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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, 2026

☐ 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

     88-1192288

     (State or Other Jurisdiction of
Incorporation or Organization)

     (I.R.S. Employer
Identification Number)

     200 Spectrum Center Dr., STE 300 
Irvine, California

     92618

     (Address of Principal Executive Offices)

     (Zip Code)

949-593-0250

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	SBC	The Nasdaq Stock Market LLC
Redeemable Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share	SBCWW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 6, 2026, the registrant had 102,846,943 shares of common stock outstanding, after deducting 1,034,308 shares of treasury stock. An additional 270,000 shares are held by a wholly-owned subsidiary; such shares are outstanding but are not entitled to vote pursuant to Section 160(c) of the Delaware General Corporation Law and are presented as treasury stock in the consolidated balance sheet pursuant to ASC 810-10-45-5.

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Website and Social Media Disclosure

SBC Medical Group Holdings Incorporated uses its website (https://sbc-holdings.com/en) to distribute company information and makes available free of charge a variety of information for investors, including our filings with the Securities and Exchange Commission (“SEC”), as soon as reasonably practicable after electronically filing that material with, or furnishing it, to the SEC. The information that we post on our website may be deemed material. Accordingly, investors should monitor our website, in addition to following our press releases, filings with the SEC, and public conference calls and webcasts. In addition, investors may opt in to automatically receive email alerts and other information about us when enrolling their email address by visiting the “Email Alerts” section under the “Resources” tab on our website. We do not incorporate the information contained on, or accessible through, our website or related social media channels into this Quarterly Report on Form 10-Q (“Quarterly Report”).

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions of the management of the Company. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations.

Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” or similar expressions, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:

•

future financial performance of the Company;

•

changes in the market and level of demand for our products and services;

•

the expansion plans and opportunities of the Company;

•

political, economic or industry conditions, or conditions affecting the financial and capital markets, including the effect of trade policy;

•

the impact of geo-political conditions, including revolution, insurgency, terrorism or war, including those arising out of the ongoing conflicts in the Middle East and Eastern Europe;

•

the ability of the Company to access additional capital;

•

the ability of the Company to maintain the listing of the Company’s common stock on Nasdaq;

•

public securities’ potential liquidity and trading;

•

the impact from the outcome of any known and unknown litigation;

•

the ability of the Company to forecast and maintain an adequate rate of revenue growth and appropriately plan its expenses;

•

expectations regarding future expenditures of the Company;

•

the future mix of revenue and effect on gross margins of the Company;

•

the attraction and retention of qualified directors, officers, employees and key personnel of the Company;

•

the ability to protect and enhance the Company’s corporate reputation and brand;

•

expectations concerning the relationships and actions of the Company and its affiliates with third parties;

•

the impact from future regulatory, judicial, and legislative changes in the Company’s industry;

•

the ability to locate and acquire complementary products or product candidates and integrate those into the Company’s business;

•

future arrangements with, or investments in, other entities or associations;

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•

intense competition and competitive pressures from other companies in the industries in which the Company operates; and

•

other factors detailed under “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on March 27, 2026 (the “Annual Report”).

These forward-looking statements are based on information available as of the date of this Quarterly Report, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements.

New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can the Company assess the impact of all such risk factors on the business of the Company, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. As a result of a number of known and unknown risks and uncertainties, the actual results or performance of the Company may be materially different from those expressed or implied by these forward-looking statements. These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Quarterly Report are more fully described elsewhere in this Quarterly Report and in the Annual Report, particularly in “Part I, Item 1A. Risk Factors” of the Annual Report.

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SBC Medical Group Holdings Incorporated

FORM 10-Q FOR THE QUARTER ENDED

March 31, 2026

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		Page

PART I - FINANCIAL INFORMATION		F-1

Item 1.	Financial Statements	F-1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9

Item 4.	Controls and Procedures	9

PART II - OTHER INFORMATION		10

Item 1.	Legal Proceedings	10

Item 1A.	Risk Factors	10

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	10

Item 3.	Defaults Upon Senior Securities	10

Item 4.	Mine Safety Disclosures	10

Item 5.	Other Information	10

Item 6.	Exhibits	11

Signatures		13

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SBC MEDICAL GROUP HOLDINGS INCORPORATED

INDEX TO FINANCIAL STATEMENTS


		Page

Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025 (Unaudited)		F-2

Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2026 and 2025 (Unaudited)		F-4

Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2026 and 2025 (Unaudited)		F-5

Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025 (Unaudited)		F-6

Notes to Unaudited Consolidated Financial Statements		F-8

F-1

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

UNAUDITED CONSOLIDATED BALANCE SHEETS


	March 31, 2026		December 31, 2025
ASSETS
Current assets:
Cash and cash equivalents	$	167,305,095	$	163,773,838
Accounts receivable		2,980,193		2,388,021
Accounts receivable – related parties		33,784,532		27,511,730
Inventories		2,323,880		2,792,617
Short-term investments – related parties		313,865		319,193
Finance lease receivables, current – related parties		13,326,150		12,832,355
Income tax recoverable		1,173,913		1,175,510
Customer loans receivable, current		6,659,837		8,705,999
Prepaid expenses and other current assets		10,912,717		11,724,852
Total current assets		238,780,182		231,224,115

Non-current assets:
Property and equipment, net		7,287,369		7,539,392
Intangible assets, net		47,152,285		47,742,888
Long-term investments, net		1,198,583		1,299,366
Equity method investments		20,312,642		20,312,642
Goodwill, net		15,398,049		15,432,061
Finance lease receivables, non-current – related parties		12,548,800		13,746,513
Operating lease right-of-use assets		11,084,198		8,366,569
Finance lease right-of-use assets		392,118		450,874
Deferred tax assets		4,975,629		4,014,294
Customer loans receivable, non-current		3,454,969		4,824,977
Long-term prepayments		705,430		393,270
Long-term investments in MCs – related parties		17,539,564		17,837,293
Other assets		7,189,758		7,263,692
Total non-current assets		149,239,394		149,223,831
Total assets	$	388,019,576	$	380,447,946

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	19,168,072	$	16,988,384
Accounts payable – related parties		527,624		651,463
Bank and other borrowings, current		8,987,118		9,099,046
Advances from customers		1,011,249		1,415,762
Advances from customers – related parties		4,217,057		5,357,221
Income tax payable		8,450,440		8,821,853
Operating lease liabilities, current		5,521,371		4,416,960
Finance lease liabilities, current		118,297		132,946
Accrued liabilities and other current liabilities		11,896,371		11,544,695
Due to related party		2,670,016		2,692,673
Total current liabilities		62,567,615		61,121,003

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

UNAUDITED CONSOLIDATED BALANCE SHEETS — (Continued)


	March 31, 2026			December 31, 2025
Non-current liabilities:
Bank and other borrowings, non-current		31,447,900			33,734,438
Deferred tax liabilities		16,215,816			16,374,832
Operating lease liabilities, non-current		5,731,514			4,136,257
Finance lease liabilities, non-current		93,600			116,527
Other liabilities		1,578,954			1,660,183
Total non-current liabilities		55,067,784			56,022,237
Total liabilities		117,635,399			117,143,240

Commitments and contingencies (Note 19)

Stockholders’ equity:
Preferred stock ($0.0001 par value, 20,000,000 shares authorized; no shares issued and outstanding as of March 31, 2026 and December 31, 2025)		—			—
Common stock ($0.0001 par value, 400,000,000 shares authorized, 103,881,251 shares issued, and 102,576,943 shares outstanding as of March 31, 2026 and December 31, 2025)		10,388			10,388
Additional paid-in capital		72,867,424			72,867,424
Treasury stock (at cost, 1,304,308 shares as of March 31, 2026 and December 31, 2025)		(7,749,997	)		(7,749,997	)
Retained earnings		251,756,691			240,448,620
Accumulated other comprehensive loss		(61,541,134	)		(57,294,239	)
Total SBC Medical Group Holdings Incorporated stockholders’ equity		255,343,372			248,282,196
Non-controlling interests		15,040,805			15,022,510
Total stockholders’ equity		270,384,177			263,304,706
Total liabilities and stockholders’ equity	$	388,019,576		$	380,447,946

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-3

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


	For the Three Months Ended March 31,
	2026			2025
Revenues, net – related parties	$	37,955,060		$	45,257,145
Revenues, net		5,105,502			2,071,556
Total revenues, net		43,060,562			47,328,701
Cost of revenues (including cost of revenues from related parties of $124,389 and $3,456,928 for the three months ended March 31, 2026 and 2025, respectively)		12,713,828			9,595,617
Gross profit		30,346,734			37,733,084

Operating expenses:
Selling, general and administrative expenses (including selling, general and administrative expenses from related parties of $343,393 and nil for the three months ended March 31, 2026 and 2025, respectively)		12,626,719			13,531,010
Total operating expenses		12,626,719			13,531,010

Income from operations		17,720,015			24,202,074

Other income (expenses):
Interest income		121,369			55,333
Interest expense		(114,806	)		(6,207	)
Foreign currency exchange gain (loss), net		861,678			(1,058,526	)
Other income		491,564			151,328
Other expenses		(223,209	)		(638,733	)
Gain on redemption of life insurance policies		—			8,746,138
Total other income		1,136,596			7,249,333

Income before income taxes		18,856,611			31,451,407

Income tax expense		7,527,591			9,959,457

Net income		11,329,020			21,491,950
Less: net income (loss) attributable to non-controlling interests		20,949			(10,496	)
Net income attributable to SBC Medical Group Holdings Incorporated	$	11,308,071		$	21,502,446

Other comprehensive income (loss):
Foreign currency translation adjustment	$	(4,249,549	)	$	9,808,327
Total comprehensive income		7,079,471			31,300,277
Less: comprehensive income (loss) attributable to non-controlling interests		18,295			(36,832	)
Comprehensive income attributable to SBC Medical Group Holdings Incorporated	$	7,061,176		$	31,337,109

Net income per share attributable to SBC Medical Group Holdings Incorporated
Basic and diluted	$	0.11		$	0.21
Weighted average shares outstanding
Basic and diluted		102,576,943			103,276,637

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-4

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025


	Common Stock				Additional Paid-in		Treasury Stock						Retained		Accumulated Other Comprehensive			Total SBC Medical Group Holdings Incorporated Stockholders’			Non- controlling			Total Stockholders’
	Number		Amount		Capital		Number			Amount			Earnings		Loss			Equity			Interests			Equity
Balance as of December 31, 2025		103,881,251	$	10,388	$	72,867,424		(1,304,308	)	$	(7,749,997	)	$	240,448,620	$	(57,294,239	)	$	248,282,196		$	15,022,510		$	263,304,706
Net income		—		—		—		—			—			11,308,071		—			11,308,071			20,949			11,329,020
Foreign currency translation adjustment		—		—		—		—			—			—		(4,246,895	)		(4,246,895	)		(2,654	)		(4,249,549	)
Balance as of March 31, 2026		103,881,251	$	10,388	$	72,867,424		(1,304,308	)	$	(7,749,997	)	$	251,756,691	$	(61,541,134	)	$	255,343,372		$	15,040,805		$	270,384,177


	Common Stock				Additional Paid-in			Treasury Stock						Retained		Accumulated Other Comprehensive			Total SBC Medical Group Holdings Incorporated Stockholders’		Non- controlling			Total Stockholders’
	Number		Amount		Capital			Number			Amount			Earnings		Loss			Equity		Interests			Equity
Balance as of December 31, 2024		103,020,816	$	10,302	$	62,513,923			(270,000	)	$	(2,700,000	)	$	189,463,007	$	(54,178,075	)	$	195,109,157	$	(86,999	)	$	195,022,158
Issuance of common stock as incentive shares		860,435		86		(86	)		—			—			—		—			—		—			—
Net income (loss)		—		—		—			—			—			21,502,446		—			21,502,446		(10,496	)		21,491,950
Foreign currency translation adjustment		—		—		—			—			—			—		9,834,663			9,834,663		(26,336	)		9,808,327
Balance as of March 31, 2025		103,881,251	$	10,388	$	62,513,837			(270,000	)	$	(2,700,000	)	$	210,965,453	$	(44,343,412	)	$	226,446,266	$	(123,831	)	$	226,322,435

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Three Months Ended March 31,
	2026			2025
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	11,329,020		$	21,491,950
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		670,434			628,304
Non-cash lease expense		1,420,824			985,184
Provision for (reversal of) credit losses		(31,353	)		25,102
Fair value change of long-term investments		80,301			140,581
Gain on redemption of life insurance policies		—			(8,746,138	)
Gain on disposal of property and equipment		—			(12,375	)
Deferred income taxes		(1,086,473	)		7,016,227
Changes in operating assets and liabilities:
Accounts receivable		(627,606	)		(147,925	)
Accounts receivable - related parties		(6,821,339	)		(295,505	)
Inventories		442,643			(124,279	)
Finance lease receivables - related parties		264,252			(2,779,253	)
Customer loans receivable		3,270,347			4,501,760
Prepaid expenses and other current assets		629,253			(3,150,243	)
Long-term prepayments		31,592			98,164
Other assets		(66,265	)		318,351
Accounts payable		2,484,437			3,235,017
Accounts payable - related parties		(114,689	)		441,481
Notes payables - related parties		—			(548,077	)
Advances from customers		(386,997	)		(328,791	)
Advances from customers - related parties		(1,066,776	)		(2,114,829	)
Income tax payable		(245,955	)		(17,635,239	)
Operating lease liabilities		(1,424,716	)		(1,036,605	)
Accrued liabilities and other current liabilities		543,412			63,764
Other liabilities		(62,408	)		(98,005	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		9,231,938			1,928,621

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(124,995	)		(253,725	)
Prepayments for property and equipment		(423,870	)		(501,253	)
Purchase of long-term investments		—			(635,145	)
Long-term loans to others		—			(12,783	)
Repayments from related parties		—			70,000
Repayments from others		20,840			30,680
Proceeds from disposal of property and equipment		—			323,419
NET CASH USED IN INVESTING ACTIVITIES		(528,025	)		(978,807	)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from related parties		—			15,000
Repayments of bank and other borrowings		(1,782,479	)		(55,873	)
Repayments of finance lease liabilities		(37,278	)		(223,454	)
Repayments to related parties		(22,657	)		(16,053	)
NET CASH USED IN FINANCING ACTIVITIES		(1,842,414	)		(280,380	)

Effect of exchange rate changes		(3,330,242	)		6,342,297

NET CHANGE IN CASH AND CASH EQUIVALENTS		3,531,257			7,011,731

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)


	For the Three Months Ended March 31,
	2026		2025
CASH AND CASH EQUIVALENTS AS OF THE BEGINNING OF THE PERIOD		163,773,838		125,044,092
CASH AND CASH EQUIVALENTS AS OF THE END OF THE PERIOD	$	167,305,095	$	132,055,823

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expense	$	114,806	$	6,207
Cash paid for income taxes, net	$	8,848,074	$	20,577,290

NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment transferred from long-term prepayments	$	68,691	$	125,287
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	19,664	$	102,599
Finance lease right-of-use assets obtained in exchange for finance lease liabilities	$	—	$	581,129
Remeasurement of operating lease liabilities and right-of-use assets due to lease modifications	$	4,260,931	$	358,358
Payables to related parties in connection with loan services provided	$	—	$	1,922,224
Issuance of common stock as incentive shares	$	—	$	86
Redemption proceeds receivable on life insurance policies	$	—	$	17,735,717

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS

Business Overview

SBC Medical Group Holdings Incorporated was originally incorporated under the laws of the state of Delaware on March 11, 2022 as a special purpose acquisition corporation under the name Pono Capital Two, Inc. (“Pono”) for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

SBC Medical Group, Inc. (formerly known as SBC Medical Group Holdings Incorporated, “Legacy SBC”), through its consolidated subsidiaries and variable interest entity (“VIE”), is principally engaged in the medical industry and provides comprehensive management services to the medical corporations and their clinics, including but not limited to licensure of the use of the trademark and brand name of “Shonan Beauty Clinic”, sales of medical equipment, medical consumables procurement services, and management of customer loyalty program, etc.

Reverse Recapitalization

On September 17, 2024, Pono consummated the merger transaction pursuant to the agreement by and among Pono, Pono Two Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of Pono, and Legacy SBC (the “Merger Agreement”), whereby Merger Sub merged with and into Legacy SBC, the separate corporate existence of Merger Sub ceased and Legacy SBC survived the merger as a wholly owned subsidiary of Pono (the “Merger”). The Merger and the other transactions contemplated by the Merger Agreement are collectively referred to as the “Business Combination.” In connection with the closing of the Business Combination, Pono changed its name to “SBC Medical Group Holdings Incorporated” and Legacy SBC changed its name to “SBC Medical Group, Inc.” and the existing equity holders of Legacy SBC exchanged their equity interests of Legacy SBC for equity interests of Pono.

On September 17, 2024, in connection with the closing of the Business Combination, the Company received net cash of $11,707,417. The Company also assumed $416,799 in prepaid expenses and other current assets, $1,108 in accounts payable, $14,431 in income tax payable, $2,700,000 in convertible note payable, which was subsequently converted to 270,000 shares upon the closing of the Business Combination, $1,000,789 in accrued liabilities and other current liabilities, common stock of $508 and additional paid-in capital of $8,407,380.

The total net cash proceeds from the Business Combination of $11,707,417 were available to repay certain indebtedness, transaction costs and for general corporate purposes, which primarily consisted of investment banking, legal, accounting, and other professional fees as follows:


Cash—Pono working capital cash	$	766,735
Cash—Pono trust		16,731,409
Less: transaction costs and advisory fees		5,790,727
Net proceeds from Pono Merger	$	11,707,417

The Business Combination was accounted for as a reverse recapitalization under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). Legacy SBC was determined to be the accounting acquirer and Pono was treated as the acquired company for financial reporting purposes. Accordingly, the financial statements of the combined company represent a continuation of the financial statements of Legacy SBC.

Unless the context indicates otherwise, any references herein to the “Company”, “we”, “us” and “our” refer to 1) Legacy SBC and its consolidated subsidiaries and VIE, prior to the consummation of the Business Combination, and to 2) SBC Medical Group Holdings Incorporated (formerly Pono Capital Two, Inc.) and its consolidated subsidiaries and VIE, following the Business Combination. Reference herein to “Pono” refers to Pono Capital Two, Inc. prior to the consummation of the Business Combination.

Reorganization

In June 2020 and April 2022, SBC Inc., a company incorporated in Japan in June 2007, and Advice Innovation Co., Ltd., a company incorporated in Japan in December 2018, were merged with and into SBC Medical Group Co., Ltd. (“SBC Japan”), respectively, with SBC Japan being the surviving entity in such mergers. SBC Japan is a company incorporated in Japan in September 2017 and previously known as Aikawa Medical Management Co., Ltd.

In April 2023, SBC Japan acquired 100% equity interest of L’Ange Cosmetique Co., Ltd. (“L’Ange Sub”), a company incorporated in Japan in June 2003, and Shobikai Co., Ltd. (“Shobikai Sub”), a company incorporated in Japan in June 2014, through share exchange. As a result, L’Ange Sub and Shobikai Sub became wholly owned subsidiaries of SBC Japan.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS (cont.)

In August 2023, SBC Japan and L’Ange Sub disposed of their entire equity interest in Ai Inc. and Lange Inc., respectively, both incorporated in the Federated States of Micronesia in January 2022, for cash. As a result, Ai Inc. and Lange Inc. ceased to be subsidiaries of the Company, with the related investment in capital being treated as a deemed distribution and the disposal proceeds treated as a deemed contribution.

In September 2023, Legacy SBC acquired 100% equity interest of SBC Japan through share exchange with one share of its common stock. As a result, SBC Japan became a wholly owned subsidiary of Legacy SBC.

The above reorganization has been accounted for as a recapitalization among entities under common control since the same controlling shareholder controlled these entities before and after the reorganization. The consolidation of the Company has been accounted for at historical cost and prepared on the basis as if the transactions had become effective as of the beginning of the earliest period presented in the accompanying unaudited consolidated financial statements.

Corporate Structure

As of March 31, 2026, the Company’s major subsidiaries and VIE are as follows:


Name	Place of Incorporation	Date of Incorporation or Acquisition	Percentage of Ownership	Principal Activities
Subsidiaries
SBC Medical Group, Inc.	United States	January 20, 2023	100%	Investment holding
SBC Medical Group Co., Ltd.*	Japan	June 18, 2003	100%	Franchising, procurement, management, rental and marketing services
Liesta Co., Ltd.	Japan	December 15, 2020	100%	Real estate brokerage services
SBC Sealane Co., Ltd.	Japan	June 7, 2022	100%	Leasehold improvement services
Medical Payment Co., Ltd.	Japan	June 30, 2022	75%	Loan services
SBC Medical Consulting Co., Ltd.	Japan	August 2, 2022	100%	Human resource services
MB career lounge Co., Ltd.	Japan	July 17, 2025	100%	Management supporting services
Waqoo, Inc.	Japan	December 19, 2025	54%	Medical support and direct-to-consumer services
Cell Pro Japan Co., Ltd.	Japan	December 19, 2025	54%	Regenerative medicine, contract review and processing, and cosmetics and raw materials business
SBC Medical M&A Advisory Co., Ltd.	Japan	January 7, 2026	100%	M&A brokerage and financial advisory services
Shoubikai Medical Vietnam Co., Ltd.	Vietnam	August 29, 2013	100%	Cosmetic clinic
SBC Irvine, LLC	United States	December 27, 2018	100%	Management services for cosmetic clinic in the United States
SBC Healthcare Inc.	United States	December 16, 2019	100%	Management services for cosmetic clinic in the United States
Aesthetic Healthcare Holdings Pte. Ltd.	Singapore	November 20, 2024	100%	Investment holding
Wen & Weng Family Clinic Pte. Ltd. **	Singapore	November 20, 2024	100%	General outpatient medical services
Wen & Weng Medical Group Pte. Ltd. **	Singapore	November 20, 2024	100%	Healthcare-related businesses
Rochor Clinic Pte. Ltd. **	Singapore	November 20, 2024	100%	General outpatient medical services
Dermasolutions Pte. Ltd. **	Singapore	November 20, 2024	100%	Cosmetic and dermatological treatments and products
Dermasolutions Services Pte. Ltd. **	Singapore	November 20, 2024	100%	Cosmetic services and products
SBC MEDICAL APAC PTE. LTD.	Singapore	March 26, 2025	100%	Asia-Pacific regional headquarters
VIE
Aikawa Medical Management, Inc.	United States	May 10, 2017	VIE	Management services for cosmetic clinic in the United States

* In January 2025, the Company effected a merger in which SBC Japan and Shobikai Sub merged with and into L’Ange Sub. As a result, the separate corporate existence of SBC Japan and Shobikai Sub ceased, with L’Ange Sub continuing as the surviving company. Following the merger, L’Ange Sub changed its name to SBC Medical Group Co., Ltd., which is herein referred to as “SBC Japan.” In January 2026, the Company effected a merger in which SBC Marketing Co., Ltd. merged with and into SBC Japan. As a result, the separate corporate existence of SBC Marketing Co., Ltd. ceased, with SBC Japan continuing as the surviving company.

** Subsidiaries of Aesthetic Healthcare Holdings Pte. Ltd. (“AHH”)

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

The unaudited consolidated financial statements do not include all of the information and disclosure required by U.S. GAAP for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2025.

The unaudited consolidated financial statements include the financial statements of the Company, its subsidiaries, and consolidated VIE for which the Company is the primary beneficiary. The results of the subsidiaries are consolidated from the date on which the Company obtained control and continue to be consolidated until the date that such control ceases. All significant transactions and balances among the Company’s subsidiaries, including the VIE, have been eliminated upon consolidation.

Reporting Lag

The Company reports AHH and its subsidiaries, which were acquired in November 2024, and Waqoo, Inc. and its subsidiary, Cell Pro Japan Co., Ltd., which were acquired in December 2025, on a three-month calendar lag allowing for the timely preparation of financial statements.

The Company recognizes its portion of the earnings or losses for its equity method investment in OT Midco Holdings, LLC (“OT Midco”) on a three-month calendar lag to ensure consistency and timely filing of the Company's financial statements. See Note 4 for further information with respect to the investment in OT Midco.

This three-month reporting lag is with the exception of significant transactions or events that occur during the intervening period, if any.

Variable Interest Entities

In accordance with ASC Topic 810, “Consolidation”, the Company identifies its variable interests and analyzes to determine if the entity in which the Company has a variable interest is a VIE. Determination if a variable interest is a VIE includes both quantitative and qualitative consideration. For those entities determined to be VIEs within the scope of the VIE model, a further quantitative and qualitative analysis is performed to determine if the Company is deemed the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant.

The Company would consolidate those entities in which it is determined to be the primary beneficiary. The Company based its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and the relevant development, operating management and financial agreements.

The Company evaluates its relationship with its VIE on an ongoing basis to determine whether it continues to be the primary beneficiary of its consolidated VIE, or whether it has become the primary beneficiary of the VIE it does not consolidate.

Voting Model

If a legal entity fails to meet any of the three characteristics of a VIE, we then evaluate such entity under the voting model. Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting rights and that other equity holders do not have substantive participating rights.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Assessment of Medical Corporations in Japan

SBC Japan is designated as a medical service corporation (the “MSC”) to provide services to the Medical Corporations (the “MCs”) in Japan. To maintain and strengthen the business relationship, the Company has acquired equity interests in the following MCs throughout the years.


Name of the MC	Percentage of Equity Interest Acquired			Percentage of Voting Interest Held
Medical Corporation Shobikai		100	%		0	%
Medical Corporation Kowakai		100	%		0	%
Medical Corporation Nasukai		100	%		0	%
Medical Corporation Aikeikai		100	%		0	%
Medical Corporation Jukeikai		100	%		0	%
Medical Corporation Ritz Cosmetic Surgery		100	%		0	%

As non-profit organizations, MCs are required to comply with the medical-related laws and regulations of the Japanese Medical Care Act (the “Act”, “Medical Care Act”). In accordance with the Act, the highest authority of MCs is its general meeting of members (the “Members”), with each Member having one voting right. The Company, through the MSC, has no right to elect the Members, no decision-making ability and no right to dividend or any profit distribution, but has the right to receive distribution of the residual assets of the MCs.

Since the not-for-profit entities scope exception to the variable interest model is applicable to the MCs, the Company evaluates its business relationship, franchisor-franchisee agreements and/or services agreements with the MCs in Japan under the voting model. The Company has concluded that consolidation of the MCs is not appropriate for the periods presented as it does not have a majority voting interest in the Members of the MCs nor does it have a controlling financial interest in the MCs. The equity interests in the MCs held by the Company are recorded as long-term investments in MCs — related parties on the unaudited consolidated balance sheets. The transactions between the MCs and the Company are disclosed in Note 17 — Related Party Transactions.

(b) Foreign Currency

The Company maintains its books and records in its local currency, mainly Japanese YEN (“JPY” or “¥”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited statements of operations.

The reporting currency of the Company is the United States Dollars (“US$” or “$”), and the accompanying financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translations of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive loss within the unaudited statements of changes in stockholders’ equity.

Translation of amounts from local currency of the Company into US$1 has been made at the following exchange rates:


	March 31, 2026		March 31, 2025
Current JPY:US$1 exchange rate		159.3040		149.4840
Average JPY:US$1 exchange rate		156.9101		152.5417

Non-controlling interests in the unaudited consolidated balance sheets represent the portion of the equity in the subsidiaries not attributable, directly or indirectly, to the Company. The portion of the income or loss applicable to the non-controlling interests in subsidiaries is also separately reflected in the unaudited statements of operations.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(d) Use of Estimates

In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the unaudited consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, useful lives and impairment of long-lived assets, impairment of goodwill, impairment of long-term investments in MCs — related parties, valuation allowance of deferred tax assets, uncertain income tax positions, the recognition and measurement of impairment of investments in securities, allowance for credit losses, implicit interest rate of operating and finance leases, and liability associated with unredeemed loyalty points. Management bases its estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis. Actual results could differ from those estimates.

(e) Reclassification

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings or financial position.

(f) Customer Loans Receivable

In February 2023, the Company started to provide loan services to certain customers of the related-party MCs (“End Customers”). Once a loan was granted to finance an End Customer’s purchase, the End Customer was required to repay the Company in monthly installments. The loans provided to the End Customers were unsecured, interest-bearing, and due in three months to five years, depending on the End Customers’ choice of the loan service term.

The Company records the customer loans receivables at gross loan receivables less unamortized costs of issuance fees or discounts, which are amortized over the life of the loan to interest income. The Company generated interest income of $249,123 and $283,416 for the three months ended March 31, 2026 and 2025, respectively, from the loan services, which were included in revenues.

Management periodically evaluates individual End Customers’ financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Customer loans receivable is charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. During the three months ended March 31, 2026 and 2025, the Company recorded a reversal of allowance for doubtful accounts of $31,353 and provision for doubtful accounts of $95,102, respectively, for customer loans receivable.

When a loan was granted to an End Customer, the Company paid the transaction amount directly in cash to the MC on behalf of the End Customer in the month following the purchase.

The loan services were suspended in November 2025, no new loans have been originated since then, and all related payables to MCs were settled as of December 31, 2025.

(g) Intangible Assets, Net

Intangible assets with an indefinite life are not amortized and are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired.

Intangible assets with finite lives are initially recorded at cost and amortized on a straight-line basis over the estimated economic useful lives of the respective assets. Acquired intangible assets from business combinations and asset acquisitions are recognized and measured at fair value at the time of acquisition. Those assets represent assets with finite lives are further amortized on a straight-line basis over the estimated useful lives of the respective assets.

The estimated useful lives of intangible assets are as follows:


		Useful Life
Trademark		10 – 20 years
Customer relationships		3 – 11 years
Service agreement		25 years
Developed technology		16 years
Others		3 – 8 years

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(h) Goodwill, Net

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired in the business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test.

The Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit.

When performing the annual impairment test, the Company has the option of performing a qualitative or quantitative assessment to determine if an impairment has occurred. If a qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would be required to perform a quantitative impairment analysis for goodwill. The quantitative analysis requires a comparison of the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The fair value is generally determined using the income approach with the discounted cash flow valuation method, which requires management to make significant estimates and assumptions related to forecasted revenues and cash flows and the discount rates.

(i) Impairment of Long-lived Assets Other Than Goodwill

Long-lived assets with finite lives, primarily property and equipment, intangible assets, operating lease right-of-use assets and finance lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.

(j) Investments in Securities

Available-for-sale debt securities

The Company’s short-term investments consist of debt securities classified as available-for-sale, which are measured at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) and realized gain and losses included in other income (expenses).

Investments in equity securities with readily determinable fair values

The Company holds long-term investments in equity securities of publicly listed companies, for which the Company does not have significant influence. Investments in equity securities with readily determinable fair values are measured at fair value and any changes in fair value are recognized in other income (expenses).

Investments in privately held companies and organizations that do not report Net Asset Value (the “NAV”) per share

The Company’s long-term investments in privately held entities that do not report NAV per share are accounted for using a measurement alternative, under which these investments are measured at cost, adjusted for observable price changes and impairments, with changes recognized in other income (expenses).

The Company recognizes both realized and unrealized gain and losses in its unaudited consolidated statements of operations and comprehensive income, classified with other income (expenses). Unrealized gains and losses represent observable price changes for investments in privately held entities that do not report NAV per share. Realized gains and losses represent the difference between proceeds received upon disposition of investments and their historical or adjusted cost. Impairments are realized losses, which result in an adjusted cost, and represent charges to reduce the carrying values of investments in privately held entities that do not report NAV per share, if impairments are deemed other than temporary, to their estimated fair values.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(k) Equity Method Investments

Investments in LLC

The Company uses the equity method to account for investments in limited liability companies ("LLC") that maintain a specific ownership account for each investor, in which we do not have a controlling financial interest but have the ability to influence the operating and financial policies of the investees.

Under the equity method of accounting, the Company initially recognizes the investments at cost and subsequently adjusts the carrying amount of the investments for its share of earnings or losses reported by the investees, distributions received, and other-than-temporary impairments.

(l) Long-term Investments in MCs — Related Parties

Long-term investments in MCs — related parties represent the payments to obtain equity interests of the MCs in Japan, made by the Company through SBC Japan, a company designated as a MSC in Japan. In accordance with the Act and articles of incorporation of the MCs, which are non-profit organizations, the equity interest holders of MCs are prohibited from receiving any profit distribution from MCs but have the right to receive distribution of the residual assets of the MCs in proportion to the amount of their contribution. As of the balance sheet dates, the investments represent probable future economic benefit to be realized at the time of dissolution of MCs or the equity interests being sold.

The investments in MCs — related parties are accounted for using a measurement alternative, under which these investments are measured at cost, less impairment, and adjusted for observable price changes. The Company reviews the investments in MCs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The payments made for such investments are classified as investing activities in the unaudited consolidated statements of cash flows. The MCs are considered related parties as the relatives of the Chief Executive Officer (“CEO”) of the Company being the Members of the MCs. Also see Note 2(a) for further details.

(m) Leases

The Company determines if an arrangement is or contains a lease at inception or modification of the arrangement. An arrangement is or contains a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period in exchange for consideration. Control over the use of the identified assets means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

The Company classifies its leases as either finance leases or operating leases if it is the lessee, or sales-type, direct financing, or operating leases if it is the lessor. The following criteria is used to determine if a lease is a finance lease (as a lessee) or sales-type or direct financing lease (as a lessor):

(i)

ownership is transferred from lessor to lessee by the end of the lease term;

(ii)

an option to purchase is reasonably certain to be exercised;

(iii)

the lease term is for the major part of the underlying asset’s remaining economic life;

(iv)

the present value of lease payments equals or exceeds substantially all of the fair value of the underlying assets; or

(v)

the underlying asset is specialized and is expected to have no alternative use at the end of the lease term.

If any of the above criteria is met, the Company accounts for the lease as a finance, a sales-type, or a direct financing lease. If none of the criteria is met, the Company accounts for the lease as an operating lease.

Lessee accounting

The Company recognizes right-of-use assets and lease liabilities for all leases other than those with a term of twelve months or less as the Company has elected to apply the short-term lease recognition exemption. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term. Lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are classified and recognized at the commencement date of a lease. Lease liabilities are measured based on the present value of fixed lease payments over the lease term. Right-of-use assets consist of (i) initial measurement of the lease liability; (ii) lease payments made to the lessor at or before the commencement date less any lease incentives received; and (iii) initial direct costs incurred by the Company.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

As the rates implicit on the Company’s leases for which it is the lessee are not readily determinable, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. When determining the incremental borrowing rate, the Company assesses multiple variables such as lease term, collateral, economic conditions, and its creditworthiness.

From time to time, we may enter into sublease agreements with third parties. Our subleases generally do not relieve us of our primary obligations under the corresponding head lease. As a result, we account for the head lease based on the original assessment at lease inception. We determine if the sublease arrangement is either a sales-type, direct financing, or operating lease at inception of the sublease. If the total remaining lease cost on the head lease for the term of the sublease is greater than the anticipated sublease income, the right-of-use asset is assessed for impairment. Our subleases are generally operating leases and we recognize sublease income on a straight-line basis over the sublease term.

Lessor accounting — operating leases

The Company accounts for the revenue from its lease contracts by utilizing the single component accounting policy. This policy requires the Company to account for, by class of underlying asset, the lease component and nonlease component(s) associated with each lease as a single component if two criteria are met.

(i)

the timing and pattern of transfer of the lease component and the nonlease component(s) are the same; and

(ii)

the lease component would be classified as an operating lease if it were accounted for separately.

Lease components consist primarily of fixed rental payments, which represent scheduled rental amounts due under our leases. Nonlease components consist primarily of tenant recoveries representing reimbursements of rental operating expenses, including recoveries for utilities, repairs and maintenance and common area expenses.

If the lease component is the predominant component, we account for all revenues under such lease as a single component in accordance with the lease accounting standard. Conversely, if the nonlease component is the predominant component, all revenues under such lease are accounted for in accordance with the revenue recognition accounting standard. Our operating leases qualify for the single component accounting, and the lease component in each of our leases is predominant. Therefore, we account for all revenues from our operating leases under the lease accounting standard and classify these revenues as rental income.

The Company commences recognition of rental income related to the operating leases at the date the property is ready for its intended use by the tenant and the tenant takes possession or controls the physical use of the leased asset. Income from rentals related to fixed rental payments under operating leases is recognized on a straight-line basis over the respective operating lease terms. Any amounts received but will be recognized as revenue in future periods are classified as advances from customers in the Company’s unaudited consolidated balance sheets.

Lessor accounting — sales-type leases

The Company purchases medical equipment from vendors and leases them to its customers, who are required to pay installments throughout the term of the leases. The lease agreements include lease payments that are fixed, do not contain residual value guarantees or variable lease payments. The lease terms are based on the non-cancellable term of the lease and the buyer may have options to terminate the lease in advance when meets certain conditions. The customers obtain control of the medical equipment when they physically possess the equipment.

The Company recognizes sales from sales-type leases equal to the present value of the minimum lease payments discounted using the implicit interest rate in the lease and cost of sales equal to carrying amount of the asset being leased and any initial direct costs incurred, less the present value of the unguaranteed residual. Interest income from the leases is recognized over the lease terms and included in revenues, net.

The Company excludes from the measurement of its lease revenues any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer.

(n) Revenue Recognition

The Company recognizes revenue from franchising services, procurement services, management services and other services or product sales under ASC Topic 606, “Revenue from Contracts with Customers”.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of consumption tax and applicable local government levies, if any. The consumption tax on sales is calculated at 10% of gross sales. The Company does not have significant remaining unfulfilled performance obligations or contract balances.

The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction. The determination of whether the Company acts as a principal or an agent in a transaction is based on the evaluation of whether (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.

The Company recognizes revenue from rental services under ASC Topic 842, “Leases”.

The Company currently generates its revenue from the following main sources:

Franchising Revenue

The Company generates franchising revenue by licensing its intellectual properties, including but not limited to the Company’s brand name (“Shonan Beauty Clinic”), trade name, patents, and trademarks, and by providing consulting services to enhance the value of “Shonan Beauty Clinic” brand, as a franchisor pursuant to franchise agreements with the medical corporations (the “MCs”) in Japan. Prior to April 2025, revenue was based on a fixed amount to each MC and a fixed amount to each clinic of the MCs; starting from April 2025, the clinic-level monthly fee is determined based on the facility type, operational tenure, and operational performance of each clinic of the MCs, rather than a uniform flat fee for all clinics. The revenue is recognized over time as services are rendered.

Procurement Revenue

The Company generates procurement services revenue by purchasing primarily advertising services and medical materials from qualified vendors on behalf of MCs to maintain brand quality consistency. Procurement services revenue is recognized at the point in time upon the delivery of products or over time as services are performed. Occasionally, the Company receives vendor discounts on certain large purchases. It recognizes revenue based on actual payments. Prior to June 2025, any over-collection resulting from such discounts was returned to MCs; since June 2025, it is retained for future transactions.

Management Services Revenue

The Company provides loyalty program management services, labor supporting services, function supporting services, and management consulting services to MCs.

Loyalty program management services

The Company awards loyalty points on behalf of MCs to MCs’ customers, who earn loyalty points from each qualified purchase made at the loyalty program participating clinics of MCs, in exchange for a handling fee. The revenue is based on a percentage of the related payment amount made by MCs’ customers and is recognized when the loyalty points are awarded.

At the time loyalty points are awarded, an MC pays the Company cash in an amount equivalent to the awarded loyalty points, which is recorded as advances from customers. When an MC’s customers redeem the loyalty points, the Company returns the cash back to the MC in an amount equivalent to the redeemed loyalty points. The awarded loyalty points expire if an MC’s customer does not make any additional qualified purchase at a participating clinic within a year. The Company accumulates and tracks the points on behalf of MCs until the loyalty points expire at which time the Company recognizes an amount equivalent to the expired loyalty points as revenue.

The Company also awards certain points to MCs’ customers on behalf of MCs for free in order to increase the volume of MC’s sales, from which the Company earns other types of revenues, such as procurement revenue. When an MC’s customers redeem such points, the Company reimburses the MC in an amount equivalent to the used free points. The redemption of such points is recorded as a reduction of the revenue recognized.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

The Company is an agent in the management of loyalty programs, and as a result, revenues are recognized net of the cost of redemptions.

Labor supporting services

The Company generates revenue by dispatching staff to MCs to provide a range of services, primarily including IT, and administrative services. The Company recognizes the revenue over the time when services are rendered. Starting from April 2025, the monthly fee for each clinic is determined using the same key criteria described above under “Franchising Revenue.”

Function supporting services

The revenue is derived from providing functional supporting services to MCs, such as accounting and human resources services. The Company recognizes revenue based on a monthly service fee over the time when services are rendered. Starting from April 2025, the monthly fee for each clinic is determined using the same key criteria described above under “Franchising Revenue.”

Management consulting services

The Company generates revenue by providing consulting services to MCs in relation to business operations of cosmetic dermatology. The Company recognizes the revenue over the time when services are rendered.

Rental Services Revenue

The Company generates rental income from operating leases and sales-type leases, which is accounted for under ASC Topic 842. Operating lease revenue is generally recognized on a straight-line basis over the terms of the lease agreements and sales-type lease revenue is generally recognized on the lease commitment date. Also see Note 2(m).

Other Revenues

The Company generates other miscellaneous revenues such as beauty and health services revenue, leasehold improvement services revenue, real estate brokerage services revenue, interest income, etc. These revenues are recognized when the Company satisfies performance obligations.

(o) Advertising Expenses

Advertising expenses consist primarily of costs of promotion and marketing for the Company’s image and services and are included in selling, general and administrative expenses. The Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance with the ASC 720-35, “Advertising Costs”. The advertising expenses were $567,346 and $682,166 for the three months ended March 31, 2026 and 2025, respectively.

(p) Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable, finance lease receivables and customer loans receivable. The Company places its cash and cash equivalents with financial institutions. The Company does not require collateral or other security to support financial instruments subject to credit risk. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.

For the three months ended March 31, 2026, customer A, B and C represented 24%, 21% and 19% of the Company’s total revenues, respectively. For the three months ended March 31, 2025, customer A, B and C represented 24%, 26% and 23% of the Company’s total revenues, respectively.

As of March 31, 2026, customer A, B and C accounted for 27%, 27% and 25% of the Company’s total outstanding accounts receivable, respectively. As of December 31, 2025, customer A, B and C accounted for 22%, 24% and 23% of the Company’s total outstanding accounts receivable, respectively.

For the three months ended March 31, 2026 and 2025, no vendor represented more than 10% of the Company’s total purchases.

As of March 31, 2026, vendor A, B and C represented 11%, 11% and 16% of the Company’s total outstanding accounts payable, respectively. As of December 31, 2025, vendor A, B and C represented 14%, 22% and 14% of the Company’s total outstanding accounts payable, respectively.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(q) Segment Reporting

ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions, assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

Management determined the Company’s operations constitute a single reporting segment for the three months ended March 31, 2026 and 2025.

(r) Related Parties and Transactions

The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC Topic 850, “Related Party Disclosures,” and other relevant ASC standards.

Parties, which can be an entity or individual, are considered to be related if they have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence.

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

(s) Fair Value Measurements

The Company performs fair value measurements in accordance with ASC Topic 820. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:

•

Level 1: quoted prices in active markets for identical assets or liabilities;

•

Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or

•

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

As of March 31, 2026 and December 31, 2025, the carrying values of current assets and current liabilities approximated their fair values reported in the unaudited consolidated balance sheets due to the short-term maturities of these instruments. Debt that bears variable interest rates index to prime also approximates fair value as it reprices when market interest rates change.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Assets measured at fair value on a recurring basis as of March 31, 2026 and December 31, 2025 are summarized below.


Fair Value Measurements as of March 31, 2026
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Fair Value at March 31, 2026
Short-term investments:
Available-for-sale debt security	$	—		313,865		—	$	313,865
Long-term investments:
Equity investments at fair value with readily determinable fair value	$	761,563		—		—	$	761,563


Fair Value Measurements as of December 31, 2025
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Fair Value at December 31, 2025
Short-term investments:
Available-for-sale debt security	$	—		319,193		—	$	319,193
Long-term investments:
Equity investments at fair value with readily determinable fair value	$	854,927		—		—	$	854,927

(t) Stock-Based Compensation

The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation — Stock Compensation”, under which the Company determines whether stock-based compensation awards should be classified and accounted for as an equity award. There were no liability awards granted during any of the periods stated herein. For all grants of stock-based compensation classified as equity awards, the cost of services received from employees and non-employees in exchange for awards is recognized in the unaudited consolidated statements of operations and comprehensive income based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures and cancellations as they occur.

(u) Recent Accounting Pronouncements

In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments in ASU 2025-05 provide entities with a practical expedient to simplify the estimation of expected credit losses on current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606 by allowing the assumption that current conditions as of the balance sheet date will not change during the remaining life of the asset. ASU 2025-05 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those fiscal years, with early adoption permitted. The Company adopted this standard on January 1, 2026. The adoption of this standard and the practical expedient did not have a material impact on its unaudited consolidated financial statements and related disclosures.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disaggregation of certain costs in a separate note to the financial statements, such as the amounts of employee compensation, depreciation and intangible asset amortization, included in each relevant expense caption in annual and interim consolidated financial statements. In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which clarified the effective date of ASU 2024-03. ASU 2024-03, as clarified by ASU 2025-01, is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027, on a retrospective or prospective basis, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which provides clarifications intended to improve the consistency and usability of interim disclosure requirements, including a comprehensive listing of required interim disclosures and a new disclosure principle for reporting material events occurring after the most recent annual period. ASU 2025-11 is effective for public business entities for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years. For entities other than public business entities, this amendment is effective for fiscal years beginning after December 15, 2028, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 — VARIABLE INTEREST ENTITY

A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE.

The Company followed ASC Topic 810, “Consolidation”, utilizing a qualitative approach, and determined that it is the primary beneficiary of its VIE, Aikawa Medical Management, Inc. (“AMM”) and consolidated the result of operations, financial conditions, and cash flows of AMM in the consolidated financial statements.

The following amounts and balances of AMM were included in the Company’s unaudited consolidated financial statements as of March 31, 2026 and December 31, 2025 and for the three months ended March 31, 2026 and 2025:


	March 31, 2026		December 31, 2025
ASSETS
Current assets
Cash and cash equivalents	$	4,202,107	$	4,238,149
Accounts receivable		10,615		10,615
Prepaid expenses and other current assets		10,831		10,831
Total Current Assets		4,223,553		4,259,595

Property and equipment, net		—		—
Loans receivables from subsidiaries of the Company		3,077,945		3,077,945
Other assets		2,276		2,276
Total Non-current Assets		3,080,221		3,080,221
Total Assets	$	7,303,774	$	7,339,816

LIABILITIES
Current Liabilities
Accounts payable	$	19,327	$	19,327
Accrued liabilities and other current liabilities		17,824		17,824
Due to related party		2,628,445		2,733,324
Total Current Liabilities		2,665,596		2,770,475

Loan payable to a subsidiary of the Company		8,268,544		8,265,846
Total Non-current Liabilities		8,268,544		8,265,846
Total Liabilities	$	10,934,140	$	11,036,321


	For the Three Months Ended March 31,
	2026			2025
Revenues	$	—		$	40,470
Total operating expenses	$	21,884		$	47,800
Net income (loss)	$	(16,084	)	$	17,671


	For the Three Months Ended March 31,
	2026			2025
Net cash used in operating activities	$	(16,084	)	$	(3,644	)
Net cash provided by investing activities	$	—		$	25,000
Net cash used in financing activities	$	(104,879	)	$	(16,052	)

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SBC MEDICAL GROUP HOLDINGS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 — EQUITY METHOD INVESTMENTS

On December 29, 2025, the Company acquired 10,732,089 common units of OT Midco Holdings, LLC (“OT Midco”), representing approximately 18.2% of the voting interest in OT Midco, for a total consideration of $20.3 million, including transaction costs of approximately $0.3 million. The CEO of the Company was designated by the Company as a director of the investee.

OT Midco is an intermediate holding company of Orange Twist, LLC and its subsidiaries (collectively, “OrangeTwist”). Through this investment, the Company holds an indirect minority interest in OrangeTwist.

The Company recognizes its portion of the earnings or losses for its equity method investment in OT Midco on a three-month lag. Accordingly, given the investment closing date of December 29, 2025, the earnings or losses from this investment will be reflected commencing with the Company’s unaudited consolidated financial statements for the three months ended June 30, 2026.

NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of March 31, 2026 and December 31, 2025, prepaid expenses and other current assets consist of the following:


	March 31, 2026		December 31, 2025
Advances to suppliers	$	10,046,717	$	11,111,347
Other receivables*		433,430		486,326
Others		432,570		127,179
Total	$	10,912,717	$	11,724,852

* Represent reimbursement receivables from a business partner and other miscellaneous receivables.

NOTE 6 — FINANCE LEASE RECEIVABLES

As of March 31, 2026 and December 31, 2025, finance lease receivables consist of the following:


	March 31, 2026			December 31, 2025
Future minimum lease payments receivable	$	25,968,747		$	26,636,777
Estimated residual value		—			—
Gross finance lease receivables		25,968,747			26,636,777
Less: unearned interest income		(93,797	)		(57,909	)
Finance lease receivables	$	25,874,950		$	26,578,868
Finance lease receivables, current	$	13,326,150		$	12,832,355
Finance lease receivables, non-current	$	12,548,800		$	13,746,513

As of March 31, 2026, maturities of the Company’s gross finance lease receivables are as follows:


Years ending December 31,
Remainder of 2026	$	10,166,581
2027		10,911,850
2028		4,631,340
2029		258,976
2030 and thereafter		—
Total	$	25,968,747

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 — PROPERTY AND EQUIPMENT, NET

As of March 31, 2026 and December 31, 2025, property and equipment, net consist of the following:


	March 31, 2026			December 31, 2025
Buildings and facilities attached to buildings	$	4,263,742		$	4,287,588
Machinery, equipment and automobiles		4,327,910			4,228,598
Aircraft		237,404			241,434
Software		5,781,313			5,879,421
Construction in progress		2,046,737			2,041,608
Subtotal		16,657,106			16,678,649
Less: accumulated depreciation		(7,876,866	)		(7,667,935	)
Less: accumulated impairment		(1,492,871	)		(1,471,322	)
Property and equipment, net	$	7,287,369		$	7,539,392

Depreciation expense was $388,581 and $604,882 for the three months ended March 31, 2026 and 2025, respectively.

The Company recognized a gain of nil and $12,375 on disposal of property and equipment for the three months ended March 31, 2026 and 2025, respectively.

NOTE 8 — INTANGIBLE ASSETS, NET

As of March 31, 2026 and December 31, 2025, intangible assets, net consist of the following:

SBC Medical Group Holdings Inc 10-Q