Financial Performance - For the three months ended September 30, 2025, the company generated revenues of $43,353,235, a decrease of 18.33% from $53,084,883 in the same period of 2024[227]. - Net income attributable to SBC Medical Group Holdings for the three months ended September 30, 2025, was $12,824,636, compared to $2,832,894 in 2024, reflecting a significant increase of 352.70%[230]. - Revenues, net for the nine months ended September 30, 2025 decreased by 16.74% to $134,040,783 from $160,995,005 in the same period of 2024[254]. - Net income for the nine months ended September 30, 2025 was $36,765,128, representing a decrease of $3,376,880 or 8.41% from $40,142,008 in the same period of 2024[270]. - Net income for the three months ended September 30, 2025 was $12,833,326, representing an increase of $9,998,859 or 352.76% from $2,834,467 in the same period of 2024[250]. Revenue Breakdown - Franchising revenue decreased by 36.71% to $9,929,387 for the three months ended September 30, 2025, from $15,688,528 in 2024, primarily due to a revision in the fee structure[235]. - Procurement revenue fell by 23.70% to $13,406,905 for the three months ended September 30, 2025, from $17,571,299 in 2024, attributed to reduced orders from medical corporations[236]. - Management services revenue decreased by 21.87% to $9,462,183 for the three months ended September 30, 2025, from $12,110,764 in 2024, mainly due to the discontinuation of certain supporting services[237]. - Franchising revenue decreased to $35,656,250, down by $9,768,802 or 21.51% from $45,425,052 for the same period in 2024, due to a revision in the fee structure[256]. - Procurement revenue decreased to $43,496,207, down by $807,684 or 1.82% from $44,303,891 for the same period in 2024, reflecting a decrease in orders from medical clinics[257]. - Management services revenue decreased to $23,328,864, down by $21,142,167 or 47.54% from $44,471,031 in the same period of 2024, primarily due to the discontinuation of clinic operation staff supporting services and a decrease in customer rewards program revenue[258]. - Rental services revenue increased to $6,219,645, up by $2,094,871 or 50.79% from $4,124,774 in the same period of 2024[238]. - Rental services revenue increased to $18,711,335, up by $7,515,447 or 67.13% from $11,195,888 in the same period of 2024, driven by the opening of new clinics and increased demand for medical equipment[259]. - Other revenues rose to $4,335,115, an increase of $745,597 or 20.77% from $3,589,518 for the same period in 2024, primarily due to contributions from Aesthetic Healthcare Holdings Pte. Ltd.[239]. Cash Flow and Liquidity - The company reported cash flows used in operating activities of $(27,295,426) for the nine months ended September 30, 2025, compared to cash flows provided of $27,886,231 in 2024[227]. - As of September 30, 2025, the company had $127,431,318 in cash and cash equivalents, compared to $125,044,092 as of December 31, 2024, indicating a slight increase in liquidity[272]. - Net cash used in operating activities was $27,295,426 for the nine months ended September 30, 2025, a significant decrease from net cash provided of $27,886,231 in the same period of 2024[279]. - During the nine months ended September 30, 2025, net cash provided by investing activities was $3,239,523, primarily from proceeds of $17.7 million from the redemption of life insurance policies[281]. - For the nine months ended September 30, 2025, net cash provided by financing activities was $18,470,001, mainly from long-term loans of $14.9 million[283]. Operating Expenses - Operating expenses decreased to $14,730,247, a reduction of $14,674,240 or 49.90% from $29,404,487 in the same period of 2024, mainly due to a decrease in stock-based compensation and consulting fees[243]. - Operating expenses decreased to $43,717,642, down by $12,874,450 or 22.75% from $56,592,092 in the same period of 2024, primarily due to a reduction in stock-based compensation and salaries[263]. Profitability Metrics - Gross profit decreased to $30,611,487, down by $12,627,603 or 29.20% from $43,239,090 in the same period of 2024, attributed to lower franchising and management services revenue[242]. - Gross profit for the nine months ended September 30, 2025 was $98,355,148, a decrease of $23,822,992 or 19.50% from $122,178,140 in the same period of 2024, mainly due to lower franchising and management services revenue[262]. - The effective tax rate decreased to 30.66% from 78.38% in the same period of 2024, primarily due to the absence of non-deductible stock-based compensation in 2025[249]. - The effective tax rate increased to 42.10% for the nine months ended September 30, 2025, compared to 40.44% for the same period in 2024[269]. Strategic Initiatives - The company plans to expand its "Shonan Beauty Clinic" brand and strengthen its market position in Japan, Vietnam, and Singapore[228]. - The company completed a business combination with Pono Capital Two, Inc. on September 17, 2024, and began trading on Nasdaq under the ticker symbol "SBC"[219]. - The Company plans to conduct a tender offer for up to 575,000 shares of Waqoo's common stock from November 14, 2025, to December 12, 2025[291]. - The Company intends to make Waqoo a consolidated subsidiary to enhance its research and development initiatives and integrate advanced technologies[287]. Other Financial Information - As of September 30, 2025, the company had retained earnings of $226,248,329[227]. - The average exchange rate of Japanese Yen against the U.S. dollar was 147.4096 for the three months ended September 30, 2025, compared to 148.9730 in 2024, impacting revenue and net income positively[234]. - The Company holds significant operating and finance leases, with total undiscounted lease payments amounting to $5,155,215[289]. - Future minimum borrowing payments total $21,122,794, with significant repayments due in 2026 and 2027[292]. - The Company is exposed to foreign currency exchange rate fluctuations, primarily due to operations in Japan and revenues in Japanese yen[294]. - The Company is classified as an "emerging growth company," allowing it to take advantage of certain reporting exemptions[297].

• Total revenues were $43 million, representing an 18% year-over-year decrease. • Income from operations was $16 million, representing a 15% year-over-year increase. • Net Income attributable to SBC Medical Group was $13 million , representing an 353% year-over-year increase. • Earnings per share, which is defined as net income attributable to the Company divided by the weighted average number of outstanding shares, was $0.12 for the three months ended September 30, 2025, compared to $0.03 in the same perio ...

PART I - FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's analysis of SBC Medical Group Holdings Incorporated [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements of SBC Medical Group Holdings Incorporated, including the Balance Sheets, Statements of Operations and Comprehensive Income, Statements of Changes in Stockholders' Equity, Statements of Cash Flows, and accompanying notes, for the periods ended June 30, 2025 and 2024, and December 31, 2024 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This statement provides a snapshot of the Company's assets, liabilities, and equity for the specified periods Consolidated Balance Sheet Data | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :------------------ | | **Total Assets** | $315,299,257 | $266,083,154 | | Cash and cash equivalents | $152,740,882 | $125,044,092 | | Accounts receivable – related parties | $48,920,843 | $28,846,680 | | Total current assets | $241,342,038 | $184,451,020 | | Cryptocurrencies | $535,882 | $0 | | **Total Liabilities** | $70,646,686 | $71,060,996 | | Total current liabilities | $60,681,611 | $61,191,890 | | **Total Stockholders' Equity** | $244,652,571 | $195,022,158 | | Retained earnings | $213,423,693 | $189,463,007 | - Total assets increased by approximately **$49.2 million** from December 31, 2024, to June 30, 2025, primarily driven by an increase in cash and cash equivalents and accounts receivable from related parties[19](index=19&type=chunk) - Total stockholders' equity increased by approximately **$49.6 million**, largely due to an increase in retained earnings and additional paid-in capital[21](index=21&type=chunk) [Consolidated Statements of Operations and Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) This statement details the Company's revenues, expenses, and net income for the three and six months Consolidated Statements of Operations and Comprehensive Income Data | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues, net | $43,358,847 | $53,102,080 | $90,687,548 | $107,910,122 | | Gross profit | $30,010,577 | $39,419,675 | $67,743,661 | $78,939,050 | | Income from operations | $14,554,192 | $27,290,560 | $38,756,266 | $51,751,445 | | Net income attributable to SBC Medical Group Holdings Incorporated | $2,458,240 | $18,484,408 | $23,960,686 | $37,242,160 | | Basic and diluted EPS | $0.02 | $0.20 | $0.23 | $0.40 | - Total revenues decreased by **18.35%** for the three months ended June 30, 2025, and by **15.96%** for the six months ended June 30, 2025, compared to the same periods in 2024[24](index=24&type=chunk) - Net income attributable to SBC Medical Group Holdings Incorporated saw a significant decrease of **86.70%** for the three months and **35.66%** for the six months ended June 30, 2025, year-over-year[24](index=24&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This statement outlines changes in the Company's equity components for the period Consolidated Statements of Changes in Stockholders' Equity Data | Metric | December 31, 2024 | June 30, 2025 | | :------------------------------------------------ | :---------------- | :-------------- | | Common Stock (Amount) | $10,302 | $10,388 | | Additional Paid-in Capital | $62,513,923 | $72,196,114 | | Treasury Stock | $(2,700,000) | $(5,115,262) | | Retained Earnings | $189,463,007 | $213,423,693 | | Accumulated Other Comprehensive Loss | $(54,178,075) | $(35,922,942) | | Total SBC Medical Group Holdings Incorporated Stockholders' Equity | $195,109,157 | $244,591,991 | | Non-controlling Interests | $(86,999) | $60,580 | | Total Stockholders' Equity | $195,022,158 | $244,652,571 | - Total stockholders' equity increased by **$49,630,413** from December 31, 2024, to June 30, 2025, driven by net income, a deemed contribution from property disposal, and positive foreign currency translation adjustments, partially offset by common stock repurchases[26](index=26&type=chunk) - The Company repurchased **512,809 shares** of common stock for **$2,415,262** during the six months ended June 30, 2025[26](index=26&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement presents cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Data | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(6,411,168) | $22,874,760 | | Net cash provided by (used in) investing activities | $15,397,998 | $(9,405,716) | | 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 at end of period | $152,740,882 | $103,702,770 | - Operating activities shifted from providing **$22.9 million** in cash in H1 2024 to using **$6.4 million** in H1 2025, primarily due to changes in accounts receivable, finance lease receivables, and income tax payable[28](index=28&type=chunk) - Investing activities generated **$15.4 million** in H1 2025, a significant improvement from using **$9.4 million** in H1 2024, largely due to proceeds from life insurance policy redemptions[28](index=28&type=chunk) - Financing activities provided **$6.9 million** in H1 2025, mainly from a deemed contribution related to property disposal, contrasting with cash used in H1 2024[30](index=30&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) These notes provide additional information for understanding the Company's financial statements [NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS](index=12&type=section&id=NOTE%201%20%E2%80%94%20ORGANIZATION%20AND%20DESCRIPTION%20OF%20BUSINESS) This note describes the Company's formation, business activities, and corporate structure - SBC Medical Group Holdings Incorporated (SBC Holding) was formed through a reverse recapitalization on September 17, 2024, with Pono Capital Two, Inc. merging into SBC USA (Legacy SBC); SBC USA was the accounting acquirer[33](index=33&type=chunk)[35](index=35&type=chunk)[37](index=37&type=chunk) - The Company is primarily engaged in providing comprehensive management services to medical corporations and their clinics, including trademark licensing, medical equipment sales, procurement, and loyalty program management[34](index=34&type=chunk)[208](index=208&type=chunk) - The Company's corporate structure includes major subsidiaries in Japan, the United States, and Singapore, as well as a Variable Interest Entity (VIE), Aikawa Medical Management, Inc[44](index=44&type=chunk)[45](index=45&type=chunk)[47](index=47&type=chunk) [NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=14&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the key accounting principles and estimates used in preparing financial statements - The financial statements are prepared in accordance with U.S. GAAP and include the Company, its subsidiaries, and consolidated VIEs; interim results are not necessarily indicative of full-year results[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) - The Company reports AHH and its subsidiaries on a three-month calendar lag, with exceptions for significant transactions[51](index=51&type=chunk) - The Company does not consolidate Medical Corporations (MCs) in Japan, as it does not have a majority voting interest or controlling financial interest, despite holding equity interests; these are recorded as long-term investments in MCs – related parties[58](index=58&type=chunk)[59](index=59&type=chunk) - Effective January 1, 2025, the Company adopted ASU No. 2023-08, requiring cryptocurrencies to be measured at fair value with changes recognized in net income[72](index=72&type=chunk) - Revenue is recognized from franchising, procurement, management, rental, and other services; franchising and management service fees were revised effective April 1, 2025, based on clinic size, scale, and performance[100](index=100&type=chunk)[104](index=104&type=chunk)[114](index=114&type=chunk) [NOTE 3 — VARIABLE INTEREST ENTITY](index=24&type=section&id=NOTE%203%20%E2%80%94%20VARIABLE%20INTEREST%20ENTITY) This note details the Company's consolidation of its Variable Interest Entity and its financial impact - The Company consolidates Aikawa Medical Management, Inc. (AMM) as its Variable Interest Entity (VIE), having determined it is the primary beneficiary under ASC Topic 810[139](index=139&type=chunk) AMM Financials and Cash Flows | AMM Financials | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :------------------ | | Total Assets | $4,941,308 | $5,017,620 | | Total Liabilities | $11,072,653 | $11,079,074 | | AMM Financials | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $41,002 | $40,470 | $81,472 | $188,860 | | Net loss | $(75,430) | $(72,449) | $(57,759) | $(123,370) | | AMM Cash Flows | Six Months Ended June 30, 2025 | Six Months Ended June 30, 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) | [NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=26&type=section&id=NOTE%204%20%E2%80%94%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) This note provides a breakdown of prepaid expenses and other current assets, highlighting key changes Prepaid Expenses and Other Current Assets Data | Category | 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** | - Prepaid expenses and other current assets increased by **$2,774,944**, or **24.61%**, from December 31, 2024, to June 30, 2025, primarily due to a significant increase in advances to suppliers[143](index=143&type=chunk) [NOTE 5 — FINANCE LEASE RECEIVABLES](index=26&type=section&id=NOTE%205%20%E2%80%94%20FINANCE%20LEASE%20RECEIVABLES) This note details the Company's finance lease receivables and future minimum lease payments Finance Lease Receivables Data | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :------------------ | | Future minimum lease payments receivable | $22,385,136 | $14,427,511 | | Less: unearned interest income | $(58,226) | $(37,344) | | **Finance lease receivables** | **$22,326,910** | **$14,390,167** | | Current portion | $9,128,931 | $5,992,585 | | Non-current portion | $13,197,979 | $8,397,582 | - Total finance lease receivables increased by **$7,936,743**, or **55.15%**, from December 31, 2024, to June 30, 2025, indicating growth in leasing medical equipment to customers[144](index=144&type=chunk) [NOTE 6 — PROPERTY AND EQUIPMENT, NET](index=27&type=section&id=NOTE%206%20%E2%80%94%20PROPERTY%20AND%20EQUIPMENT%2C%20NET) This note presents the Company's property and equipment, net of depreciation and impairment Property and Equipment, Net Data | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :------------------ | | Subtotal (Gross) | $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** | - Net property and equipment decreased by **$713,886**, or **8.14%**, from December 31, 2024, to June 30, 2025, primarily due to increased accumulated depreciation and impairment, despite an increase in gross assets[146](index=146&type=chunk) - Depreciation expense for the six months ended June 30, 2025, was **$1,169,040**, a decrease from **$1,315,539** in the same period of 2024[146](index=146&type=chunk) [NOTE 7 — CRYPTOCURRENCIES](index=27&type=section&id=NOTE%207%20%E2%80%94%20CRYPTOCURRENCIES) This note details the Company's cryptocurrency holdings, their fair value, and unrealized gains Cryptocurrencies Data | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :------------------ | | Bitcoin (Units) | 5 | 0 | | Bitcoin (Cost Basis) | $424,250 | $0 | | Bitcoin (Fair Value) | $535,882 | $0 | | Unrealized gain on cryptocurrencies (6 months ended June 30, 2025) | $111,632 | N/A | - The Company began holding cryptocurrencies (Bitcoin) in 2025, with a fair value of **$535,882** as of June 30, 2025, resulting in an unrealized gain of **$111,632** for the six months ended June 30, 2025[148](index=148&type=chunk) [NOTE 8 — INTANGIBLE ASSETS, NET](index=27&type=section&id=NOTE%208%20%E2%80%94%20INTANGIBLE%20ASSETS%2C%20NET) This note provides information on the Company's intangible assets, net of amortization Intangible Assets, Net Data | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :------------------ | | Subtotal (Gross) | $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** | - Net intangible assets slightly decreased by **$5,509**, or **0.35%**, from December 31, 2024, to June 30, 2025, primarily due to increased accumulated amortization and impairment[149](index=149&type=chunk) - Amortization expense for the six months ended June 30, 2025, was **$54,445**, a significant decrease from **$533,883** in the same period of 2024[149](index=149&type=chunk) [NOTE 9 — LONG-TERM INVESTMENTS, NET](index=29&type=section&id=NOTE%209%20%E2%80%94%20LONG-TERM%20INVESTMENTS%2C%20NET) This note details the Company's long-term investments and fair value changes Long-Term Investments, Net Data | Category | June 30, 2025 | December 31, 2024 | | :---------------------------------------------------------------- | :-------------- | :------------------ | | Investments in private entities 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 | $0 | | Less: accumulated impairment | $(1,248,884) | $(1,148,329) | | **Long-term investments, net** | **$3,593,087** | **$3,049,972** | - Net long-term investments increased by **$543,115**, or **17.81%**, from December 31, 2024, to June 30, 2025, primarily due to new investments in private and public entities, partially offset by impairment[153](index=153&type=chunk) - The Company recognized unrealized losses on long-term investments in public entities of **$340,568** for the six months ended June 30, 2025, compared to **$1,045,557** in the same period of 2024[153](index=153&type=chunk)[154](index=154&type=chunk) [NOTE 10 — OTHER ASSETS](index=29&type=section&id=NOTE%2010%20%E2%80%94%20OTHER%20ASSETS) This note provides a breakdown of other assets, including security deposits and life insurance Other Assets Data | Category | 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** | - Other assets decreased significantly by **$8,092,229**, or **52.03%**, from December 31, 2024, to June 30, 2025, mainly due to a substantial decrease in corporate-owned life insurance policies[155](index=155&type=chunk) [NOTE 11 — ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES](index=29&type=section&id=NOTE%2011%20%E2%80%94%20ACCRUED%20LIABILITIES%20AND%20OTHER%20CURRENT%20LIABILITIES) This note details the Company's accrued liabilities and other current liabilities, including tax and wages Accrued Liabilities and Other Current Liabilities Data | Category | 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 | | **Total** | **$6,229,797** | **$8,103,194** | - Accrued liabilities and other current liabilities decreased by **$1,873,397**, or **23.12%**, from December 31, 2024, to June 30, 2025, primarily due to a decrease in consumption tax payable and individual income tax withheld[156](index=156&type=chunk) [NOTE 12 — LONG-TERM LOANS](index=30&type=section&id=NOTE%2012%20%E2%80%94%20LONG-TERM%20LOANS) This note outlines the Company's long-term loan obligations and interest rates Long-Term Loans Data | Category | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :------------------ | | Total long-term loans | $7,100,926 | $6,599,506 | | Current portion | $(69,420) | $(96,824) | | **Non-current portion** | **$7,031,506** | **$6,502,682** | - Total long-term loans increased by **$501,420**, or **7.60%**, from December 31, 2024, to June 30, 2025, with a weighted average interest rate of **1.20%** and a weighted average maturity of **2.42 years** as of June 30, 2025[158](index=158&type=chunk) - Interest expense for the six months ended June 30, 2025, was **$50,635**, a significant increase from **$10,432** in the same period of 2024[159](index=159&type=chunk) [NOTE 13 — LEASES — AS A LESSEE](index=31&type=section&id=NOTE%2013%20%E2%80%94%20LEASES%20%E2%80%94%20AS%20A%20LESSEE) This note provides details on the Company's lease arrangements as a lessee Lease Costs and Liabilities | Lease Costs | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Total finance lease costs | $46,143 | $0 | | Operating lease costs | $2,197,506 | $1,927,643 | | Short-term lease costs | $155,328 | $180,053 | | **Total lease costs** | **$2,398,977** | **$2,107,696** | | Lease Liabilities | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :------------------ | | Operating lease liabilities, non-current | $1,208,516 | $1,241,526 | | Finance lease liabilities, non-current | $164,721 | $0 | - Total lease costs increased by **$291,281**, or **13.82%**, for the six months ended June 30, 2025, compared to the same period in 2024, driven by the introduction of finance lease costs[165](index=165&type=chunk) - The weighted average remaining lease term for operating leases was **1.75 years** (**2.03 years** in 2024) and for finance leases was **2.60 years** (N/A in 2024) as of June 30, 2025[165](index=165&type=chunk) [NOTE 14 — INCOME TAXES](index=32&type=section&id=NOTE%2014%20%E2%80%94%20INCOME%20TAXES) This note details the Company's income tax expense and effective tax rates - The Company is subject to income taxes in the United States (federal **21%**, California **6.98%**), Japan (effective statutory rate ~**34.69%**), Vietnam (**20%**), and Singapore (**17%**)[168](index=168&type=chunk)[170](index=170&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) Income Tax Expense and Effective Tax Rate | Income Tax Expense | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 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** | | Effective Tax Rate | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------- | :----------------------------- | :----------------------------- | | Effective tax rate | 46.81% | 31.28% | - Total income tax expense increased by **$4,078,872**, or **24.02%**, for the six months ended June 30, 2025, compared to the same period in 2024, mainly due to increased deferred tax expenses and JPY appreciation[175](index=175&type=chunk) - The effective tax rate increased to **46.81%** for the six months ended June 30, 2025, from **31.28%** in 2024, primarily due to a taxable gain from a deemed contribution related to the disposal of an aircraft under Japanese tax law[175](index=175&type=chunk)[256](index=256&type=chunk) [NOTE 15 — SHAREHOLDERS' EQUITY](index=33&type=section&id=NOTE%2015%20%E2%80%94%20SHAREHOLDERS%27%20EQUITY) This note provides information on the Company's common stock and share repurchases - As of June 30, 2025, the Company had **103,881,251 shares** issued and **103,098,442 shares** outstanding[179](index=179&type=chunk) - In February 2025, the Company issued **860,435 common shares** as incentive shares to Mehana Capital LLC[177](index=177&type=chunk) - In May 2025, the board approved a share repurchase plan of up to **$5.0 million**; by June 30, 2025, the Company repurchased **512,809 shares** for approximately **$2.4 million**, with **$2.6 million** remaining[178](index=178&type=chunk) Warrants Activity Data | Warrants Activity | As of January 1, 2025 | As of June 30, 2025 | | :------------------------ | :-------------------- | :-------------------- | | Number of Warrants | 12,134,375 | 12,134,375 | | Weighted Average Exercise Price | $11.50 | $11.50 | | Weighted Average Remaining Term (Years) | 4.80 | 4.30 | | Vested and exercisable | 12,134,375 | 12,134,375 | [NOTE 16 — DISAGGREGATION OF REVENUES](index=34&type=section&id=NOTE%2016%20%E2%80%94%20DISAGGREGATION%20OF%20REVENUES) This note breaks down the Company's total revenues by service stream Revenue Stream Data | Revenue Stream | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 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** | - Total revenues decreased by **18.35%** for the three months and **15.96%** for the six months ended June 30, 2025, compared to the prior year, primarily due to significant declines in franchising and management services revenue[182](index=182&type=chunk) - Procurement revenue and rental services revenue showed growth, with rental services nearly doubling for the three-month period[182](index=182&type=chunk) [NOTE 17 — RELATED PARTY TRANSACTIONS](index=35&type=section&id=NOTE%2017%20%E2%80%94%20RELATED%20PARTY%20TRANSACTIONS) This note discloses significant transactions and balances with related parties - The Company has material transactions with various related parties, including Medical Corporations (MCs) where the CEO's relatives are members, and entities controlled by the CEO[186](index=186&type=chunk) Related Party Revenue and Balances | Related Party Revenue | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Medical Corporation Shobikai | $22,515,192 | $26,205,206 | | Medical Corporation Kowakai | $20,022,253 | $25,998,681 | | Medical Corporation Nasukai | $22,535,537 | $24,113,981 | | **Total Revenues, net – related parties** | **$84,202,043** | **$101,509,245** | | Related Party Balances | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :------------------ | | Accounts receivable – related parties | $48,920,843 | $28,846,680 | | Finance lease receivables – related parties | $22,326,910 | $14,390,167 | | Long-term investments in MCs – related parties | $19,381,422 | $17,820,910 | | Accounts payable – related parties | $3,245,989 | $659,044 | | Advances from customers – related parties | $10,333,007 | $11,739,533 | | Due to related party (Yoshiyuki Aikawa) | $2,810,647 | $2,823,590 | - Revenues from related parties decreased by **$17,307,202**, or **17.05%**, for the six months ended June 30, 2025, compared to the same period in 2024[188](index=188&type=chunk) - In June 2025, the Company recorded a deemed contribution of approximately **$9.68 million** in connection with a price modification on the disposal of an aircraft to General Incorporated Association SBC, a CEO-controlled entity[195](index=195&type=chunk) [NOTE 18 — SEGMENT REPORTING](index=40&type=section&id=NOTE%2018%20%E2%80%94%20SEGMENT%20REPORTING) This note clarifies that the Company operates as a single reporting segment - Management determined the Company operates as a single reporting segment, with the CEO reviewing consolidated results for operational decisions, performance assessment, and resource allocation[197](index=197&type=chunk)[198](index=198&type=chunk) - Substantially all revenues are derived from providing comprehensive management services to Medical Corporations (MCs) and their clinics[197](index=197&type=chunk) [NOTE 19 — COMMITMENT](index=40&type=section&id=NOTE%2019%20%E2%80%94%20COMMITMENT) This note details the Company's commitments, including a subsidiary's guarantee of the CEO's debt - As of June 30, 2025, a subsidiary guaranteed the CEO's debt for **$266,573**, but no liability was recorded as payment under the guarantee was not probable[200](index=200&type=chunk) [NOTE 20 — SUBSEQUENT EVENTS](index=40&type=section&id=NOTE%2020%20%E2%80%94%20SUBSEQUENT%20EVENTS) This note reports significant events occurring after the reporting period - On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA), which includes tax provisions effective from 2025 to 2027; the Company is currently assessing its impact[201](index=201&type=chunk) - On July 17, 2025, the Company acquired MB Career Lounge Co., Ltd., a Japanese medical institution management support service provider, for approximately **$13.7 million** in cash[202](index=202&type=chunk) - On July 22, 2025, the Company completed its 2025 Share Repurchase Program, repurchasing an aggregate of **1,034,308 shares** for approximately **$5 million**[203](index=203&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's discussion and analysis of SBC Medical Group Holdings Incorporated's financial condition, results of operations, liquidity, and cash flows for the three and six months ended June 30, 2025 and 2024. It highlights key financial performance metrics, revenue stream changes, operating expense variances, and the impact of foreign exchange rates [Overview](index=42&type=section&id=Overview) This section provides background on the Company's business combination and core services - SBC Medical Group Holdings Incorporated (formerly Pono Capital Two, Inc.) completed a business combination with Legacy SBC on September 17, 2024, and its common stock began trading on Nasdaq under 'SBC'[207](index=207&type=chunk) - The Company provides comprehensive management services to **252 franchisee cosmetic treatment centers** and **five independently operated clinics** in Japan, through its subsidiary SBC Medical Group Co., Ltd. (SBC Japan)[208](index=208&type=chunk)[209](index=209&type=chunk) - Services include advertising, staff management, booking, facility rentals, construction, procurement of medical equipment and consumables, provision of cosmetic products, licensing of medical technologies, IT solutions, customer rewards programs, and payment tools[208](index=208&type=chunk) [Financial Overview](index=43&type=section&id=Financial%20Overview) This section summarizes key financial performance metrics and the Company's strategic mission Financial Overview Data | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $43,358,847 | $53,102,080 | $90,687,548 | $107,910,122 | | Net income attributable to SBC Medical Group Holdings Incorporated | $2,458,240 | $18,484,408 | $23,960,686 | $37,242,160 | | Cash flows provided by (used in) operating activities | N/A | N/A | $(6,411,168) | $22,874,760 | | Retained earnings (as of June 30, 2025) | N/A | N/A | $213,423,693 | N/A | - The Company's mission is to provide quality comprehensive management services to Medical Corporations and expand its 'Shonan Beauty Clinic' brand globally, strengthening its market position in Japan, Vietnam, and Singapore[215](index=215&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) This section analyzes the Company's financial performance, detailing revenue and expense variances [Comparison of Results of Operations for the Three Months Ended June 30, 2025 and 2024](index=43&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) This section compares the Company's financial performance for the three months Comparison of Results of Operations (Three Months) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Variance Amount | Variance % | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :-------------- | :--------- | | Revenues, net | $43,358,847 | $53,102,080 | $(9,743,233) | (18.35)% | | Cost of revenues | $13,348,270 | $13,682,405 | $(334,135) | (2.44)% | | Gross profit | $30,010,577 | $39,419,675 | $(9,409,098) | (23.87)% | | Operating expenses | $15,456,385 | $12,129,115 | $3,327,270 | 27.43% | | Income from operations | $14,554,192 | $27,290,560 | $(12,736,368) | (46.67)% | | Net income attributable to SBC Medical Group Holdings Incorporated | $2,458,240 | $18,484,408 | $(16,026,168) | (86.70)% | - Net income decreased by **86.70%** due to lower franchising and management services revenue, increased operating expenses (especially office, utility, and consulting fees), and higher income tax expense[218](index=218&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk)[234](index=234&type=chunk)[236](index=236&type=chunk) - JPY appreciation had a favorable impact of **$1,058,367** on net revenues and **$59,556** on net income for the three months ended June 30, 2025[221](index=221&type=chunk) [Revenues, Net](index=43&type=section&id=Revenues%2C%20Net%20(Three%20Months)) This section analyzes changes in net revenues by service stream for the three months Revenues, Net (Three Months) | Revenue Stream | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Variance Amount | Variance % | | :------------------------ | :--------------------------- | :--------------------------- | :-------------- | :--------- | | Franchising revenue | $10,007,581 | $14,626,256 | $(4,618,675) | (31.58)% | | Procurement revenue | $15,756,519 | $13,536,608 | $2,219,911 | 16.40% | | Management services revenue | $5,138,578 | $16,705,597 | $(11,567,019) | (69.24)% | | Rental services revenue | $6,851,176 | $3,453,173 | $3,398,003 | 98.40% | | Others | $5,604,993 | $4,780,446 | $824,547 | 17.25% | | **Total** | **$43,358,847** | **$53,102,080** | **$(9,743,233)** | **(18.35)%** | - Franchising revenue decreased by **31.58%** due to a revised fee structure for MC clinics, partially offset by JPY appreciation[222](index=222&type=chunk) - Management services revenue decreased by **69.24%** due to the discontinuation of clinic operation staff supporting services and a decrease in customer rewards program revenue, along with fee structure revisions[224](index=224&type=chunk) - Rental services revenue increased by **98.40%** due to demand for medical equipment from new and existing clinics[225](index=225&type=chunk) [Cost of Revenues](index=44&type=section&id=Cost%20of%20Revenues%20(Three%20Months)) This section discusses factors influencing the cost of revenues for the three months - Cost of revenues decreased by **2.44%** to **$13,348,270** for the three months ended June 30, 2025, from **$13,682,405** in 2024; this was mainly due to cost reduction efforts and the discontinuation of clinic operation supporting services, partially offset by higher purchase costs for laser hair removal equipment[218](index=218&type=chunk)[227](index=227&type=chunk) [Gross Profit](index=44&type=section&id=Gross%20Profit%20(Three%20Months)) This section examines changes in gross profit for the three months - Gross profit decreased by **23.87%** to **$30,010,577** for the three months ended June 30, 2025, from **$39,419,675** in 2024, primarily due to the decline in high-margin franchising and management services revenue[218](index=218&type=chunk)[228](index=228&type=chunk) [Operating Expenses](index=45&type=section&id=Operating%20Expenses%20(Three%20Months)) This section details variances in operating expenses for the three months Operating Expenses (Three Months) | Expense Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Variance Amount | Variance % | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------- | | Salaries and welfare | $6,765,517 | $7,872,447 | $(1,106,930) | (14.06)% | | Consulting and professional service fees | $3,878,036 | $2,578,115 | $1,299,921 | 50.42% | | Advertising expense | $973,933 | $223,094 | $750,839 | 336.56% | | Office, utility and other expenses | $2,074,334 | $7,300 | $2,067,034 | 28,315.53% | | **Total** | **$15,456,385** | **$12,129,115** | **$3,327,270** | **27.43%** | - Total operating expenses increased by **27.43%**, driven by a significant rise in office, utility, and other expenses (**28,315.53%**) due to large-scale office supply replacement, and increased consulting and professional service fees (**50.42%**) related to listing expenses[229](index=229&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) - Salaries and welfare decreased by **14.06%** due to the disposal of a subsidiary and reduced compensation for the CEO[232](index=232&type=chunk) [Other Income (Expenses)](index=45&type=section&id=Other%20Income%20(Expenses)%20(Three%20Months)) This section analyzes components of other income and expenses Other Income (Expenses) (Three Months) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Variance Amount | Variance % | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------- | | Interest income | $22,882 | $11,644 | $11,238 | 96.51% | | Interest expense | $(49,651) | $(7,424) | $(42,227) | 568.79% | | Other income | $33,771 | $306,291 | $(272,520) | (88.97)% | | Other expenses | $(1,132,465) | $(514,636) | $(617,829) | 120.05% | | Change in fair value of cryptocurrencies | $111,632 | $0 | $111,632 | 100.00% | | **Total** | **$(1,013,831)** | **$(204,125)** | **$(809,706)** | **396.67%** | - Total other expenses increased by **396.67%**, primarily due to increased foreign exchange losses from intercompany loan balances and the recognition of a **$111,632** gain from the change in fair value of cryptocurrencies (new in 2025)[233](index=233&type=chunk) [Income Tax Expense](index=46&type=section&id=Income%20Tax%20Expense%20(Three%20Months)) This section discusses income tax expense and effective tax rate for the three months - Income tax expense increased by **30.15%** to **$11,100,509** for the three months ended June 30, 2025, from **$8,529,110** in 2024, mainly due to increased deferred tax expenses and JPY appreciation[234](index=234&type=chunk) - The effective tax rate rose to **81.98%** from **31.49%**, largely due to a taxable gain from a deemed contribution related to the disposal of an aircraft[235](index=235&type=chunk) [Net Income](index=46&type=section&id=Net%20Income%20(Three%20Months)) This section summarizes the net income performance for the three months ended June 30, 2025 and 2024 - Net income decreased by **86.85%** to **$2,439,852** for the three months ended June 30, 2025, from **$18,557,325** in 2024[236](index=236&type=chunk) [Comparison of Results of Operations for the Six Months Ended June 30, 2025 and 2024](index=46&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) This section compares the Company's financial performance for the six months Comparison of Results of Operations (Six Months) | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Variance Amount | Variance % | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :-------------- | :--------- | | Revenues, net | $90,687,548 | $107,910,122 | $(17,222,574) | (15.96)% | | Cost of revenues | $22,943,887 | $28,971,072 | $(6,027,185) | (20.80)% | | Gross profit | $67,743,661 | $78,939,050 | $(11,195,389) | (14.18)% | | Operating expenses | $28,987,395 | $27,187,605 | $1,799,790 | 6.62% | | Income from operations | $38,756,266 | $51,751,445 | $(12,995,179) | (25.11)% | | Net income attributable to SBC Medical Group Holdings Incorporated | $23,960,686 | $37,242,160 | $(13,281,474) | (35.66)% | - Net income decreased by **35.66%** for the six months ended June 30, 2025, primarily due to reduced franchising and management services revenue, increased operating expenses, and higher income tax expense, despite a significant gain on redemption of life insurance policies[239](index=239&type=chunk)[248](index=248&type=chunk)[250](index=250&type=chunk)[255](index=255&type=chunk)[257](index=257&type=chunk) - JPY appreciation had a favorable impact of **$2,213,636** on net revenues and **$526,004** on net income for the six months ended June 30, 2025[241](index=241&type=chunk) [Revenues, Net](index=46&type=section&id=Revenues%2C%20Net%20(Six%20Months)) This section analyzes changes in net revenues by service stream for the six months Revenues, Net (Six Months) | Revenue Stream | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Variance Amount | Variance % | | :------------------------ | :--------------------------- | :--------------------------- | :-------------- | :--------- | | Franchising revenue | $25,726,863 | $29,736,524 | $(4,009,661) | (13.48)% | | Procurement revenue | $30,089,302 | $26,732,592 | $3,356,710 | 12.56% | | Management services revenue | $13,866,681 | $32,360,267 | $(18,493,586) | (57.15)% | | Rental services revenue | $12,491,690 | $7,071,114 | $5,420,576 | 76.66% | | Others | $8,513,012 | $12,009,625 | $(3,496,613) | (29.12)% | | **Total** | **$90,687,548** | **$107,910,122** | **$(17,222,574)** | **(15.96)%** | - Franchising revenue decreased by **13.48%** due to the revised fee structure, partially offset by JPY appreciation[242](index=242&type=chunk) - Management services revenue decreased by **57.15%** due to the discontinuation of clinic operation staff supporting services and reduced customer rewards program revenue, along with fee structure revisions[244](index=244&type=chunk) - Rental services revenue increased by **76.66%** due to increased demand for medical equipment from new and existing clinics[245](index=245&type=chunk) [Cost of Revenues](index=47&type=section&id=Cost%20of%20Revenues%20(Six%20Months)) This section discusses factors influencing the cost of revenues for the six months - Cost of revenues decreased by **20.80%** to **$22,943,887** for the six months ended June 30, 2025, from **$28,971,072** in 2024, driven by cost reduction efforts and the discontinuation of clinic operation supporting services, partially offset by higher purchase costs for laser hair removal equipment[239](index=239&type=chunk)[247](index=247&type=chunk) [Gross Profit](index=47&type=section&id=Gross%20Profit%20(Six%20Months)) This section examines changes in gross profit for the six months - Gross profit decreased by **14.18%** to **$67,743,661** for the six months ended June 30, 2025, from **$78,939,050** in 2024, mainly due to the decline in high-margin franchising and management services revenue[239](index=239&type=chunk)[248](index=248&type=chunk) [Operating Expenses](index=48&type=section&id=Operating%20Expenses%20(Six%20Months)) This section details variances in operating expenses for the six months Operating Expenses (Six Months) | Expense Category | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Variance Amount | Variance % | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------- | | Salaries and welfare | $13,207,259 | $14,386,288 | $(1,179,029) | (8.20)% | | Consulting and professional service fees | $7,176,118 | $5,208,876 | $1,967,242 | 37.77% | | Advertising expense | $1,656,099 | $934,724 | $721,375 | 77.18% | | Office, utility and other expenses | $3,591,521 | $2,698,973 | $892,548 | 33.07% | | **Total** | **$28,987,395** | **$27,187,605** | **$1,799,790** | **6.62%** | - Total operating expenses increased by **6.62%**, driven by higher consulting and professional service fees (**37.77%**) related to listing expenses and increased office, utility, and other expenses (**33.07%**) due to office supply replacement[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) - Salaries and welfare decreased by **8.20%** due to the disposal of a subsidiary and reduced CEO compensation[253](index=253&type=chunk) [Other Income (Expenses)](index=48&type=section&id=Other%20Income%20(Expenses)%20(Six%20Months)) This section analyzes components of other income and expenses Other Income (Expenses) (Six Months) | Category | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Variance Amount | Variance % | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------- | | Interest income | $78,215 | $29,333 | $48,882 | 166.65% | | Interest expense | $(55,858) | $(10,432) | $(45,426) | 435.45% | | Other income | $185,099 | $655,972 | $(470,873) | (71.78)% | | Other expenses | $(2,829,724) | $(1,951,292) | $(878,432) | 45.02% | | Gain on redemption of life insurance policies | $8,746,138 | $0 | $8,746,138 | 100.00% | | Change in fair value of cryptocurrencies | $111,632 | $0 | $111,632 | 100.00% | | Gain on disposal of subsidiary | $0 | $3,813,609 | $(3,813,609) | (100.00)% | | **Total** | **$6,235,502** | **$2,537,190** | **$3,698,312** | **145.76%** | - Total other income (expenses), net, increased by **145.76%**, primarily due to an **$8.7 million** gain on redemption of life insurance policies in 2025, offset by the absence of a **$3.8 million** gain on subsidiary disposal recognized in 2024[254](index=254&type=chunk) - Increased foreign exchange losses from intercompany loan balances and a **$111,632** gain from cryptocurrency fair value changes also contributed[254](index=254&type=chunk) [Income Tax Expense](index=49&type=section&id=Income%20Tax%20Expense%20(Six%20Months)) This section discusses income tax expense and effective tax rate for the six months - Income tax expense increased by **24.02%** to **$21,059,966** for the six months ended June 30, 2025, from **$16,981,094** in 2024, mainly due to increased deferred tax expenses and JPY appreciation[255](index=255&type=chunk) - The effective tax rate rose to **46.81%** from **31.28%**, largely due to a taxable gain from a deemed contribution related to the disposal of an aircraft[256](index=256&type=chunk) [Net Income](index=49&type=section&id=Net%20Income%20(Six%20Months)) This section summarizes the net income performance for the six months ended June 30, 2025 and 2024 - Net income decreased by **35.85%** to **$23,931,802** for the six months ended June 30, 2025, from **$37,307,541** in 2024[257](index=257&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the Company's ability to meet financial obligations Liquidity and Capital Resources Data | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :------------------ | | Cash and cash equivalents | $152,740,882 | $125,044,092 | | Accounts receivable | $51,271,211 | $30,260,113 | | Working capital balance | $180,660,427 | N/A | - Cash and cash equivalents increased by **$27,696,790** to **$152,740,882** as of June 30, 2025, from **$125,044,092** at December 31, 2024[259](index=259&type=chunk) - The Company believes its current cash, cash equivalents, and operational cash flows, along with potential borrowings, will be sufficient to meet working capital needs for the next 12 months[260](index=260&type=chunk)[261](index=261&type=chunk) - The Company plans to deploy capital for investment opportunities aligned with its growth strategy in the global medical aesthetics market[262](index=262&type=chunk) [Cash Flows for the six months ended June 30, 2025 and 2024](index=50&type=section&id=Cash%20Flows%20for%20the%20six%20months%20ended%20June%2030%2C%202025%20and%202024) This section analyzes the Company's cash flow activities for the six months Cash Flows (Six Months) | Cash Flow Activity | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Variance Amount | Variance % | | :--------------------------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------- | | Net cash provided by (used in) operating activities | $(6,411,168) | $22,874,760 | $(29,285,928) | (128.03)% | | Net cash provided by (used in) investing activities | $15,397,998 | $(9,405,716) | $24,803,714 | (263.71)% | | Net cash provided by (used in) financing activities | $6,901,719 | $(109,341) | $7,011,060 | (6,412.11)% | | Net change in cash and cash equivalents | $27,696,790 | $679,838 | $27,016,952 | 3,974.03% | - Operating activities shifted from a net cash inflow of **$22.9 million** in H1 2024 to a net cash outflow of **$6.4 million** in H1 2025, primarily due to increases in accounts receivable and finance lease receivables from related parties[266](index=266&type=chunk)[267](index=267&type=chunk) - Investing activities generated **$15.4 million** in H1 2025, a significant improvement from a **$9.4 million** outflow in H1 2024, mainly driven by **$17.7 million** in proceeds from life insurance policy redemptions[268](index=268&type=chunk)[269](index=269&type=chunk) - Financing activities provided **$6.9 million** in H1 2025, largely due to a **$9.7 million** deemed contribution from property disposal, offsetting common stock repurchases[270](index=270&type=chunk) [Recent Developments](index=50&type=section&id=Recent%20Developments) This section highlights significant events and legislative changes - The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, with various tax provisions effective from 2025 to 2027, the impact of which is being assessed[271](index=271&type=chunk) - The Company completed its **$5 million** share repurchase program on July 22, 2025, repurchasing a total of **1,034,308 shares**[272](index=272&type=chunk)[203](index=203&type=chunk) [Contractual Obligations](index=50&type=section&id=Contractual%20Obligations) This section outlines the Company's future payment commitments Contractual Obligations Data | Years ending December 31, | Finance Lease | Operating Lease | | :------------------------ | :------------ | :-------------- | | Remaining of 2025 | $83,804 | $2,424,090 | | 2026 | $134,201 | $1,644,921 | | 2027 | $77,234 | $471,460 | | 2028 | $43,778 | $141,390 | | 2029 | $7,095 | $132,086 | | Thereafter | $0 | $59,765 | | **Total undiscounted lease payments** | **$346,112** | **$4,873,712** | | Years ending December 31, | Principal Repayment | | :------------------------ | :------------------ | | Remaining of 2025 | $31,818 | | 2026 | $69,420 | | 2027 | $6,999,688 | | 2028 and thereafter | $0 | | **Total** | **$7,100,926** | - The Company has significant operating and finance lease liabilities for offices, sublease purposes, and medical equipment[273](index=273&type=chunk) - Future minimum bank and other borrowing payments total **$7,100,926**, with a substantial portion (**$6,999,688**) due in 2027[277](index=277&type=chunk) [Off-Balance Sheet Arrangements (Off-Balance Sheet Transactions)](index=52&type=section&id=Off-Balance%20Sheet%20Arrangements%20(Off-Balance%20Sheet%20Transactions)) This section confirms the absence of any material off-balance sheet arrangements - There were no off-balance sheet arrangements as of June 30, 2025, and December 31, 2024[278](index=278&type=chunk) [Foreign Exchange Rate Risk](index=52&type=section&id=Foreign%20Exchange%20Rate%20Risk) This section discusses the Company's exposure to foreign currency fluctuations - The Company is exposed to foreign currency exchange rate fluctuations, particularly between the Japanese yen (JPY) and the U.S. dollar (USD), as most revenues and costs are JPY-denominated while reporting is in USD; a weakening JPY negatively impacts financial results[279](index=279&type=chunk) [Critical Accounting Policies and Estimates](index=52&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section describes accounting policies and estimates - The Company's consolidated financial statements are prepared in conformity with U.S. GAAP, requiring management judgments, estimates, and assumptions; no material changes to critical accounting policies and estimates were reported from those disclosed in the Annual Report on Form 10-K for 2024[280](index=280&type=chunk)[281](index=281&type=chunk) [Emerging Growth Company](index=52&type=section&id=Emerging%20Growth%20Company) This section explains the Company's status as an emerging growth company - The Company is an 'emerging growth company' under the JOBS Act, allowing it to take advantage of certain exemptions from reporting requirements, such as auditor attestation and reduced executive compensation disclosures[282](index=282&type=chunk) - The Company has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards, meaning it will adopt new standards at the same time as private companies[283](index=283&type=chunk) [Smaller Reporting Company](index=52&type=section&id=Smaller%20Reporting%20Company) This section details the Company's qualification as a smaller reporting company - The Company is also a 'smaller reporting company,' which allows for reduced disclosure obligations, including providing only two years of audited financial statements[284](index=284&type=chunk) - It will remain a smaller reporting company until its market value of non-affiliate common stock exceeds **$250 million**, or its annual revenue exceeds **$100 million** and market value exceeds **$700 million**[284](index=284&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, SBC Medical Group Holdings Incorporated is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[285](index=285&type=chunk) [ITEM 4. Controls and Procedures](index=53&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures, identifying material weaknesses that rendered them ineffective as of June 30, 2025. Despite these weaknesses, management believes the financial statements fairly present the Company's financial condition and results of operations - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to identified material weaknesses[286](index=286&type=chunk) - Despite the material weaknesses, management believes the unaudited consolidated financial statements fairly present the Company's financial condition and results of operations[287](index=287&type=chunk) - The material weaknesses previously identified in the Annual Report remained unremediated as of June 30, 2025, and the Company is committed to ongoing improvements[288](index=288&type=chunk)[291](index=291&type=chunk) PART II - OTHER INFORMATION This section provides additional non-financial information [ITEM 1. Legal Proceedings](index=54&type=section&id=ITEM%201.%20Legal%20Proceedings) SBC Medical Group Holdings Incorporated is not currently a party to any material litigation or legal proceedings that would have a material adverse effect on its business, financial condition, or results of operations - The Company is not currently involved in any material litigation or legal proceedings[293](index=293&type=chunk) - There are no known legal proceedings, investigations, or claims with a more than remote possibility of materially adversely affecting the business[293](index=293&type=chunk) [ITEM 1A. Risk Factors](index=54&type=section&id=ITEM%201A.%20Risk%20Factors) Investing in the Company's securities involves a high degree of risk, as detailed in the Annual Report on Form 10-K. No material changes to these risk factors have occurred since the Annual Report filing - Investing in the Company's securities carries a high degree of risk, as described in the Annual Report[294](index=294&type=chunk) - No material changes to the risk factors have been identified since the filing of the Annual Report[294](index=294&type=chunk) - Additional unknown or currently immaterial risk factors could emerge and adversely affect the business[295](index=295&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=54&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's share repurchase activities during the three months ended June 30, 2025, under its publicly announced program Share Repurchase Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | :-------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | | May 1, 2025 – May 31, 2025 | 78,156 | $4.38 | 78,156 | | June 1, 2025 – June 30, 2025 | 434,653 | $4.71 | 434,653 | | **Total** | **512,809** | N/A | **512,809** | - The Company initiated a **$5 million** share repurchase program on May 15, 2025, for common stock, which was completed on July 22, 2025, repurchasing a total of **1,034,308 shares** for approximately **$5 million**[296](index=296&type=chunk)[203](index=203&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=54&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[297](index=297&type=chunk) [ITEM 4. Mine Safety Disclosures](index=54&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable[298](index=298&type=chunk) [ITEM 5. Other Information](index=54&type=section&id=ITEM%205.%20Other%20Information) This section discloses a Rule 10b5-1 trading arrangement adopted by the CEO and Chairman, Yoshiyuki Aikawa - On June 22, 2025, CEO and Chairman Yoshiyuki Aikawa adopted a Rule 10b5-1 trading arrangement for the potential sale of up to **1,030,000 shares** of common stock[299](index=299&type=chunk) - The plan is effective from September 22, 2025, to September 22, 2026, or until all shares are sold[299](index=299&type=chunk) [ITEM 6. Exhibits](index=55&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed as part of, or incorporated by reference into, this Quarterly Report, including merger agreements, corporate governance documents, employment agreements, and certifications - The exhibits include various amendments to the Agreement and Plan of Merger, corporate organizational documents (Certificate of Incorporation, Bylaws), an executive employment agreement, and certifications (302 and 906)[304](index=304&type=chunk) [SIGNATURES](index=56&type=section&id=SIGNATURES) The report is duly signed on behalf of SBC Medical Group Holdings Incorporated by Yuya Yoshida, Chief Financial Officer, on August 13, 2025 - The Quarterly Report was signed by Yuya Yoshida, Chief Financial Officer, on August 13, 2025[308](index=308&type=chunk)

[Press Release Announcement](index=1&type=section&id=Press%20Release%20Announcement) SBC Medical Group Holdings announced its financial results for Q2 and H1 FY2025, covering periods ended June 30, 2025 [SBC Medical Group Holdings Announces Second Quarter 2025 Financial Results](index=1&type=section&id=SBC%20Medical%20Group%20Holdings%20Announces%20Second%20Quarter%202025%20Financial%20Results) SBC Medical Group Holdings Incorporated announced its financial results for the second quarter and first half of fiscal year 2025, covering the three and six months ended June 30, 2025 - SBC Medical Group Holdings (NASDAQ: SBC) announced **Q2 and H1 FY2025 financial results** on August 13, 2025[1](index=1&type=chunk) [Reporting Scope and Definitions](index=1&type=section&id=Reporting%20Scope%20and%20Definitions) The report clarifies financial figures, customer counts, and non-GAAP measures requiring reconciliation [Definitions and Scope for Financial Reporting](index=1&type=section&id=Definitions%20and%20Scope%20for%20Financial%20Reporting) The report clarifies that financial figures and customer counts include various SBC brand clinics and franchisees, while noting that EBITDA and EBITDA Margin are non-GAAP financial measures requiring reconciliation - EBITDA and EBITDA Margin are non-GAAP financial measures, with reconciliations provided in a dedicated section[2](index=2&type=chunk) - Financial figures take into account the franchising of SBC brand clinics, Rize Clinic, Gorilla Clinic, AHH, and JUN CLINIC[2](index=2&type=chunk) - Customer counts include SBC, Rize, Gorilla, and AHH clinics, but exclude JUN CLINIC and free counseling, for periods from July 1, 2024, to June 30, 2025[2](index=2&type=chunk) [Financial and Operational Highlights](index=1&type=section&id=Financial%20and%20Operational%20Highlights) SBC Medical Group saw significant financial declines in Q2 and H1 FY2025, offset by network expansion and customer growth [Second Quarter 2025 Highlights](index=1&type=section&id=Second%20Quarter%202025%20Highlights) SBC Medical Group experienced significant year-over-year financial declines in Q2 2025, with total revenues decreasing 18% and net income attributable to the company plummeting 87%. Despite these financial challenges, the company expanded its franchise network and increased its customer base | Metric | Q2 2025 | Q2 2024 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Total revenues | $43 million | $53.1 million | -18% | | Income from operations | $15 million | $27.3 million | -47% | | Net Income attributable to SBC Medical Group | $2.5 million | $18.5 million | -87% | | Earnings per share (EPS) | $0.02 | $0.20 | -90% | | EBITDA | $15 million | $28.1 million | -46% | | EBITDA margin | 35% | 53% | -18 ppts | | Return on equity | 4% | 48% | -44 ppts | - Number of Franchise Locations **increased by 36 to 259** as of June 30, 2025[3](index=3&type=chunk) - Number of customers in the last twelve months ended June 30, 2025, **increased 14% year-over-year to 6.31 million**[3](index=3&type=chunk) [First Half 2025 Highlights](index=2&type=section&id=First%20Half%202025%20Highlights) For the first half of fiscal year 2025, total revenues decreased 16% year-over-year to $91 million, with net income down 36% and EBITDA down 25%. The CEO attributed these declines to strategic shifts, including business discontinuation and divestitures, aimed at long-term competitiveness, while highlighting network expansion and high customer repeat rates | Metric | H1 2025 | H1 2024 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Total revenues | $91 million | $107.9 million | -16% | | Income from operations | $39 million | $51.8 million | -25% | | Net Income attributable to SBC Medical Group | $24 million | $37.2 million | -36% | | Earnings per share (EPS) | $0.23 | $0.40 | -42.5% | | EBITDA | $40 million | $53.6 million | -25% | | EBITDA margin | 44% | 50% | -6 ppts | - Revenue decline was primarily due to the completed **discontinuation of the staffing business, targeted divestitures, and revision of the fee structure**[4](index=4&type=chunk) - Key initiatives include the **acquisition of MB career lounge** to enhance management support services and the **joining of JUN CLINIC to the network**[4](index=4&type=chunk) [Detailed Second Quarter 2025 Financial Results](index=3&type=section&id=Detailed%20Second%20Quarter%202025%20Financial%20Results) Detailed Q2 2025 results confirm significant declines in revenue, net income, and EBITDA from strategic changes [Second Quarter 2025 Financial Results Overview](index=3&type=section&id=Second%20Quarter%202025%20Financial%20Results) The detailed Q2 2025 financial results confirm significant year-over-year declines in revenue, net income, and EBITDA, primarily driven by strategic business changes, such as revised fee structures and business divestitures, and unfavorable foreign exchange impacts [Revenue Analysis](index=3&type=section&id=Revenue%20Analysis) Total revenues for Q2 2025 decreased by 18% year-over-year to $43 million, primarily due to a revised fee structure for franchising services, discontinuation of staffing services, and divestiture of SNA and Kijimadaira, partially offset by growth in procurement and rental services - Total revenues were **$43 million**, representing an **18% year-over-year decrease**[6](index=6&type=chunk) - The decrease was primarily due to a **revised fee structure for franchising services** (implemented April 2025), **discontinuation of staffing services business**, and **divestiture of SNA and Kijimadaira**[6](index=6&type=chunk) - The revenue decline was partially offset by **growth in procurement, rental services, and other revenue streams**[6](index=6&type=chunk) [Net Income Analysis](index=3&type=section&id=Net%20Income%20Analysis) Net income attributable to SBC Medical Group for Q2 2025 significantly decreased to $2.5 million from $18.5 million in the same period of 2024, an 87% decline, largely due to unfavorable changes in other income and expenses, primarily higher foreign exchange losses | Metric | Q2 2025 | Q2 2024 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Net Income attributable to SBC Medical Group | $2.5 million | $18.5 million | -87% | - The decrease in net income was largely attributed to unfavorable changes in other income and expenses, primarily due to **higher foreign exchange losses**[7](index=7&type=chunk) [EBITDA Analysis](index=3&type=section&id=EBITDA%20Analysis) EBITDA for Q2 2025 decreased by 46% year-over-year to $15 million, primarily driven by lower revenue following the termination of the staffing services business, the deconsolidation of SNA and Kijimadaira, and a revision of the fee structure | Metric | Q2 2025 | Q2 2024 | YoY Change | | :----- | :------ | :------ | :--------- | | EBITDA | $15 million | $28.1 million | -46% | - The decrease in EBITDA was primarily due to **lower revenue following the termination of the staffing services business, the deconsolidation of SNA and Kijimadaira, and revision of the fee structure**[8](index=8&type=chunk) [Conference Call Information](index=3&type=section&id=Conference%20Call) SBC Medical Group Holdings held a conference call on August 13, 2025, to discuss financial results and access materials online [Conference Call Details](index=3&type=section&id=Conference%20Call%20Details) SBC Medical Group Holdings held a conference call on August 13, 2025, to discuss its financial results, with registration and access to presentation materials and an archived webcast available online - A conference call was held on Wednesday, **August 13, 2025**, at 8:30 am Eastern Time (9:30 pm Japan Time) to discuss financial results[9](index=9&type=chunk) - Attendees could **register in advance** via a provided link to access the viewing site, speaker information, and past investor relations materials[9](index=9&type=chunk) - Earnings presentation materials were available 10 minutes before the call, and a **replay will be accessible until August 13, 2026**, on the Company's Investor Relations website[10](index=10&type=chunk) [About the Company](index=4&type=section&id=About%20SBC%20Medical) SBC Medical is a global provider of management services and products to cosmetic treatment centers, headquartered in US and Japan [About SBC Medical Group Holdings](index=4&type=section&id=About%20SBC%20Medical%20Group%20Holdings) SBC Medical, headquartered in Irvine, California, and Tokyo, Japan, is a global owner, operator, and provider of management services and products to cosmetic treatment centers, with a primary focus on comprehensive management services for franchise clinics - SBC Medical owns and provides management services and products to cosmetic treatment centers, with headquarters in **Irvine, California, and Tokyo, Japan**[11](index=11&type=chunk) - The company primarily focuses on providing **comprehensive management services to franchise clinics**, including advertising, staff management, booking, facility rentals, procurement, product provision, technology licensing, IT solutions, customer rewards, and payment tools[11](index=11&type=chunk) [Non-GAAP Measures and Forward-Looking Statements](index=4&type=section&id=Non-GAAP%20Measures%20and%20Forward-Looking%20Statements) The company uses non-GAAP measures for evaluation and issues forward-looking statements, subject to inherent risks [Use of Non-GAAP Financial Measures](index=4&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) SBC Medical uses non-GAAP measures like EBITDA and EBITDA margin to evaluate operating results and for financial decision-making, believing they highlight underlying business trends. However, the company acknowledges these measures are not U.S. GAAP defined and should not be considered in isolation, mitigating limitations by providing GAAP reconciliations - The Company uses non-GAAP measures, such as **EBITDA and EBITDA margin**, for evaluating operating results and financial and operational decision-making[12](index=12&type=chunk) - Non-GAAP financial measures are **not defined under U.S. GAAP** and should **not be considered in isolation or as a substitute for GAAP measures**[13](index=13&type=chunk) - Limitations of non-GAAP measures are mitigated by **reconciling them to the most comparable U.S. GAAP performance measures**[14](index=14&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward%20Looking%20Statements) This press release contains forward-looking statements regarding future events and performance, which are inherently uncertain and subject to various risks, uncertainties, and changes in circumstances. The company cautions against undue reliance and does not commit to publicly update or revise these statements, except as required by law - The press release contains **forward-looking statements** regarding future events, performance, financial performance, growth, business prospects, and capital deployment plans[14](index=14&type=chunk) - These statements are **inherently uncertain**, outside the Company's control, and **subject to various risks, uncertainties, assumptions, or changes in circumstances**[14](index=14&type=chunk) - The Company cautions readers **not to place undue reliance on forward-looking statements** and does not undertake any obligation to release publicly any updates or revisions, except as required by law[14](index=14&type=chunk) [Unaudited Consolidated Financial Statements](index=5&type=section&id=Unaudited%20Consolidated%20Financial%20Statements) Unaudited consolidated financial statements present balance sheets, income, and cash flows for Q2 and H1 2025 [Unaudited Consolidated Balance Sheets](index=5&type=section&id=UNAUDITED%20CONSOLIDATED%20BALANCE%20SHEETS) As of June 30, 2025, SBC Medical Group Holdings reported a significant increase in total assets to $315.3 million from $266.1 million at December 31, 2024, primarily driven by higher cash and cash equivalents and accounts receivable. Total liabilities remained relatively stable, while total stockholders' equity increased substantially to $244.7 million | Balance Sheet Item | June 30, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Total assets | $315,299,257 | $266,083,154 | +$49,216,103 | | Total liabilities | $70,646,686 | $71,060,996 | -$414,310 | | Total stockholders' equity | $244,652,571 | $195,022,158 | +$49,630,413 | | Cash and cash equivalents | $152,740,882 | $125,044,092 | +$27,696,790 | | Accounts receivable – related parties | $48,920,843 | $28,846,680 | +$20,074,163 | | Retained earnings | $213,423,693 | $189,463,007 | +$23,960,686 | [Unaudited Consolidated Statements of Operations and Comprehensive Income](index=7&type=section&id=UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20AND%20COMPREHENSIVE%20INCOME) For Q2 2025, total revenues decreased 18.3% year-over-year to $43.4 million, leading to an 86.5% drop in net income attributable to SBC Medical Group to $2.5 million. For H1 2025, total revenues decreased 16.0% year-over-year to $90.7 million, with net income attributable to SBC Medical Group decreasing 35.6% to $24.0 million | Metric | Q2 2025 | Q2 2024 | YoY Change (Q2) | H1 2025 | H1 2024 | YoY Change (H1) | | :-------------------------------- | :------ | :------ | :-------------- | :------ | :------ | :-------------- | | Total revenues, net | $43,358,847 | $53,102,080 | -18.3% | $90,687,548 | $107,910,122 | -16.0% | | Gross profit | $30,010,577 | $39,419,675 | -23.8% | $67,743,661 | $78,939,050 | -14.2% | | Income from operations | $14,554,192 | $27,290,560 | -46.6% | $38,756,266 | $51,751,445 | -25.1% | | Net income attributable to SBC Medical Group Holdings Incorporated | $2,458,240 | $18,484,408 | -86.7% | $23,960,686 | $37,242,160 | -35.7% | | Basic and diluted EPS | $0.02 | $0.20 | -90.0% | $0.23 | $0.40 | -42.5% | - Foreign currency translation adjustment resulted in a **gain of $8.6 million** in Q2 2025, compared to a **loss of $9.0 million** in Q2 2024[20](index=20&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=9&type=section&id=UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) For the six months ended June 30, 2025, net cash used in operating activities was $6.4 million, a significant reversal from $22.9 million provided in the prior year. This was offset by a substantial increase in net cash provided by investing activities to $15.4 million, largely due to proceeds from life insurance policy redemptions, and net cash provided by financing activities of $6.9 million | Cash Flow Activity | H1 2025 | H1 2024 | Change | | :-------------------------------- | :------------ | :------------ | :----- | | Net cash provided by (used in) operating activities | $(6,411,168) | $22,874,760 | -$29,285,928 | | Net cash provided by (used in) investing activities | $15,397,998 | $(9,405,716) | +$24,803,714 | | Net cash provided by (used in) financing activities | $6,901,719 | $(109,341) | +$7,011,060 | | Net change in cash and cash equivalents | $27,696,790 | $679,838 | +$27,016,952 | | Cash and cash equivalents as of the end of the period | $152,740,882 | $103,702,770 | +$49,038,112 | - Proceeds from redemption of life insurance policies significantly contributed to investing activities, **totaling $17.7 million in H1 2025**[24](index=24&type=chunk) - The effect of exchange rate changes **positively impacted cash by $11.8 million** in H1 2025, **reversing a negative impact of $12.7 million** in H1 2024[25](index=25&type=chunk) [Reconciliation of GAAP to Non-GAAP Financial Measures](index=11&type=section&id=RECONCILIATION%20OF%20GAAP%20TO%20NON-GAAP%20FINANCIAL%20MEASURES) Unaudited reconciliations of GAAP income from operations to non-GAAP EBITDA are provided for Q2 and H1 2025 [Unaudited Reconciliations of GAAP and Non-GAAP Results](index=11&type=section&id=Unaudited%20Reconciliations%20of%20GAAP%20and%20Non-GAAP%20Results) The reconciliation table provides a clear bridge from GAAP income from operations to non-GAAP EBITDA, showing EBITDA of $15.2 million (35% margin) for Q2 2025 and $40.0 million (44% margin) for H1 2025, both significantly lower year-over-year due to operational changes | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------- | :------------ | :------------ | :------------ | :------------ | | Total revenues, net | $43,358,847 | $53,102,080 | $90,687,548 | $107,910,122 | | Income from operations (GAAP) | $14,554,192 | $27,290,560 | $38,756,266 | $51,751,445 | | Depreciation and amortization expense | $636,101 | $830,945 | $1,264,405 | $1,849,422 | | EBITDA (Non-GAAP) | $15,190,293 | $28,121,505 | $40,020,671 | $53,600,867 | | EBITDA margin | 35% | 53% | 44% | 50% | [Investor Relations Contacts](index=12&type=section&id=Contacts) Contact information for investor relations is provided for both Asia and the US [Investor Relations Contacts](index=12&type=section&id=Investor%20Relations%20Contacts) Contact information for investor relations is provided for both Asia, through SBC Medical Group Holdings, and the US, through ICR LLC - For investor relations in Asia, contact **Hikaru Fukui, Head of Investor Relations** at SBC Medical Group Holdings Incorporated (ir@sbc-holdings.com)[28](index=28&type=chunk) - For investor relations in the US, contact **Bill Zima, Managing Partner** at ICR LLC (bill.zima@icrinc.com)[28](index=28&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-41462 SBC Medical Group Holdings Incorporated (Exact Name of Registrant as Specified in Its Charter) | Delaware | 88 ...

Financial Performance - Total revenues for the first quarter of 2025 were $47 million, reflecting a 14% year-over-year decrease due to the discontinuation of the staffing business and divestitures[4] - Net income attributable to SBC Medical Group increased by 15% year-over-year to $22 million, compared to $19 million in the same period of 2024[6] - EBITDA for the first quarter of 2025 was $25 million, representing a 3% year-over-year decrease, with an EBITDA margin of 52%, up from 46% in the first quarter of 2024[4] - Total revenues for the three months ended March 31, 2025, were $47,328,701, a decrease of 13.7% compared to $54,808,042 for the same period in 2024[17] - Net income attributable to SBC Medical Group Holdings Incorporated increased to $21,502,446, up 14.7% from $18,757,752 in the prior year[17] - EBITDA for the three months ended March 31, 2025, was $24,830,378, with an EBITDA margin of 52%, compared to an EBITDA of $25,479,362 and a margin of 46% in 2024[23] - Operating expenses decreased to $13,531,010, down 10.1% from $15,058,490 in the previous year[17] - The company reported a gain on redemption of life insurance policies amounting to $8,746,138, which was not present in the prior year[17] - Interest income rose to $55,333, compared to $17,689 in the same period last year, reflecting a significant increase[17] - The company reported a total other income of $7,249,333, significantly higher than $2,741,315 in the same period last year[17] Customer Metrics - The number of partner clinics increased to 251 as of March 31, 2025, an increase of 36 clinics from the previous year[4] - The total number of customers in the last twelve months ended March 31, 2025, was 6.1 million, marking a 14% year-over-year increase[4] - The repeat rate for customers who visited franchisee clinics twice or more was 71%[4] Profitability and Margins - Operating margin improved from 45% in the first quarter of 2024 to 51% in the first quarter of 2025[3] - Return on equity was 41%, representing a year-over-year decrease of 10 percentage points[4] Strategic Focus - SBC Medical is focusing on strategic expansion and optimizing profitability through revised pricing strategies and adapting to market dynamics[3] - The company aims to build a scalable franchise model while accelerating expansion across domestic and international markets[3] Cash and Other Financial Adjustments - Cash and cash equivalents at the end of the period increased to $132,055,823, compared to $96,181,550 at the end of the same period in 2024[21] - The company experienced a foreign currency translation adjustment resulting in other comprehensive income of $9,808,327, compared to a loss of $10,193,852 in 2024[17] - Net cash provided by operating activities was $1,928,621, a decrease from $3,682,175 in the prior year[20]

Service Contracts and Consulting - The company entered into service contracts with Medical Corporation Association Furinkai and Junikai for operational and management consulting services, with fees of JPY 60,000,000 and JPY 1,700,000 per month respectively [54][60]. - The effective period for the service contracts with Furinkai is from September 1, 2024, to August 31, 2027, while the contract with Junikai is from September 1, 2023, to August 31, 2027 [58][61]. - The consulting services include strategies for customer acquisition, operational efficiency, and development of new treatment methods related to cosmetic dermatology [57][62]. - The company provides a range of consulting services, including legal, accounting, and information system management, to support the operational needs of medical facilities [56]. - The company is involved in the development and introduction of new treatment technologies as part of its service contracts [54]. Revenue and Financial Performance - Franchising revenue increased to $61,033,032 in 2024 from $42,103,380 in 2023, representing a growth of approximately 44.9% [103]. - Procurement revenue rose slightly to $54,814,399 in 2024 compared to $53,186,662 in 2023, indicating a growth of about 3.1% [103]. - Management services revenue decreased to $53,113,155 in 2024 from $72,282,549 in 2023, reflecting a decline of approximately 26.5% [103]. - Total revenues for the company reached $205,415,542 in 2024, up from $193,542,423 in 2023, marking an increase of about 6.5% [103]. - The company generated over 90% of its revenue from management services to Medical Corporations (MCs) under franchise agreements, totaling $195,173,889 for the year ended December 31, 2024, compared to $182,738,049 in 2023, representing an increase of approximately 6.4% [144][145]. Customer Engagement and Satisfaction - The company has developed a customer rewards program with three tiers: silver, gold, and diamond, incentivizing customer loyalty through points that can be redeemed for discounts [81]. - The franchisee clinics have an average repeat customer rate of over 71%, with a total of over 6.0 million customers globally in 2024 [105]. - The patient base of franchisee clinics increased from 3.0 million in 2021 to approximately 3.9 million in 2024, reflecting a growing demand for cosmetic procedures [112]. - Customer satisfaction ratings improved by 15%, reflecting the success of recent service enhancements [229]. Market Expansion and Growth Strategy - The company plans to pursue a disciplined new clinic growth strategy, aiming to increase the number of franchisee clinics to enhance revenue generation [109]. - The company is expanding its market presence with new clinics, including the "SBC Itaewon Beauty Clinic" and "SBC Nara Beauty Clinic," aimed at increasing customer reach [226]. - Future guidance indicates a projected revenue increase of 15% year-over-year, driven by new service offerings and market expansion [226]. - The company is exploring potential acquisitions to further strengthen its market position and diversify its offerings [227]. Technology and Innovation - The company utilizes advanced technologies, including AI and simulation technology, to enhance training and operational efficiency at franchisee clinics [87]. - The company is investing in research and development for new technologies to improve customer experience and operational efficiency [226]. - The company is focusing on machine learning to enhance surgical procedures and improve medical audit systems [1]. - The company is developing a machine learning model for auditing and analyzing treatment processes, which is currently pending [1][2]. Compliance and Regulatory Environment - The company is subject to various laws and regulations in Japan, including the Act on the Protection of Personal Information (APPI), which imposes requirements on the handling of personal data [160]. - The company must obtain prior consent from customers before transferring sensitive personal data, such as medical records, as mandated by the APPI [163]. - The company is subject to extensive regulations globally, which could impact operations if licenses or permits are not obtained or retained [153]. - The company has identified material weaknesses in its internal control environment, including insufficient training and lack of effective monitoring and oversight [150]. Internal Controls and Management - Management is implementing changes to strengthen internal controls, including hiring personnel with accounting experience and enhancing the segregation of duties [151][152]. - The Company recorded a misappropriation loss of $409,030 for the year ended December 31, 2023, due to funds misappropriated by a former manager [148]. - Approximately JPY632 million ($5.6 million) was misappropriated from the Company, with the former manager receiving about JPY335 million ($3.0 million) between April 2016 and January 2024 [147]. Patents and Intellectual Property - The Company holds registered patents and trademarks in Japan, with a significant number of applications filed with the International Bureau of the World Intellectual Property Organization [216]. - The company has filed multiple patent applications in Japan related to hair growth treatments, with applications dated August 25, 2023, including JP2023-136726, JP2023-136730, and JP2023-136731 [1][2][3]. - The company is expanding its patent portfolio in the aesthetic medicine field, with multiple applications pending in Japan [1][2]. Future Outlook and Projections - The company provided an optimistic outlook for Q4 2023, projecting revenue growth of 15% to 18% [229]. - The company has set ambitious performance guidance for the next quarter, aiming for a revenue increase of 20% compared to the previous quarter [228]. - The company anticipates a strong performance in the next fiscal year, with guidance suggesting a revenue increase of approximately 20% [227].

Financial Performance - Total revenues for Q4 2024 were $44 million, a 29% year-over-year decrease, while full year revenues reached $205 million, a 6% year-over-year increase[4][6]. - Gross profit for Q4 2024 was $34 million, a 22% year-over-year decrease, and for the full year, it was $156 million, a 14% year-over-year increase[4][6]. - Net income attributable to SBC Medical Group for Q4 2024 was $7 million, a 54% year-over-year decrease, while for the full year, it was $47 million, an 18% year-over-year increase[4][6][7]. - EBITDA for Q4 2024 was $21 million, a 22% year-over-year decrease, while for the full year, it was $89 million, an 8% year-over-year increase[4][6]. - Total revenues for 2024 reached $205.42 million, an increase of 6.4% compared to $193.54 million in 2023[31]. - Net income attributable to SBC Medical Group Holdings for 2024 was $46.61 million, up from $39.37 million in 2023, reflecting an increase of 18.0%[31]. - Gross profit for 2024 was $156.05 million, compared to $137.30 million in 2023, indicating a growth of 13.6%[31]. - Operating expenses for 2024 totaled $85.75 million, compared to $66.64 million in 2023, an increase of 28.6%[31]. - Basic and diluted net income per share for 2024 was $0.48, compared to $0.42 in 2023, reflecting an increase of 14.3%[31]. - Total comprehensive income for 2024 was $30.01 million, up from $26.65 million in 2023, an increase of 12.5%[31]. - The EBITDA for the year ended December 31, 2024, was $89,162,052, an increase from $82,907,008 in 2023, with an EBITDA margin of 43%[38]. Cash Flow and Liabilities - Cash provided by operating activities was $20.58 million in 2024, down from $50.67 million in 2023, a decrease of 59.4%[34]. - The company reported a foreign currency translation adjustment loss of $16.56 million in 2024, compared to a loss of $12.86 million in 2023[31]. - Total liabilities decreased to $71.06 million in 2024 from $114.99 million in 2023, a reduction of 38.3%[29]. - The company reported net cash paid for income taxes of $30,239,002 in 2024, compared to $17,842,407 in 2023[36]. - Borrowings from related parties decreased to $5,481,787 in 2024 from $12,310,106 in 2023[36]. - Cash paid for interest expense decreased to $28,300 in 2024 from $45,292 in 2023[36]. - The company reported a net increase in cash and cash equivalents of $22,021,160 for the year, compared to $51,284,938 in the previous year[36]. - The cash and cash equivalents at the end of the year were $125,044,092, up from $103,022,932 at the beginning of the year[36]. Business Expansion and Strategy - The number of partner clinics increased to 251 as of December 31, 2024, representing an increase of 43 clinics from the previous year[4]. - The company plans to revise its franchise fee structure starting in April 2025 to support long-term expansion of its franchise clinic network[12][13]. - SBC Medical acquired Aesthetic Healthcare Holdings Pte. in Singapore, establishing a strategic business hub in Asia[9]. - The company expects the aesthetic dermatology market to continue expanding in FY2025, despite anticipated intensified competition[12]. Equity and Impairment - Stockholders' equity increased to $195.02 million in 2024, up from $143.81 million in 2023, representing a growth of 35.6%[29]. - The company incurred an impairment loss of $15,058,965 for the year ended December 31, 2024, with no such loss reported in 2023[38]. - Return on equity for the full year 2024 was 28%, representing a year-over-year decrease of 4 percentage points[4].

Financial Performance - For the three months ended September 30, 2024, the company generated revenues of $53,084,883, a 12.28% increase from $47,278,685 in the same period of 2023[174]. - Net income attributable to SBC Medical Group Holdings Incorporated for the three months ended September 30, 2024, was $2,832,894, a decrease of 66.10% from $8,356,414 in the same period of 2023[174]. - Revenues, net for the nine months ended September 30, 2024, increased by 22.72% to $160,995,005 from $131,192,729 in 2023[196]. - Net income for the nine months ended September 30, 2024, was $40,142,008, representing an increase of $15,811,044 or 64.98% from the same period in 2023[211]. - Net income for the three months ended September 30, 2024, was $2,834,467, a decrease of $5,223,324 or 64.82% from $8,057,791 in 2023[193]. Revenue Breakdown - Royalty income increased by 82.28% to $15,688,528 for the three months ended September 30, 2024, from $8,606,999 in the same period of 2023[180]. - Procurement services revenue rose by 96.12% to $17,571,299 for the three months ended September 30, 2024, compared to $8,959,689 in the same period of 2023[181]. - Management services revenue decreased by 47.27% to $12,110,764 for the three months ended September 30, 2024, from $22,969,187 in the same period of 2023[181]. - Rental services revenue increased by 208.32% to $4,124,774 for the three months ended September 30, 2024, from $1,337,803 in the same period of 2023[182]. - Royalty income rose by $19,979,012 or 78.52% to $45,425,052 for the nine months ended September 30, 2024, attributed to changes in billing and business expansion of main customers[198]. - Procurement services revenue increased by $9,640,957 or 27.81% to $44,303,891 for the nine months ended September 30, 2024, driven by higher demand for medical materials[199]. - Management services revenue decreased to $44,471,031, down by $9,222,917 or 17.18% compared to the same period in 2023[200]. - Rental services revenue increased to $11,195,888, up by $6,514,675 or 139.17% compared to the same period in 2023[201]. Operating Expenses and Profitability - Cost of revenues decreased to $9,845,793 for the three months ended September 30, 2024, down from $13,780,309 in 2023, primarily due to the discontinuation of clinic operation staff supporting services[183]. - Gross profit increased by $9,740,714 or 29.08% to $43,239,090 for the three months ended September 30, 2024, driven by higher royalty income and procurement services[184]. - Operating expenses surged to $29,404,487 for the three months ended September 30, 2024, an increase of $15,929,353 or 118.21% from $13,475,134 in 2023, mainly due to stock-based compensation and consulting fees[185]. - Gross profit increased to $122,178,140, an increase of $28,241,477 or 30.06% compared to the same period in 2023[203]. - Operating expenses increased to $56,592,092, up by $9,326,188 or 19.73% compared to the same period in 2023[204]. Cash Flow and Liquidity - The company reported cash flow provided by operating activities of $27,886,231 for the nine months ended September 30, 2024, compared to $22,753,983 for the same period in 2023[174]. - Cash and cash equivalents as of September 30, 2024, were $137,393,070, an increase of $34,370,138 or 33.77% compared to the beginning of the period[217]. - Net cash provided by operating activities was $27,886,231, reflecting an increase of $5,132,248 or 22.56% compared to the same period in 2023[218]. - Net cash provided by financing activities for the nine months ended September 30, 2024, was $11,584,038, compared to $6,262,589 for the same period in 2023, primarily due to proceeds from recapitalization of Pono Shares[220]. - The company anticipates obtaining additional funds through indebtedness or equity financings to meet long-term liquidity needs[215]. Taxation - Income tax expense decreased by $2,738,878 or 21.05% to $10,273,384 for the three months ended September 30, 2024, reflecting a reduction in income before tax[191]. - The effective tax rate increased to 78.38% for the three months ended September 30, 2024, from 61.76% in 2023, primarily due to stock-based compensation recognition[192]. - The effective tax rate decreased to 40.44% from 51.35% in the previous year, a reduction of 10.91 percentage points[210]. Corporate Developments - The company plans to expand its "Shonan Beauty Clinic" brand in Japan, Vietnam, and the United States, aiming for global growth[175]. - The company has entered into an agreement to acquire 100% equity interest of Aesthetic Healthcare Holdings for approximately SGD$7.8 million (equivalent to approximately US$6.0 million)[221]. - The company has restated its previously reported consolidated balance sheets and statements of operations for the years ended December 31, 2022, and 2021, as well as for the nine months ended September 30, 2023, and 2022[224]. - Misappropriations of funds amounted to approximately JPY632 million ($5.6 million), with the former director receiving approximately JPY335 million ($3.0 million) from April 2016 until the discovery in January 2024[222]. Accounting and Reporting - The company generates revenue from various sources, including franchising, procurement, management services, and rental services, with specific revenue recognition policies under ASC Topics 606 and 842[231][242]. - The company accounts for stock-based compensation awards in accordance with ASC Topic 718, recognizing costs based on estimated fair value on the grant date and amortizing over the requisite service period[249]. - The fair value of warrants is determined using the binomial option pricing model, with significant estimates related to forecasted revenues and cash flows[250]. - The company is classified as an "emerging growth company," allowing it to take advantage of certain exemptions from reporting requirements, including auditor attestation requirements[251]. - The JOBS Act exempts emerging growth companies from complying with new or revised financial accounting standards until private companies are required to do so[252]. - The company is also classified as a "smaller reporting company," which allows it to provide only two years of audited financial statements[253]. - The company will remain a smaller reporting company until the market value of its common stock held by non-affiliates exceeds $250 million or annual revenue exceeds $100 million with a market value exceeding $700 million[253]. - As a smaller reporting company, the company is not required to provide certain disclosures about market risk[254]. Foreign Exchange and Risk - The unfavorable impacts of foreign exchange rate changes on net revenues were $2,570,776 for the three months ended September 30, 2024[179]. - The company is exposed to foreign currency exchange rate fluctuations, primarily due to operations in Japan and revenues and costs denominated in Japanese yen[228].

Financial Performance - For the three months ended June 30, 2024, the company reported a net loss of $308,266, attributed to operating and formation costs of $460,648, franchise tax of $41,073, and income tax expense of $40,507, partially offset by interest and dividend income of $233,962 from investments held in the Trust Account[133] - For the six months ended June 30, 2024, the company had a net loss of $600,812, resulting from operating and formation costs of $923,287, franchise tax expense of $83,100, and income tax expense of $85,722, with interest and dividend income of $491,297 partially offsetting these losses[133] - The company had a net income of $196,786 for the three months ended June 30, 2023, driven by interest and dividend income of $836,888, despite operating and formation costs of $430,842, franchise tax expense of $42,532, and income tax expense of $166,728[133] - The company reported a net income of $810,119 for the six months ended June 30, 2023, from interest and dividend income of $2,101,363, offset by operating and formation costs of $805,330, franchise tax expense of $56,491, and income tax expense of $429,423[134] Cash Flow and Working Capital - For the six months ended June 30, 2024, net cash used in operating activities was $895,262, compared to $1,315,001 for the same period in 2023, indicating a decrease of approximately 32%[135] - Net cash provided by investing activities for the six months ended June 30, 2024, was $3,260,369, a significant decrease from $100,883,237 in 2023, reflecting a decline of over 96%[137] - As of June 30, 2024, the company had a working capital deficit of $1,992,535 and an accumulated deficit of $6,596,081, highlighting ongoing financial challenges[141] Operational Losses - The company incurred a loss from operations of $1,006,387 for the six months ended June 30, 2024, compared to a loss of $861,821 in 2023, representing an increase in operational losses of approximately 17%[141] - The company has not generated any revenues to date and does not expect to do so until after the completion of its initial business combination[132] Business Combination Plans - The company plans to consummate a business combination with SBC Medical Group Holdings Incorporated, with an aggregate value of $1,200,000,000, subject to adjustments based on SBC's net working capital and outstanding indebtedness[123] - The company extended the date to consummate a business combination from February 9, 2024, to November 9, 2024, with no additional amount to be paid by the Sponsor into the Trust Account[120] - The company has until November 9, 2024, to consummate a business combination, with potential mandatory liquidation if not completed by that date, raising substantial doubt about its ability to continue as a going concern[141] Trust Account and Shareholder Activity - The company has approximately $17.9 million remaining in the trust account after stockholders redeemed an aggregate of 273,334 shares of Class A common stock during the Second Special Meeting[120] - The company entered into a non-redemption agreement to acquire 1,500,000 to 1,700,000 shares of Class A common stock, with the Holder purchasing 1,460,771 shares as of June 30, 2024, not meeting the minimum share requirement for incentive shares[119] - The company plans to use funds held in the trust account primarily to complete its initial business combination and may withdraw interest to pay taxes[140] - The company expects that the interest earned on the trust account will be sufficient to cover its tax obligations[140] Initial Public Offering - The initial public offering generated gross proceeds of $115,000,000 from the sale of 11,500,000 units, including an over-allotment option[138] - The underwriters received a cash underwriting discount of $1,955,000 upon the closing of the initial public offering, with additional deferred fees of $4,025,000 payable upon completion of a business combination[146] Administrative Expenses - For the three and six months ended June 30, 2024, the company incurred $30,000 and $60,000, respectively, in administrative support fees to its sponsor[145]