SBC Medical Group Holdings Incorporated(SBC) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This part details SBC Medical Group Holdings Incorporated's unaudited financial statements and management's analysis ITEM 1. FINANCIAL STATEMENTS 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 This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheets | 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] - Total stockholders' equity increased by approximately $49.6 million, largely due to an increase in retained earnings and additional paid-in capital[21] Consolidated Statements of Operations and Comprehensive Income This section details the company's financial performance, including revenues, expenses, and net income Consolidated Statements of Operations and Comprehensive Income | 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] - 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] Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in the company's equity, including common stock, retained earnings, and capital Consolidated Statements of Changes in Stockholders' Equity | 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] - The Company repurchased 512,809 shares of common stock for $2,415,262 during the six months ended June 30, 2025[26] Consolidated Statements of Cash Flows This section details cash flows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows | 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] - 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] - 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] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and additional information for the financial statements NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS 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][35][37] - 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][208] - 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][45][47] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines key accounting principles, methods, 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][49][50] - The Company reports AHH and its subsidiaries on a three-month calendar lag, with exceptions for significant transactions[51] - 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][59] - 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] - 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][104][114] NOTE 3 — VARIABLE INTEREST ENTITY This note details the consolidation of Aikawa Medical Management, Inc. as the Company's Variable Interest Entity - 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] AMM Financials | 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 | 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 | 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 This note provides a breakdown of prepaid expenses and other current assets, highlighting changes over the period Prepaid Expenses and Other Current Assets | 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] NOTE 5 — FINANCE LEASE RECEIVABLES This note details the Company's finance lease receivables, including future payments and unearned interest Finance Lease Receivables | 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] NOTE 6 — PROPERTY AND EQUIPMENT, NET This note presents the net value of property and equipment, including depreciation and impairment Property and Equipment, Net | 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] - 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] NOTE 7 — CRYPTOCURRENCIES This note outlines the Company's cryptocurrency holdings, cost basis, fair value, and unrealized gains Cryptocurrencies | 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] NOTE 8 — INTANGIBLE ASSETS, NET This note details the net value of intangible assets, including amortization and impairment Intangible Assets, Net | 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] - 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] NOTE 9 — LONG-TERM INVESTMENTS, NET This note provides information on the Company's long-term investments in private and public entities Long-Term Investments, Net | 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] - 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][154] NOTE 10 — OTHER ASSETS This note details other assets, including security deposits, life insurance, and long-term loans Other Assets | 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] NOTE 11 — ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES This note provides a breakdown of accrued liabilities and other current liabilities, including tax and wages Accrued Liabilities and Other Current Liabilities | 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] NOTE 12 — LONG-TERM LOANS This note details the Company's long-term loans, including amounts, portions, and interest rates Long-Term Loans | 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] - 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] NOTE 13 — LEASES — AS A LESSEE This note outlines the Company's lease obligations as a lessee, including finance and operating costs Lease Costs | 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 | 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] - 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] NOTE 14 — INCOME TAXES This note details the Company's income tax expense, effective tax rates, and jurisdictions - 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][170][173][174] Income Tax Expense | 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 | 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] - 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][256] NOTE 15 — SHAREHOLDERS' EQUITY This note provides details on the Company's common stock, share repurchases, and warrants - As of June 30, 2025, the Company had 103,881,251 shares issued and 103,098,442 shares outstanding[179] - In February 2025, the Company issued 860,435 common shares as incentive shares to Mehana Capital LLC[177] - 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] Warrants Activity | 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 This note breaks down the Company's total revenues by service streams and highlights changes Revenue Stream | 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] - Procurement revenue and rental services revenue showed growth, with rental services nearly doubling for the three-month period[182] NOTE 17 — RELATED PARTY TRANSACTIONS This note discloses material transactions and balances with related parties, including Medical Corporations - 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] Related Party Revenue | 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 | 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] - 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] NOTE 18 — SEGMENT REPORTING This note clarifies the Company operates as a single reporting segment for operational decisions - 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][198] - Substantially all revenues are derived from providing comprehensive management services to Medical Corporations (MCs) and their clinics[197] NOTE 19 — COMMITMENT This note discloses a subsidiary's guarantee of the CEO's debt, with no liability recorded - 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] NOTE 20 — SUBSEQUENT EVENTS This note reports significant events after the reporting period, including legislation, acquisitions, and shares - 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] - 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] - 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] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 This section provides an overview of the Company's business combination, operations, and 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] - 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][209] - 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] Financial Overview This section summarizes key financial metrics and outlines the Company's mission Financial Overview | 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] Results of Operations This section analyzes the Company's financial performance, comparing revenues, costs, and expenses Comparison of Results of Operations for the Three Months Ended June 30, 2025 and 2024 This section compares the Company's financial results for the three months ended June 30, 2025, and 2024 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][228][229][234][236] - 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] Revenues, Net This section analyzes the changes in net revenues across various service streams for the three-month period 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] - 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] - Rental services revenue increased by 98.40% due to demand for medical equipment from new and existing clinics[225] Cost of Revenues This section discusses the factors influencing the cost of revenues for the three months ended June 30, 2025 - 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][227] Gross Profit This section analyzes the changes in gross profit, primarily driven by shifts in high-margin revenue streams - 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][228] Operating Expenses This section details changes in operating expenses, including salaries, consulting, advertising, and office 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][230][231] - Salaries and welfare decreased by 14.06% due to the disposal of a subsidiary and reduced compensation for the CEO[232] Other Income (Expenses) This section reviews other income and expenses, including interest, foreign exchange, and cryptocurrency 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] Income Tax Expense This section analyzes income tax expense and effective tax rate, highlighting deferred taxes and JPY - 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] - 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] Net Income This section reports the net income for the three months ended June 30, 2025, and its year-over-year change - 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] Comparison of Results of Operations for the Six Months Ended June 30, 2025 and 2024 This section compares the Company's financial results for the six months ended June 30, 2025, and 2024 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][248][250][255][257] - 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] Revenues, Net This section analyzes the changes in net revenues across various service streams for the six-month period 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] - 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] - Rental services revenue increased by 76.66% due to increased demand for medical equipment from new and existing clinics[245] Cost of Revenues This section discusses the factors influencing the cost of revenues for the six months ended June 30, 2025 - 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][247] Gross Profit This section analyzes the changes in gross profit, primarily driven by shifts in high-margin revenue streams - 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][248] Operating Expenses This section details changes in operating expenses, including salaries, consulting, advertising, and office 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][251][252] - Salaries and welfare decreased by 8.20% due to the disposal of a subsidiary and reduced CEO compensation[253] Other Income (Expenses) This section reviews other income and expenses, including interest, foreign exchange, and life insurance 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] - Increased foreign exchange losses from intercompany loan balances and a $111,632 gain from cryptocurrency fair value changes also contributed[254] Income Tax Expense This section analyzes income tax expense and effective tax rate, highlighting deferred taxes and JPY - 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] - 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] Net Income This section reports the net income for the six months ended June 30, 2025, and its year-over-year change - 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] Liquidity and Capital Resources This section assesses the Company's ability to meet obligations, including cash and capital deployment Liquidity and Capital Resources | 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] - 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][261] - The Company plans to deploy capital for investment opportunities aligned with its growth strategy in the global medical aesthetics market[262] Cash Flows for the six months ended June 30, 2025 and 2024 This section analyzes cash flows from operating, investing, and financing activities 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][267] - 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][269] - 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] Recent Developments This section highlights key events after the reporting period, including legislation and repurchases - 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] - The Company completed its $5 million share repurchase program on July 22, 2025, repurchasing a total of 1,034,308 shares[272][203] Contractual Obligations This section outlines the Company's future payment commitments under leases and long-term loans Contractual Obligations - Lease Payments | 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 | Contractual Obligations - Principal Repayment | 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] - Future minimum bank and other borrowing payments total $7,100,926, with a substantial portion ($6,999,688) due in 2027[277] Off-Balance Sheet Arrangements (Off-Balance Sheet Transactions) This section confirms the absence of any off-balance sheet arrangements as of the reporting dates - There were no off-balance sheet arrangements as of June 30, 2025, and December 31, 2024[278] Foreign Exchange Rate Risk This section discusses the Company's exposure to foreign currency exchange rate 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] Critical Accounting Policies and Estimates This section addresses significant accounting policies and estimates requiring management judgment - 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][281] Emerging Growth Company This section explains the Company's 'emerging growth company' status and reporting exemptions - 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] - 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] Smaller Reporting Company This section details the Company's 'smaller reporting company' status and disclosure obligations - The Company is also a 'smaller reporting company,' which allows for reduced disclosure obligations, including providing only two years of audited financial statements[284] - 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] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 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] ITEM 4. Controls and Procedures 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] - Despite the material weaknesses, management believes the unaudited consolidated financial statements fairly present the Company's financial condition and results of operations[287] - 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][291] PART II - OTHER INFORMATION This part includes legal proceedings, risk factors, equity sales, and other disclosures ITEM 1. Legal Proceedings 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] - There are no known legal proceedings, investigations, or claims with a more than remote possibility of materially adversely affecting the business[293] ITEM 1A. Risk Factors 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] - No material changes to the risk factors have been identified since the filing of the Annual Report[294] - Additional unknown or currently immaterial risk factors could emerge and adversely affect the business[295] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's share repurchase activities during the three months ended June 30, 2025, under its publicly announced program Unregistered Sales of Equity Securities and Use of Proceeds | 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][203] ITEM 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[297] ITEM 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable[298] ITEM 5. Other Information 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] - The plan is effective from September 22, 2025, to September 22, 2026, or until all shares are sold[299] ITEM 6. Exhibits 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] 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]