 100 % Asia-Pacific regional headquarters Aikawa Medical Management, Inc. United States May 10, 2017 VIE Management services for cosmetic clinic in the United States * 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., which is herein referred to as “SBC Japan.” ** 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 unaudited 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 unaudited consolidated financial statements do not include all of the information and disclosure required by U.S. GAAP for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments consisting of a normal recurring nature considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2024. The unaudited 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 continue 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, which were acquired in November 2024, 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. F- 9 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) 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. 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 is 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, the Company has 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 unaudited consolidated balance sheets. The transactions between the Company and the MCs are disclosed in Note 17 — Related Party Transactions. (b) Foreign Currency The Company maintains its books and record in its local currency, mainly 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 unaudited statements of operations. F- 10 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) 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 unaudited 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 June 30, 2025 June 30, 2024 Current JPY:US$1 exchange rate 144.1650 160.8680 Average JPY:US$1 exchange rate 148.4720 152.1868 Exchange rate 148.4720 152.1868 (c) Use of Estimates In preparing the unaudited 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 unaudited 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 allowance of deferred tax assets, uncertain income tax positions, the recognition and measurement of impairment of investments in securities, allowance for credit losses and implicit interest rate of operating and finance leases. 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. (d) Customer Loans Receivable, and Notes and Other Payables — Related Parties In February 2023, the Company started to provide loan services to certain customers of the related-party MCs (“End Customers”). Once a loan is granted to finance an End Customer’s purchase, 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. The Company generated interest income of $ 305,227 and $ 172,701 for the three months ended June 30, 2025 and 2024, respectively, and generated interest income of $ 588,643 and $ 490,210 for the six months ended June 30, 2025 and 2024 , respectively, from the loan services, which were included in revenues. 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 three months ended June 30, 2025 and 2024, the Company recorded $ 258,650 and nil allowance for doubtful accounts, respectively, for customers receivable. During the six months ended June 30, 2025 and 2024, the Company recorded $ 353,752 and nil allowance for doubtful accounts, respectively, for customer loans receivable. Prior to January 2025, when a loan was granted to an End Customer, the Company issued a promissory note to the related party MC to settle the purchase transaction on behalf of the End Customer. The Company repays each promissory note when the corresponding loan is fully repaid by the End Customer or earlier if mutually agreed. These promissory notes are unsecured and bear no interest. Starting in January 2025, instead of issuing a promissory note to the MC upon loan issuance, the Company pays the transaction amount directly in cash to the MC on behalf of the End Customer in the month following the purchase. F- 11 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) (e) Cryptocurrencies Cryptocurrencies are included in non -current assets in the unaudited consolidated balance sheets because the Company holds them for long-term investment purposes. Effective January 1, 2025, the Company adopted ASU No. 2023-08, Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”) using a modified retrospective approach, which requires cryptocurrency assets to be measured at fair value each reporting period with changes in fair value recorded in net income or loss. The adoption of ASU 2023-08 did not have impact on the Company’s prior years’ consolidated financial statements as the Company did not hold cryptocurrencies prior to the adoption. The Company purchases Bitcoins through Coinbase, Inc., a cryptocurrency exchange, which are initially recorded at cost and subsequently measured at fair value in the consolidated balance sheets. The Company determines the fair value of its cryptocurrency in accordance with ASC 820, Fair Value Measurement , based on quoted prices on active exchange(s) that are identified as the principal market(s) for such assets (Level I inputs). The cost basis of cryptocurrencies is determined using the average cost method. The change in fair value of cryptocurrencies is recorded in “Other income (expenses)” as a non-operating item in the unaudited consolidated statements of operations. Purchases and sales of cryptocurrencies, if any, are included within investing activities in the accompanying consolidated statements of cash flows. (f) 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. (g) Impairment of Long-lived Assets Other Than Goodwill Long-lived assets with finite lives, primarily property and equipment, intangible assets, operating lease right-of-use assets and finance 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. (h) 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). F- 12 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) 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 unaudited 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. (i) 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. 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 unaudited 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. (j) Leases 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 sales-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. F- 13 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) 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. 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. Any amounts received but will be recognized as revenue in future periods are classified as advances from customers in the Company’s unaudited consolidated balance sheets. F- 14 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) 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. (k) 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”. 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 by licensing its intellectual properties, including but not limited to the Company’s brand name (“Shonan Beauty Clinic”), trade name, patents, and trademarks, and by providing consulting services to enhance the value of “Shonan Beauty Clinic” brand, as a franchisor pursuant to franchise agreements with the medical corporations (the “MCs”) in Japan. Prior to April 2025, revenue was based on a fixed amount to each MC and a fixed amount to each clinic of the MCs; starting from April 2025, rather than charging the same flat fee for all MCs/clinics, the monthly service fee to each MC and to each clinic of the MCs is determined by the facility type, operational tenure, operational performance of each clinic of the MCs. The revenue is recognized over time as services are rendered. F- 15 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) 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. 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 IT, and administrative services. 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, and IT management services. The Company recognizes revenue based on a monthly service fee over the time when services are rendered. Since April 2025, the amount of the monthly fee for each clinic is determined using the same key criteria described above under “Franchising Revenue.” 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. F- 16 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) 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(j). Other Revenues The Company generates other miscellaneous revenues such as medicine dispensed sales revenue, brokerage services revenue, construction services revenue, interest income, beauty and health services revenue, etc. These revenues are recognized when the Company satisfies performance obligations. (l) 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 $ 973,933 and $ 223,094 for the three months ended June 30, 2025 and 2024, respectively, and $ 1,656,099 and $ 934,724 for the six months ended June 30, 2025 and 2024, respectively. (l) Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable, finance lease receivables 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 six months ended June 30, 2025, customer A, B and C represent 25 %, 25 % and 22 % of the Company’s total revenues, respectively. For the six months ended June 30, 2024, customer A, B, C and D represent 24 %, 22 %, 24 % and 10 % of the Company’s total revenues, respectively. As of June 30, 2025, customer A, B and C account for 27 %, 25 % and 24 % of the Company’s total outstanding accounts receivable, respectively. As of December 31, 2024, customer A, B, C and D account for 17 %, 28 %, 26 % and 10 % of the Company’s total outstanding accounts receivable, respectively. For the six months ended June 30, 2025, no vendor represents more than 10 % of the Company’s total purchases. For the six months ended June 30, 2024, vendor A represents 15 % of the Company’s total purchases. As of June 30, 2025, vendor A, B and C represent 13 %, 12 % and 11 % of the Company’s total outstanding accounts payable. As of December 31, 2024, vendor A and B represent 12 % and 15 % of the Company’s total outstanding accounts payable, respectively. (m) 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. (n) 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. F- 17 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) 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. (o) 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 June 30, 2025 and December 31, 2024, the carrying values of current assets and current liabilities approximated their fair values reported in the unaudited 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 June 30, 2025 and December 31, 2024 are summarized below. SCHEDULE OF FAIR VALUE ON A RECURRING BASIS Fair Value Measurements as of June 30, 2025 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Unobservable Inputs (Level 3) Fair Value at June 30, 2025 Long-term investments: Equity investments at fair value with readily determinable fair value $ 2,971,606 — — $ 2,971,606 Cryptocurrencies: Bitcoin $ 535,882 — — $ 535,882 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 Cryptocurrencies: Bitcoin $ — — — $ — F- 18 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) (p) 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. (q) Recent Accounting Pronouncements In December 2023, the FASB issued ASU No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, which requires entities that hold crypto assets to subsequently measure such assets at fair value with changes recognized in net income each reporting period. This accounting update also improves the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. ASU 2023-08 is effective for all entities for annual periods beginning after December 15, 2024, including interim periods within those fiscal years. The Company adopted ASU 2023-08 on January 1, 2025. See Note 2(e) and Note 7 for relevant cryptocurrency disclosures. In December 2023, the FASB issued Accounting Standards Update (“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, and for annual periods beginning after December 15, 2025 for all other entities, on a prospective basis. Early adoption is 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. F- 19 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 — VARIABLE INTEREST ENTITY (cont.) The following amounts and balances of AMM were included in the Company’s unaudited consolidated financial statements as of June 30, 2025 and December 31, 2024 and for the three and six months ended June 30, 2025 and 2024: SCHEDULE OF CONSOLIDATED FINANCIAL STATEMENTS OF VARIABLE INTEREST ENTITY June 30, 2025 December 31, 2024 ASSETS Current assets Cash and cash equivalents $ 21,893 $ 41,247 Accounts receivable 33,992 20,076 Prepaid expenses and other current assets 10,831 32,493 Total Current Assets 66,716 93,816 Property and equipment, net 1,799,372 1,799,372 Loans receivables from subsidiaries of the Company 3,072,945 3,122,157 Other assets 2,275 2,275 Total Non-current Assets 4,874,592 4,923,804 Total Assets $ 4,941,308 $ 5,017,620 LIABILITIES Current Liabilities Accounts payable $ 18,450 $ 18,904 Accrued liabilities and other current liabilities 17,824 17,824 Due to related party 2,769,076 2,797,018 Total Current Liabilities 2,805,350 2,833,746 Loan payable to a subsidiary of the Company 8,267,303 8,245,328 Total Non-current Liabilities 8,267,303 8,245,328 Total Liabilities $ 11,072,653 $ 11,079,074 2025 2024 2025 2024 For the Three Months Ended June 30, For the Six Months Ended June 30, 2025 2024 2025 2024 Revenues $ 41,002 $ 40,470 $ 81,472 $ 188,860 Cost of revenues $ — $ — $ — $ 56,510 Total operating expenses $ 116,431 $ 112,919 $ 164,231 $ 255,720 Net loss $ ( 75,430 ) $ ( 72,449 ) $ ( 57,759 ) $ ( 123,370 ) 2025 2024 For the Six Months Ended June 30, 2025 2024 Net cash used in operating activities $ ( 75,467 ) $ ( 101,725 ) Net cash provided by investing activities $ 25,000 $ 50,000 Net cash used in financing activities $ ( 27,942 ) $ ( 49,424 ) F- 20 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS As of June 30, 2025 and December 31, 2024, prepaid expenses and other current assets consist of the following: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS June 30, 2025 December 31, 2024 Advances to suppliers $ 13,442,495 $ 9,693,043 Other receivables * 359,738 1,558,223 Others 249,513 25,536 Total $ 14,051,746 $ 11,276,802 * Represent reimbursement receivables from a business partner and other miscellaneous receivables. NOTE 5 — FINANCE LEASE RECEIVABLES As of June 30, 2025 and December 31, 2024, finance lease receivables consist of the following: SCHEDULE OF FINANCE LEASE RECEIVABLES June 30, 2025 December 31, 2024 Future minimum lease payments receivable $ 22,385,136 $ 14,427,511 Estimated residual value — — Gross finance lease receivables 22,385,136 14,427,511 Less: unearned interest income ( 58,226 ) ( 37,344 ) Finance lease receivables $ 22,326,910 $ 14,390,167 Finance lease receivables, current $ 9,128,931 $ 5,992,585 Finance lease receivables, non-current $ 13,197,979 $ 8,397,582 As of June 30, 2025, maturities of the Company’s gross finance lease receivables are as follows: SCHEDULE OF MATURITIES OF THE FINANCE LEASE RECEIVABLES Years ending December 31, Remaining of 2025 $ 4,422,594 2026 10,085,856 2027 7,515,219 2028 361,467 2029 and thereafter — Total $ 22,385,136 F- 21 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 — PROPERTY AND EQUIPMENT, NET As of June 30, 2025 and December 31, 2024, property and equipment, net consist of the following: SCHEDULE OF PROPERTY AND EQUIPMENT June 30, 2025 December 31, 2024 Land $ 1,799,372 $ 2,008,132 Buildings and facilities attached to buildings 5,544,046 5,373,424 Machinery, equipment and automobiles 4,500,722 4,312,270 Aircraft 3,817,767 3,510,376 Software 5,343,739 4,811,260 Subtotal 21,005,646 20,015,462 Less: accumulated depreciation ( 10,235,056 ) ( 8,749,391 ) Less: accumulated impairment ( 2,712,574 ) ( 2,494,169 ) Property and equipment, net $ 8,058,016 $ 8,771,902 Depreciation expense was $ 564,158 and $ 570,730 for the three months ended June 30, 2025 and 2024, respectively, and $ 1,169,040 and $ 1,315,539 for the six months ended June 30, 2025 and 2024, respectively. The Company recognized a loss on disposal of property and equipment of $ 1,571 and a gain on disposal of property and equipment of $ 902 for the three months ended June 30, 2025 and 2024, respectively, and a gain on disposal of property and equipment of $ 10,804 and $ 902 for the six months ended June 30, 2025 and 2024, respectively. NOTE 7 — CRYPTOCURRENCIES As of June 30, 2025 and December 31, 2024, cryptocurrencies consist of the following: SCHEDULE OF DIGITAL ASSETS, NET June 30, 2025 December 31, 2024 Units Cost Basis Fair Value Units Cost Basis Fair Value Bitcoin 5 $ 424,250 $ 535,882 — $ — $ — Total $ 424,250 $ 535,882 $ — $ — The following table presents a roll-forward of the Company’s cryptocurrencies holdings during the six months ended June 30, 2025: SCHEDULE OF RECONCILIATION OF DIGITAL ASSET, NET Bitcoin Fair Value Cryptocurrencies at December 31, 2024 $ — Purchases of cryptocurrencies 424,250 Unrealized gain on cryptocurrencies 111,632 Cryptocurrencies at June 30, 2025 $ 535,882 NOTE 8 — INTANGIBLE ASSETS, NET As of June 30, 2025 and December 31, 2024, intangible assets, net consist of the following: SCHEDULE OF INTANGIBLE ASSETS June 30, 2025 December 31, 2024 Patent use right $ 18,034,891 $ 16,582,795 Trademarks 1,324,011 1,237,820 Customer Relationships 206,344 192,911 Others 110,832 159,321 Subtotal 19,676,078 18,172,847 Less: accumulated amortization ( 2,311,006 ) ( 2,072,849 ) Less: accumulated impairment ( 15,780,529 ) ( 14,509,946 ) Intangible assets, net $ 1,584,543 $ 1,590,052 Amortization expense was $ 41,073 and $ 260,215 for the three months ended June 30, 2025 and 2024, respectively, and $ 54,445 and $ 533,883 for the six months ended June 30, 2025 and 2024, respectively. Estimated future amortization expense related to intangible assets as of June 30, 2025 is as follows: SCHEDULE OF FUTURE AMORTIZATION EXPENSE OF INTANGIBLE ASSETS Years ending December 31, Amortization Expense Remaining of 2025 $ 84,961 2026 169,922 2027 169,922 2028 88,495 2029 67,202 Thereafter 1,004,041 Total $ 1,584,543 F- 22 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 — LONG-TERM INVESTMENTS, NET As of June 30, 2025 and December 31, 2024, long-term investments, net consist of the following: SCHEDULE OF LONG-TERM INVESTMENTS June 30, 2025 December 31, 2024 Investments in private entities or organizations that do not report NAV per share: Entities or organizations without observable price changes $ 1,870,365 $ 1,719,770 Investment in a public entity with readily determinable fair value – related party 2,344,824 2,478,531 Investment in a public entity with readily determinable fair value 626,782 — Less: accumulated impairment ( 1,248,884 ) ( 1,148,329 ) Long-term investments, net $ 3,593,087 $ 3,049,972 The Company recognized an unrealized loss on long-term investment in a public entity with readily determinable fair value – related party of $ 180,622 and $ 107,046 for the three months ended June 30, 2025 and 2024, respectively, and an unrealized loss of $ 340,568 and $ 1,045,557 for the six months ended June 30, 2025 and 2024, respectively. The Company recognized an unrealized loss on long-term investment in a public entity with readily determinable fair value of $ 63,320 and $ 43,955 for the three and six months ended June 30, 2025, respectively. NOTE 10 — OTHER ASSETS As of June 30, 2025 and December 31, 2024, other assets consist of the following: SCHEDULE OF OTHER ASSETS June 30, 2025 December 31, 2024 Security deposits $ 3,256,499 $ 2,921,855 Corporate-owned life insurance policies 3,447,790 11,563,720 Long-term loans receivable, primarily student loans 585,232 578,995 Others 171,703 488,883 Total $ 7,461,224 $ 15,553,453 NOTE 11 — ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES As of June 30, 2025 and December 31, 2024, accrued liabilities and other current liabilities consist of the following: SCHEDULE OF ACCRUED AND OTHER CURRENT LIABILITIES June 30, 2025 December 31, 2024 Individual income tax withheld on behalf of employees $ 704,988 $ 859,446 Wages and bonus payables 4,012,004 3,173,679 Consumption tax payable 1,372,530 3,827,080 Liabilities assumed in connection with purchase of property and equipment 26,526 25,312 Excise and franchise tax payable 39,008 15,095 Others 74,741 202,582 Total $ 6,229,797 $ 8,103,194 F- 23 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 — LONG-TERM LOANS As of June 30, 2025 and December 31, 2024, the Company’s long-term loans from banks and other financial institution consist of the following: SCHEDULE OF LONG TERM LOANS Indebtedness Weighted Average Interest Rate* Weighted Average Years to Maturity* June 30, 2025 December 31, 2024 Guaranteed loans Fixed rate loan 0.01 % 0.03 $ 80,824 $ 90,274 Variable rate loans 1.19 % 2.39 7,020,102 6,473,490 Subtotal 1.20 % 2.42 7,100,926 6,563,764 Unsecured loan Fixed rate loan — — — 35,742 Subtotal — — — 35,742 Total long-term loans 1.20 % 2.42 7,100,926 6,599,506 Less: current portion ( 69,420 ) ( 96,824 ) Non-current portion $ 7,031,506 $ 6,502,682 * Pertained to information for loans outstanding as of June 30, 2025. The Company borrowed loans from various banks and a financial institution for working capital purposes. Interest expense was $ 46,674 and $ 7,424 for the three months ended June 30, 2025 and 2024, respectively, and $ 50,635 and $ 10,432 for the six months ended June 30, 2025 and 2024, respectively. The guarantee information of the Company’s outstanding loans as of June 30, 2025 and December 31, 2024 consists of the following: SCHEDULE OF OUTSTANDING LOANS June 30, 2025 December 31, 2024 Co-guaranteed by CEO of subsidiaries within the Company’s organizational structure and Tokyo Credit Guarantee Association $ 164,430 $ 185,766 Guaranteed by a subsidiary within the Company’s organizational structure $ 6,936,496 $ 6,377,998 As of June 30, 2025, future minimum payments for long-term loans are as follows: SCHEDULE OF MATURITIES OF LONG TERM DEBT Years ending December 31, Principal Repayment Remaining of 2025 $ 31,818 2026 69,420 2027 6,999,688 Thereafter — Total $ 7,100,926 F- 24 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 — LEASES — AS A LESSEE The Company has entered into operating leases for offices and sublease purposes, with terms ranging from two to seven years, and finance leases for certain medical equipment, with terms of four 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 unaudited consolidated financial statements. During the six months ended June 30, 2025 and 2024, 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. Finance lease costs include amortization, which is recognized on a straight-line basis over the expected life of the leased assets, and interest expenses, which are recognized following an effective interest rate method. Leases with an initial term of twelve months or less are not recorded in the unaudited consolidated balance sheets. The components of lease costs are as follows: SCHEDULE OF LEASE COSTS 2025 2024 For the Three Months Ended June 30, For the Six Months Ended June 30, 2025 2024 2025 2024 Finance lease costs: Amortization of finance lease right-of-use assets $ 30,870 $ — $ 40,920 $ — Interest on finance lease liabilities 2,977 — 5,223 — Total finance lease costs 33,847 — 46,143 — Operating lease costs 1,211,006 872,955 2,197,506 1,927,643 Short-term lease costs 114,987 100,939 155,328 180,053 Total lease costs $ 1,359,840 $ 973,894 $ 2,398,977 $ 2,107,696 The following table presents supplemental information related to the Company’s leases: SCHEDULE OF SUPPLEMENTAL INFORMATION OPERATING LEASES For the Six Months Ended June 30, 2025 2024 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 2,275,398 $ 1,992,121 Operating cash flows from finance leases 5,223 — Financing cash flows from finance leases 278,097 — Non-cash information: Operating lease right-of-use assets obtained in exchange for operating lease liabilities 104,437 — Finance lease right-of-use assets obtained in exchange for finance lease liabilities 612,466 — Remeasurement of operating lease liabilities and right-of-use assets due to lease modifications 1,160,680 1,376,034 Weighted average remaining lease term (years) Operating leases 1.75 2.03 Finance leases 2.60 — Weighted average discount rate (per annum) Operating leases 0.69 % 0.19 % Finance leases 5.05 % — F- 25 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 — LEASES — AS A LESSEE (cont.) As of June 30, 2025, the future maturity of operating and finance lease liabilities is as follows: SCHEDULE OF MATURITY OF LEASE LIABILITIES Years ending December 31, Operating Leases Finance Leases Remaining of 2025 $ 2,424,090 $ 83,804 2026 1,644,921 134,201 2027 471,460 77,234 2028 141,390 43,778 2029 132,086 7,095 Thereafter 59,765 — Total undiscounted lease payments 4,873,712 346,112 Less: imputed interest ( 41,325 ) ( 20,051 ) Present value of lease liabilities 4,832,387 326,061 Less: lease liabilities, current ( 3,623,871 ) ( 161,340 ) Lease liabilities, non-current $ 1,208,516 $ 164,721 NOTE 14 — 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 %. For information on the recent One Big Beautiful Bill Act and the potential impacts thereof on our tax provision, see Note 20 — Subsequent Event. Japan The Company conducts its major businesses in Japan and is subject to tax in this jurisdiction. During the six months ended June 30, 2025 and 2024, 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 % for the six months ended June 30, 2025 and 2024. F- 26 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 — INCOME TAXES (cont.) 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 income generated from Vietnam. Singapore Aesthetic Healthcare Holdings Pte. Ltd. and its subsidiaries, and SBC MEDICAL APAC PTE. LTD. are incorporated in Singapore and subject to income tax rate at 17 % statutory tax rate with respect to the assessable profits generated from Singapore. For the six months ended June 30, 2025 and 2024, the Company’s income tax expenses are as follows: SCHEDULE OF INCOME TAX EXPENSES 2025 2024 For the Three Months Ended June 30, For the Six Months Ended June 30, 2025 2024 2025 2024 Current $ 10,663,753 $ 11,491,256 $ 13,606,983 $ 20,303,822 Deferred 436,756 ( 2,962,146 ) 7,452,983 ( 3,322,728 ) Total $ 11,100,509 $ 8,529,110 $ 21,059,966 $ 16,981,094 The effective tax rate was 46.81 % and 31.28 % for the six months ended June 30, 2025 and 2024, respectively. NOTE 15 — 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. 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 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. In May 2025, the Company’s board of directors approved a share repurchase plan (“2025 Share Repurchase Program”), authorizing the repurchases of up to $ 5.0 million of the Company’s common stock. During the six months ended June 30, 2025, the Company repurchased 512,809 shares of common stock at an average price of $ 4.66 per share, totaling approximately $ 2.4 million under the 2025 Share Repurchase Program. As of June 30, 2025, approximately $ 2.6 million remained available under the 2025 Share Repurchase Program. As of June 30, 2025 and December 31, 2024, there were 103,881,251 and 103,020,816 shares issued, 103,098,442 and 102,750,816 shares outstanding, respectively, and no preferred stock issued and outstanding. F- 27 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 — SHAREHOLDERS’ EQUITY (cont.) Stock-based compensation The following table summarizes the stock option/warrant activities and related information for the six months ended June 30, 2025 and 2024: SCHEDULE OF STOCK OPTION/WARRANTS ACTIVITIES Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Term (Years) Intrinsic Value As of January 1, 2024 4,918,998 $ 0.0064 10.00 $ — Granted 449,190 0.0001 10.00 — Exercised — — — — Forfeited/Cancelled ( 2,180,190 ) 0.0001 — — As of June 30, 2024 3,187,998 $ 0.0098 10.00 $ — As of January 1, 2025 12,134,375 $ 11.50 4.80 $ — Granted — — — — Exercised — — — — Forfeited/Cancelled — — — — As of June 30, 2025 12,134,375 $ 11.50 4.30 $ — Vested and exercisable as of June 30, 2025 12,134,375 $ 11.50 4.30 $ — NOTE 16 — DISAGGREGATION OF REVENUES Revenues generated from different revenue streams consist of the following: SCHEDULE OF DISAGGREGATION OF REVENUE 2025 2024 2025 2024 For the Three Months Ended June 30, For the Six Months Ended June 30, 2025 2024 2025 2024 Franchising revenue $ 10,007,581 $ 14,626,256 $ 25,726,863 $ 29,736,524 Procurement revenue 15,756,519 13,536,608 30,089,302 26,732,592 Management services revenue 5,138,578 16,705,597 13,866,681 32,360,267 Rental services revenue 6,851,176 3,453,173 12,491,690 7,071,114 Others 5,604,993 4,780,446 8,513,012 12,009,625 Total $ 43,358,847 $ 53,102,080 $ 90,687,548 $ 107,910,122 During the six months ended June 30, 2025 and 2024, the Company recognized revenue of $ 843,755 and $ 1,970,889 from the opening balance of advances from customers, respectively; and recognized no revenue from the opening balance of advances from customers — related parties. As of June 30, 2025 and December 31, 2024, and for the six months ended June 30, 2025 and 2024, substantially all of our long-lived assets and revenues generated were attributed to the Company’s operations in Japan. F- 28 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 — RELATED PARTY TRANSACTIONS The related parties had material transactions for the six months ended June 30, 2025 and 2024 consist of the following: Name of Related Parties Nature of Relationship as of June 30, 2025 Yoshiyuki Aikawa Controlling shareholder, director and CEO of the Company Medical Corporation Shobikai The relatives of CEO of the Company being the Members of the MC Medical Corporation Kowakai The relatives of CEO of the Company being the Members of the MC Medical Corporation Nasukai The relatives of CEO of the Company being the Members of the MC Medical Corporation Aikeikai The relatives of CEO of the Company being the Members of the MC Medical Corporation Jukeikai The relatives of CEO of the Company being the Members of the MC Medical Corporation Ritz Cosmetic Surgery The relatives of CEO of the Company being the Members of the MC Medical Corporation Association Junikai The relatives of CEO of the Company being the Members of the MC Medical Corporation Association Furinkai The relatives of CEO of the Company being the Members of the MC Japan Medical & Beauty Inc. Controlled by the CEO of the Company SBC Inc. Controlled by the CEO of the Company Hariver Inc. Controlled by the CEO of the Company 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. SBC Irvine MC Significantly influenced by the Company SBC Tokyo Medical 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. General Incorporated Association Taiseikai The relatives of CEO of the Company being the Members of General Incorporated Association Taiseikai General Incorporated Association SBC The CEO of the Company being the Member of General Incorporated Association SBC Skynet Academy Co., Ltd. Subsidiary of Hariver, Inc., a company controlled by the CEO of the Company Kijimadairakanko Inc. Subsidiary of SBC Inc., a company controlled by the CEO of the Company F- 29 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 — RELATED PARTY TRANSACTIONS (cont.) During the three and six months ended June 30, 2025 and 2024, the transactions with related parties are as follows: SCHEDULE OF RELATED PARTY TRANSACTIONS Revenues, net – related parties 2025 2024 2025 2024 For the Three Months Ended June 30, For the Six Months Ended June 30, Revenues, net 2025 2024 2025 2024 Medical Corporation Shobikai $ 10,962,737 $ 13,086,609 $ 22,515,192 $ 26,205,206 Medical Corporation Kowakai 8,909,329 12,410,044 20,022,253 25,998,681 Medical Corporation Nasukai 10,244,692 12,053,758 22,535,537 24,113,981 Medical Corporation Aikeikai 3,646,228 5,505,514 7,288,931 11,113,976 Medical Corporation Jukeikai 890,237 1,792,189 2,064,207 3,698,101 Medical Corporation Ritz Cosmetic Surgery 1,044,588 1,764,569 2,558,211 2,672,883 Japan Medical & Beauty Inc. 10,373 9,608 20,206 19,713 Hariver Inc. 5,186 4,804 10,103 9,856 SBC Inc. 206 310 314 1,842 Public Interest Foundation SBC Medical Promotion Foundation 30 6 41 59 General Incorporated Association SBC — 304 — 304 SBC Tokyo Medical University 2,155 8,012 16,317 40,817 SBC Shonan Osteopathic Clinic Inc. — 1,107 — 2,880 Yoshiyuki Aikawa 800 10,672 29,987 54,130 AI Med Inc. 98 58 190 207 SBC Irvine MC 37,753 347,337 239,538 682,057 Medical Corporation Association Furinkai 2,304,254 2,587,472 4,938,946 4,880,109 Medical Corporation Association Junikai 879,282 1,455,672 1,948,521 2,013,450 Medical Corporation Association Taiseikai — 993 — 993 Skynet Academy Co., Ltd. 6,915 — 13,471 — Kijimadairakanko Inc. 35 — 78 — Total $ 38,944,898 $ 51,039,038 $ 84,202,043 $ 101,509,245 Cost of revenues 2025 2024 2025 2024 For the Three Months Ended June 30, For the Six Months Ended June 30, Cost of revenues 2025 2024 2025 2024 Medical Corporation Nasukai $ 65,959 $ — $ 65,959 $ — Medical Corporation Aikeikai 3,742 — 3,742 — Japan Medical & Beauty Inc. 4,502,380 3,616,103 7,801,736 5,413,462 SBC Tokyo Medical University 94,295 — 183,689 — Kijimadairakanko Inc. 3,226 — 71,404 — Total $ 4,669,602 $ 3,616,103 $ 8,126,530 $ 5,413,462 Selling, general and administrative expenses 2025 2024 2025 2024 For the Three Months Ended June 30, For the Six Months Ended June 30, Selling, general and administrative expenses 2025 2024 2025 2024 Medical Corporation Shobikai $ 354,930 $ — $ 354,930 $ — Medical Corporation Kowakai 3,697 — 3,697 — Medical Corporation Nasukai 15,178 — 15,178 — Medical Corporation Aikeikai 28,218 — 28,218 — Medical Corporation Jukeikai 791 — 791 — Medical Corporation Association Junikai 337 — 337 — Medical Corporation Association Furinkai 429 — 429 — SBC Inc. 7 — 7 — General Incorporated Association SBC 12,180 — 12,180 — Total $ 415,767 $ — $ 415,767 $ — As of June 30, 2025 and December 31, 2024, the balances with related parties are as follows: Accounts receivable June 30, 2025 December 31, 2024 Medical Corporation Shobikai $ 14,064,516 $ 5,091,430 Medical Corporation Nasukai 12,696,547 8,552,722 Medical Corporation Kowakai 12,226,967 7,742,251 Medical Corporation Aikeikai 4,936,342 3,071,378 Medical Corporation Jukeikai 1,494,312 993,944 Medical Corporation Association Furinkai 1,164,544 1,263,602 Medical Corporation Ritz Cosmetic Surgery 1,430,776 817,283 Medical Corporation Association Junikai 226,361 283,298 Hariver Inc. 1,908 — SBC Tokyo Medical University 605 536 AI Med Inc. 36 33 SBC Inc. 288 137 Public Interest Foundation SBC Medical Promotion Foundation 66 36 SBC Shonan Osteopathic Clinic Inc. — 4 SBC Irvine MC 677,515 693,850 Kijimadairakanko Inc. 60 336,176 Total $ 48,920,843 $ 28,846,680 Accounts receivable with related parties $ 48,920,843 $ 28,846,680 F- 30 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 — RELATED PARTY TRANSACTIONS (cont.) Finance lease receivables June 30, 2025 December 31, 2024 Medical Corporation Shobikai $ 4,201,316 $ 1,877,291 Medical Corporation Kowakai 4,241,594 2,490,705 Medical Corporation Nasukai 6,659,496 3,872,683 Medical Corporation Aikeikai 1,580,515 1,047,821 Medical Corporation Ritz Cosmetic Surgery 2,333,678 2,479,771 Medical Corporation Jukeikai 407,692 500,244 Medical Corporation Association Furinkai 1,947,518 1,891,412 Medical Corporation Association Junikai 928,218 197,452 SBC Shonan Osteopathic Clinic Inc. 26,883 32,788 Total 22,326,910 14,390,167 Finance lease receivables 22,326,910 14,390,167 Less: current portion ( 9,128,931 ) ( 5,992,585 ) Finance lease receivables Less: current portion ( 9,128,931 ) ( 5,992,585 ) Non-current portion $ 13,197,979 $ 8,397,582 Finance lease receivables Non-current portion $ 13,197,979 $ 8,397,582 Other receivables June 30, 2025 December 31, 2024 Medical Corporation Shobikai $ 672,427 $ — Medical Corporation Kowakai 443,278 — Medical Corporation Nasukai 419,358 — Medical Corporation Aikeikai 215,926 — Medical Corporation Jukeikai 75,800 — Medical Corporation Ritz Cosmetic Surgery 64,619 — Total $ 1,891,408 $ — Due from related party, net June 30, 2025 December 31, 2024 SBC Irvine MC $ 2,766,013 $ 2,836,013 Less: allowance for credit loss ( 2,766,013 ) ( 2,836,013 ) Total $ — $ — Due from related party, net $ — $ — Long-term investments in MCs June 30, 2025 December 31, 2024 Medical Corporation Shobikai $ 6,936 $ 6,378 Medical Corporation Kowakai 6,936 6,378 Medical Corporation Nasukai 6,936 6,378 Medical Corporation Aikeikai 6,936 6,378 Medical Corporation Jukeikai 7,460,610 6,859,913 Medical Corporation Ritz Cosmetic Surgery 11,893,068 10,935,485 Total $ 19,381,422 $ 17,820,910 Long-term investments in MCs – related parties $ 19,381,422 $ 17,820,910 Accounts payable June 30, 2025 December 31, 2024 Japan Medical & Beauty Inc. $ 1,993,737 $ 659,044 SBC Tokyo Medical University 34,682 — Kijimadairakanko Inc. 3,568 — Medical Corporation Shobikai 305,853 — Medical Corporation Nasukai 292,118 — Medical Corporation Kowakai 362,910 — Medical Corporation Aikeikai 112,416 — Medical Corporation Jukeikai 33,611 — Medical Corporation Association Furinkai 39,926 — Medical Corporation Ritz Cosmetic Surgery 13,146 — Medical Corporation Association Junikai 50,855 — SBC Shonan Osteopathic Clinic Inc. 2,584 — General Incorporated Association SBC 583 — Total $ 3,245,989 $ 659,044 Accounts payable $ 3,245,989 $ 659,044 Advances from customers June 30, 2025 December 31, 2024 Medical Corporation Shobikai $ 4,389,144 $ 5,076,300 Medical Corporation Kowakai 529,366 1,801,034 Medical Corporation Nasukai 726,562 1,745,069 Medical Corporation Aikeikai 158,652 379,931 Medical Corporation Jukeikai 57,179 140,170 Medical Corporation Ritz Cosmetic Surgery 22,214 45,701 SBC Shonan Osteopathic Clinic Inc. 21,716 16,395 Medical Corporation Association Furinkai 1,700,347 940,007 Medical Corporation Association Junikai 2,727,827 1,594,926 Total $ 10,333,007 $ 11,739,533 Advances from customers $ 10,333,007 $ 11,739,533 F- 31 SBC MEDICAL GROUP HOLDINGS INCORPORATED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 — RELATED PARTY TRANSACTIONS (cont.) Notes and other payables June 30, 2025 December 31, 2024 Medical Corporation Shobikai $ 710,513 $ 4,653 Medical Corporation Kowakai 582,673 14,672 Medical Corporation Nasukai 621,202 8,827 Medical Corporation Aikeikai 228,791 2,236 Medical Corporation Jukeikai 66,495 — Medical Corporation Ritz Cosmetic Surgery 82,767 1,201 General Incorporated Association SBC 979,607 — Total 3,272,048 31,589 Notes payable – related parties 3,272,048 31,589 Less: current portion ( 3,272,048 ) ( 26,255 ) Notes payable – related parties Less: current portion ( 3,272,048 ) ( 26,255 ) Non-current portion $ — $ 5,334 Notes payable – related parties Non-current portion $ — $ 5,334 Due to related party June 30, 2025 December 31, 2024 Yoshiyuki Aikawa $ 2,810,647 $ 2,823,590 Total $ 2,810,647 $ 2,823,590 Due to related party $ 2,810,647 $ 2,823,590 For the Six Months Ended June 30, Allowance for credit loss movement 2025 2024 Beginning balance $ 2,836,013 $ 3,238,209 Provision for credit loss — 62,804 Reversal of credit loss ( 70,000 ) — Ending balance $ 2,766,013 $ 3,301,013 The balances of due to and due from related parties represent the outstanding loans to and from related parties, respectively, as of June 30, 2025 and December 31, 2024. These loans are non-secured, interest-free and due on demand. In June 2025, the Company entered into a memorandum of sale for an aircraft pursuant to the property sales agreement dated August 18, 2023 with General Incorporated Association SBC, an entity controlled by the CEO of the Company, who is also the controlling shareholder of the Company. The original sale price was increased by approximately $ 9.68 million, which was recorded as a deemed contribution in connection with price modification on disposal of property and equipment in the Company’s unaudited consolidated statements of changes in stockholders’ equity. Also see Note 2(a), 9, 12, 13, 16 and 19 for more transactions with related parties. NOTE 18 — 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 substantially all 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 unaudited consolidated statements of operations and comprehensive income as net income. The measure of segment assets is reported in the unaudited 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 unaudited consolidated statements of operations and comprehensive income, unaudited consolidated balance sheets, and unaudited 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 19 — COMMITMENT As of June 30, 2025 and December 31, 2024, a subsidiary of the Company provided a guarantee on the debt of its CEO in the amounts of $ 266,573 and $ 262,095 , respectively. As of June 30, 2025 and December 31, 2024, the Company did not record a liability in the unaudited consolidated balance sheets for the guarantee because it was not probable that the Company would be required to make payments under the guarantee. NOTE 20 — SUBSEQUENT EVENTS On July 4, 2025, President Trump signed into law the legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA includes various provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The OBBBA has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We are currently assessing its impact on our consolidated financial statements and will recognize the income tax effects in the consolidated financial statements beginning in the period in which the OBBBA was signed into law. On July 17, 2025, the Company acquired 100% equity interest in MB Career Lounge Co., Ltd., a company providing management support services for medical institutions in Japan for cash consideration of approximately $ 13.7 million. On July 22, 2025, the Company completed its 2025 Share Repurchase Program. Under the program, the Company repurchased an aggregate of 1,034,308 shares of its common stock for a total cash consideration of approximately $ 5  million, of which 521,499 shares of common stock were repurchased during the period from July 1, 2025 to July 22, 2025. F- 32