SBC Medical Group Holdings IncSBCEarnings & Financial Report

Item 1. Business. Unless the context indicates otherwise, any references herein to the “Company”, “we”, “us” and “our” refer to (i) SBC Medical Group, Inc.

(formerly known as SBC Medical Group Holdings Incorporated), a Delaware corporation (“Legacy SBC”), and its consolidated subsidiaries and variable interest entity (“VIE”), prior to the consummation of Business Combination and to (ii) SBC Medical Group Holdings Incorporated, the Combined Entity and its consolidated subsidiaries and VIE following the Business Combination, and reference herein to “Pono” refers to predecessor company prior to the consummation of the Business Combination.

On August 9, 2022, Pono consummated its IPO of 11,500,000 units (the “Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares” and with respect to the warrants included in the Units, the “Public Warrants”) (the “Pono IPO”).

On September 26, 2022, the Class A common stock and Public Warrant included in the Units began separate trading on The Nasdaq Global Market under the symbols “PTWO” and “PTWOW,” respectively.

On September 17, 2024, the closing (the “Closing”) of the merger (the “Merger”) and other transactions contemplated thereby (collectively, the “Business Combination”) took place and the Merger was consummated with Merger Sub merging with and into Legacy SBC with Legacy SBC surviving the Merger as a wholly-owned subsidiary of Pono, and Pono then changed its name to SBC Medical Group Holdings Incorporated and on September 17, 2024, Legacy SBC changed its named to SBC Medical Group, Inc.

Effective September 17, 2024, Pono’s units ceased trading, and effective September 18, 2024, SBC’s common stock began trading on the Nasdaq Global Market under the symbol “SBC” and the public warrants began trading on the Nasdaq Capital Market under the symbol “SBCWW.” As a result of the Closing of the Merger and the Business Combination, the business of SBC Medical Group, Inc.

(“Legacy SBC”), became the business of the Company. Business Overview The Company is a management company headquartered in Irvine California and Tokyo, Japan, that owns, operates, and provides management services to cosmetic treatment centers mainly in Japan, with footprint also in Vietnam, Singapore and the United States.

The history of Legacy SBC began with the establishment of L’Ange Cosmetique Co., Ltd. in 2003 and SBCMG (formerly Aikawa Medical) in 2017 for the purpose of providing management services to medical corporations and the medical clinics of the medical corporations.

The history of the medical corporations and the medical clinics began in 2000 with the opening of Shonan Beauty Clinic in Fujisawa City, Japan, where Dr. Aikawa opened in private practice. Subsequently, Dr.

Aikawa opened clinics in Yokohama in 2001 and Shinjuku in 2003, incorporated as Medical Corporation Shobikai in 2004, acquired a medical corporation named Medical Corporation Kowakai in 2009 and Medical Corporation Nasukai in 2009. 7 The Company is primarily focused on providing comprehensive management services to franchisee clinics, including but not limited to advertising and marketing needs across various platforms (such as social media networks), staff management (such as recruitment and training), booking reservations for franchisee clinic customers, assistance with franchisee employee housing rentals and facility rentals, construction and design of franchisee clinics, medical equipment and medical consumables procurement (resale), the provision of cosmetic products to franchisee clinics for resale to clinic customers, licensure of the use of patent-pending and non-patented medical technologies, trademark and brand use, IT software solutions (including but not limited to remote medical consultations), management of the franchisee clinic’s customer rewards program (customer loyalty point program), and payment tools for the franchisee clinics.

In 2017, we began providing our management services to our franchisee treatment center. The Company and its subsidiaries now provide management services to a total of 241 franchisee treatment centers located in Japan.

The Company also (i) owns and operates 1 treatment center under its “SBC” brand name in Ho Chi Minh City, Vietnam, as well as (ii) provides management service to 1 treatment center under its “SBC” brand name in Irvine, California in the United States (the “CA Clinic”), which is owned and operated by the related party.

Our treatment center in Vietnam, and the franchisee treatment centers that we provide management services to, provide an array of surgical and non-surgical medical services that vary based upon location, including cosmetic surgery, dermatology, and dentistry.

These medical services include but are not limited to breast augmentation, liposuction, rejuvenation treatments (including treatment of wrinkles, acne, scars, cellulite, excess fat, discoloration, and signs of aging), laser skin toning and spot removal, eyes double fold surgery, rhinoplasty, treatment of osmidrosis and hyperhidrosis, hair transplants, gynecological formation treatments, laser hair removal, face line surgeries, cosmetical dental procedures, tattoo removal, lasik eye surgery, lateral canthoplasty, brow lift procedures, androgenetic alopecia treatment, and cheek sagging prevention methods.

In November 2024, we acquired 100% equity interest of Aesthetic Healthcare Holdings (“AHH”) and its subsidiaries, companies incorporated in Singapore and principally engaged in medical aesthetics business, with a cash consideration of SGD$7.8 million (equivalent to approximately US$5.8 million). Through the acquisition of AHH, the Company currently operates several clinics in Singapore.

Since our inception, we have been committed to delivering high quality management services to our franchisee clinics. We believe our team of highly qualified and experienced professionals have underpinned our strong reputation as we continue to provide multifaceted management services to our franchisee clinics. Business Segments The Company operates as a single operating segment.

The Company’s Chief Executive Officer, who serves as the Chief Operating Decision Maker (“CODM”), is responsible for evaluating performance and allocating resources. Our revenues are primarily derived from providing comprehensive management services to franchisee cosmetic treatment centers, including advertising, staffing, procurement, IT solutions, and the licensing of medical technologies and trademarks.

For additional details, see Note 20, “Segment Reporting,” in the accompanying notes to our consolidated financial statements. Corporate Structure The Company’s subsidiary, SBC Medical Group, Inc., primarily operates through 16 wholly owned subsidiaries, one majority owned subsidiaries and one variable interest entity.

The wholly owned subsidiaries consist of SBC Medical Group Co., Ltd., a Japan corporation (“SBC Medical Sub”), L’Ange Cosmetique Co., Ltd., a Japan corporation (“Lange Sub”), Shobikai Co., Ltd., a Japan corporation (“Shobikai Sub”), Liesta Co., Ltd., a Japan corporation (“Liesta”), SBC Sealane Co., Ltd., a Japan corporation (“SBC Sealane”), SBC Marketing Co., Ltd., Japan corporation (“SBC Marketing”), SBC Medical Consulting Co., Ltd., a Japan corporation (“SBC Medical Consulting”), Shoubikai Medical Vietnam Co.

Ltd., a Vietnam corporation (“SBC Vietnam”), SBC Healthcare, Inc., a Delaware corporation (“SBC Healthcare”), SBC Irvine, LLC, a Delaware limited liability company (“SBC Irvine”), Aesthetic Healthcare Holdings Pte., Ltd., a Singapore corporation (“AHH”), Wen & Wang Family Clinic Pte., Ltd., a Singapore corporation (“WWFC”), Wen & Wang Medical Group Pte., Ltd., a Singapore corporation (“WWMG”), Rochor Clinic Pte., Ltd., a Singapore corporation (“RCC”), Dermasolutions Pte., Ltd., a Singapore corporation (“DS”), and Dermasolutions Services Pte., Ltd., a Singapore corporation (“DSS”).

The majority owned subsidiary is Medical Payment Co., Ltd., a Japan corporation (“Med Payment”). The variable interest entity is Aikawa Medical Management, Inc. 8 Disposal of Kijimadairakanko Inc. (“Kijima”) and Skynet Academy Co., Ltd.

(“Skynet”) On December 17, 2024, the Company entered into definitive agreements to sell and transfer all of the shares in its subsidiaries, Kijima and Skynet, to entities owned by Yoshiyuki Aikawa, CEO of the Company, for cash. The Company pursued the transactions to concentrate business and management resources on its main medical business.

The disposal of Kijima and Skynet did not constitute a strategic shift that would have a major effect on the Company’s operations and financial results. The transactions closed on December 23, 2024, subject to customary closing conditions. The Company received total cash consideration of one Japanese Yen ($0) for Kijima and $446,460 for Skynet.

In accounting for the disposals, operating results of Kijima and Skynet are included in the Company’s consolidated financial statements up to the disposal date. The difference between (i) the fair value of the net assets disposed and (ii) the consideration received was recognized as an adjustment to Additional Paid-in Capital (“APIC”).

No retrospective adjustments have been made to prior-period consolidated financial statements. Following the completion of these transactions, Kijima and Skynet ceased to be subsidiaries of the Company after December 23, 2024. Their financial results are therefore excluded from the Company’s consolidated financial statements for periods subsequent to the disposal date.

Acquisition of AHH On November 20, 2024, the Company completed the payment of SGD 7.8 million in cash for the acquisition of 100% of the voting equity interest AHH and its subsidiaries, following the execution of a Share Purchase Agreement with Dr. Ewen Chee Yew Wen, Dr. Lee Tee Kit, Dr. Phua Vanessa Mae, Dr. Charlotte Kim Thomas, and Dr.

Gary Si Khin Yuen. AHH is based in Singapore and operates aesthetic medical clinics, family clinics, and quick facial aesthetics outlets. The founder, Dr.

Ewen Chee, is known as one of the pioneers in the field of aesthetic medicine in Singapore and is a co-chair of the first Asia Pacific Thread Lift Conference (APEM) and a board-certified physician by the American Academy of Aesthetic Medicine.

He is a frequent speaker at international conferences and workshops, and his expertise and knowledge have been featured in numerous scientific publications. AHH’s major brands and number of clinics are The Chelsea Clinics, Gangnam Laser Clinic, SkinGo! and Family clinics.

Due to AHH’s fiscal year ending on September 30, the financial results of AHH and its subsidiaries have been included in the Company’s consolidated financial statements with a three-month lag. For the current period, only the balance sheet information as of the acquisition date has been included in the consolidated financial statements.

For the fiscal years ended December 31, 2024 and 202 3 , the Company generated revenues of $205,415,542 and $193,542,423, respectively, reported net income of $46,689,892 and $38,560,606, respectively, and cash flow provided by operating activities of $20,582,933 and $50,670 ,322 , respectively. As of December 31, 2024, the Company had retained earnings of $189,463,007.

SBC Medical Group Co., Ltd., a Japan corporation (“SBC Medical Sub”), L’Ange Cosmetique Co., Ltd., a Japan corporation (“Lange Sub”), Shobikai Co., Ltd., a Japan corporation (“Shobikai Sub”) are each designated as a “medical service corporation” in Japan. In Japan, a medical service corporation is a legal entity that provides management service to “MCs”.

The management services are conducted through FC contracts and service contracts between certain subsidiaries of the Company (SBC Medical Sub, Lange Sub, and Shobikai Sub) and the MCs that own all 241 of the treatment centers in Japan.

There are currently six MCs that the Company’s subsidiaries have entered into franchisor-franchisee contracts and service contracts with, consisting of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, Medical Corporation Jukeikai, and Medical Corporation Ritz Cosmetic Surgery (collectively, the “MCs”).

In addition to the six MCs, we have entered into service contracts with Medical Corporation Association Furinkai (the service contract regarding operation on November 22, 2023 and the service contract regarding management consulting on November 25, 2023 respectively) and Medical Corporation Association Junikai (the service contract regarding operation and the service contract regarding management consulting both on November 16, 2023).

The scope of work (“SOW”) of the service contracts with these two MCs is limited to marketing, introduction of new treatment technologies and future business development while the SOW of the FC contracts with the six MCs are broad and define general rules in order to allow MCs to use the SBC brand name.

Accordingly, the service contracts with these two MCs are different from the FC contracts with the six MCs and the clinics of these two MCs do not use the “Shonan Beauty Clinic” brand.

Please see “— Material Contracts between the Company and MCs — Service Contracts” for more information regarding the service contracts with Medical Corporation Association Furinkai and Medical Corporation Association Junikai. 9 All of the MCs are deemed to be related parties of the Company since relatives of the CEO of the Company are the members (or shain ) of general meetings of members of the MCs.

Item 1C. Cybersecurity. The Company prioritizes the security of its information systems and data integrity . We have developed a cybersecurity strategy to manage and mitigate potential cybersecurity risks. Our strategy is designed to safeguard our systems and data. Cybersecurity Risk Management and Strategy The Company’s Information Systems Department is in charge of network construction and cybersecurity management.

If a system failure, serious accident, or sign of such an accident is detected, the Information Systems Department reports to the CEO and other executives, who then consider countermeasures.

The following are considered important cybersecurity issues, and countermeasures are being implemented.: ● Malware infection: There is a risk of losing sales due to information leaks or system downtime caused by unauthorized access due to malware infection.

We are protecting against this by introducing email training and detection products. ● Vulnerability: There is a risk of loss of corporate trust and sales opportunities due to system downtime or information leaks caused by the exploitation of vulnerabilities in servers, etc.

We are conducting vulnerability assessments for services that are open to the public, and will continue to expand the scope of these assessments in the future. ● Ransomware: If the system is infected with ransomware, there is a risk of data being encrypted, resulting in business stoppages and information leaks.

We have prepared multiple backup mechanisms and recovery procedures in case of damage. ● Information leaks: If data is taken from databases or other sources due to unauthorized access or internal crime, the Company’s credibility will be lost, resulting in a loss of profits or the occurrence of compensation for damages. ● Denial of Service (DOS) attacks: There is a risk that a DOS attack could bring down our website and make it impossible to make appointments at clinics, which would have a negative impact on sales.

For this reason, we have introduced a WAF to prevent malicious access and DOS attacks. ● Applying patches and upgrading: There is a risk that not applying patches and upgrades could leave the system vulnerable to attacks, allowing unauthorized access. We are taking measures by regularly updating the operating system and applying patches.

Governance and Oversight There is currently no director specializing in cybersecurity.

Important cybersecurity matters are reported to the board of directors, and implementations are carried out based on the Company’s organizational chart, with the approval and oversight of the board of directors, CEO, and/or other executive officers, as applicable. 100 Employee Training and Awareness Cybersecurity threats are monitored and prevented by the head of the Information Systems Department, and the training plan is reported to the CEO and other executives, who implement the following: ● We are planning to conduct annual training for the entire company on cybersecurity response. ● We are conducting recovery simulation training in the event of a system failure. ● We are conducting email training that simulates malicious attacks.

Third-Party Service Providers To operate our business, we utilize certain third-party service providers to perform a variety of functions. We intend to use the same outsourcing partners as much as possible for consistency. We are planning to establish selection and management policies in the future.

Item 2. Properties. Our headquarters is located at 200 Spectrum Center Dr., Suite 300, Irvine, CA 92618, where we lease and occupy our office space with an aggregate floor area of approximately 215 square feet from an unrelated third party under an operating lease agreement.

As of the date of this Annual Report, we do not currently own any of our facilities. The following table shows the location of our primary leased facilities, the name of the entity leasing the space, the annual rent, approximate square footage, primary use, and lease expiration date.

We believe that our existing facilities are generally adequate to meet our current needs, but we expect to seek additional space as needed to accommodate our future growth. There are no major facilities currently inactive.

Annual rent below does not include consumption tax. 101 Name of Lessee Location Primary Use Annual rent (US dollars) Approximate Size in Square Feet Lease Expiration Date Note (Related Party) SBC Medical Group Holdings Incorporated California Headquarters 8,520 215 07/01/2025 SBC Medical Group Co., Ltd. Tokyo Office 553,808 9,536 10/31/2025 SBC Medical Group Co., Ltd.

Tokyo Meeting Room 403,903 7,543 12/31/2025 SBC Medical Group Co., Ltd. Tokyo Beauty salon 128,280 1,807 1/31/2025 SBC Medical Group Co., Ltd. Tokyo Lounge 66,586 1,048 4/22/2025 SBC Medical Group Co., Ltd. Tokyo Equipment warehouse 67,044 1,843 2/9/2026 SBC Medical Group Co., Ltd. Tokyo Main Office 99,914 1,935 6/30/2030 L’Ange Cosmetique Co., Ltd.

Tokyo Office 237,139 4,280 8/31/2025 L’Ange Cosmetique Co., Ltd. Osaka Office 53,849 3,338 7/31/2026 L’Ange Cosmetique Co., Ltd. Osaka Call center 236,999 6,121 8/31/2026 L’Ange Cosmetique Co., Ltd. Tokyo Office 56,828 2,402 2/28/2025 Shobikai Co., Ltd. Kanagawa Main Office 10,437 1,882 9/30/2027 Y Shobikai Co., Ltd. Tokyo Call center 114,479 4,853 1/31/2026 Shobikai Co., Ltd.

Sendai Call center 87,233 5,754 10/31/2026 SBC Sealane Co., Ltd. Tokyo Main Office 38,268 4,558 4/30/2026 Wen & Weng Medical Group PTE LTD Singapore Clinic 165,710 1,206 2025/5/12 Wen & Weng Medical Group PTE LTD Singapore Office 137,542 1,001 2025/11/30

Item 3. Legal Proceedings. From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined.

As of the date hereof, there are no legal claims currently pending or, to our knowledge, threatened against us or any of our officers or directors in their capacity as such or against any of our properties that, in the opinion of our management, would be likely to have a material adverse effect on our financial position, results of operations or cash flows.

Item 4. Mine Safety Disclosures. Not applicable. 102 PART II

On March 21, 2025, the closing price of our common stock was $3.74 per share and the closing price of our warrants was $0.201. Holders of Record As of February 28, 2025, we had approximately 34 holders of record of our common stock, with 103,881,251 shares issued (including 270,000 shares of treasury stock) and 103,611,251 shares outstanding.

We also had two holders of record of our Public Warrants, consisting of 11,500,000 Public Warrants originally issued in Legacy Pono’s IPO and 634,375 Private Placement Warrants held by the Sponsor, with total of 12,134,375 warrants issued and outstanding.

The agreements into which we may enter in the future, including indebtedness, may impose limitations on our ability to pay dividends or make other distributions on our capital stock.

We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Transfer Agent and Registrar The Company’s transfer agent and registrar for our Common Stock and Public Warrants is Continental Stock Transfer & Trust Company located at 1 State Street, New York, NY 10004 and their telephone is (212) 509-4000.

Unregistered Stock Issuances Simultaneously with the closing of the Company’s Initial Public Offering on August 9, 2022, the Company consummated the sale of 634,375 units (the “Placement Units”) at a price of $10.00 per Placement Unit in a private placement to Mehana Capital LLC (the “Sponsor”), including 63,000 Placement Units issued pursuant to the exercise of the underwriters’ over-allotment option in full, generating gross proceeds of $6,343,750. 103 Stock Performance Graph As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide the information required under this Item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis summarize the significant factors affecting our operating results, financial condition, liquidity, and cash flows for the periods presented below.

Actual results could differ materially from those discussed or implied in the forward-looking statements as a result of various factors, including those described below and elsewhere in this Annual Report, particularly in “Part I, Item 1A.

Risk Factors” and the section entitled “Cautionary Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, any reference in this section of this Annual Report to the “Company,” “SBC,” “we,” “us” or “our” refers to Legacy SBC and its consolidated subsidiaries and variable interest entity (“VIE”), prior to the consummation of the Business Combination and to SBC Medical Group Holdings Incorporated, the Combined Entity and its consolidated subsidiaries and VIE following the Business Combination.

Overview SBC Medical Group, Inc. (formerly known as SBC Medical Group Holdings Incorporated), a Delaware corporation and subsidiary of the Company (“Legacy SBC”) is a management company headquartered in Irvine, California and Tokyo, Japan, that provides management services to cosmetic treatment centers mainly in Japan.

The Company and its subsidiaries are primarily focused on providing comprehensive management services to franchisee clinics, including but not limited to advertising and marketing needs across various platforms (such as social media networks), staff management (such as recruitment and training), booking reservations for franchisee clinic customers, assistance with franchisee employee housing rentals and facility rentals, construction and design of franchisee clinics, medical equipment and medical consumables procurement ( resale ), the provision of cosmetic products to franchisee clinics for resale to clinic customers, licensure of the use of patent-pending and non-patented medical technologies, trademark and brand use, IT software solutions (including but not limited to remote medical consultations), management of the franchisee clinic’s customer rewards program (customer loyalty point program), and payment tools for the franchisee clinics.

Our wholly owned subsidiaries, SBC Medical Group Co., Ltd., a Japan corporation (“SBC Medical Sub”), L’Ange Cosmetique Co., Ltd., a Japan corporation (“Lange Sub”), and Shobikai Co., Ltd., a Japan corporation (“Shobikai Sub”), are each designated as a “medical service corporation” in Japan. In Japan, a medical service corporation is a legal entity that provides management service to “medical corporations”.

The management services are conducted through franchisor-franchisee contracts and/or service contracts between certain subsidiaries of the Company (SBC Medical Sub, Lange Sub, and Shobikai Sub) and the medical corporations that own all 241 of the treatment centers in Japan.

These clinics provide include but are not limited to breast augmentation, liposuction, rejuvenation treatments (including treatment of wrinkles, acne, scars, cellulite, excess fat, discoloration, and signs of aging), laser skin toning and spot removal, eyes double fold surgery, rhinoplasty, treatment of osmidrosis and hyperhidrosis, hair transplants, gynecological formation treatments, laser hair removal, face line surgeries, cosmetical dental procedures, tattoo removal, lasik eye surgery, lateral canthoplasty, brow lift procedures, androgenetic alopecia treatment, and cheek sagging prevention methods. 104 There are currently six medical corporations that the Company’s subsidiaries have entered into franchisor-franchisee contracts and service contracts, consisting of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, Medical Corporation Jukeikai and Medical Corporation Ritz Cosmetic Surgery.

In addition, the Company has entered into service contracts since September 2023 with two additional medical corporations, Medical Corporation Association Furinkai and Medical Corporation Association Junikai (collectively with the six franchisee medical corporations, the “Medical Corporations” or “MCs”).

All of the Medical Corporations are deemed to be related parties of the Company since relatives of the CEO of the Company are the members (or shain ) of general meetings of members of the Medical Corporations.

The CEO of the Company was previously a member of the six franchisee Medical Corporations until he ceased being a member in July 2023. The Company, through SBC Medical Sub, owns equity “deposit” interests (or mochibun ) of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai).

Although the Company, through SBC Medical Sub, has an equity “deposit” interest to the rights to receive a distribution of residual assets in proportion to the amount of contribution in certain circumstances as provided in the articles of incorporation of each of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai), the Company or SBC Medical Sub does not have voting control over the corporate actions at general meetings of members (or shain ) of the Medical Corporations per the requirements of the Japanese Medical Care Act.

Financial Overview For the years ended December 31, 2024 and 2023, we generated revenues of $205,415,542 and $193,542,423, respectively, we reported net income attributable to SBC Medical Group Holdings Incorporated of $46,614,275 and $39,370,036, respectively, and cash flow provided by operating activities of $20,582,933 and $50,670,322, respectively. As of December 31, 2024, we had retained earnings of $ 189,463,007.

Our primary mission is to provide quality comprehensive management services to the Medical Corporations and expand our “Shonan Beauty Clinic” brand. We plan to achieve the mission by maintaining and strengthening our market position and brand in the cosmetic medical treatment management market in Japan, Vietnam, and the United States, and by growing our presence globally.

Further information regarding our business is provided in “Part 1, Item 1. Business” of this Annual Report.

Results of Operations Comparison of Results of Operations for the Years Ended December 31, 2024 and 2023 The following table summarizes our operating income as reflected in our audited consolidated statements of operations and comprehensive income for the years ended December 31, 2024 and 2023, and presents information regarding amounts and percentage changes during those periods.

For the Years Ended December 31, 2024 2023 Variance Amount % of revenue Amount % of revenue Amount % Revenues, net (including net revenues provided to related parties) $ 205,415,542 100.00 % $ 193,542,423 100.00 % $ 11,873,119 6.13 % Cost of revenues 49,365,035 24.03 % 56,238,385 29.06 % (6,873,350 ) (12.22 )% Gross profit 156,050,507 75.97 % 137,304,038 70.94 % 18,746,469 13.65 % Operating expenses 85,746,797 41.74 % 66,643,972 34.43 % 19,102,825 28.66 % Income from operations 70,303,710 34.23 % 70,660,066 36.51 % (356,356 ) (0.50 )% Other income 3,152,107 1.53 % 2,919,269 1.51 % 232,838 7.98 % Income before income taxes 73,455,817 35.76 % 73,579,335 38.02 % (123,518 ) (0.17 )% Income tax expense 26,765,925 13.03 % 35,018,729 18.09 % (8,252,804 ) (23.57 )% Net income 46,689,892 22.73 % 38,560,606 19.93 % 8,129,286 21.08 % Less: net income (loss) attributable to non-controlling interests 75,617 0.04 % (809,430 ) (0.41 )% 885,047 (109.34 )% Net income attributable to SBC Medical Group Holdings Incorporated $ 46,614,275 22.69 % $ 39,370,036 20.34 % $ 7,244,239 18.40 % 105 Revenues, Net Revenues, net generated from different revenue streams consist of the following: For the Years Ended December 31, Variance 2024 2023 Amount % Franchising revenue $ 61,033,032 $ 42,103,380 $ 18,929,652 44.96 % Procurement revenue 54,814,399 53,186,662 1,627,737 3.06 % Management services revenue 53,113,155 72,282,549 (19,169,394 ) (26.52 )% Rental services revenue 16,141,714 7,336,768 8,804,946 120.01 % Others 20,313,242 18,633,064 1,680,178 9.02 % Total $ 205,415,542 $ 193,542,423 $ 11,873,119 6.13 % Revenues, net, increased by 6.13% from $193,542,423 for the year ended December 31, 2023 to $205,415,542 for the year ended December 31, 2024.

Japanese Yen (“JPY”) against the U.S. dollar depreciated during the year ended December 31, 2024, compared to the year ended December 31, 2023.

The spot rate against the dollar was 156.7890 yen on December 31, 2024 compared to 141.0350 yen on December 31, 2023 and the average rate against the dollar was 151.4405 yen for the year ended December 31, 2024 compared to 140.5261 yen for the same period in 2023.

For the years ended December 31, 2024 and 2023, we generated net revenues of $205,415,542 (JPY31,108 million) and $193,542,423 (JPY 27,198 million), respectively. For the years ended December 31, 2024 and 2023, we reported net income of $46,689,892 (JPY7,059 million) and $38,560,606 (JPY 5,419 million), respectively.

Overall, the unfavorable impacts of the year-to-year foreign exchange rate changes on net revenues and net income were $15,954,241 and $3,545,053, respectively, for the year ended December 31, 2024.

The main reasons for the variance of $11,873,119 in revenues, net per revenue stream are as follows: Franchising Revenue Franchising revenue for the year ended December 31, 2024 increased to $61,033,032 by $18,929,652 or 44.96% from $42,103,380 for the same period in 2023.

This increase was mainly due to (i) a change in the billing base of royalty fees from a percentage of sales of MCs to a fixed amount for each clinic of MCs since April 2023 combined with an increase in the number of clinics operated by MCs, (ii) authorizing the six MCs, which are our main recurring customers, to use our patents and trademarks starting from September 2023, and (iii) the business expansion of the MCs, partially offset by the depreciation of JPY. 106 Procurement Revenue The procurement revenue for the year ended December 31, 2024 increased to $54,814,399 by $1,627,737 or 3.06% from $53,186,662 for the same period in 2023.

This increase was mainly due to the increase in the demand on medical materials due to the business expansion of MCs, partially offset by the depreciation of JPY. Management Services Revenue The management services revenue for the year ended December 31, 2024 decreased to $53,113,155 by $19,169,394 or 26.52% from $72,282,549 for the same period in 2023.

This decrease was mainly due to (i) the discontinuation of clinic operation staff supporting services provided by Shobikai Sub to MCs since the third quarter of 2024, because the Company plans to merge Shobikai Sub with and into Lange Sub and the related business license, held by Shobikai Sub, will be invalid upon the merger, (ii) a significant decline in loyalty program management services revenue compared with 2023, primarily because the charge rate of handling fee decreased from 5% to 4%, and there were more free point redemptions, and (iii) the depreciation of JPY, partially offset by (i) the increase in revenue generated from management consulting services and loyalty program management services provided to two MCs that the Company started to conduct business since September 2023 (Medical Corporation Association Furinkai and Medical Corporation Association Junikai), (ii) the business expansion of MCs and (iii) the increase in the number of the clinics of MCs.

Rental Services Revenue The rental services revenue for the year ended December 31, 2024 increased to $16,141,714 by $8,804,946 or 120.01% from $7,336,768 for the same period in 2023. This increase was mainly due to the increased demand for medical equipment from MCs due to the business expansion of MCs, partially offset by the depreciation of JPY.

Others The other revenues for the year ended December 31, 2024 increased to $20,313,242 by $1,680,178 or 9.02% from $18,633,064 for the same period in 2023. This increase was mainly due to the business expansion of the subsidiary acquired in April 2023, partially offset by the depreciation of JPY.

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

The decrease by $6,873,350 or 12.22% was mainly due to the Company’s effort of the cost reduction for the year ended December 31, 2024, as well as the discontinuation of clinic operation supporting services provided by Shobikai Sub to MCs since the third quarter of 2024, and the Company then terminated the employment of the related staff.

As a result, labor cost significantly decreased. Gross Profit Gross profit, for the year ended December 31, 2024, was $156,050,507 compared to $137,304,038 for the same period in 2023.

The increase in gross profit by $18,746,469 or 13.65% was mainly due to the increase in franchising revenue with a relatively high gross margin as a result of the factors described above, offset by the decrease in management services revenue as a result of the factors described above. 107 Operating Expenses Operating expenses for the years ended December 31, 2024 and 2023 were as follows: For the Years Ended December 31, Variance 2024 2023 Amount % Salaries and welfare $ 26,843,524 $ 26,847,863 $ (4,339 ) (0.02 )% Depreciation and amortization expense 2,258,364 10,924,452 (8,666,088 ) (79.33 )% Impairment loss on intangible asset 15,058,965 — 15,058,965 100.00 % Consulting and professional service fees 14,555,087 9,481,719 5,073,368 53.51 % Advertising expense 2,782,944 3,367,608 (584,664 ) (17.36 )% Taxes and dues 596,122 1,904,967 (1,308,845 ) (68.71 )% Recruiting expense 1,570,299 2,038,591 (468,292 ) (22.97 )% Lease expense 2,369,666 2,897,683 (528,017 ) (18.22 )% Office, utility and other expenses 6,689,134 8,772,059 (2,082,925 ) (23.74 )% Misappropriation loss — 409,030 (409,030 ) (100.00 )% Stock-based compensation 13,022,692 — 13,022,692 100.00 % Total $ 85,746,797 $ 66,643,972 $ 19,102,825 28.66 % The operating expenses increased to $85,746,797 for the year ended December 31, 2024 by $19,102,825 or 28.66% from $66,643,972 for the same period in 2023.The increase in operating expenses was mainly attributed to the increase in impairment loss on intangible asset, the increase in stock-based compensation, and the increase in consulting and professional service fees, partially offset by the decrease in depreciation and amortization expenses.

Depreciation and amortization expense decreased to $2,258,364 by $8,666,088 or 79.33% for the year ended December 31, 2024 from $10,924,452 for the same period in 2023, mainly because the decrease in amortization expense incurred from the intangible assets owned by Cell Pro Japan Co., Ltd.

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

Consulting and professional service fees increased to $14,555,087 by $5,073,368 or 53.51% for the year ended December 31, 2024 from $9,481,719 for the same period in 2023, mainly due to the increase of the professional service fees incurred related to the business combination transaction. 108 Stock-based compensation relates to the warrants issued to the service provider that supported SBC’s listing process.

These warrants were issued in November 2022 and became exercisable upon the consummation of business combination with Pono Two Capital, Inc., and the fair value was recognized as an expense.

For the year ended December 31, 2024, the Company fully impaired an intangible asset, patent use right, because the estimated cash flows from the use and its eventual disposal of this intangible asset were determined to be negligible. This conclusion was reached through a careful decision-making process and was approved by the Company’s board of directors.

Other Income (Expenses) Other income (expenses) for the years ended December 31, 2024 and 2023, were as follows: For the Years ended December 31, Variance 2024 2023 Amount % Interest income $ 19,943 $ 86,748 $ (66,805 ) (77.01 )% Interest expense (28,300 ) (45,292 ) 16,992 (37.52 )% Other income 4,810,008 3,623,332 1,186,676 32.75 % Other expenses (5,463,153 ) (745,519 ) (4,717,634 ) 632.80 % Gain on disposal of subsidiary 3,813,609 — 3,813,609 100.00 % Total $ 3,152,107 $ 2,919,269 $ 232,838 7.98 % Although an unrealized loss was recognized from the Company’s investment in a public entity with readily determinable fair value under other expenses, a gain on disposal of subsidiary was recorded due to the disposal of Cellpro on January 1, 2024.

The total other income (expenses) for the year ended December 31, 2024 was $3,152,107, compared to $2,919,269 for the same period in 2023, reflecting only a minor overall fluctuation. Income Tax Expense Income tax expense, for the year ended December 31, 2024, was $26,765,925 compared to $35,018,729 for the same period in 2023.

The decrease in income tax expense by $8,252,804 or 23.57% was mainly due to the increase in the deferred tax benefit as no valuation allowance on deferred tax assets of Lange Sub was reserved during the year ended December 31, 2024.