UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2024
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number 001-41462
SBC Medical Group Holdings Incorporated
(Exact name of registrant as specified in its charter)
| Delaware | 88-1192288 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
200 Spectrum Center Dr. STE 300 Irvine, CA |
92618 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 949-593-0250
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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.
| 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 28, 2024, the last business day of the Registrant’s most recently completed second fiscal quarter, was $21,257,087, calculated by using the closing price of the Registrant’s Common Stock on such date on the Nasdaq Stock Market LLC of $13.07.
The number of shares of registrant’s Common Stock outstanding as of February 28, 2025 was , after deducting 270,000 shares of treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2024. Portions of such proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements 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 Annual 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; |
| ● | the ability of the Company to access additional capital; |
| ● | the ability of the Company 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 of the Company to compete effectively in a competitive industry; |
| ● | 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; |
| ● | intense competition and competitive pressures from other companies in the industries in which the Company operates; |
| ● | the possibility that we may be adversely affected by other economic, business, and/or competitive factors; |
| ● | changes in applicable laws or regulations; and |
| ● | other factors detailed under “Part I, Item 1A. Risk Factors.” |
These forward-looking statements are based on information available as of the date of this Annual 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.
In addition, statements that the Company “believes” and similar statements reflect such the Company’s beliefs and opinions on the relevant subject. These statements are based upon information available to the Company as of the date of this Annual Report, and while such party believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and these statements should not be read to indicate that the Company has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these 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. Some factors that could cause the Company’s actual results to differ include:
| ● | the outcome of any legal or regulatory proceedings that have been, or may be, instituted in the future against the Company; |
| ● | the ability of the Company to grow and manage growth profitably, maintain relationships with customers, compete within its industry and retain its key employees; |
| ● | risks related to macroeconomic or geopolitical developments; |
| ● | future exchange and interest rates; |
| ● | the risk that the Company fails to maintain an effective system of disclosure controls and internal controls over financial reporting, the Company’s ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired; and |
| ● | other risks and uncertainties indicated in this Annual Report, including those under “Part I, Item 1A. Risk Factors” herein, and other filings that have been made or will be made with the SEC by the Company. |
Summary of Material Risks
| ● | We are a holding company and depend upon our operating subsidiaries for our cash flows. |
| ● | We may need additional capital, and we cannot be sure that additional financing will be available. | |
| ● | We may not grow our franchise system or we may lose business by failing to compete effectively or by failing to manage the reputation of our brand. | |
| ● | The financial performance of our franchisees can negatively impact our business. | |
| ● | The interests of our franchisees may conflict with ours or yours in the future and we could face liability from our franchisees or related to our relationship with our franchisees. | |
| ● | We could face liability from or as a result of our franchisees. | |
| ● | We have limited control with respect to the operations of our medical corporation customers, which could have a negative impact on our business. | |
| ● | The challenging economic environment may affect our franchisees, with adverse consequences to us. | |
| ● | If we are unable to obtain, maintain or protect intellectual property rights, in Japan, in Vietnam, in Singapore, in the U.S. and throughout the world, we may not be able to compete effectively in our market or globally. | |
| ● | We have substantial franchisee concentration. | |
| ● | Our reputation and the trading price of our common stock may be negatively affected by adverse publicity or detrimental conduct against us. | |
| ● | We are a relatively young company with a short operating history, and we may not be able to sustain our rapid growth, effectively manage our growth or implement our business strategies. | |
| ● | Our franchisee clinics may not be successful in competing in the cosmetic clinic industry. | |
| ● | The Company may face competition from senior management who cease working for it, and the Non-Competition Agreements may be unenforceable and expire two years following the Closing. | |
| ● | Any significant change in the franchisee clinic customer reward program could have a negative impact on our business. | |
| ● | Any significant cybersecurity incident or disruption to our operating systems could subject us to significant reputational, financial, legal and operational consequences. | |
| ● | We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and results of operations. | |
| ● | We may become subject to product liability claims or warranty claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claim. | |
| ● | We have little experience in providing management services to franchisee clinics located outside of Japan and we are subject to a variety of costs and risks due to our continued international expansion. | |
| ● | Our operations may be interrupted by utility shortages or stoppages, fire, natural disaster or other calamities at or near our facilities. | |
| ● | Our business and prospects depend significantly on our ability to build our Shonan Beauty Clinic brand. |
| ● | Our employees, agents, business partners or subcontractors may engage in misconduct or other improper activities, which could cause us to lose contracts, expose us to damages, harm our reputation and diminish investor confidence in our company. | |
| ● | Any decline in the business of our business partners or the deterioration of our relationship with them could have a material adverse effect on our operating results. | |
| ● | Safety issues or public perceptions of safety issues concerning cosmetic services could have a material adverse impact on our business. | |
| ● | If our franchisee clinics or our clinics in Vietnam and Singapore fail to comply with environmental and work safety laws and regulations, the Company and the franchisee clinics could become subject to fines or penalties or incur costs that could harm our business. | |
| ● | If our business partners, independent contractors, suppliers, or franchisee clinics fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity beyond our own control. | |
| ● | Failure to safeguard personal information could subject us to penalties, damage our reputation and brand, and harm our business and results of operations. | |
| ● | Failure by the MCs to comply with the Medical Care Act in Japan could subject us to penalties, damage our reputation and brand, and harm our business and results of operations. | |
| ● | The execution of our business plans requires a significant amount of capital. In addition, our future capital needs may require us to sell additional equity or debt securities that may dilute the equity interests of our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends. | |
| ● | We are subject to risks associated with strategic alliances or acquisitions. If we cannot manage the growth of our business or execute our strategies effectively, our business and prospects may be materially and adversely affected. | |
| ● | Our business could be adversely affected by trade tariffs or other trade barriers. | |
| ● | We and our subsidiaries have limited insurance coverage, which could subject us to significant costs and business disruption. | |
| ● | We are involved in litigation from time to time and, as a result, we could incur substantial judgments, fines, legal fees or other costs. | |
| ● | Any financial or economic crisis or perceived threat of such a crisis may materially and adversely affect our business, financial condition and results of operations. | |
| ● | We face risks related to natural disasters, which could significantly disrupt our operations. | |
| ● | If the landlords of our and our subsidiaries’ leased properties fail to properly maintain and renovate such premises, buildings or facilities in a timely manner or at all, the operation of our offices could be materially and adversely affected. | |
| ● | The MCs may fail to pay us in accordance with the terms of their franchise and management services agreements, at times necessitating action by us to attempt to compel payment. |
| ● | We believe our success depends on continuing to invest in the growth of our worldwide operations by expanding franchisee clinics to new geographic markets. If the franchisee clinic opportunities in these new markets are less than anticipated, or if the customer growth or sales in these markets do not meet our expectations, our results of operations and financial condition may be adversely affected. | |
| ● | If we fail to maintain an effective system of internal controls over financial reporting, including remediating known material weaknesses in our internal controls as of December 31, 2024, we may not be able to report our financial results timely and accurately or prevent fraud, which could adversely affect investor confidence in our company, and in turn, our results of operations and our stock price. | |
| ● | Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject the Company to additional trading restrictions. | |
| ● | The Company is a “controlled company” within the meaning of the applicable rules of Nasdaq and, as a result, we qualify for exemptions from certain corporate governance requirements. If the Company relies on these exemptions, its stockholders will not have the same protections afforded to stockholders of companies that are subject to such requirements. |
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Annual Report are more fully described under “Part I, Item 1A. Risk Factors” and elsewhere in this Annual Report. The risks described under the heading “Part I, Item 1A. Risk Factors” are not exhaustive. Other sections of this Annual Report describe additional factors that could adversely affect the business, financial condition or results of operations of the Company. 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. Forward-looking statements are not guarantees of performance. This is particularly true for a company like the Company that has a limited operating history to reference. 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.
Table of Contents
PART I
| Item 1. | Business. |
Unless the context indicates otherwise, any references herein to the “Company”, “we”, “us” and “our” refer to (i) SBC Medical Group, Inc. (formerly known as SBC Medical Group Holdings Incorporated), a Delaware corporation (“Legacy SBC”), and its consolidated subsidiaries and variable interest entity (“VIE”), prior to the consummation of Business Combination and to (ii) SBC Medical Group Holdings Incorporated, the Combined Entity and its consolidated subsidiaries and VIE following the Business Combination, and reference herein to “Pono” refers to predecessor company prior to the consummation of the Business Combination.
Company Overview
History
We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Two, Inc.,” referred to herein as “Pono,” as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
On August 9, 2022, Pono consummated its IPO of 11,500,000 units (the “Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares” and with respect to the warrants included in the Units, the “Public Warrants”) (the “Pono IPO”).
Simultaneously with the consummation of the closing of the Pono IPO, Pono consummated the private placement of an aggregate of 634,375 units (the “Placement Units”) at a price of $10.00 per Placement Unit in a private placement to the Sponsor (the “Private Placement”).
On September 26, 2022, the Class A common stock and Public Warrant included in the Units began separate trading on The Nasdaq Global Market under the symbols “PTWO” and “PTWOW,” respectively.
On January 21, 2023, Pono entered into an Agreement and Plan of Merger (as subsequently amended from time to time, the “Merger Agreement”) with Pono Two Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and then a wholly-owned subsidiary of Pono, SBC Medical Group, Inc., then named SBC Medical Group Holdings Incorporated, a Delaware corporation (“Legacy SBC”), Mehana Capital LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Yoshiyuki Aikawa in his personal capacity and his capacity as the representative of the stockholders of Legacy SBC (“Seller Representative”).
On September 17, 2024, the closing (the “Closing”) of the merger (the “Merger”) and other transactions contemplated thereby (collectively, the “Business Combination”) took place and the Merger was consummated with Merger Sub merging with and into Legacy SBC with Legacy SBC surviving the Merger as a wholly-owned subsidiary of Pono, and Pono then changed its name to SBC Medical Group Holdings Incorporated and on September 17, 2024, Legacy SBC changed its named to SBC Medical Group, Inc.
Effective September 17, 2024, Pono’s units ceased trading, and effective September 18, 2024, SBC’s common stock began trading on the Nasdaq Global Market under the symbol “SBC” and the public warrants began trading on the Nasdaq Capital Market under the symbol “SBCWW.”
As a result of the Closing of the Merger and the Business Combination, the business of SBC Medical Group, Inc. (“Legacy SBC”), became the business of the Company.
Business Overview
The Company is a management company headquartered in Irvine California and Tokyo, Japan, that owns, operates, and provides management services to cosmetic treatment centers mainly in Japan, with footprint also in Vietnam, Singapore and the United States. The history of Legacy SBC began with the establishment of L’Ange Cosmetique Co., Ltd. in 2003 and SBCMG (formerly Aikawa Medical) in 2017 for the purpose of providing management services to medical corporations and the medical clinics of the medical corporations. The history of the medical corporations and the medical clinics began in 2000 with the opening of Shonan Beauty Clinic in Fujisawa City, Japan, where Dr. Aikawa opened in private practice. Subsequently, Dr. Aikawa opened clinics in Yokohama in 2001 and Shinjuku in 2003, incorporated as Medical Corporation Shobikai in 2004, acquired a medical corporation named Medical Corporation Kowakai in 2009 and Medical Corporation Nasukai in 2009.
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The Company is primarily focused on providing comprehensive management services to franchisee clinics, including but not limited to advertising and marketing needs across various platforms (such as social media networks), staff management (such as recruitment and training), booking reservations for franchisee clinic customers, assistance with franchisee employee housing rentals and facility rentals, construction and design of franchisee clinics, medical equipment and medical consumables procurement (resale), the provision of cosmetic products to franchisee clinics for resale to clinic customers, licensure of the use of patent-pending and non-patented medical technologies, trademark and brand use, IT software solutions (including but not limited to remote medical consultations), management of the franchisee clinic’s customer rewards program (customer loyalty point program), and payment tools for the franchisee clinics.
In 2017, we began providing our management services to our franchisee treatment center. The Company and its subsidiaries now provide management services to a total of 241 franchisee treatment centers located in Japan. The Company also (i) owns and operates 1 treatment center under its “SBC” brand name in Ho Chi Minh City, Vietnam, as well as (ii) provides management service to 1 treatment center under its “SBC” brand name in Irvine, California in the United States (the “CA Clinic”), which is owned and operated by the related party. Our treatment center in Vietnam, and the franchisee treatment centers that we provide management services to, provide an array of surgical and non-surgical medical services that vary based upon location, including cosmetic surgery, dermatology, and dentistry. These medical services include but are not limited to breast augmentation, liposuction, rejuvenation treatments (including treatment of wrinkles, acne, scars, cellulite, excess fat, discoloration, and signs of aging), laser skin toning and spot removal, eyes double fold surgery, rhinoplasty, treatment of osmidrosis and hyperhidrosis, hair transplants, gynecological formation treatments, laser hair removal, face line surgeries, cosmetical dental procedures, tattoo removal, lasik eye surgery, lateral canthoplasty, brow lift procedures, androgenetic alopecia treatment, and cheek sagging prevention methods. In November 2024, we acquired 100% equity interest of Aesthetic Healthcare Holdings (“AHH”) and its subsidiaries, companies incorporated in Singapore and principally engaged in medical aesthetics business, with a cash consideration of SGD$7.8 million (equivalent to approximately US$5.8 million). Through the acquisition of AHH, the Company currently operates several clinics in Singapore.
Since our inception, we have been committed to delivering high quality management services to our franchisee clinics. We believe our team of highly qualified and experienced professionals have underpinned our strong reputation as we continue to provide multifaceted management services to our franchisee clinics.
Business Segments
The Company operates as a single operating segment. The Company’s Chief Executive Officer, who serves as the Chief Operating Decision Maker (“CODM”), is responsible for evaluating performance and allocating resources. Our revenues are primarily derived from providing comprehensive management services to franchisee cosmetic treatment centers, including advertising, staffing, procurement, IT solutions, and the licensing of medical technologies and trademarks. For additional details, see Note 20, “Segment Reporting,” in the accompanying notes to our consolidated financial statements.
Corporate Structure
The Company’s subsidiary, SBC Medical Group, Inc., primarily operates through 16 wholly owned subsidiaries, one majority owned subsidiaries and one variable interest entity. The wholly owned subsidiaries consist of SBC Medical Group Co., Ltd., a Japan corporation (“SBC Medical Sub”), L’Ange Cosmetique Co., Ltd., a Japan corporation (“Lange Sub”), Shobikai Co., Ltd., a Japan corporation (“Shobikai Sub”), Liesta Co., Ltd., a Japan corporation (“Liesta”), SBC Sealane Co., Ltd., a Japan corporation (“SBC Sealane”), SBC Marketing Co., Ltd., Japan corporation (“SBC Marketing”), SBC Medical Consulting Co., Ltd., a Japan corporation (“SBC Medical Consulting”), Shoubikai Medical Vietnam Co. Ltd., a Vietnam corporation (“SBC Vietnam”), SBC Healthcare, Inc., a Delaware corporation (“SBC Healthcare”), SBC Irvine, LLC, a Delaware limited liability company (“SBC Irvine”), Aesthetic Healthcare Holdings Pte., Ltd., a Singapore corporation (“AHH”), Wen & Wang Family Clinic Pte., Ltd., a Singapore corporation (“WWFC”), Wen & Wang Medical Group Pte., Ltd., a Singapore corporation (“WWMG”), Rochor Clinic Pte., Ltd., a Singapore corporation (“RCC”), Dermasolutions Pte., Ltd., a Singapore corporation (“DS”), and Dermasolutions Services Pte., Ltd., a Singapore corporation (“DSS”). The majority owned subsidiary is Medical Payment Co., Ltd., a Japan corporation (“Med Payment”). The variable interest entity is Aikawa Medical Management, Inc.
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Disposal of Kijimadairakanko Inc. (“Kijima”) and Skynet Academy Co., Ltd. (“Skynet”)
On December 17, 2024, the Company entered into definitive agreements to sell and transfer all of the shares in its subsidiaries, Kijima and Skynet, to entities owned by Yoshiyuki Aikawa, CEO of the Company, for cash. The Company pursued the transactions to concentrate business and management resources on its main medical business. The disposal of Kijima and Skynet did not constitute a strategic shift that would have a major effect on the Company’s operations and financial results. The transactions closed on December 23, 2024, subject to customary closing conditions. The Company received total cash consideration of one Japanese Yen ($0) for Kijima and $446,460 for Skynet. In accounting for the disposals, operating results of Kijima and Skynet are included in the Company’s consolidated financial statements up to the disposal date. The difference between (i) the fair value of the net assets disposed and (ii) the consideration received was recognized as an adjustment to Additional Paid-in Capital (“APIC”). No retrospective adjustments have been made to prior-period consolidated financial statements. Following the completion of these transactions, Kijima and Skynet ceased to be subsidiaries of the Company after December 23, 2024. Their financial results are therefore excluded from the Company’s consolidated financial statements for periods subsequent to the disposal date.
Acquisition of AHH
On November 20, 2024, the Company completed the payment of SGD 7.8 million in cash for the acquisition of 100% of the voting equity interest AHH and its subsidiaries, following the execution of a Share Purchase Agreement with Dr. Ewen Chee Yew Wen, Dr. Lee Tee Kit, Dr. Phua Vanessa Mae, Dr. Charlotte Kim Thomas, and Dr. Gary Si Khin Yuen. AHH is based in Singapore and operates aesthetic medical clinics, family clinics, and quick facial aesthetics outlets. The founder, Dr. Ewen Chee, is known as one of the pioneers in the field of aesthetic medicine in Singapore and is a co-chair of the first Asia Pacific Thread Lift Conference (APEM) and a board-certified physician by the American Academy of Aesthetic Medicine. He is a frequent speaker at international conferences and workshops, and his expertise and knowledge have been featured in numerous scientific publications. AHH’s major brands and number of clinics are The Chelsea Clinics, Gangnam Laser Clinic, SkinGo! and Family clinics. Due to AHH’s fiscal year ending on September 30, the financial results of AHH and its subsidiaries have been included in the Company’s consolidated financial statements with a three-month lag. For the current period, only the balance sheet information as of the acquisition date has been included in the consolidated financial statements.
For the fiscal years ended December 31, 2024 and 2023, the Company generated revenues of $205,415,542 and $193,542,423, respectively, reported net income of $46,689,892 and $38,560,606, respectively, and cash flow provided by operating activities of $20,582,933 and $50,670,322, respectively. As of December 31, 2024, the Company had retained earnings of $189,463,007.
SBC Medical Group Co., Ltd., a Japan corporation (“SBC Medical Sub”), L’Ange Cosmetique Co., Ltd., a Japan corporation (“Lange Sub”), Shobikai Co., Ltd., a Japan corporation (“Shobikai Sub”) are each designated as a “medical service corporation” in Japan. In Japan, a medical service corporation is a legal entity that provides management service to “MCs”. The management services are conducted through FC contracts and service contracts between certain subsidiaries of the Company (SBC Medical Sub, Lange Sub, and Shobikai Sub) and the MCs that own all 241 of the treatment centers in Japan.
There are currently six MCs that the Company’s subsidiaries have entered into franchisor-franchisee contracts and service contracts with, consisting of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, Medical Corporation Jukeikai, and Medical Corporation Ritz Cosmetic Surgery (collectively, the “MCs”).
In addition to the six MCs, we have entered into service contracts with Medical Corporation Association Furinkai (the service contract regarding operation on November 22, 2023 and the service contract regarding management consulting on November 25, 2023 respectively) and Medical Corporation Association Junikai (the service contract regarding operation and the service contract regarding management consulting both on November 16, 2023). The scope of work (“SOW”) of the service contracts with these two MCs is limited to marketing, introduction of new treatment technologies and future business development while the SOW of the FC contracts with the six MCs are broad and define general rules in order to allow MCs to use the SBC brand name. Accordingly, the service contracts with these two MCs are different from the FC contracts with the six MCs and the clinics of these two MCs do not use the “Shonan Beauty Clinic” brand. Please see “— Material Contracts between the Company and MCs — Service Contracts” for more information regarding the service contracts with Medical Corporation Association Furinkai and Medical Corporation Association Junikai.
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All of the MCs are deemed to be related parties of the Company since relatives of the CEO of the Company are the members (or shain) of general meetings of members of the MCs. The CEO of the Company was previously a member of the six franchisee MCs until he ceased being a member in July 2023. The Company, through SBC Medical, owns equity “deposit” interests (or mochibun) of the six franchisee MCs. Although the Company, through SBC Medical, has an equity “deposit” interest to the rights to receive a distribution of residual assets in proportion to the amount of contribution in certain circumstances as provided in the articles of incorporation of each of the six MCs, the Company or SBC Medical does not have voting control over the corporate actions at general meetings of members (or shain) of the MCs per the requirements of the Japanese Medical Care Act and the MCs’ articles of incorporation.
Mission
Our primary mission is to provide quality comprehensive management services to the MCs and expand our “Shonan Beauty Clinic” brand. We plan to achieve the mission by maintaining and strengthening our market position and brand in the cosmetic medical treatment management market in Japan, Vietnam, Singapore and the United States, and by continuing to grow our presence globally. Accordingly, we have entered into franchise agreements and partner doctor independence support program agreements (the “Support Agreements”) with the MCs to define the scope of the management services that we provide to the MCs as well as the franchise operational provisions that the MCs must comply with. The term of the Support Agreements is until August 31, 2026, provided that such Support Agreements will continue to automatically renew for one (1) year successive periods unless either the Company or the respective MC provides notice of termination at least six (6) months prior to the expiration date of the Support Agreement. We receive a portion of our overall compensation for providing management services under the Support Agreements with the following MCs:
| ● | Medical Corporation Shobikai: from September 29, 2017 |
| ● | Medical Corporation Kowakai: from September 29, 2017 |
| ● | Medical Corporation Nasukai: from September 29, 2017 |
| ● | Medical Corporation Aikeikai: from September 29, 2017 |
| ● | Medical Corporation Jukeikai: from February 21, 2020 |
| ● | Medical Corporation Ritz Cosmetic Surgery: from May 31, 2021 |
Material Contracts between the Company and MCs
The Company has entered into a Partner Doctor Independence Support Program Agreement and an SBC Operating Agreement with each of the MCs.
Partner Doctor Independence Support Program Agreement
The Company has entered into a Partner Doctor Independence Support Program Agreement (the “PDISPA”) with each of the MCs. The term of the PDISPA is for a period of 5 years from September 1, 2021, to August 31, 2026. The PDISPA will be renewed under the same terms for successive one-year periods upon conclusion of the initial term unless either party requests in writing to terminate the PDISPA 6 months prior to the expiration date of the PDISPA. Pursuant to the PDISPA, the Company agreed to provide the use of the name of the “Shonan Beauty Clinic” and the “SBC Medical Group” (Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, L’Ange Cosmetique Co., Ltd. and Shobikai Co., Ltd., which together are referred to as the “SBC Medical”) to the MCs for the purpose of operating clinics. The Company also granted to the MCs the right to use the name “SBC Medical Group,” the know-how of clinic operation, trademark, trade name, and the right to provide the treatment designated by the Company, and the right to conduct business activities as a partner of the SBC Medical Group under a unified image.
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PDISPA does not charge franchise fee or deposit fee, instead the MCs are to pay fees to the Company, which are to be calculated as follows: total amount of sales at the clinic multiplied by 12% excluding consumption tax. If the total sales amount exceeds 100,000,000 yen per MCs, the maximum amount fee will be 10,000,000 yen. For the purposes of the PDISPA the total amount of sales means the amount of sales after discounting preferential tickets, and other campaigns and discounts.
SBC’s Operating Agreement
The Company previously entered into an SBC Operating Agreement (the “SBCOA”) with each of the MCs. The term of the SBCOA is from April 1, 2023, to March 31, 2025. Either party may terminate the SBCOA by giving notice to the other party of the intended termination at least 6 months prior to the scheduled termination date. Pursuant to the SBCOA the Company agreed to provide the MCs with the following consulting services related to: (i) marketing related services for developing new clients (ii) aiming to ensure stable performance and increase customer satisfaction through the creation of repeat customers (iii) the establishment and operation of a system seeking to ensure medical safety (iv) securing attorneys and medical institutions to transport in the event of claims or medical accidents, (v) measures to improve employee satisfaction, and design of organizational chart and personnel evaluation system (vi) the selection of medical equipment and materials, (vii) the acquisition of properties for new medical facilities (trade area survey, area selection, lease agreement signing, etc.) (viii) various types of general skills training for healthcare facility employees (ix) specialized and advanced skills training in leadership, motivation, communication, etc., for chiefs, leaders, and other employees with subordinates (x) development of new type of medical facilities (xi) development of new treatment methods (xii) hiring employees with national certifications, professional skills, and interpersonal skills, such as doctors, nurses, and reception counselors (xiii) performance management, business analysis, and management decision making utilizing financial statements such as income statements, cash flow statements, and balance sheets (xiv) use of the likeness of the Company’s officers or employees on websites, commercials, and other advertising media and (xv) efficient operation methods that allow for more customer service during the same clinic hours.
Under the existing SBCOA, in exchange for the foregoing services, each MCs are to pay the Company 3,000,000 yen per month (excluding consumption tax) for each medical facility where a MC provides medical services to its clients.
In light of the current challenging competitive environment, we are pursuing a long-term growth strategy aimed at expanding and stabilizing our business foundation by creating an environment that can better facilitate the establishment of new clinics by MCs. In line with this objective, we have decided to amend and renew the SBCOA with each MC, effective from April 1, 2025. Under the revised SBCOA, similar with prior terms, either party may terminate the agreement by providing written notice to the other party no later than six months before the scheduled expiration date.
The main revisions include:
| 1. | Revised Fee Structure |
| ● | First-Year Fee Reduction for Newly Opened Clinics: Fees will be reduced during the first year of operation for newly established clinics, significantly reducing initial cost burdens at a stage when clinics have yet to fully establish their customer base. |
| ● | Fees Based on Service Utilization from the Second Year Onward: Starting from the second year of operation, fees will be calculated based on the scale of services utilized and the operational size of each clinic. |
| 2. | Changes to Provided Consulting Services Following the revision, consulting services provided by the Company to MCs will include: |
| ● | Management consulting for medical corporations and facilities |
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| ● | Human resources and labor management services |
| ● | Recruitment-related services |
| ● | General administrative services |
| ● | Information system management services |
| ● | Customer relations services |
| ● | Accounting, finance, and taxation services |
| ● | Legal services |
| ● | Clinic establishment and facilities management services |
| ● | Infrastructure introduction, improvement, and operational support services related to insurance-covered medical treatments |
For the financial impact of these revisions, please refer to the “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Upcoming Changes to Service Fee Structure.”
Service Contracts
We entered into service contracts with Medical Corporation Association Furinkai (the service contract regarding operation on November 22, 2023 and the service contract regarding management consulting on November 25, 2023 respectively) and Medical Corporation Association Junikai (the service contract regarding operation and the service contract regarding management consulting both on November 16, 2023). The scope of work (“SOW”) of the service contracts with these two MCs is limited to marketing, introduction of new treatment technologies and future business development while the SOW of the FC contracts with the six MCs are broad and define general rules in order to allow MCs to use the SBC brand name. Accordingly, the service contracts with these two MCs are different from the FC contracts with the six MCs and the clinics of these two MCs do not use the “Shonan Beauty Clinic” brand.
Business Consignment Agreement for Management Consulting Services to Medical Corporation Association Furinkai
The material terms of our business consignment agreement for management consulting services to Medical Corporation Association Furinkai are as follows:
| ● | Signing Date: |
| ◌ | November 22, 2023 |
| ● | Consulting Services by the Company to Medical Corporation Association Furinkai |
| ◌ | consulting on the use of business systems used in medical facilities |
| ◌ | consulting on the development of new treatments and manuals |
| ◌ | consulting for repeat customer acquisition measures related to cosmetic dermatology |
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| ◌ | consulting on the efficient operation with more customer service during the same clinic hours related to cosmetic dermatology consulting |
| ◌ | consulting for building management strategies related to cosmetic dermatology treatment |
| ● | Effective Period |
| ◌ | September 1, 2024 until August 31, 2027 |
| ◌ | if neither party expresses an intention not to renew the agreement before the expiration of the effective period, the agreement shall be renewed for another two (2) years under the same terms and conditions |
| ● | Termination Provisions & Penalties |
| ◌ | Either party may terminate this agreement by notifying the other party at least six months prior to the scheduled termination date. |
| ● | Fees Payable Under the Agreement |
| ◌ | JPY60,000,000 per month (excluding consumption tax). |
Business Consignment Agreement for Operational Support to Medical Corporation Association Furinkai
The material terms of our business consignment agreement for operational support services to Medical Corporation Association Furinkai are as follows:
| ● | Signing Date |
| ◌ | November 22, 2023 |
| ● | Consulting Services by the Company to Medical Corporation Association Furinkai |
| ◌ | secure stable business performance and increase customer satisfaction through creation of repeat customers related to cosmetic dermatology |
| ◌ | selection of medical devices and medical materials for cosmetic dermatology |
| ◌ | establishment and operation of a system to ensure the safety of cosmetic dermatology treatment |
| ◌ | general skills training associated with cosmetic dermatology treatment for medical facility employees |
| ◌ | efficient operation methods that enable more customers to be served during the same clinic hours related to cosmetic dermatology |
| ◌ | planning management strategies related to cosmetic dermatology treatment |
| ◌ | development of new treatment methods, formulation of manuals, and support for implementation |
| ◌ | support and management of business system implementation |
| ◌ | design and implementation support, operation and maintenance of servers, networks and IT infrastructure |
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| ● | Effective Period |
| ◌ | September 1, 2023 until August 31, 2027 |
| ◌ | if neither party expresses an intention not to renew the agreement before the expiration of the effective period, the agreement shall be renewed for another two (2) years under the same terms and conditions |
| ● | Termination Provisions & Penalties |
| ◌ | Either party may terminate this agreement by notifying the other party at least six months prior to the scheduled termination date. |
| ● | Fees Payable Under the Agreement |
| ◌ | JPY1,700,000 per month for each medical facility (excluding consumption tax). |
Business Consignment Agreement for Management Consulting Services to Medical Corporation Association Junikai
The material terms of our business consignment agreement for management consulting services to Medical Corporation Association Junikai are as follows:
| ● | Signing Date |
| ◌ | November 16, 2023 |
| ● | Consulting Services by the Company to Medical Corporation Association Junikai |
| ◌ | consulting on the use of business systems used in medical facilities |
| ◌ | consulting on the development of new treatments and manuals |
| ◌ | consulting for repeat customer acquisition measures related to cosmetic dermatology |
| ◌ | consulting on the efficient operation with more customer service during the same clinic hours related to cosmetic dermatology consulting |
| ◌ | consulting for building management strategies related to cosmetic dermatology treatment |
| ● | Effective Period |
| ◌ | September 1, 2024 until August 31, 2026 |
| ◌ | if neither party expresses an intention not to renew the agreement before the expiration of the effective period, the agreement shall be renewed for another two (2) years under the same terms and conditions |
| ● | Termination Provisions & Penalties |
| ◌ | Either party may terminate this agreement by notifying the other party at least six months prior to the scheduled termination date. |
| ● | Fees Payable Under the Agreement |
| ◌ | JPY10,000,000 per month (excluding consumption tax). |
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Business Consignment Agreement for Operational Support to Medical Corporation Association Junikai
The material terms of our business consignment agreement for operational support services to Medical Corporation Association Junikai are as follows:
| ● | Signing Date |
| ◌ | November 16, 2023 |
| ● | Consulting Services by the Company to Medical Corporation Association Junikai |
| ◌ | secure stable business performance and increase customer satisfaction through creation of repeat customers related to cosmetic dermatology |
| ◌ | selection of medical devices and medical materials for cosmetic dermatology |
| ◌ | establishment and operation of a system to ensure the safety of cosmetic dermatology treatment |
| ◌ | general skills training associated with cosmetic dermatology treatment for medical facility employees |
| ◌ | efficient operation methods that enable more customers to be served during the same clinic hours related to cosmetic dermatology |
| ◌ | planning management strategies related to cosmetic dermatology treatment |
| ◌ | development of new treatment methods, formulation of manuals, and support for implementation |
| ◌ | support and management of business system implementation |
| ◌ | design and implementation support, operation and maintenance of servers, networks and IT infrastructure |
| ◌ | support and advisory services for the use of marketing analysis tools, etc. |
| ● | Effective Period |
| ◌ | September 1, 2023 until August 31, 2027 |
| ◌ | if neither party expresses an intention not to renew the agreement before the expiration of the effective period, the agreement shall be renewed for another two (2) years under the same terms and conditions |
| ● | Termination Provisions & Penalties |
| ◌ | Either party may terminate this agreement by notifying the other party at least six months prior to the scheduled termination date. |
| ● | Fees Payable Under the Agreement |
| ◌ | JPY800,000 per month for each medical facility (excluding consumption tax). |
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The use and regulatory status of certain products
The Company acts in the capacity of a purchasing agent by reselling medical supplies, cosmetic products, and medical equipment to the MCs for use in their clinics.
The Company acts as a purchasing agent, for the following cosmetic products: MT Stem Eye Cream, MT Cleansing Gel, MT Contour Lotion, MT Essential Serum, MT Contour B Cream, MT Premium Coffret 2024, MT Facial Foaming Wash, MT Protect UV Gel, MT Condense C Serum, MT Crystal Shot. These products are used to enhance the attractiveness, change the appearance, or maintain the health of the skin or hair of a person and more specifically are used as eye cream, cleanser, toner, serum, moisturizing cream, skincare set face wash, and sunscreen gel.
The following table describes the primary use and regulatory status of each of the products that we resell:
| Available for Sale In | ||||||||||
| Product Category | Product Line | Primary Use | United
States |
Vietnam | Japan | |||||
| Cosmetics | MT Stem Eye Cream | Eye cream | P | P | P | |||||
| Cosmetics | MT Cleansing Gel | Cleanser | P | P | P | |||||
| Cosmetics | MT Contour Lotion | Toner | P | P | P | |||||
| Cosmetics | MT Essential Serum | Serum | P | P | P | |||||
| Cosmetics | MT Contour B Cream | moisturizing cream | P | P | P | |||||
| Cosmetics | MT Premium Coffret 2024 | Skincare Set | P | P | P | |||||
| Cosmetics | MT Facial Foaming Wash | face wash | P | P | P | |||||
| Cosmetics | MT Protect UV Gel | sunscreen gel | P | P | P | |||||
| Cosmetics | MT Condense C Serum | Serum | P | P | P | |||||
| Cosmetics | MT Crystal Shot | Serum | P | P | P | |||||
The Company acts as a purchasing agent, for the following medical equipment: Embryo Scope, PQX Pico Laser, Nordlys, Coolsculpting ELITE, Stellar M22 IPL, General-purpose video scope for upper gastrointestinal tract GIF-1200N, Sperm motility analyzer with SMAS Biological Microscope, Surgitron DualEMC, Gas Sterilizer CT-540C, Centrifugal Separator H-36α. This equipment is used for the diagnosis, treatment, or prevention of human or animal diseases, or to affect the structure or function of the human or animal body, and more specifically is used for observation of fertilized eggs, skincare treatment, fat removal, observation, imaging, diagnosis, and treatment of the upper gastrointestinal tract, analysis of sperm motility, skin incision and coagulation for surgical use, sterilization of medical supplies vulnerable to high pressure, and separation of aspirated fat.
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The following table describes the primary use and regulatory status of each of the products that we resell:
| Available for Sale In | ||||||||||||
| Product Category | Product Line | Primary Use | United
States* |
Vietnam** | Japan | |||||||
| Incubator | EmbryoScope | Observation of fertilized eggs An incubator for growing fertilized eggs of patients. A camera takes pictures at regular intervals, and the division can be observed like a movie on the monitor. | Time-lapse incubator | No | No | P | ||||||
| Laser Therapy Machine | PQX Pico Laser | Skin Care Treatment | Picotoning, Picolaser Fractional | No | No | P | ||||||
| Laser Therapy Machine | Nordlys | Skin Care Treatment | IPL Light Therapy (Photo Double/Photo Triple) | No | No | P | ||||||
| Slimming equipment | coolsculpting ELITE | fat reduction | Fat cooling (slimming) | No | No | P | ||||||
| Laser Therapy Machine | Stellar M22 IPL | Skin Care Treatment | IPL Light Therapy (Photo Double Photo Triple) | No | No | P | ||||||
| Endoscope | General-purpose video scope for upper gastrointestinal tract GIF-1200N | Observation, imaging, diagnosis, and treatment of the upper gastrointestinal tract | No | No | P | |||||||
| Analyzer | Sperm motility analyzer with SMAS Biological Microscope | Analysis of sperm motility The system automatically tracks moving sperm and displays and outputs a number of measurement results accurately and quickly, including the number of moving sperm, their movement trajectories, discrimination from immobile sperm, and various types of motility. | No | No | P | |||||||
| Electrosurgical instrument | Surgitron DualEMC | Skin incision and coagulation for surgical use | MD-style minimal downtime | No | No | P | ||||||
| Sterilizer | Gas sterilizer CT-540C | Sterilization of medical supplies vulnerable to high pressure Sterilizer, low temperature up to 40°C | No | No | P | |||||||
| Centrifugal separator | Centrifugal separator H-36‹ | Separation of aspirated fat | condense rich face | No | No | P | ||||||
The Company does not distribute the products above in the US or in Vietnam for the following reasons.
| * | A foreign entity must apply to Food and Drug Administration, “FDA,” with regard to medical equipment in advance in order to import and distribute it in the U.S., and needs to pass examination by the FDA. In addition, the entity must register the equipment after passing examination. However, the Company has not applied yet and has no current intention to apply and accordingly does not distribute any of the above products in the U.S. |
| ** | A foreign entity should apply to Ministry of Health, “MOH”, with regard to medical equipment in advance in order to import and distribute it in Vietnam. In particular, the entity should obtain circulation number and declaration of eligibility to trade medical equipment. However, the Company has not applied yet and has no current intention to apply and accordingly does not distribute any of the above products in Vietnam. |
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The Company acts as a purchasing agent, for the following medical supplies: Coolsculpting Elite Reorder Pack, Allergan VISTA, Juv Voluma, Condense Rich Syringe, Juv Volift, MiraDry BioChips, Juv Volbella, VISTA Ultra Plus XC, Juv Volux, Cellution Disposable Kit. The supplies are used for the diagnosis, treatment or prevention of human or animal diseases and are not quasi-drugs, regenerative medicine products or machinery and equipment such as dental materials and hygiene products and more specifically is used for treatment to reduce fat cells and improve body contours, wrinkle-improving injection, medical consumables, hyperhidrosis treatment.
The following table describes the primary use and regulatory status of each of the products that we resell:
| Available for Sale In | ||||||||||
| Product Category | Product Line | Primary Use | United
States* |
Vietnam* | Japan | |||||
| coolsculpting | coolsculpting Elite reorder pack | Body Contouring Equipment Consumables; Reduces fat cells and improves body contours; | No | No | P | |||||
| Botox injection | Allergan VISTA | Wrinkle-improving injections | No | No | P | |||||
| hyaluronic acid injection | Juv Voluma | Wrinkle-improving injections | No | No | P | |||||
| fat injections | condense rich syringe | medical consumables | No | No | P | |||||
| hyaluronic acid injection | Juv Volift | Wrinkle-improving injections | No | No | P | |||||
| MiraDry | MiraDry BioChips | hyperhidrosis treatment | No | No | P | |||||
| hyaluronic acid injection | Juv Volbella | Wrinkle-improving injections | No | No | P | |||||
| hyaluronic acid injection | VISTA Ultra Plus XC | Wrinkle-improving injections | No | No | P | |||||
| hyaluronic acid injection | Juv Volux | Wrinkle-improving injections | No | No | P | |||||
| fat injections | Cellution Disposable Kit | medical consumables | No | No | P | |||||
The Company does not distribute the products above in the US or in Vietnam for the following reasons.
| * | A foreign entity must register its facility, such as a clinic, drug store, etc., with the Food and Drug Administration, “FDA,” in order to distribute medical supplies in advance in the US. However, the Company has not registered yet and has no current intention to register and accordingly does not distribute any of the above products in the U.S. |
| ** | A foreign entity should obtain the pharmaceutical approval in order to distribute medical supply in advance in Vietnam. However, the Company has not obtained approval yet and has no current intention to seek approval and accordingly does not distribute any of the above products in Vietnam. |
Types of Services Provided
Advertising and Marketing Services.
The Company, through its subsidiary SBC Marketing, provides advertising and marketing services primarily to the MCs, including but not limited to the promotion of the MCs’ clinics’ services and brand on social media networks. We use various marketing and advertising methods to increase awareness of the “Shonan Beauty Clinic” brand.
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The marketing services that we provide to the MCs include raising the profile of products and services, creating demand, promoting sales, and building brand image. Our public relations staff has set up target audiences, created promotional materials, and understand patient characteristics and needs, and continue to deliver effective messages to target audiences. Additionally, we utilize social media platforms such as Instagram and YouTube to establish a direct connection with end-users and foster a community. We also believe it is important to measure the effectiveness of marketing advertising and analyze the results. Our public relations staff evaluates the effectiveness of our advertising and makes the necessary adjustments to maximize the MC’s return on investment (ROI) and optimize it on a frequent basis, including but not limited to focusing on the types of services that are popular in each specific geographical location of our franchisee clinics.
Staff Recruitment, Training, and Management.
The Company, through its subsidiary SBC Medical Consulting and Shobikai Sub, provides staff recruitment and management services to the MCs. The Company maintains a working relationship with SBC Tokyo Medical University, previously known as Ryotokuji University, a medical professional education institution located in Urayasu City of Chiba Prefecture in Japan, which acts as a platform for our recruitment management services. The university provides instruction and professional education to the students of the educational institution, including but not limited to physicians and nurses. We work directly with the university in an effort to recruit students that have completed the applicable education course, to work at one of our franchisee treatment centers. This allows our franchisee treatment centers to reduce recruitment costs by having access to a continuous flow of employee candidates that are newly trained for positions that the franchisee treatment centers need to fill. It also increases employee retention rates at our franchisee treatments centers since we have assisted in the recruitment of an employee that is trained for a specific position at the franchisee treatment center. Our staff recruitment service provides our franchisee clinics with access to a pool of skilled professionals who are well-prepared to make meaningful contributions to their respective healthcare environments. This allows for cost-effective talent acquisition, talent mobility, and enhanced retention rates.
We also provide training program services for all of the employees of our franchisee clinics. This training program is designed to provide employees with the knowledge and skills needed in our franchisee clinic operations, and is intended to improve employee competence and overall company productivity. The content of the training program is wide-ranging. First, we provide team-building training to strengthen cooperation and communication skills among employees. By fostering teamwork, we ensure that cooperation among staff members is smooth and efficient store operations are achieved.
We also provide training on clinic hygiene standards to help the MCs’ employees understand the importance of clinic hygiene. Adherence to strict standards in clinic hygiene is essential, and we ensure that the MCs’ employees are well-informed to protect the health and safety of the franchisee clinics’ patients.
The program also provides training on the basic operating rules and protocols. We train the MCs’ employees to make appropriate decisions in order to provide appropriate services to the patients of the franchisee clinics.
In a further effort to improve the work environment and promote respect for employees, we also provide sexual harassment training services. We emphasize the importance of creating a safe working environment for all staff.
Customer Management.
The Company, through its subsidiary Medical Payment, provides payment management services to the MCs. These services include but are not limited to the use of payment tools at the point of sale for the MC’s collection of payment from customers of the franchisee clinics.
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Additionally, we earn revenue through our points services, which involves managing the customer rewards program offered to customers of the franchisee clinics. The customer rewards program gives customers points for their birthday, certain referrals, and purchasing products or services at the franchisee clinic locations. The customers also receive additional loyalty benefits in connection with their accumulated points once they reach a certain number of visits to our franchisee clinics or reach certain spending thresholds, as further described below. The three tiers of the customer points ranking system are silver, gold, and diamond. The silver tier rank is the lowest tier rank and does not require a specific number of visits or spending amount to obtain. Silver tier rank customers receive 5,000 points on their birthday, 1% of the total spending amount back in points if the payment method for clinic services is cashless, 3% of the total spending amount back in points if the payment method for clinic services is in cash or through a medical loan, and 0% of the total spending amount back in points if the payment method for clinic services is entirely through medical insurance. The gold tier rank is achieved when the customer visits the franchisee clinics more than 6 times or spends more than 500,000 yen in a two-year period. Gold tier rank customers receive 10,000 points on their birthday, 2% of the total spending amount back in points if the payment method for clinic services is cashless, 4% of the total spending amount back in points if the payment method for clinic services is in cash or through a medical loan, and 0% of the total spending amount back in points if the payment method for clinic services is entirely through medical insurance. The diamond tier rank is achieved when the customer visits the franchisee clinics more than 8 times or spends more than 1,000,000 yen in a two-year period. Diamond tier rank customers receive 15,000 points on their birthday, 3% of the total spending amount back in points if the payment method for clinic services is cashless, 6% of the total spending amount back in points if the payment method for clinic services is in cash or through a medical loan, and 0% of the total spending amount back in points if the payment method for clinic services is entirely through medical insurance. The customers may use the earned points for discounts on select services offered by our franchisee clinics, and each point may be used for a discount amount equal to 1 yen. The customer’s points expire if the customer does not make any additional qualified purchase at a participating clinic within a year. Accordingly, at the time that a customer’s points expire, the Company earns 1 yen for each customer point that expires.
Employee Services.
The Company, through its subsidiary Liesta, provides employee management services to the MCs, including assistance with the location and securement of rental housing in Japan for employees of the MCs as well as facility rentals in Japan for the MCs.
Construction and Design.
The Company, through its subsidiary SBC Sealane, provides construction and design management services to the MCs, by coordinating engagement with our preferred general contractors for the clinic construction and design, as well as overseeing the process.
Medical Equipment and Supplies.
The Company acts in the capacity of a purchasing agent by supplying medical devices, medical equipment (including through leases of such equipment), implants, injection materials, other medical consumables, as well as skin care and beauty products that we resell to the MCs for use in their clinics.
Licensure of Intellectual Property and Technologies.
The Company licenses the use of patent-pending and non-patented intellectual property, including but not limited to medical technologies, trademark, trade names, and brand use, to the MCs. Each of the clinics owned by the MCs licenses the use of our brand name, “Shonan Beauty Clinic”, as well as the right to use the name “SBC Medical Group”.
We have also granted the MCs the right to use the know-how of the clinic operations, offer the procedures designated by us, conduct business activities under our brand name, and utilize our specialized technologies for procedures. We license the use of our highly standardized operational procedures, developed through years of industry experience and accumulated know-how, to the MCs. Our specialized technologies for procedures enhance the safety and efficiency of these cosmetic surgery procedures and include, but are not limited to, puncture devices for buried double eyelid procedures, simplified buried method surgical equipment, proprietary surgical sutures, silicone bags for breast augmentation simulations, and microscopic hair volume evaluation method for the treatment of androgenetic alopecia. Additionally, we license the use of patent-pending and non-patented safety management methods to the MCs for procedures such as full-incision double eyelid surgery, lateral canthoplasty, brow lift procedures, cheek sagging prevention methods, hair removal safety management methods, tattoo removal treatments, and hyperhidrosis procedures.
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The Company licenses the use of simulation technology to the MCs aimed at enhancing the skills, standardization, and education of professional staff that are providing medical services at the MCs’ clinics, and licenses the use of such technologies to the MCs. By utilizing our collection of medical cases and artificial intelligence, we employ technologies such as virtual reality, rendering, computing, 5G/6G, and Web3.0 to create simulators for the services that the MCs’ treatment centers provide. For example, SBC AI Eye is the industry’s first double AI simulation service. The highly accurate double AI simulation service has been achieved by learning from actual case data of franchisee’s clinic, which totals 600,000 double layer cases, using an AI model based on the most advanced AI technology, GAN (adversarial generative network). This service enables a 10-step simulation of double layer width on “your own face”, whereas double layer surgery has generally been studied using photographs of other people’s cases. These new technologies offer benefits to our franchisee treatment centers, such as efficient education, knowledge sharing, improved procedural accuracy, proactive support, and remote operations. Through simulation technology, medical professionals can simulate various scenarios and anticipate potential complications, enabling them to develop proactive strategies and responses. We believe this improves the level of patient safety and care at our franchisee clinics. The integration of advanced technologies, such as 5G/6G, allows for remote operations and consultations, enabling medical experts at our franchisee clinics to provide guidance and perform procedures from a distance, expanding access to specialized care and expertise.
Supplementary information regarding other business activities and service overview diagram
Subsidiaries under our group operate businesses not only our core medical business services. Corporations whose sales account for less than 1% of the group are omitted.
Our revenues
Franchising Revenue
The Company generates franchising revenue (royalty income) by licensing its intellectual properties, including but not limited to the Company’s brand name (“Shonan Beauty Clinic”), trade name, and trademarks, as a franchisor pursuant to franchise agreements with certain MCs (the “MC”) in Japan. Prior to April 2023, royalty income was based on a percentage of sales and recognized at the time when the related sales occur; since April 2023, it is based on a fixed amount to each clinic of the MCs; since September 2023, it is based on a fixed amount to each MC and a fixed amount to each clinic of the MCs and recognized over time as services are rendered.
Starting in April 2025, the Company plans to revise its fee model for newly opened clinics by reducing fees in the first year to better reflect the lower service utilization during the initial period, before transitioning to a performance-based structure thereafter. This change aims to create a more sustainable long-term revenue model while aligning fees with the actual operations of newly opened clinics.
Procurement Services Revenue
The Company generates procurement services revenue by purchasing primarily advertising services and medical materials from qualified vendors on behalf of MCs to maintain brand quality consistency. Procurement services revenue is recognized at the point in time upon the delivery of products or over time as services are performed. Occasionally, the Company receives vendor discounts on certain large purchases. It recognizes revenue based on actual payments and will return the over-collection resulting from such discounts to MCs.
Management Services Revenue
The Company provides loyalty program management services, labor supporting services, function supporting services, and management consulting services to MC.
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Loyalty program management services
The Company awards loyalty points on behalf of MCs to MCs’ customers, who earn loyalty points from each qualified purchase made at the loyalty program participating clinics of MCs, in exchange for a handling fee. The revenue is based on a percentage of the related payment amount made by MCs’ customers and is recognized when the loyalty points are awarded.
At the time loyalty points are awarded, a MC pays the Company cash in an amount equivalent to the awarded loyalty points, which is recorded as advances from customers. When a MC’s customers redeem the loyalty points, the Company returns the cash back to the MC in an amount equivalent to the redeemed loyalty points. The awarded loyalty points expire if a MC’s customer does not make any additional qualified purchase at a participating clinic within a year. The Company accumulates and tracks the points on behalf of MCs until the loyalty points expire, at which time the Company recognizes an amount equivalent to the expired loyalty points as revenue, which is normally not significant.
The Company also awards certain points to MCs’ customers on behalf of MC for free in order to increase the volume of MCs’ sales, from which the Company earns other types of revenues, such as royalty income. When a MC’s customers redeem such points, the Company reimburses MC in an amount equivalent to the used free points and records it as a reduction of the revenue recognized.
The Company is an agent in the management of loyalty programs, and as a result, revenues are recognized net of the cost of redemptions.
Labor supporting services
The Company generates revenue by dispatching staff to MCs to provide a range of services, primarily including clinic operation, IT, and administrative services, among which, clinic operation service has been fully terminated since October 2024. The Company recognizes the revenue over the time when services are rendered.
Function supporting services
The revenue is derived from providing functional supporting services to MCs, such as accounting and human resources services. The Company recognizes the revenue over the time when services are rendered.
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 straight-line basis over the terms of the lease agreements and sales-type leases revenue is generally recognized on the lease commitment date.
Other Revenues
The Company generates other miscellaneous revenues such as accommodation services income, medicine dispensed sales revenue, brokerage services revenue, construction services revenue, pilot training services revenue, interest income, etc. These revenues are recognized when the Company satisfies performance obligations.
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Revenues generated from these different revenue streams by the Company consist of the following:
| For
the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Franchising Revenue | $ | 61,033,032 | $ | 42,103,380 | ||||
| Procurement Revenue | 54,814,399 | 53,186,662 | ||||||
| Management Services Revenue | 53,113,155 | 72,282,549 | ||||||
| Rental Services Revenue | 16,141,714 | 7,336,768 | ||||||
| Other Revenues | 20,313,242 | 18,633,064 | ||||||
| Total Revenues | $ | 205,415,542 | $ | 193,542,423 | ||||
Our Strengths
Brand. Our group’s brand name “Shonan Beauty Clinic” has been developed for over 20 years in the medical industry on the basis of safe and reliable medical services that are primarily cosmetic in nature. We maintain high standards for quality control and customer service in both our directly owned and operated clinic, as well as our franchisee clinics in order to continue to build upon this foundation. In addition, some of the doctors that provide services at our franchisee clinics also publish medical related articles and participate in conferences in Japan and overseas. We believe that this cohesive approach and consistent quality of service promotes global recognition of our brand name.
Comprehensive Medical Services. The Company’s directly owned and franchisee clinics provide a variety of medical treatments to meet all of the clinics’ patients’ needs. Both the Company and the MC franchisees focus on building long-term relationships with patients, and customer satisfaction rate ranks highly among Japanese beauty medical service providers. According to an internal report from our MCs’ franchisee clinics, the franchisee clinics have an average repeat customer rate of over 71%, and a total of over 6.0 million customers globally during 2024. Accordingly, we have been able to continue to provide a high level of management services to the MCs while benefiting from the increasing number of clinics.
Technology. The Company focuses on developing and licensing simulation technology aimed at enhancing the skills, standardization, and education of professional doctors that are providing medical services at our franchisee clinics. By utilizing our collection of medical cases and artificial intelligence, we employ technologies such as virtual reality, rendering, computing, 5G/6G, and Web3.0 to create simulators for the services that our treatment centers provide. These simulators offer benefits to our treatment centers, such as efficient education, knowledge sharing, improved procedural accuracy, proactive support, and remote operations. Through simulation technology, medical professionals can simulate various scenarios and anticipate potential complications, enabling them to develop proactive strategies and responses. We believe this improves the level of patient safety and care at our franchisee clinics. Our goal is to achieve standardized medical techniques through the development of these technological advancements. The integration of advanced technologies, such as 5G/6G, allows for remote operations and consultations, enabling medical experts to provide guidance and perform procedures from a distance, expanding access to specialized care and expertise.
Management Services. The management services that we provide to our franchisee clinics, through our subsidiaries, include but are not limited to advertising and marketing needs across various platforms (such as social media networks), staff management (such as recruitment and training), booking reservations for customers, assistance with franchisee employee housing rental, facility rentals, construction and design, medical equipment procurement (resale), the provision of cosmetic products to franchisees for resale at the franchise locations (resale), licensure of the use of patent-pending and non-patented medical technologies, trademark and brand use, IT software solutions for remote medical consultations, and payment tools for franchisee customers. We believe that our advertising and marketing services (including but not limited to promotion on social media networks) help create effective campaigns that promote our franchisee clinic services and attract a wider audience of customers. We also believe that our maintenance and operation of the booking and reservation process for customers ensures a seamless user experience when booking services at our franchisee clinic locations. These services provide valuable guidance and expertise to our franchisee clinics, helping them optimize their operations, improve patient experience, and enhance overall performance. We believe this to be a crucial component of fostering our franchisees’ growth and success.
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Internal Processes and Protocols. To promote high standards of quality and service, we have implemented internal processes and protocols. These measures include ongoing training and education programs for our employees and the employees of our franchisee clinics, continuous monitoring of treatment outcomes, and adherence to industry guidelines and regulations. By upholding these standards, we aim to maintain and enhance our franchisees’ reputation as a trusted provider of cosmetic medical services.
Our Growth Strategies
Pursue New Clinic Development. We have pursued a disciplined new clinic growth strategy, having expanded our concept and franchisee model across varying clinic sizes and geographies. We plan to leverage our expertise in opening new clinics and our success in the Japan market to fill in existing markets and expand into new geographies with the same careful planning as we have demonstrated in the past. We will continue to utilize our existing strategy of exploring opportunities for directly owned and operated clinics (including but not limited to merger and acquisition transactions) as well as additional franchisee clinics. See also our real estate strategy under “Site Development and Expansion — Site Selection Process.” We believe that our revenue will increase if we are able to increase the number of franchisee clinics that we provide management services to, since we would be providing our services to additional locations. We believe that we have the potential to increase global recognition of our brand. However, we cannot predict the time period over which we can achieve any level of franchisee clinic growth or whether we will achieve this level of growth at all. Our ability to achieve new franchisee clinic growth is impacted by a number of risks and uncertainties beyond our control, including those described in “Part I, Item 1A. Risk Factors”.
Deliver Consistent Comparable Franchisee Clinic Sales Growth. We believe we will be able to generate comparable franchisee clinic growth by growing our customer base through increased brand awareness, consistent delivery of quality surgical and non-surgical medical services by our clinic and our franchisee clinics, acquiring and developing cutting edge medical services to be licensed to our franchisee clinics, and franchisee clinic renovations. We will continue to manage our franchisee clinics and pricing as part of our overall strategy to increase the number of customers and the average amount spent by customers. We continue to explore initiatives to increase skin care product sales, enhance the services offered by our clinic and our franchisee clinics, and improve our appointment booking process. Our franchisee client rewards program, which has been rolled out across the entire franchisee clinic base in Japan, tracks customers’ spending and awards customers with points based upon such spending (1 point for each 1 yen spent). The rewards program also gives customers points for their birthday and certain referrals. The customers also receive additional loyalty benefits in connection with their accumulated points once they reach a certain number of visits to our franchisee clinics (tiers for a total of 6 visits and 8 visits in 2 years) or reach certain spending thresholds (tiers for a total of 500,000 yen spent and 1,000,000 yen spent in 2 years). The customers may use the earned points for discounts on select services offered by our franchisee clinics.
Increase Profitability. During our expansion, we have invested in our infrastructure and personnel, which we believe positions us to continue to scale our business operations. As we continue to grow, we expect to drive higher profitability at the corporate level by leveraging our existing support infrastructure, as we believe that as the number of the franchisee clinics that we provide management services to grows, our general and administrative costs over several years will increase at a slower rate than our revenues.
Heighten Brand Awareness. We intend to continue to pursue targeted local and global marketing efforts and plan to increase our brand awareness (including but not limited to advertising on social media platforms). We intend to continue to promote limited time discounts on services provided by the franchisee clinics through our advertising services to build customer loyalty and brand awareness. The number of patients that undergo cosmetic procedures at our franchisee clinics and patient growth trajectory have been a key indicator of our success and brand awareness. In 2021, our franchisee clinic patient base reached 3.0 million individuals. This figure increased further in 2024, reaching approximately 3.9 million users. This growth reflects the growing demand for cosmetic surgery procedures and the confidence that patients have in our brand and services.
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Procedure and Product Development. We intend to continue to collect and analyze extensive medical data, develop innovative procedures and products, and obtain intellectual property rights to new products and procedure methodologies relating to skin care and the medical services provided by our franchisee clinics. These assets are then provided to our franchisees. We intend to continue to offer guidance and technical training to our franchisee clinics’ employees with respect to these new products and procedure methodologies in order to stay at the forefront of medical advancements.
Site Development and Expansion
Site Selection Process
We consider franchisee clinic site selection to be critical to our success. As part of our strategic site selection process, our team receives potential site locations from networks of local real estate brokers, which are then reviewed by our development and senior management teams. This review includes site visits, key deal terms, and analyses of the estimated profitability of clinics at the proposed properties for our franchisee clinics.
Our current real estate strategy focuses on high-traffic markets with a diverse population and above-average household income. In site selection, we also consider factors such as visibility, traffic patterns, accessibility, parking, and competition when considering approval of a location for a franchisee clinic. We also utilize site analytics tools for demographic analysis and data collection for both existing and new market areas, which we believe allows us to further understand the market area (including but not limited to the types of services desired by the local residents) and set clear market development strategies. Our existing framework and experienced management team allow us to efficiently manage the opening of new franchisee clinics on behalf of the MCs in desired locations and penetrate markets in both suburban and urban areas.
Expansion Strategy and Market Share
The strong market share presence of our franchisee clinics in the Japanese cosmetic surgery industry reflects the success of our brand and customer satisfaction. With our cutting-edge technology, the MC’s skilled medical professionals, and the comprehensive range of services offered at our franchisee clinics, we have established our brand as a trusted and preferred choice among patients seeking cosmetic enhancements. We plan to pursue a two-pronged expansion strategy by opening new clinics in both new and existing markets (directly and through our franchisee partners). We believe this expansion will be crucial to executing our growth strategy, as well as building awareness of “Shonan Beauty Clinic” as a global brand and provider of surgical and non-surgical medical services and skin care products. Expansion into new markets occurs in parallel with ongoing growth in existing markets, with the goal of maintaining a pipeline of top-tier development opportunities.
Upon selecting a new market, we typically manage the opening of one or two clinics to prove concept viability in that market. We have a remote management system whereby our operations team can monitor clinics in real-time from our headquarters to maintain operational quality in new markets.
When selecting sites, we look to replicate the site attributes, trade area quality, and co-tenant mix of our most successful clinics. We frequently reevaluate our market area development plan (targeted areas and pacing for development) and our site selection strategy within those targeted areas.
Clinic Design
Franchisee clinic design is handled by our in-house development team on behalf of the MCs in conjunction with outsourced vendor relationships. Our franchisee clinics’ sizes currently average approximately 357 square feet. Our average customer capacity per franchisee clinic varies greatly depending upon the services being provided at the time. Our franchisee clinic layout evokes a relaxing experience characterized by an efficient use of staff and patient space as well as modern furniture.
Construction of a new franchisee clinic takes approximately 6 months. We oversee and coordinate engagement with our preferred general contractors on behalf of the MCs for the franchisee clinic construction process. On average, our franchisee clinics opened during fiscal year 2024 required a cash build-out cost of approximately $333,000 per clinic, net of landlord tenant improvement allowances ; however, this amount could be materially higher or lower depending on the utilization of union labor, market, clinic size, and condition of the premises upon landlord delivery. The franchisee MCs are responsible for paying for the build-out cost of the respective franchisee location.
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Human Capital Management
As of the date of this Annual Report, we had approximately 863 employees globally, a majority of which are located in Japan, Singapore, Vietnam, and the United States. As of the date of this Annual Report, there were no unions represented within our employee base. We anticipate that we will continue to expand our workforce as our company grows.
We believe that empowered employees make a difference in our ability to execute our strategy. As such, we strive to provide an inclusive, rewarding and engaging environment for employees to develop professionally and contribute to our success.
Competition
Management Service Competition.
With respect to our management services, we do not face significant competition from third parties because all of our management service revenue is derived from our relationship with the MCs, which are related parties.
Clinic and Brand Competition
Our franchisee clinics face significant competition from a variety of locally owned beauty clinics and Japanese chain beauty clinics offering both cosmetic medical services, as well as cosmetic products. Major competitors of our franchisee clinics including those in Japan but also in the global cosmetic surgery market such as Aesthetic Medispa, Alma Lasers, B. Braun SE, Cynosure Aesthetics, Evolus, Inc., Galderma S.A., Genesis Biosystems, Inc., Inmode Ltd., IRIDEX Corporation, Lumenis Be Ltd., Revance Therapeutics, Inc., Sientra, Inc., Sinclair Pharma Limited, Stryker Corporation, and Surgery Partners. To further strengthen our competitive position in the international market, we acquired a Singapore-based cosmetic surgery group in November 2024. Our clinics in Vietnam and our related party’s clinic in the US are still in the early stages of development in our efforts to penetrate global competition. However, we believe that our franchisee clinics, clinics in Singapore, a clinic in Vietnam and a clinic in the US compete primarily based on service quality, patient experience, ambience, location, convenience, value perception, and price. The competition continues to intensify as competitors to our clinic in Vietnam and Singapore and our franchisee clinics increase the breadth and depth of their cosmetic medical service and cosmetic product offerings, and open new clinics. A decrease in the revenue of the MCs’ franchisee clinics as a result of such increased competition would directly result in a reduction of the Company’s revenue since we receive substantial revenue from the MCs as part of our compensation for management services.
We investigate the brand image and concept of competitors to our clinic and our franchisee clinics from the viewpoint of brand and awareness. It is important to understand the franchisee clinic’s impact on its patients because each competitor offers unique characteristics and value. Also, famous chain clinics and locally popular clinics can be a competitive factor.
In terms of pricing strategies, we compare pricing strategies from competitors to our clinic and our franchisee clinics, such as price ranges, extent of services provided, and discount campaigns. Because prices have a significant impact on consumer choice, we understand price competition with competitors and consider our own pricing strategy when we set the guidelines for the pricing of services for our franchisee clinics and our clinics in Vietnam and Singapore. However, it is important to strike a balance, because customers value quality and service as well as price.
In terms of quality and service, we evaluate the quality of service provided by and the working experience of our franchisee clinics’ competitors’ employees. Because patients want high quality service and highly experienced staff members (such as doctors and nurses), the aim is to understand the quality provided by competitors and to find the point of differentiation of the company. We use review sites and word-of-mouth information to gather patient opinions and understand the potential for improvement of our franchised brand.
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In terms of the number of clinics and development, we evaluate our regional competitiveness by comparing the number of clinics and the regions in which the franchisee clinics’ competitors operate. We track franchisee clinics’ competitors’ plans to open new clinics and their expansion strategies to understand the status of competition in the market. This provides us with useful information to consider when determining franchisee clinic growth opportunities.
In terms of customer satisfaction and feedback, we analyze patient satisfaction surveys and feedback from the patients of our clinics in Vietnam and Singapore and the franchisee clinics as part of our management services to the MCs. The goal is to understand the patient’s assessment and find ways to improve our franchised brand. We compare the patient experience at the franchisee clinics with that of our competitors and consider differentiation strategies and service improvement measures in order to preserve our franchised brand integrity. Considering the above points of view, we analyze competitors to understand our strengths and competitive challenges, and conduct strategic decision making. By comparing the competitors to our franchisee clinics and our clinics in Vietnam and Singapore, we are determining the direction to improve the competitiveness of our franchise in the market.
Business Trends
In the cosmetic medical service and product industry, patient preferences and needs are very important. Service trends and patient interests can change. For example, there is a growing demand for non-invasive cosmetic services. The key to success is for our clinics in Vietnam and Singapore and the franchisee clinics to offer cosmetic services and products tailored to patient’s needs and preferences. The success of the MCs’ franchisee clinics would directly impact our success since we receive substantial revenue from the MCs as part of our compensation for management services.
The cosmetic medical industry is highly dependent on general economic conditions. During economic boom times, patient discretionary income tends to increase and demand for cosmetic medical services and products tends to increase. In particular, due to inflation, costs and wages are on an upward trend. In the event of rapid inflation, there is a risk of deterioration in business performance, such as inability to pass on higher purchase costs and other costs to price. To date, inflationary pressures have not materially impacted our operations. On the other hand, during economic downturns, demand may fall due to economic uncertainty and the impact of spending cuts, especially since many of the cosmetic medical services our franchisee clinics and our clinic are elective.
Depending on economic conditions and individual circumstances, patient discretionary spending priorities may change, and some patients may place a higher priority on obtaining cosmetic services and products and actively allocate their budget accordingly. Other patients may be more likely to refrain from buying elective cosmetic services and products to save money. These trends have a significant impact on the demand for our franchisee clinics’ cosmetic services and products. A decrease in the revenue of the MCs’ franchisee clinics as a result of such increased economic conditions would directly result in a reduction of the Company’s revenue since we receive substantial revenue from the MCs as part of our compensation for management services.
Demographic trends, such as changes in population age structure, family structure, and lifestyle, are also important factors. For example, younger and middle age generations may be more willing to undergo elective cosmetic procedures and purchase cosmetic products. Older generations, on the other hand, may be more likely to be apprehensive about undergoing elective cosmetic procedures.
Competitive presence is an important factor in the cosmetic clinic industry. The presence of competitors in the same category or an increase in new entrants can increase patient choices and diversify demand. Differentiation and uniqueness from competitors are required, especially in high income geographical locations.
These factors also directly or indirectly affect consumer confidence. Patients choose beauty clinics they trust based on economic and competitive conditions. Newly opened clinics, especially in new geographical locations, also tend to have an initial revenue peak, known as the honeymoon period, followed by a decline.
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While these factors influence the success of the beauty clinic industry, it is important to understand trends and customer needs across the industry, and to develop flexible strategies and appropriate measures for preserving our brand integrity. Focusing on improving clinic quality, service, and patient experience are required to maintain our franchised brand.
Suppliers
As of December 31, 2024, we had a large and diverse network of suppliers, providing us with a diverse selection of medical equipment, supplies and medical consumables. We facilitate the sale of medical equipment, supplies and medical consumables to the MCs as part of our management services. Our suppliers fall into five key categories: medical devices, medical equipment, implants, injection materials and other medical consumables.
We have a system for selecting reliable and quality suppliers, with a selection and review process based on qualification of the business and/or products, pricing, reputation, service quality, delivery schedule and product offerings. We maintain multiple suppliers for key categories of purchases to ensure continuity and quality of supply. Payment terms with the majority of our suppliers are on open account. Certain suppliers grant us credit periods ranging from 20 to 60 days, although we generally pay on delivery.
We have not previously encountered any major problems in sourcing despite not having long-term contracts with our suppliers, nor did we encounter any business disruption due to supply shortages or delays. In any event, we believe any shortage or delay in the supply of implants, injection materials and medical consumables will not have any material impact on us as we are able to switch to other suppliers with comparable quality and prices. If these third parties experience shutdowns or continued business disruptions, our ability to conduct our business and facilitate the sale of medical equipment, supplies and medical consumables to the MCs in the manner and on the timelines presently planned could be materially and negatively impacted, including but not limited to delays in our supply chain which could delay or otherwise impact our business. A decrease in the revenue of the MCs’ franchisee clinics as a result of supply chain delays and a decrease in the volume of purchases of medical equipment, supplies and medical consumables by the MCs would directly result in a reduction of the Company’s revenue.
Our customers
The majority of the customers of our directly owned and operated clinics, as well as our franchisee clinics, are individuals aged between 20 and 40.
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The Company generates more than 90% of its revenue from provision of management services to the MCs pursuant to the franchisor-franchisee agreements and/or service agreements.
| For
the Years Ended December 31, | ||||||||
| Revenues from related parties | 2024 | 2023 | ||||||
| Medical Corporation Shobikai | $ | 53,862,520 | $ | 56,554,316 | ||||
| Medical Corporation Kowakai | 46,756,189 | 45,115,149 | ||||||
| Medical Corporation Nasukai | 46,355,437 | 45,893,461 | ||||||
| Medical Corporation Aikeikai | 17,997,072 | 21,521,302 | ||||||
| Medical Corporation Jukeikai | 5,666,907 | 4,518,846 | ||||||
| Medical Corporation Ritz Cosmetic Surgery | 7,435,446 | 2,603,405 | ||||||
| Japan Medical & Beauty Inc. | 39,620 | 488,023 | ||||||
| Hariver Inc. | 19,810 | 21,740 | ||||||
| SBC Inc., previously known as SBC China Inc. | 2,512 | 467 | ||||||
| Public Utility Foundation SBC Foundation for Medical Promotion | 107 | 387 | ||||||
| General Incorporated Association SBC | 801 | 569 | ||||||
| SBC Tokyo Medical University, previously known as Ryotokuji University | 45,286 | 231,191 | ||||||
| SBC Shonan Osteopathic Clinic Inc. | 56,740 | 69,227 | ||||||
| Yoshiyuki Aikawa | 98,445 | 67,516 | ||||||
| Mizuho Yamashita | — | 19,214 | ||||||
| Amulet Inc. | — | 3,587 | ||||||
| AI Med Inc. | 787 | 556,397 | ||||||
| SBC Irvine MC | 1,204,107 | 1,298,539 | ||||||
| Medical Corporation Association Furinkai | 11,708,183 | 2,923,608 | ||||||
| Medical Corporation Association Junikai | 3,923,228 | 851,105 | ||||||
| General Incorporated Association Taiseikai | 692 | — | ||||||
| Total | $ | 195,173,889 | $ | 182,738,049 | ||||
Misappropriations of Funds
In January 2024, before the issuance of the Company’s consolidated financial statements as of December 31, 2023 and for the year then ended, in connection with a routine tax examination of SBC Medical Group Co., Ltd.’s income tax returns, the Japanese tax authority discovered misappropriations of SBC Medical Group Co., Ltd. funds by a former manager of general affairs and legal department of L’Ange Cosmetique Co., Ltd., which is a subsidiary of SBC Medical Group Co., Ltd. (the “former manager”), who received kickbacks from multiple vendors of SBC Japan (collectively with the former manager, the “participants”) possibly beginning as early as 2012 until the misappropriations were discovered. The Japanese tax authority, who has the authority to access bank deposit information of companies and individuals under investigation, uncovered this misconduct during their examination of such deposits. The former manager was suspended immediately upon the discovery and was terminated effective February 23, 2024. SBC Medical Group Co., Ltd. has commenced a criminal complaint in Tokyo against the participants.
Shortly after this discovery, SBC Medical Group Co., Ltd. engaged independent legal counsel and forensic consultants to investigate the misappropriations. The investigation, which was completed in March 2024, revealed that the participants had misappropriated approximately JPY632 million ($5.6 million), including consumption tax, from SBC Medical Group Co., Ltd., of which the former director received approximately JPY335 million ($3.0 million), between April 2016 and the discovery of the misappropriations in January 2024. The amount misappropriated prior to April 2016 could not be accurately determined because certain data for the period prior to April 2016 was unavailable, SBC Medical Group Co., Ltd. does not expect such amount to be material based on current estimates.
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SBC Medical Group Co., Ltd. found no evidence that any other employee of SBC Medical Group Co., Ltd. was aware of, or colluded in, the misappropriations of SBC Medical Group Co., Ltd. funds or that there was any unlawful activity apart from that associated with the participants’ misappropriations of SBC Medical Group Co., Ltd. funds. The misappropriated amounts, excluding the consumption tax, representing advertising services purchased on behalf of a related-party MC, were originally included in the revenues reported on a net basis. After discovery of the misappropriations, the amounts were reported as a misappropriation loss. For the year ended December 31, 2023, the Company recorded a misappropriation loss of $409,030.
Remediation Plan
Immediately upon learning of the misappropriation of funds, SBC Medical Group Co., Ltd. engaged independent legal counsel and forensic consultants to investigate the misappropriations. As stated above in this Annual Report, based on its internal investigation, SBC Medical Group Co., Ltd. found no evidence that any other employee of SBC Medical Group Co., Ltd. was aware of, or colluded in, the misappropriations of Company funds or that there was any unlawful activity apart from that associated with the participants’ misappropriations of Company funds.
Based on the results of the investigation, management identified the following material weaknesses:
| 1. | Control Environment. SBC Medical Group Co., Ltd. did not maintain an effective control environment that fully emphasized the establishment of adherence to effective internal controls over financial reporting throughout SBC Medical Group Co., Ltd.’s management. SBC Medical Group Co., Ltd. did not give sufficient consideration to the risk of senior management override of internal controls. SBC Medical Group Co., Ltd. had not ensured that certain personnel were adequately trained to properly execute critical internal controls. | |
| 2. | Control Activities. SBC Medical Group Co., Ltd. did not effectively implement or maintain control activities, such as ensuring a sufficient functioning of the mechanism of reconciliation of invoices to contracts and multi-level approvals of contracts, invoices and payments. SBC Medical Group Co., Ltd. did not maintain sufficient segregation of duties with respect to certain activities and did not maintain adequate monitoring and oversight for those activities. | |
| 3. | Risk Assessment. SBC Medical Group Co., Ltd. did not have an effective risk assessment process and the related documentation. | |
| 4. | Information and Communication. SBC Medical Group Co., Ltd. did not adequately communicate to all employees of the organization information regarding the importance of internal controls over financial reporting and employees’ duties and responsibilities, including segregation of duties. | |
| 5. | Monitoring Activities. SBC Medical Group Co., Ltd. did not maintain effective monitoring controls related to the evaluation and testing of its internal controls over financial reporting. |
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Management has implemented, or is in the process of implementing, the following changes to the Company’s internal control systems and procedures:
| ● | We will clarify the organization structure and employee positions promoting (i) segregation of duties, (ii) monitoring and oversight, (iii) reconciliation of invoices to contracts and (iv) multi-level approvals of contracts, invoices and payments. |
| ● | We will communicate to all employees of the organization information regarding the importance of internal controls and employees’ duties and responsibilities, including segregation of duties. |
| ● | We have initiated a project led by Head of Internal Control and Internal Audit Office, and aided by outside consultants, to fully document its processes to serve as the basis for activities during 2024 to assess its fraud risks and evaluate and test its internal controls over financial reporting. |
| ● | We are progressing with a project, led by our Head of Internal Control and Internal Audit Office, to design, implement, and document internal controls to address risks related to financial reporting. This year, our activities are focused on “laying the foundation to complete our response to key financial reporting risks by the end of 2025,” and we are making progress as planned. |
The former manager was suspended immediately upon the discovery and was terminated effective February 23, 2024. Subsequently, SBC Medical Group Co., Ltd. filed a complaint, which was accepted by the police on February 25, 2025. Meanwhile, SBC Medical Group Co., Ltd. has initiated a search for a new manager of general affairs and legal department and hired an attorney(JP)-qualified manager in February 2025. In order to improve the overall level of competence in the accounting department, the Company is hiring personnel with accounting experience at listed companies and personnel with CPA(JP).
Management focused on building internal controls in 2024. From 2025 onwards, we will test and monitor the operational effectiveness of these controls and, if necessary, take additional corrective actions to address any deficiencies.
The Company believes the remediation measures described above will strengthen its internal control over financial reporting and remediate the material weaknesses identified.
Government Regulation and Environmental Matters
In General
The Company and the MCs are subject to extensive and varied federal, state, and local government regulations globally, including regulations relating, among others, to public and occupational health and safety, product labeling, healthcare, the environment, sanitation, and fire prevention. We operate our clinic, and the MCs operate the franchisee clinics, in accordance with standards and procedures designed to comply with applicable codes and regulations. However, an inability to obtain or retain health department or other licenses by us or the MCs would adversely affect our operations. Although the Company and the MCs have not experienced, and do not anticipate, any significant difficulties, delays or failures in obtaining required licenses, permits or approvals, any such problem could delay or prevent the opening of, or adversely impact the viability of, a particular clinic or group of clinics. Additionally, difficulties, delays or failure to retain or renew licenses, permits or approvals, or increased compliance costs due to changed regulations, by us or the MCs, could adversely affect operations at our clinic and the MCs’ franchisee clinics. A decrease in the revenue of the MCs’ franchisee clinics as a result of such difficulties, delays, or failure would directly result in a reduction of the Company’s revenue since we receive substantial revenue from the MCs as part of our compensation for management services.
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The Company and the MCs are subject to federal, state and local environmental laws and regulations globally concerning waste disposal, pollution, protection of the environment, and the presence, discharge, storage, handling, release and disposal of, or exposure to, hazardous or toxic substances (“environmental laws”). These environmental laws can provide for significant fines and penalties for non-compliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such substances. We are not aware of any environmental laws that will materially affect our earnings or competitive position, or result in material capital expenditures relating to our clinic or our franchisee clinics. However, we cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be administered, interpreted or enforced, or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating to, environmental laws. It is possible that the Company and the MCs will become subject to environmental liabilities, and any such liabilities could materially affect our business, financial condition or results of operations.
We are also subject to laws and regulations globally relating to information security, privacy, cashless payments, gift cards and consumer credit, protection and fraud, and any failure or perceived failure to comply with these laws could harm our reputation or lead to litigation, which could adversely affect our business, financial condition or results of operations.
Furthermore, we are subject to import laws and tariffs globally which could impact our ability to source and secure medical products, other supplies and equipment necessary to supply our clinic and franchisee clinics.
In addition, as part of managing the development and construction of franchisee clinics for the MCs, we must ensure that the applicable zoning, land use and environmental regulations in the applicable jurisdiction are being complied with.
The process of obtaining regulatory approvals and the compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities now and in the future could be subject to challenge under one or more of these laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to significant penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion of products from reimbursement under government healthcare programs, integrity oversight and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our cosmetic products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
As our business continues to expand in the U.S. and other jurisdictions, and as laws and regulations continue to be passed and their interpretations continue to evolve in numerous jurisdictions, additional laws and regulations may become relevant to us.
Japan Laws and Regulations
Personal Information Protection
In Japan, the Act on the Protection of Personal Information (the “APPI”) and its related guidelines impose various requirements on businesses, including us, that use databases containing personal information. Under the APPI, the Company and the MCs are required to lawfully use personal information we have obtained within the purpose of use we have specified and taken appropriate measures to maintain the security of such personal information. The Company and the MCs are also restricted from providing the personal information of a person (the “principal”) to third parties without the consent of the principal. The APPI also includes regulations relating to the handling of sensitive personal data and anonymous personal data and the transfer of personal information to foreign countries. A Personal Information Handling Business Operator (as defined below) shall not transfer a person’s personal data to third parties, including its affiliated entities without the prior consent of the principal unless an exception applies (Article 27, Paragraph 1 of the APPI).
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A “Personal Information Handling Business Operator” is defined as a person (including a judicial person and excluding any administrative organizations) providing a personal information database for use in business (Article 16, Paragraph 2). The Company’s business collects personal information from customers, thereby subjecting the Company to the provisions applicable to the Personal Information Handling Business Operator. Under the APPI, the prior consent of the principal to a transfer of such person’s personal data (including Sensitive Information (as defined below)) is not required if the transfer:
| (a) | is specifically required or authorized by any laws or regulation; | |
| (b) | is necessary for protecting the life, health, or property of an individual and consent of the principal is difficult to obtain; | |
| (c) | is necessary for improving public health and sanitation, or promoting the sound upbringing of children, and the consent of the principal is difficult to obtain; or | |
| (d) | is made in a case where there is a need to cooperate in regard to a central government organization or a local government, or a person entrusted by them performing affairs prescribed by laws and regulations, and when there is a possibility that obtaining the principal’s consent would interfere with the performance of the said affairs. |
Furthermore, the Personal Information Handling Business Operator shall, unless an exception listed above applies, not acquire Sensitive Information (such as personal information relating to physical or mental disabilities, medical records, and medical and pharmacological treatment) without obtaining prior consent from the principal (Article 2, Paragraph 3 and Article 20, Paragraph 2 of the APPI).
The MCs gather personal information from customers through questionnaires and other methodologies in connection with the provision of medical services. Some of the information that the MCs collect could fall under the category of sensitive personal data under the APPI. In addition, the MCs gather personal information including diagnosis records, which is understood to typically fall under the Sensitive Information. Therefore, the MCs are required to obtain consent from the customers prior to the transfer of their information.
When storing personal information, it is necessary to manage it safely so that it will not be leaked or the database breached. For the safe management, the APPI requires the Personal Information Handling Business Operator to establish an information security system. It includes establishment of the fundamental rule of personal information management, appointment of personnel responsible for personal information management, provisions of regular training courses on privacy and security breach, and physical security control.
A failure by the MCs to comply with the APPI may harm our franchised brand and directly result in a reduction of the Company’s revenue, since we receive substantial revenue from the MCs as part of our compensation for management services.
Regulations Governing our Franchises
Japan has antitrust laws that protect consumers and regulate how companies operate their businesses. Among the various Japanese antitrust laws, the seminal antitrust law is the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (Act No. 54 of 1947, as amended) (which we refer to as the “Antimonopoly Act”). The Antimonopoly Act prohibits certain activities that inappropriately induce or mislead persons into entering into a business relationship with us through our granting of seemingly preferable trade terms and conditions that could create false impressions in relation to other franchisors we compete with.
The Japan Fair Trade Commission (which we refer to as the “JFTC”) enforces the Antimonopoly Act and other Japanese antitrust laws. The JFTC issued the “Guidelines Concerning the Franchise System Under the Antimonopoly Act” on April 24, 2002 (last amended on June 23, 2011) (which we refer to as the “Guidelines”), under which the JFTC suggests that, prior to entering into a franchise relationship, a franchisor should adequately disclose and explain material trade terms to a potential franchisee in order to prevent any misunderstanding of the material trade terms, and to prevent such potential franchisee from being misled or improperly induced into entering into such franchise relationship. Material trade terms include terms relating to the following:
| ● | the supply of products after the party becomes a franchisee (such as a system for recommending suppliers); |
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| ● | guidance, procedures, frequency, and cost to the franchisee relating to the business activities of the franchise; |
| ● | nature and amount of payments to be collected when the party joins the franchise, whether the payments are refundable or may be returned, and the conditions for refunding or returning the payments; |
| ● | royalties that the franchisee pays to the franchisor for use of trademarks and trade names and for guidance relating to management procedures, including the amount of, procedure for calculating, and the time and method of payment, of royalties; |
| ● | loans the franchisor extends to the franchisee, including the interest rate and the mechanism and conditions of settlement; |
| ● | compensation for any losses the business incurs, including the details of such compensation and whether there is management support from the franchisor in the event of a decline in business; |
| ● | terms of the franchise agreement and the conditions and procedures for renewing or terminating the franchise agreement, including early termination prior to the expiration of its term; and |
| ● | restrictions with respect to the franchisor or other franchisees of the franchise setting up an identical or similar business near the proposed business of the potential party to join the franchise, including whether there are any plans to set up additional businesses and the details of such plans. |
In addition, when a franchisor markets its franchise, in the event such franchisor provides a prospective franchisee with an estimate of the revenue or profit that could possibly be generated upon becoming a franchisee, such estimated revenue or profit must be based on a reasonable method of calculation and established facts, such as the results of an existing franchise operating in a similar environment. The franchisor is required to present to the prospective franchisee such methods and facts.
If the JFTC finds any activities that violate the Antimonopoly Act, including any “deceptive customer inducement”, then the JFTC may order the offending franchisor to cease and desist from engaging in such unlawful activities, delete any applicable unlawful clauses from the franchise contract, or carry out any other measures necessary to eliminate such unlawful activities.
In the event the JFTC suspects any violation of the Antimonopoly Act or alleges that we have misled or wrongly induced any of our franchisees based upon any particular trade terms, we could be exposed to risks, including governmental action against us.
Regulations Governing Medical Care and Services
The MCs provide services strictly in accordance with the medical-related laws and regulations of the Medical Care Act (Law No. 205) adopted on July 30, 1948, as amended. The Medical Care Act defines rights and obligations regarding medical treatment, advertisement, authority, license, treatment of information, safety and security for patients, doctors and other individuals and organizations engaged in medical activities. The purpose of the Medical Care Act is to protect the health of the nation by safeguarding the interests of medical care recipients and ensuring a system that efficiently delivers high quality and well-suited medical care, by means of providing for the necessary particulars to support well-suited choices about medical care by the recipients thereof, to ensure the safety of medical care, concerning the establishment and management of hospitals, clinics, and birthing centers, and to develop such facilities and promote the sharing of functions and cooperation between medical institutions. The MCs also comply with other laws such as the Medical Practitioners’ Act, Dental Practitioners Act, Radiology Technician Act, Clinical Trials Act, Industrial Safety and Health Act when providing relevant services. A failure by the MCs to comply with the Medical Care Act may harm our franchised brand and directly result in a reduction of the Company’s revenue, since we receive substantial revenue from the MCs as part of our compensation for management services.
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Regulations Governing our Recruiting License
In November 2022, we obtained a recruiting agency license (which we refer to as a “Recruiting License”) from the Ministry of Health, Labor and Welfare of Japan under the under the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (which we refer to as the “Dispatch Act”). We are required to obtain the Recruiting License because we assist with the placement of staff and employee training at the MCs’ franchisee clinics.
Regulations Governing our Use of Certain Substances
The MCs are required to comply with the Poisonous and Deleterious Substances Control Act (Act No. 303 of December 28, 1950, as amended) of Japan. The purpose of this Act is to provide for the necessary control of poisonous and deleterious substances from the standpoint of health and hygiene and regulates the use of deleterious substances. The aforementioned regulations apply to the MCs’ franchisee clinics’ handling of such substances in Japan. A failure by the MCs to comply with the Poisonous and Deleterious Substances Control Act may harm our franchised brand and directly result in a reduction of the Company’s revenue, since we receive substantial revenue from the MCs as part of our compensation for management services.
Regulations on Intellectual Property
In Japan, patents are protected by the Patent Act and the Utility Model Act of Japan (Act No. 123 of 1959 as amended). Designs are protected by the Design Act of Japan (Act No. 125 of 1959 as amended), and trademarks by the Trademark Act (Act No. 127 of 1959 as amended). Copyrights are protected by the Copyrights Act (Act No. 48 of 1970 as amended). Trade secrets are protected by the Unfair Competition Prevention Act (Act No. 47 of 1993 as amended). The aforementioned regulations apply to our intellectual property rights in Japan, and accordingly we are subject to complying with such regulations.
Japanese Employment and Labor Laws
There are various labor-related laws in Japan, including the Labor Standards Act (Act No. 49 of April 7, 1947, as amended), the Industrial Safety and Health Act (Act No. 57 of June 8, 1972, as amended), and the Labor Contracts Act (Act No. 128 of December 5, 2007). The Labor Standards Act regulates, among others, minimum standards for working conditions such as working hours, leave period, and leave days. The Industrial Safety and Health Act requires, among others, the implementation of measures to secure employee safety and protect the health of workers in the workplace. The Labor Contracts Act regulates, among others, the change of terms of employment contracts and working rules, and dismissal and disciplinary action. A portion of our personnel in Japan are paid at rates related to the applicable minimum wage, and further increases in the minimum wage or other changes in these laws could increase our labor costs. Our ability to respond to minimum wage increases by increasing service and product prices will depend on the responses of our competitors and patients. Our distributors and suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs of goods and services supplied to us. We may also be subject to lawsuits from our employees, Labor Standards Inspection Office, or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters.
Regulations on Lease Agreements
Our lease agreements are generally subject to the Civil Code (Act No. 89 of April 27, 1896, as amended) and Act on Land and Building Leases (Act No. 90 of October 4, 1991, as amended). We believe that the terms and conditions of our lease agreements are consistent with these laws and are valid and enforceable as provided for in these agreements.
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Regulations regarding Maintenance of Websites and E-commerce
The Act on Special Provisions to the Civil Code Concerning Electronic Consumer Contracts and Electronic Acceptance Notice (Act No. 95 of June 29, 2001, as amended) and the Act on Specified Commercial Transactions (Act No. 57 of June 4, 1976, as amended) regulate sales of goods through e-commerce within Japan. For example, under these acts, we as a seller must explicitly show prices of products, timing and method of payment, timing of delivery, conditions for return of goods, our name and contact information, and name of representative person, among others. We comply with these regulations.
Regulations regarding Product Quality and Customer Protection
We are subject to laws and regulations, as well as pending legislative and regulatory proposals, regarding product quality and customer protection, which could affect us in jurisdictions in which we sell our products.
In Japan, the Product Liability Act (Act No.85 of July 1, 1994, as amended) and Consumer Contract Act (Act No. 61 of May 12, 2000, as amended) mainly regulate the product quality and customer protection. The Product Liability Act sets forth the liabilities of a manufacturer, processor, or importer for damages caused by defects in a product. A seller who was not involved in the manufacturing, processing, or import of a product could still be liable under this act if its name, trade name, or trademark, etc. was indicated on the product as the manufacturer, processor, or importer, such indications on the product might mislead others into believing that the seller was the manufacturer, processor, or importer, or such indications on the product might be recognized by others as those of the substantial manufacturer, processor, or importer. Liability under this act can be imposed even if the manufacturer, processor, or importer (and the said seller) was not negligent. The Consumer Contract Act invalidates certain provisions in contracts with consumers, such as exemption of compensation for damages to consumers and restrictions of termination by consumers due to the seller’s breach of contract. We comply with these regulations.
Vietnam Laws and Regulations
Regulations regarding the Environment
We are required to comply with the Environmental Protection Law No. 72/2020/QH14 adopted by the National Assembly on November 17, 2020 (as amended from time to time), which regulates environmental protection activities, including the rights, duties, and responsibilities of authorities, organizations, residential communities, households, and individuals involved in environmental protection activities. Specifically, it establishes certain regulations regarding the protection of the environment in medical activities and the control of the effects of environmental pollution on human health.
Regulations regarding Labor and Health
We are required to comply with several labor-related standards prescribed by the local laws and regulations. The principal statute is the Labor Code No. 45/2019/QH14 adopted by the National Assembly on November 20, 2019 (as amended from time to time), which provides for labor standards, the rights, duties, and responsibilities of employees, employers, employees’ representative organizations at establishment, and employers’ representative organizations in labor-management relations, other relations directly related to labor-management relations, as well as state control over labor.
Law on Occupational Safety and Hygiene
The Law on Occupational Safety and Hygiene No. 84/2015/QH13 adopted by the National Assembly on June 25, 2015 (as amended from time to time) regulates measures to ensure occupational safety and hygiene, policies and compensation for victims of occupational accidents and diseases, responsibilities and rights of organizations and individuals regarding occupational safety and hygiene activities, and state control over occupational safety and hygiene.
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The Law on Social Insurance No. 58/2014/QH13 adopted by the National Assembly on November 20, 2014 (as amended from time to time) regulates mandatory social insurance benefits and policies, the rights and responsibilities of employees and employers, other institutions, organizations, and individuals involved in social insurance, representative organizations of employees, representative organizations of employers, social insurance authorities, social insurance funds, social insurance implementation procedures, and state administration of social insurance. We will comply with the new Law on Social Insurance No. 41/2024/QH15, which will take effect from July 1, 2025.
The Law on Health Insurance No. 25/2008/QH12 adopted by the National Assembly on November 14, 2008 (as amended from time to time) regulates mandatory health insurance system and policies regarding health insurance, health insurance funds, and the rights and responsibilities of parties involved in health insurance, including enrollees, premium rates, health insurance premium sharing and payment methods, health insurance cards, health insurance beneficiaries, medical care for insured persons, and the payment of medical expenses. We will also comply with the Law on Amendment to the Law on Health Insurance No. 51/2024/QH15, which will take effect from July 1, 2025.
Regulations regarding Business Activities
We are required to comply with several regulations regarding investments and company-related activities such as (a) the Investment Law No. 61/2020/QH14 adopted by the National Assembly on June 17, 2020 (as amended from time to time) providing regulations on business investment activities in Vietnam and business investment activities from Vietnam to foreign countries and (b) the Law on Enterprises No. 59/2020/QH14 adopted by the National Assembly on June 17, 2020 (as amended from time to time) regulating the formation, management, reorganization, dissolution and related activities of companies consisting of limited liability companies, joint stock companies, partnership companies and private companies, and groups of companies.
Since our beauty clinic service is considered as a commercial activity in general, we are also required to comply with the Commercial Law No. 36/2005/QH11 adopted by the National Assembly on June 14, 2005 (as amended from time to time). This law applies to commercial activities (including the sale and purchase of goods, provision of services, investment, commercial promotion and other commercial activities) in the territory of Vietnam.
In Vietnam, (a) massage services (comprising of the use of physical therapies for massage or manual therapies to improve human health) and (b) plastic surgery services (comprising of using medical techniques to perform surgery for the purpose of alternation of shape or appearance of body parts) are deemed to be “sensitive” services and therefore must comply with Decree No. 96/2016/ND-CP adopted by the Government on July 1, 2016 regarding security and order conditions for a number of conditional business sectors.
Regulations regarding Medical Treatment
We are also subject to the Law on Medical Examination and Treatment No. 15/2023/QH15 adopted by the National Assembly on January 9, 2023 (as amended from time to time), which defines the rights and obligations of patients, physicians, and clinics in relation to matters such as technical expertise in health diagnosis and treatment, health diagnosis and treatment provided by traditional medicine and by a combination of traditional and modern medicine, humanitarian or non-profit health diagnosis and treatment, transfer of technical expertise, the application of new technologies and methods and clinical trials, errors of technical expertise in medicine, operating assumptions, as well as the mobilization and dispatch of resources to be used for medical examination and treatment in the event of natural disasters, catastrophes, Group A infectious diseases, and emergency situations.
Regulations regarding Liability
In principle, our relationship with customers is a civil transaction and therefore governed by the Civil Code No. 91/2015/QH13 adopted by the National Assembly on November 24, 2015 (as amended from time to time). This fundamental code specifies the legal status and legal standards for the conduct of natural and juridical persons, as well as the rights and obligations of natural and juridical persons in their civil relations.
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In addition, we are subject to the Law on Product and Goods Quality No. 05/2007/QH12 adopted by the National Assembly on November 21, 2007 (as amended from time to time), which is a specialized legislation regulating the product liability of manufacturers and traders (i.e., importers, exporters, sellers, service suppliers). Under this law, enterprises engaging in manufacturing and/or trading products are required to provide customers with accurate information on products, recover and remedy defective products, and compensate for losses due to defective products.
We are also subject to the Law on Protection of Consumers’ Rights No. 19/2023/QH15 adopted by the National Assembly on June 20, 2023 (as amended from time to time), which provides for principles and policies for protecting consumers’ rights, the rights and obligations of consumers, traders’ responsibility to consumers, consumer right protection activities by agencies and organizations, settlement of disputes between consumers and traders, as well as state management of protection of consumers’ rights.
Regulations regarding Firefighting and Fire Prevention
The Law on Firefighting and Fire Prevention No. 27/2001/QH10 adopted by the National Assembly on June 29, 2001 (as amended from time to time) regulates fire prevention, firefighting, human rescue, property rescue, assurance of operating conditions, as well as the rights, obligations, and responsibilities of relevant agencies, organizations, households, and individuals in fire and rescue operations. We will comply with the new Law on Fire and Rescue No. 55/2024/QH15, which will take effect from July 1, 2025.
United States Laws and Regulations
Regulations Governing Disabilities Act
Federal and state environmental regulations have not had a material effect on our operations to date, but more stringent and varied requirements of local governmental bodies with respect to zoning, land use and environmental factors could delay or even prevent construction and increase development costs for new franchisee clinics. SBC Irvine MC is required to comply with the accessibility standards mandated by the U.S. Americans with Disabilities Act with respect to the CA Clinic in the United States, which generally prohibits discrimination in accommodation or employment based on disability. SBC Irvine MC may in the future have to modify clinics, for example, by adding access ramps or redesigning certain architectural fixtures, to provide service to or make reasonable accommodations for disabled persons. While these expenses could be material, SBC Irvine MC’s current expectation is that any such actions will not require them to expend substantial funds. A failure by SBC Irvine MC to comply with the U.S. Americans with Disabilities Act may harm our franchised brand and directly result in a reduction of the Company’s revenue, since we receive revenue from SBC Irvine MC as part of our compensation for operational services that we provide to SBC Irvine MC.
Regulations Governing Labor
Further, we are subject to the U.S. Fair Labor Standards Act, the U.S. Immigration Reform and Control Act of 1986, the Occupational Safety and Health Act and various other federal and state laws governing similar matters including minimum wages, overtime, workplace safety and other working conditions. A portion of our personnel in the United States are paid at rates related to the applicable minimum wage, and further increases in the minimum wage or other changes in these laws could increase our labor costs. Our ability to respond to minimum wage increases by increasing service and product prices will depend on the responses of our competitors and patients. Our distributors and suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs of goods and services supplied to us. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters.
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Regulations Governing Healthcare Providers and Information
The Company’s and SBC Irvine MC’s current and future arrangements with healthcare providers, third-party payors, customers, and others may expose the Company and SBC Irvine MC to broadly applicable fraud and abuse and other healthcare laws and regulations, which may constrain the business or financial arrangements and relationships through which we research, as well as, sell, market and distribute any product for which we obtain marketing approval.
Health Insurance Portability and Accountability Act (“HIPAA”) also imposes, among other things, certain standards and obligations on covered entities including certain healthcare providers, health plans and healthcare clearinghouses, as well as their respective business associates and subcontractors that create, receive, maintain, or transmit individually identifiable health information for or on behalf of a covered entity relating to the privacy, security, transmission and breach reporting of individually identifiable health information. HIPAA imposes strict privacy, security, and breach notification obligations and standards on “covered entities” related to their use and disclosure of individually identifiable health information, defined by HIPAA as Protected Health Information (“PHI”). Covered entities are defined under HIPAA to include healthcare providers that undertake certain electronic transmissions of PHI, such as submitting electronic claims for reimbursement for the treatment of patients. SBC Irvine MC is considered to be a covered entity. HIPAA also applies to Business Associates. HIPAA is generally enforced by the Office for Civil Rights ( the “OCR”) that can bring enforcement actions against companies that violate HIPAA’s privacy, security or breach notification rules and levy significant civil fines and/or require changes to the manner in which PHI is used and disclosed. The U.S. Department of Justice has jurisdiction under HIPAA to bring criminal enforcement actions against covered entities, Business Associates and possibly other entities for fraudulent misuse of PHI and other criminal acts. Further, HIPAA provides state attorneys general authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions. If we are in possession of PHI as a business associate or as part of our health plan covered entity and we have an unauthorized use or disclosure of the PHI, we will be required pursuant to the HIPAA breach notification rule, to notify our customer covered entity, impacted individuals, and/or OCR.
Several states, including, but not limited to, California, Colorado, Connecticut, Utah and Virginia, have adopted generally applicable and comprehensive privacy laws, although most have an exception for information regulated by HIPAA. These new and developing state laws provide a number of new privacy rights for residents of these states and impose corresponding obligations on organizations doing business in these states. For example, the California Consumer Privacy Act (the “CCPA”) imposes obligations on covered businesses to provide specific disclosures related to a business’ collecting, using, and disclosing personal data and to respond to certain requests from California residents related to their personal data (for example, requests to know of the business’s personal data processing activities, to delete the individual’s personal data, and to opt out of certain personal data disclosures). The CCPA provides for civil penalties and a private right of action for data breaches which may include an award of statutory damages. In addition, the California Privacy Rights Act (“CPRA”), which took substantial effect January 1, 2023 with enforcement scheduled for July 1, 2023, expanded the CCPA. The CPRA, among other things, gives California residents the ability to limit use of certain sensitive personal data, establish restrictions on personal data retention, expand the types of data breaches that are subject to the CCPA’s private right of action, and establish a new California Privacy Protection Agency to implement and enforce the new law. A failure by us or SBC Irvine MC to comply with HIPAA may harm our franchised brand and directly result in a reduction of the Company’s revenue, since we receive revenue from SBC Irvine MC as part of our compensation for operational services that we provide to SBC Irvine MC.
For a discussion of the various risks we face from regulation and compliance matters, see “Part I, Item 1A. Risk Factors”.
Singapore Laws and Regulations
Licensing, Operations, and Compliance
We are subject to the Healthcare Services Act 2020 (“HCSA”) and the regulations promulgated under it, which governs the licensing, regulation, and operation of private healthcare institutions, including aesthetic clinics. We are required to obtain a license under this legislation to operate our clinics.
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The Healthcare Services (General) Regulations 2021 also require licensed healthcare service providers to adhere to strict standards of patient care and service (including for the protection of patient privacy), and we must meet the necessary standards of infrastructure, medical equipment, and operational procedures, as well as the maintenance of a safe and hygienic clinical environment.
Regulation of Our Doctors
In Singapore, the Medical Registration Act 1997 regulates the registration and professional conduct of medical practitioners. This legislation mandates that only doctors who are properly registered as a medical practitioner and holding a valid practicing certificate may perform medical procedures in aesthetic clinics. Under this legislation, any person who wishes to practice medicine or perform medical procedures that involve medical risks, such as injectable treatments (e.g., botulinum toxin and dermal fillers) and laser treatments, must be performed by registered medical practitioners holding a valid practicing certificate.
Health Products and Medicines
The Health Products Act 2007 (“HPA”) governs the regulation of health products (including, inter alia, medical devices and therapeutic products) used in clinical settings, including aesthetic clinics. Under this legislation, we are prohibited from using health products that are not approved by the Health Sciences Authority of Singapore (“HSA”), and we are obligated to only use products that have passed the HSA’s evaluation and are registered for clinical use in Singapore. If a product is found to be defective or harmful, this legislation requires us to comply with any product recalls or safety notices issued by the HSA. We are also obligated to report any adverse events or complications related to the use of medical devices and health products in our clinics.
The Medicines Act 1975 (“MA”) regulates the importation, manufacture, and sale of medicinal products, including drugs, vaccines, and injectable products used in aesthetic treatments in Singapore. Under this legislation, aesthetic clinics are prohibited from using any unapproved or substandard medicines and must ensure that all prescription products are licensed and approved by the HSA. This legislation also covers the distribution of medicines and medicinal products, and aesthetic clinics must ensure that any injectable or medicinal product used in their treatments is legally sourced, licensed, and approved by the HSA for use in Singapore.
Advertisements
We are subject to strict advertising guidelines for healthcare services issued by the HSA pursuant to the HCSA. Advertising materials, including brochures, websites, and social media content, must comply with ethical advertising standards set by the HSA, and cannot be false, misleading, unsubstantiated, or contain exaggerated claims about medical treatments. We are prohibited from using testimonials or endorsements that violate patient confidentiality, and are required to provide accurate, clear, and truthful information about the services we offer, the potential risks of treatments, and the expected outcomes.
The HPA also regulates the advertising of health products, including medical devices and therapeutic products. Under this legislation, we are required to ensure that all advertisements for products such as dermal fillers, botulinum toxin, and lasers are not misleading, do not overstate the efficacy of treatments, and clearly communicate any risks associated with such procedures. The Health Products (Advertisement of Specified Health Products) Regulations 2016 also strictly prohibit the direct advertising of prescription-only medicines to the general public, to ensure that treatments are only administered following proper medical consultation.
The MA also imposes restrictions on the advertising of medicinal products, including prescription-based treatments like botulinum toxin, which are commonly used in aesthetic clinics and require oversight by licensed medical professionals. This legislation prohibits false or misleading advertisements and representations of medicinal products.
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Consumer Protection
We are also required to comply with the Consumer Protection (Fair Trading) Act 2003, which regulates the trade practices of businesses, protects consumers from unfair practices which includes, inter alia: (a) misleading or deceiving a consumer, (b) falsifying claims to a consumer, and (c) taking advantage of a consumer who may not be in a position to protect their interests due to not understanding the nature of the transaction, and provide consumers with the right to seek remedies if they have been wronged. If a beauty product is found to be defective or unsafe after purchase, consumers are entitled under this legislation to request a refund, replacement, and/or repair (if applicable). This legislation prohibits practices such as false advertising, misleading statements, or failing to disclose important information about products or services.
Product Quality
In addition to the HPA and the MA, we are also subject to the Sale of Goods Act 1979, which governs the sale of goods in Singapore, including beauty products sold at aesthetic clinics. This legislation provides a framework for the contractual obligations between buyers and sellers and ensures that products are among other things, safe, of satisfactory quality, and fit for their intended purpose.
Personal Data Protection
The Personal Data Protection Act 2012 governs, among other things, the collection, use, and protection of personal data in Singapore. As a healthcare provider, we are required to comply with this legislation to safeguard the privacy and confidentiality of our patients’ personal and medical information, including obtaining consent from patients before collecting their personal information, such as contact details, medical histories, and treatment records, implementing strict measures to protect patient data from unauthorized access, loss, or misuse, and facilitating our patients’ right to access their personal data, request corrections, and withdraw consent for the use of their information. This legislation also requires healthcare providers to make reasonable efforts to ensure the accuracy of the personal data collected from the patients as the personal data will likely be used to make a decision that affects the patient. If there are reasons to believe in data breaches that affect a patient’s personal data, the healthcare provider has a duty to assess the severity of said breach. Given the confidentiality of the patients’ medical information, should a breach be severe enough to result in significant harm to the patient, or is of a significant scale, there will be a duty to notify the Personal Data Protection Commission.
Employment and Workplace Safety
We are subject to the Employment Act 1968, the key legislation governing employment practices in Singapore. This legislation outlines the minimum terms and conditions of employment, covering aspects such as wages (including when and how they should be paid), working hours and overtime, rest days, and employee benefits. It ensures the protection of employees’ rights and provides a framework for fair and lawful employment practices.
We are also subject to the Employment of Foreign Manpower Act 1990, which governs the employment of foreign workers in Singapore. This legislation regulates the employment pass system and ensures that businesses that hire foreign workers comply with specific requirements related to work passes, employment conditions, and other related responsibilities. Under this legislation, all foreign employees must hold a valid work pass to work in Singapore and the onus lies on the employer to ensure that the foreign employee is permitted to work in Singapore.
The Workplace Safety and Health Act 2006 applies to all businesses in Singapore, including aesthetic clinics. Under this legislation, we are required to adhere to stringent health and safety protocols to protect both our patients and staff, including maintaining work environments that are safe and without risks to health, ensuring proper waste disposal, implementing emergency procedures, and training all staff members in basic health and safety measures, including infection control and proper use of medical equipment.
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Intellectual Property and Trademarks
As of December 31, 2024, the Company and its subsidiaries together had filed a significant number of patent and trademark applications in Japan, as well as a substantial numbers of trademark applications with the International Bureau of the World Intellectual Property Organization. The Company also holds registered patents and trademarks in Japan. Additionally, the only trademarks registered in Singapore are those registered by the Singapore subsidiary acquired in late November. The Company does not have any registered trademarks, domain names, or patents in Vietnam or the United States.
Our registered trademarks include, but are not limited to, “SBC”, “Shonan Beauty Clinic”, “SBCLABO”, “Hair Renaissance”, “SBC MEDISPA”, and “ACNEED”, and are further described in the table below.
Material Contract with Intellectual Property and Trademarks
The Company and the MCs have each entered into a contract with regard to intellectual property as set forth below. The entry dates of these agreements range from September 2017 to May 2021. The term of the agreements is for a period of 9 years. However, if neither the party makes a written request at least 3 months prior to the expiration of the term, the term of these agreements will continue for successive 2 year terms going forward unless terminated by either party.
Pursuant to these agreements, the Company grants the MCs a non-exclusive right to use Company’s trademarks, as listed in the agreements for the goods and services offered by the MCs in Japan and the U.S. (including U.S. territories) for the duration of the agreement. Pursuant to the Agreements, the MCs cannot grant a sublicense to a third party without the Company’s written consent.
Pursuant to these agreements, the MCs agreed to pay the Company royalties for the license granted, in the form of a monthly fee ranging from 14,000,000 yen (excluding tax) to 53,000,000 yen (excluding tax). However, the parties may change such monthly fee by mutual agreement through consultation.
The agreements may be terminated by the Company without notice or demand in certain circumstances as listed out in the agreement, including but not limited to, if a MC has their business license revoked or suspended by regulatory authorities, becomes insolvent or when one of the notes or checks that they have drawn or accepted is dishonored, when a petition for commencement of bankruptcy proceedings, civil rehabilitation proceedings, corporate reorganization proceedings, or special liquidation proceedings has been filed, against or when a MC itself has filed such a petition or when there has been a material breach by a MC of their agreement with the Company. Additionally, either party can terminate the agreements if the other party breaches the agreement and such breach is not corrected within 14 days after written notice. Additionally, the parties can terminate the agreement mid-term by mutual agreement through consultation. Upon termination of an agreement, regardless of the reason for such termination, or if the term of the agreement expires, a MC must immediately cease using the Company’s intellectual property and must destroy all information in its possession regarding the Company’s intellectual property.
As a result of these agreements, the Company collects the following royalty fees from each MC.
| Patent | Trademark | Total | ||||
| Medical Corporation Shobikai | 53,000,000 yen | 14,000,000 yen | 67,000,000 yen | |||
| Medical Corporation Kowakai | 43,000,000 yen | 57,000,000 yen | 100,000,000 yen |
| 42 |
| Medical Corporation Nasukai | 24,000,000 yen | 60,000,000 yen | 84,000,000 yen | |||
| Medical Corporation Aikeikai | 13,000,000yen | 4,000,000 yen | 17,000,000 yen | |||
| Medical Corporation Jukeikai | 700,000 yen | 200,000 yen | 900,000 yen | |||
| Medical Corporation Ritz Cosmetic Surgery | 2,000,000 yen | 3,000,000 yen | 5,000,000 yen | |||
| Total | 135,700,000 yen | 138,200,000 yen | 273,900,000 yen |
List of Trademarks
| Jurisdiction | Application
No./ Office’s Reference No. |
Registration No. | Trademark | Reference Translation: Trademark | ||||
| Japan | JP2004-113837 | 4872872 | リッツ・メディカルクリニック | Ritz Medical Clinic | ||||
| Japan | JP2005-118409 | 4960547 | 湘南美容外科クリニック | Shonan Beauty Surgery Clinic | ||||
| Japan | JP2007-068373 | 5137474 | ＳＢＣ | SBC | ||||
| Japan | JP2007-087297 | 5154425 | 根こそぎ脂肪吸引 | Thoroughly liposuction | ||||
| Japan | JP2008-006713 | 5188529 | 心のプチ整形 | Petit Plastic Surgery of the Mind | ||||
| Japan | JP2011-018430 | 5432190 | うるおい女神 | goddess of (lucky) directions | ||||
| Japan | JP2011-027111 | 5446903 | 1ＤＡＹリフト | 1DAY Lift | ||||
| Japan | JP2012-004740 | 5504628 | 根こそぎベイザーシェービング法 | Thoroughly Vaser Shaving Method | ||||
| Japan | JP2012-035980 | 5532879 | 六本木レディースクリニック | Roppongi Ladies Clinic | ||||
| Japan | JP2012-070102 | 5554735 | マルチプラセンタ | Multi-placenta | ||||
| Japan | JP2013-088725 | 5665240 | マルチゲルＯg（オーガニック） | Multi Gel Og (Organic) | ||||
| Japan | JP2015-076589 | 5827834 | §ＳＢ∞Ｃ | §ＳＢ∞Ｃ | ||||
| Japan | JP2015-123949 | 5862075 | アクセル＋ブレーキ療法 | Gas pedal + brake therapy | ||||
| Japan | JP2016-065374 | 5922799 | VARIO desigin 手術 | VARIO desigin surgery | ||||
| Japan | JP2016-065380 | 5922800 | サーマアップ | Therma up | ||||
| Japan | JP2016-108172 | 5967546 | 東京リッツ美容クリニック | Tokyo Ritz Cosmetic Clinic | ||||
| Japan | JP2016-108174 | 5967547 | 東京リッツ美容形成外科 | Tokyo Ritz Cosmetic Plastic Surgery | ||||
| Japan | JP2018-005037 | 6135218 | フォーエバー二重術 | Forever Double Surgery | ||||
| Japan | JP2018-109281 | 6246705 | ＳＢＣ ＭＥＤＩＳＰＡ | SBC MEDISPA |
| 43 |
| Japan | JP2018-123585 | 6258359 | ＳＢＣ | SBC | ||||
| Japan | JP2019-006775 | 6219739 | Ｈａｉｒ Ｒｅｎａｉｓｓａｎｃｅ | Hair Renaissance | ||||
| Japan | JP2019-095442 | 6316271 | レグノクリニック | Regno Clinic | ||||
| Japan | JP2019-116526 | 6311044 | ＳＢＣ／ＭＥＤＩＳＰＡ | SBC/MEDISPA | ||||
| Japan | JP2020-007680 | 6440611 | リバスト | Rebast | ||||
| Japan | JP2020-007681 | 6440612 | 週末二重 | Weekend Double Surgery | ||||
| Japan | JP2020-007682 | 6440613 | 腫れずらいスクエア二重 | Square bifold surgery with minimal swelling | ||||
| Japan | JP2020-007686 | 6442941 | リッチフェイス | Rich face | ||||
| Japan | JP2020-007689 | 6440614 | 湘南二重 | Shonan bifid surgery | ||||
| Japan | JP2020-007697 | 6442942 | プリマリフト | PrimaLift | ||||
| Japan | JP2020-007698 | 6452042 | ３D注入豊胸 | 3D Injection Breast Augmentation | ||||
| Japan | JP2020-007699 | 6442943 | プレミアム注入豊胸 | Premium Injection Breast Augmentation | ||||
| Japan | JP2020-007719 | 6411821 | 湘南美容クリニック | Shonan Beauty Clinic | ||||
| Japan | JP2020-087298 | 6489169 | パシャ助 | Pashazo | ||||
| Japan | JP2020-106484 | 6427255 | フィナス | Finas | ||||
| Japan | JP2021-057101 | 6531256 | メディカルサイズダウン | Medical Size Down | ||||
| Japan | JP2021-057102 | 6531257 | フィナス治療 | Finas Medical Treatment | ||||
| Japan | JP2021-057107 | 6531258 | YELLクリニック | YELL Clinic | ||||
| Japan | JP2021-057108 | 6531259 | 湘南美容YELLシリーズ | Shonan Beauty YELL Series | ||||
| Japan | JP2021-057109 | 6531260 | ベビースキンライト | Baby Skin Light | ||||
| Japan | JP2021-057110 | 6571732 | シミ取り10 | Stain Removal 10 | ||||
| Japan | JP2021-057111 | 6531261 | ワンデーリフトアップ | One Day Lift Up | ||||
| Japan | JP2021-057112 | 6551007 | ピュアグラフト1UP | Pure Graft 1UP | ||||
| Japan | JP2021-104550 | 6554074 | ミスト脱毛 | Mist hair removal | ||||
| Japan | JP2022-022482 | 6753631 | 湘南美容皮フ科 | Shonan Beauty Dermatology | ||||
| Japan | JP2022-022483 | 6611984 | メディカルサイズダイエット | Medical-size diet | ||||
| Japan | JP2022-022488 | 6668667 | Teen二重 | Teen double | ||||
| Japan | JP2022-067044 | 6858201 | SBCイテウォンビューティークリニック | SBC Itaewon Beauty Clinic | ||||
| Japan | JP2022-067045 | 6858202 | SBC梨泰院ビューティークリニック | SBC Itaewon Beauty Clinic | ||||
| Japan | JP2022-076824 | 6673722 | ミストシャワー脱毛 | Mist shower hair removal | ||||
| Japan | JP2022-135452 | 6693235 | ＡＣＮＥＥＤ | ACNEED | ||||
| Japan | JP2022-143150 | 6793985 | ＳＢＣ (logo) | SBC (logo) | ||||
| Japan | JP2022-143151 | 6735600 | 湘南美容外科 | Shonan Beauty Surgery | ||||
| Japan | JP2022-143152 | 6735601 | 湘南美容クリニック | Shonan Beauty Clinic | ||||
| Japan | JP2022-143153 | 6772456 | Ｓｈｏｎａｎ Ｂｅａｕｔｙ Ｃｌｉｎｉｃ | Shonan Beauty Clinic | ||||
| Japan | JP2022-143155 | 6826211 | ＳＢＣ Ｍｅｄｉｃａｌ Ｇｒｏｕｐ | SBC Medical Group | ||||
| Japan | JP2022-143156 | 6735602 | ＳＢＣＬＡＢＯ | SBCLABO |
| 44 |
| Japan | JP2022-143157 | Application Pending | ＳＢＣ | SBC | ||||
| Japan | JP2022-143158 | 6826212 | ＳＢＣメディカルグループ | SBC Medical Group | ||||
| Japan | JP2022-143161 | 6711813 | ＳＢＣ ＭＥＤＩＳＰＡ | SBC MEDISPA | ||||
| Japan | JP2022-143162 | 6711814 | うるおい女神 | goddess of (lucky) directions | ||||
| Japan | JP2022-143165 | 6701663 | HRタブレット | HR Tablet | ||||
| Japan | JP2022-143166 | 6701664 | HRアクア | HR Aqua | ||||
| Japan | JP2022-143167 | 6701665 | HRスプレー | HR Spray | ||||
| Japan | JP2022-143168 | 6711815 | ギャラ・ドクターライト | Gala Dr. Light. | ||||
| Japan | JP2022-143169 | 6711816 | スソドライ | soot-dry | ||||
| Japan | JP2022-143171 | 6702889 | うる艶美髪カクテル | Lush and beautiful hair cocktail | ||||
| Japan | JP2022-143173 | 6711817 | ジュリエット | Juliet | ||||
| Japan | JP2022-143179 | 6711818 | スマートシェイプリフト | Smart Shape Lift | ||||
| Japan | JP2022-143181 | 6708518 | アクネソニック | acnesonic | ||||
| Japan | JP2022-143184 | 6708519 | 脂肪溶解リニア | Lipolysis Linear | ||||
| Japan | JP2022-143187 | 6708520 | 輪郭スッキリQ＋ | Contouring Q+ | ||||
| Japan | JP2022-143189 | 6708521 | ボディスッキリQ＋ | Body Refresh Q+ | ||||
| Japan | JP2022-143190 | 6708522 | フォトダブル | photo double | ||||
| Japan | JP2022-143191 | 6702890 | プラチナカクテル | Platinum Cocktail | ||||
| Japan | JP2022-143194 | 6708523 | スマートメソセラピー | smart mesotherapy | ||||
| Japan | JP2022-143196 | 6708524 | リポフラット | Lipo flat | ||||
| Japan | JP2022-143197 | 6708525 | ジェットメソセラピー | Jet Mesotherapy | ||||
| Japan | JP2022-143199 | 6722690 | ＳＢＣメディカルグループホールディングス | SBC Medical Group Holdings, Inc. | ||||
| Japan | JP2022-143200 | 6722691 | ＳＢＣ Ｍｅｄｉｃａｌ Ｇｒｏｕｐ Ｈｏｌｄｉｎｇｓ | SBC Medical Group Holdings | ||||
| Japan | JP2022-143201 | 6793624 | ＳＢＣ ＡＲＴＭＡＫＥ ＳＣＨＯＯＬ | SBC ARTMAKE SCHOOL | ||||
| Japan | JP2022-147132 | 6861583 | ノンシェーブン | non-shaven | ||||
| Japan | JP2022-147133 | 6861584 | スマートFUE | Smart FUE | ||||
| Japan | JP2022-147134 | 6861585 | シークレットシェイブン | secret shaven | ||||
| Japan | JP2022-147135 | 6861586 | ダブルマトリックス | double matrix | ||||
| Japan | JP2022-147136 | 6861587 | スマートメソ | smart method | ||||
| Japan | JP2022-147137 | 6861588 | クイックメソ | Quick Meso | ||||
| Japan | JP2022-147138 | 6861589 | ジェットメソ | jet meso | ||||
| Japan | JP2022-147139 | 6757836 | 女優注射 | Actress Injection | ||||
| Japan | JP2022-147140 | 6829876 | クイックコスメティーク | Quick Cosmetics | ||||
| Japan | JP2022-147141 | 6702893 | ナノメソッドHQ | Nano Method HQ | ||||
| Japan | JP2022-147142 | 6711819 | SBC MEDISPA ホワイトサプリメント | SBC MEDISPA White Supplement | ||||
| Japan | JP2022-147143 | 6702894 | ACNEED | ACNEED | ||||
| Japan | JP2022-147144 | 6829877 | SBC Ｔｅｅｎ二重 | SBC Teen Double | ||||
| Japan | JP2022-147145 | 6829878 | SBC Ｔｅｅｎ脱毛 | SBC Teen Hair Removal | ||||
| Japan | JP2022-147146 | 6711820 | SBCハイブリッドセラミック | SBC Hybrid Ceramic | ||||
| Japan | JP2022-147147 | 6711821 | SBCマウスピース | SBC Mouthpiece | ||||
| Japan | JP2022-150047 | 6751859 | リバース小顔 | Reverse face |
| 45 |
| Japan | JP2022-150048 | 6751860 | リバース二重 | Reverse double | ||||
| Japan | JP2022-150052 | 6751861 | 1DAYモデル小顔 | 1DAY Model Small Face | ||||
| Japan | JP2022-150053 | 6751862 | 1DAYフル梨泰院 | 1DAY Full Itaewon | ||||
| Japan | JP2022-150054 | 6751863 | 1DAYモデル体型 | 1DAY Model Body Shape | ||||
| Japan | JP2022-150056 | 6751864 | 1DAYリッチフェイス | 1DAY Rich Face | ||||
| Japan | JP2022-150060 | 6774385 | Fat Padリフト | Fat Pad Lift | ||||
| Japan | JP2022-150061 | 6774386 | 週末リフト | Weekend Lift | ||||
| Japan | JP2022-150062 | Application Pending | 週末2daysスリム | Weekend 2days Slim | ||||
| Japan | JP2022-150063 | Application Pending | バービーボディ | Barbie Body | ||||
| Japan | JP2022-150064 | Application Pending | 1DAYクマ取り | 1DAY dark circles removal | ||||
| Japan | JP2022-150065 | 6774387 | エイジングリフト | Aging Lift | ||||
| Japan | JP2023-038087 | 6744631 | SBC AI | SBC AI | ||||
| Japan | JP2023-038088 | 6782966 | 目袋3脂肪 | Eye bag 3 fat | ||||
| Japan | JP2023-038089 | 6782967 | ぽろぽろ脱毛 | Poroporo Hair Removal | ||||
| Japan | JP2023-038090 | 6782968 | リバスト注射 | Livestock Injection | ||||
| Japan | JP2023-038091 | Application Pending | 増活 | hair growth | ||||
| Japan | JP2023-038092 | 6782969 | 余髪 | extra hair | ||||
| Japan | JP2023-038093 | Application Pending | 玉の肌ダーマペン | Jade Skin Dermapen | ||||
| Japan | JP2023-038094 | Application Pending | ワンコイン脱毛 | One Coin Hair Removal | ||||
| Japan | JP2023-040937 | 6737348 | ＨＡＩＲＳＰＡ | HAIRSPA | ||||
| Japan | JP2023-073150 | 6777865 | SBC DreamMeeting | SBC DreamMeeting | ||||
| Japan | JP2023-073151 | 6777866 | DreamMeeting | DreamMeeting | ||||
| Japan | JP2023-076804 | 6826221 | ＳＢＣ４方向リフト | SBC 4-way lift | ||||
| Japan | JP2023-080584 | 6826223 | 湘南美容 | Shonan Aesthetic | ||||
| Japan | JP2023-080585 | 6826224 | ＳＢＣ Ｍｅｄｉｃａｌ Ｇｒｏｕｐ Ｈｏｌｄｉｎｇｓ | SBC Medical Group Holdings | ||||
| Japan | JP2023-080586 | Application Pending | 湘南美容外科クリニック | Shonan Beauty Surgery Clinic | ||||
| Japan | JP2023-080587 | 6826225 | ＳＢＣ | SBC | ||||
| Japan | JP2023-080588 | Application Pending | 湘南美容外科 | Shonan Beauty Surgery | ||||
| Japan | JP2023-080589 | 6826226 | ＳＢＣＬＡＢＯ | SBCLABO | ||||
| Japan | JP2023-080590 | 6826227 | ＳＢＣ ＭＥＤＩＳＰＡ | SBC MEDISPA | ||||
| Japan | JP2023-080591 | Application Pending | 湘南美容クリニック | Shonan Beauty Clinic | ||||
| Japan | JP2023-080592 | Application Pending | Ｓｈｏｎａｎ Ｂｅａｕｔｙ Ｃｌｉｎｉｃ | Shonan Beauty Clinic | ||||
| Japan | JP2023-080593 | 6826228 | ＱＣＷ | QCW | ||||
| Japan | JP2023-080594 | 6826229 | Ｑｕｉｃｋ ｃｏｓｍｅｔｉｃ ｄｏｕｂｌｅ | Quick cosmetic double | ||||
| Japan | JP2023-080595 | 6826230 | Ｓｈｏｎａｎ Ｂｅａｕｔｙ Ｃｌｕｂ | Shonan Beauty Club | ||||
| Japan | JP2023-099091 | Application Pending | 脂肪吸引注射 | Liposuction Injection | ||||
| Japan | JP2023-123325 | 6858214 | ＳＢＣ ＡＲＴ | SBC ART |
| 46 |
| Japan | JP2023-140581 | Application Pending | 下垂脂肪 | Ptosis Fat | ||||
| Japan | JP2023-140582 | Application Pending | 自然癒着法 | Spontaneous Adhesion | ||||
| Japan | JP2023-140583 | Application Pending | 自然癒着二重術 | Natural Adhesion Bifid Surgery | ||||
| Japan | JP2023-143680 | 6858240 | ＳＢＣ ＴＩＭＥＬＥＳＳ Ｃ | SBC TIMELESS C | ||||
| Japan | JP2024-010669 | Application Pending | リッツ美容外科 | Ritz Cosmetic Surgery | ||||
| Japan | JP2024-033024 | Application Pending | 脂肪細胞ズ(logo) | Fat Cells(logo) | ||||
| Japan | JP2024-033025 | Application Pending | 脂肪細胞ズ(logo) | Fat Cells (logo) | ||||
| Japan | JP2024-033026 | Application Pending | 脂肪細胞ズ(logo) | Fat Cells(logo) | ||||
| Japan | JP2024-033027 | Application Pending | 脂肪細胞ズ | Fat Cells | ||||
| Japan | JP2024-040264 | Application Pending | 脂肪抽出注射 | Fat Extraction Injection | ||||
| Japan | JP2024-040265 | Application Pending | 脂肪抽出法 | Fat extraction | ||||
| Japan | JP2024-056347 | Application Pending | 毛根再生注射 | Hair root regeneration injection | ||||
| Japan | JP2024-057812 | Application Pending | 湘南美容 | Shonan Aesthetic | ||||
| Japan | JP2024-068007 | Application Pending | 週末豊胸 | Weekend Breast Augmentation | ||||
| Japan | JP2024-068008 | Application Pending | ママ豊胸 | Mom Breast Augmentation | ||||
| Japan | JP2024-069739 | Application Pending | カスタマイズリフト | Customized Lift | ||||
| Japan | JP2024-069740 | Application Pending | カスタマイズヒアル | Customized Hyal | ||||
| Japan | JP2024-077906 | 6847737 | 韓流肌(logo) | Hallyu Skin(LOGO) | ||||
| Japan | JP2024-077907 | 6847738 | 韓流肌 | Hallyu Skin | ||||
| Japan | JP2024-092611 | Application Pending | 悪玉M字ホルモン | Bad M Hormone | ||||
| Japan | JP2024-092612 | Application Pending | 身長予想シミュレーション | Height Projection Simulation | ||||
| Japan | JP2024-100228 | Application Pending | ナチュラル脂肪注射 | Natural Fat Injection | ||||
| International registration | 1753629 | Application Pending | ＱＣＷ | QCW | ||||
| International registration | 1753670 | Application Pending | Ｑｕｉｃｋ ｃｏｓｍｅｔｉｃ ｄｏｕｂｌｅ | Quick cosmetic double | ||||
| International registration | 1753673 | Application Pending | ＳＢＣ | SBC | ||||
| International registration | 1753672 | Application Pending | ＳＢＣ Ｍｅｄｉｃａｌ Ｇｒｏｕｐ Ｈｏｌｄｉｎｇｓ | SBC Medical Group Holdings | ||||
| International registration | 1753626 | Application Pending | ＳＢＣ ＭＥＤＩＳＰＡ | SBC MEDISPA | ||||
| International registration | 1753625 | Application Pending | ＳＢＣＬＡＢＯ | SBCLABO | ||||
| International registration | 1753627 | Application Pending | Ｓｈｏｎａｎ Ｂｅａｕｔｙ Ｃｌｉｎｉｃ | Shonan Beauty Clinic | ||||
| International registration | 1753628 | Application Pending | Ｓｈｏｎａｎ Ｂｅａｕｔｙ Ｃｌｕｂ | Shonan Beauty Club | ||||
| International registration | 1754407 | Application Pending | 湘南美容 | Shonan Aesthetic |
| 47 |
| International registration | 1754273 | Application Pending | 湘南美容クリニック | Shonan Beauty Clinic | ||||
| International registration | 1754272 | Application Pending | 湘南美容外科 | Shonan Beauty Surgery | ||||
| International registration | 1754271 | Application Pending | 湘南美容外科クリニック | Shonan Beauty Surgery Clinic | ||||
| International registration | 1754406 | Application Pending | ＳＢＣ (logo) | SBC (logo) | ||||
| Singapore | 2017/3591939103Q | 40201708950W | N/A | The Chelsea Clinic | ||||
| Singapore | 2017/292151539X | 40201618496V | N/A | Gangnam Laser Clinic | ||||
| Singapore | TM/19/05/2849 | 40201910975V | N/A | SkinGO! (Singapore) | ||||
| Singapore | TM/2021/09/036 | 40202123160R | N/A | Bio White |
Our patent applications, as further described in the table below, include, but are not limited to, specialized technologies for procedures such as puncture devices for buried double eyelid procedures, simplified buried method surgical equipment, proprietary surgical sutures, silicone bags for breast augmentation simulations, and microscopic hair volume evaluation method for the treatment of androgenetic alopecia. Additionally, we have developed patent-pending safety management methods for procedures such as full-incision double eyelid surgery, lateral canthoplasty, brow lift procedures, cheek sagging prevention methods, and hair removal safety management methods. Furthermore, we have established unique safety management methods for tattoo removal treatments and hyperhidrosis procedures. By leveraging these patent-pending technologies, our franchisee clinics enhance the safety and efficiency of these cosmetic surgery procedures.
List of Patent Rights
| Name of Patent right | Type | Jurisdiction | Date
of Application |
Application No. | Status | Feature and Content | ||||||
| Microscope-Based Hair Quantity Evaluation Method | Patent | Japan | 8/25/2023 | JP2023-136711 | Application Pending | Invention of a medical audit system using a microscope and machine learning to observe and analyze hospital procedures | ||||||
| Hair Quantity Evaluation Method | Patent | Japan | 8/25/2023 | JP2023-136712 | Application Pending | Machine learning model trained on beauty clinic procedure videos to auto-evaluate correct performance | ||||||
| Utilization of Pre-Consultation Educational Videos for AGA Examination | Patent | Japan | 8/25/2023 | JP2023-136713 | Application Pending | Medical auditing system uses machine learning to evaluate procedural correctness in beauty clinics | ||||||
| Case Imaging System | Patent | Japan | 8/25/2023 | JP2023-136714 | Application Pending | Medical audit system using image-based machine learning for procedural conformance | ||||||
| Treatment Progress History Management System | Patent | Japan | 8/25/2023 | JP2023-136715 | Application Pending | Invention for documenting treatment procedures in beauty clinics using continuous image or video capture, supporting understanding, diagnoses, training of machine learning models, and auditing of procedure compliance. | ||||||
| AGA Oral Treatment Drug | Patent | Japan | 8/25/2023 | JP2023-136716 | Application Pending | An invention harnessing machine learning for evaluating procedural accuracy based on video data | ||||||
| AGA Topical Treatment Drug | Patent | Japan | 8/25/2023 | JP2023-136717 | Application Pending | Machine Learning-Based Medical Audit System for Evaluating Hospital Procedures | ||||||
| AGA Topical Treatment Drug | Patent | Japan | 8/25/2023 | JP2023-136718 | Application Pending | A method that uses deep learning to verify procedural compliance in aesthetic clinics | ||||||
| User Burden Reduction Method in Hair Transplant Surgery | Patent | Japan | 8/25/2023 | JP2023-136719 | Application Pending | Patented medical audit system for hair transplant surgery which includes cutting and collection of hair roots, video recording of the procedure, and use of a learning model for audit. | ||||||
| User Burden Reduction Method in Hair Transplant Surgery | Patent | Japan | 8/25/2023 | JP2023-136720 | Application Pending | System that captures and analyzes videos of the donor hair shaving process at aesthetic clinics to ensure procedure compliance, and provides a wig to reduce psychological stress. |
| 48 |
| User Burden Reduction Method in Hair Transplant Surgery | Patent | Japan | 8/25/2023 | JP2023-136721 | Application Pending | An invention involving a procedure of hair follicle collection, concealed by remaining hair, integrated with an algorithm for auditing surgical compliance | ||||||
| User Positioning Guide Method | Patent | Japan | 8/25/2023 | JP2023-136722 | Application Pending | Surgical Audit System for Hair Transplantation Using Machine Learning | ||||||
| Treatment Efficiency and Safety Management Methods | Patent | Japan | 8/25/2023 | JP2023-136723 | Application Pending | AI technology applied to auditing cosmetic clinic procedures for monitoring the appropriateness of specific treatments | ||||||
| Treatment Efficiency and Safety Management Methods | Patent | Japan | 8/25/2023 | JP2023-136724 | Application Pending | The present invention is a medical audit system that collects image data, generates a machine learning model for correct hair loss treatment using Botox, and evaluates newly acquired treatment videos using this model to assess the correctness of the procedure. | ||||||
| Treatment Efficiency and Safety Management Methods | Patent | Japan | 8/25/2023 | JP2023-136725 | Application Pending | Medical procedures are photographed, features extracted, and using machine learning, models are created to determine conformity of new procedure recordings, suggesting improvements when necessary. | ||||||
| Treatment Efficiency and Safety Management Methods | Patent | Japan | 8/25/2023 | JP2023-136726 | Application Pending | Machine Learning Based Audit of Hair Growth Treatments Using DermaPen, Growth Factors and Minoxidil | ||||||
| Treatment Efficiency and Safety Management Methods | Patent | Japan | 8/25/2023 | JP2023-136727 | Application Pending | Machine Learning utilization for medical procedure compliance and improvement | ||||||
| Management Method for Hair Transplant Cells | Patent | Japan | 8/25/2023 | JP2023-136728 | Application Pending | Invention for assessing medical procedures through machine learning models generated from video imagery | ||||||
| Photo Capture Method for Hair Medical Purposes | Patent | Japan | 8/25/2023 | JP2023-136729 | Application Pending | The invention initially involves photographing the user from various angles in a bright room, using the captured images to generate a machine learning model, which evaluates if the treatment procedure is carried out as per the procedure in new images or videos. | ||||||
| Hair Growth Composition | Patent | Japan | 8/25/2023 | JP2023-136730 | Application Pending | Invention of a medical auditing system using machine learning to validate procedures from images taken during treatments at beauty clinics | ||||||
| Hair Growth Composition | Patent | Japan | 8/25/2023 | JP2023-136731 | Application Pending | An invention for auditing procedural compliance in a medical system using a learning model inclusive of IV drip mixture ratios and their impacts on health | ||||||
| Information Processing System, Information Processing Method, and Program | Patent | Japan | 2/24/2023 | JP2023-027740 | Application Pending | Technology capable of verifying the effects of double-eyelid surgery | ||||||
| Information Processing System, Information Processing Method, and Program | Patent | Japan | 2/24/2023 | JP2023-027741 | Application Pending | Technology capable of verifying the effects of double-eyelid surgery | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 8/25/2023 | JP2023-136732 | Application Pending | Invention involves creating a learning model using images of handpiece operation, incorporating relationships between energy hertz number and moving speed along with the overlapping process at the large head, auditing new treatments based on this model. | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 8/25/2023 | JP2023-136733 | Application Pending | Machine learning model generated from hair removal procedure videos for auditing procedural correctness and preventing hair growth | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 8/25/2023 | JP2023-136734 | Application Pending | The invention involves capturing hospital procedure activities, identifying procedural issues from the images, using these images as training data for machine learning models, and analyzing new videos with the model to ensure proper procedure adherence. |
| 49 |
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136735 | Application Pending | A system that learns surgical procedures from images to generate a model for auditing and preventing omissions in future surgeries | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136736 | Application Pending | A method involving image capturing of hospital procedures, creating a learning model from those images using machine learning algorithms, and auditing new footage based on this model, with feedback provision for quality improvement if required. | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136737 | Application Pending | Invention monitoring procedural operations in hospitals via learning model from activity images, checking correct execution of operations with specific procedures. | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136738 | Application Pending | Procedure for creating a learning model from surgical operation images for surgery evaluation and feedback | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136739 | Application Pending | The invention is an audit system using machine learning algorithms to verify and guide surgical procedures, ensuring that newly acquired procedure videos are following defined procedures. | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136740 | Application Pending | System for auditing hospital procedures through machine learning analysis of captured images | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136741 | Application Pending | Machine learning model generated from recorded procedures to evaluate new treatments for pain and acne | ||||||
| Safety Management Method for Ion Introduction Treatment | Patent | Japan | 8/25/2023 | JP2023-136742 | Application Pending | Invention creating machine-learning models from hospital procedure videos for treatment accuracy and quality control | ||||||
| Safety Management Method for Ion Introduction Treatment | Patent | Japan | 8/25/2023 | JP2023-136743 | Application Pending | A system for managing, guiding, verifying, and automating needleless therapy procedures, using learning models from existing treatment videos | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136744 | Application Pending | Invention of a medical audit system that uses machine learning to ensure adherence to correct hospital procedures | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136745 | Application Pending | Machine-learning algorithms are used to create a therapeutic protocol for phototherapy procedures, auditing new videos of the procedure for correctness and safety, reducing workload and ensuring effective treatment. | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136746 | Application Pending | Patent for a skin treatment method and process analysis using specific wavelength light and machine learning procedure adherence verification | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136747 | Application Pending | Using Machine Learning for Auditing Beauty Treatment Procedures | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136748 | Application Pending | Machine learning model for quality auditing of ThermaCool procedure | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136749 | Application Pending | Invention of process using machine learning model to analyze hospital procedure images for automatic procedural audit. | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136750 | Application Pending | Invention on creating a learning model using machine learning methods for auditing procedures in beauty clinics, particularly the ‘Thermacool Eye’ procedure, based on sequential image data. |
| 50 |
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136751 | Application Pending | A medical audit system for beauty clinics utilizing machine learning for procedure adherence and quality improvement | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136752 | Application Pending | Machine learning based auditing and feedback on beauty clinic procedures by using treatment images and analysis | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136753 | Application Pending | Enlighton’s laser treatment procedure learning model based on hospital images and machine learning for auditing treatment alignment | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136754 | Application Pending | System using machine learning to recognise and audit treatment procedures in clinics | ||||||
| Safety Management Method for Tattoo Removal Treatment | Patent | Japan | 8/25/2023 | JP2023-136755 | Application Pending | The invention is a medical audit system that employs machine learning to formulate a hospital action model based on videos of treatment procedures, and verifies the appropriateness of spot size selection and wavelength utilization. | ||||||
| Safety Management Method for Hyperhidrosis Treatment | Patent | Japan | 8/25/2023 | JP2023-136756 | Application Pending | A medical audit system using machine learning to analyze MiraDry beauty treatments, alerting deviations from normal procedures and improving from irregularities. | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136757 | Application Pending | An invention of an automated auditing procedure using a machine learning model created from filmed medical procedures, specifically for snoring treatments using a YAG laser | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136758 | Application Pending | Documentation of Device Power Setup, Filming and Light Exposure Procedure with Sterispot Handpiece for Training Model Creation | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136759 | Application Pending | System Produces Learning Model for Medical Procedures from Hospital Images and Audits New Videos for Protocol Adherence | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136760 | Application Pending | Medical Audit System Utilizing Machine Learning for Procedure Adherence Analysis | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136761 | Application Pending | Invention embodying a machine learning model analyzing hospital surgery procedures from video data for adherence verification and progress monitoring | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136762 | Application Pending | Invention records and analyses videos of HIFU shower treatment procedures in hospitals using a deep learning model. | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136763 | Application Pending | Invention proposes the use of machine learning to monitor medical procedures via camera recordings, generating a model from recorded images for safe evaluation, and auditing new video content according to the model | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136764 | Application Pending | Patent for a method in beauty clinics using machine learning to ensure correct procedure during High-Intensity Focused Ultrasound treatment | ||||||
| Safety Management Method for Salicylic Acid Facial Peeling Treatment | Patent | Japan | 8/25/2023 | JP2023-136765 | Application Pending | Machine learning used to ensure accuracy and safety in chemical peeling procedures with salicylic acid macrogol | ||||||
| Safety Management Method for Salicylic Acid Body Peeling Treatment | Patent | Japan | 8/25/2023 | JP2023-136766 | Application Pending | The invention is a medical audit system that uses machine learning techniques to create a model from surgery images, analyzes new surgical procedures for guideline adherence, and suggests corrective measures for inappropriate procedures, thus improving procedure quality and safety. |
| 51 |
| Safety Management Method for Skin Treatment Using Plant-Based Activated Charcoal and Lactic Acid | Patent | Japan | 8/25/2023 | JP2023-136767 | Application Pending | Invention relating to a learning model for recognition and adherence to correct black peel application procedure | ||||||
| Safety Management Method for Skin Treatment Using Plant-Based Activated Charcoal and Lactic Acid | Patent | Japan | 8/25/2023 | JP2023-136768 | Application Pending | A system that records and analyzes medical activities in a hospital using machine learning to detect specific patterns and improve accuracy. | ||||||
| Safety Management Method for Skin Treatment | Patent | Japan | 8/25/2023 | JP2023-136769 | Application Pending | Invention of a medical audit system that generates a learning model from images of specific beauty clinic procedures and evaluates new treatments | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136770 | Application Pending | Automated Medical Audit System for Beauty Clinics | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136771 | Application Pending | Machine Learning System Developed to Enhance Quality of Medical Procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136772 | Application Pending | Video analysis method for performance evaluation in beauty clinics using machine learning | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136773 | Application Pending | The system generates a learning model from pre-operative images, trains it using deep learning for ProShock Shape procedures, analyzes real-time videos for correctness, reports any anomalies, and counters the long tail problem using diverse treatment image datasets. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136774 | Application Pending | Invention of a medical auditing system that uses machine learning to analyze procedural adherence in clinics | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136775 | Application Pending | Procedure for auditing treatments using machine learning models derived from filmed treatment procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136776 | Application Pending | Machine Learning System for Safety and Quality Assurance in Beauty Clinics | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136777 | Application Pending | A procedural audit system for cosmetic treatments using machine learning model based on video footage of procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136778 | Application Pending | System creates a learning model for medical procedures using image recognition, information extraction, and machine learning, and compares new procedures against this model for accuracy and appropriateness. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136779 | Application Pending | Patent covers a machine learning method to ensure procedural standards in beauty clinics | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136780 | Application Pending | Invention uses machine learning model to analyze images or video frames from hospital actions to deduce correctness of procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136781 | Application Pending | An innovative surgical procedure combining cooling, disinfection, needle insertion, hemostasis, and various other techniques, with automatic auditing and learning models for improving treatment efficiency. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136782 | Application Pending | Medical auditing system using AI to verify adherence to cosmetic treatment procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136783 | Application Pending | Medical audit system using machine learning for validating skin treatments |
| 52 |
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136784 | Application Pending | AI used for learning and verifying adherence to medical procedures in hospitals using collected image data. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136785 | Application Pending | A medical audit system employing image recognition and machine learning to ensure correct hospital procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136786 | Application Pending | Invention of a Learning Model for Treatment Procedure Recognition and Surveillance in Beauty Clinics | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136787 | Application Pending | The invention documents beauty clinic procedures, especially HIFU treatments, creates a learning model using the recorded data and deep learning, using it for predictive analysis of new video data for real-time treatment auditing. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136788 | Application Pending | Patent for a machine learning model generated from a three-step procedure, used to audit the adherence of treatment videos to the established procedure | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136789 | Application Pending | A processing device audits beauty clinic procedures by extracting and learning from past treatment videos, evaluating new videos, reporting inaccuracies, and continually updating its learning model for accurate future audits. | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136790 | Application Pending | Invention creates a learning model for auditing adherence to procedural steps in skin disease treatments using machine learning | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136791 | Application Pending | Beauty clinic procedure involving liver-spot treatment via pulsed needle oscillation being audited through a machine learning model. | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136792 | Application Pending | System for recording and analyzing treatment processes using machine learning | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136793 | Application Pending | Patent for a medical procedure using botulinum toxin, featuring a machine learning tool which audits the treatment process using filmed visual data | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136794 | Application Pending | Medical audit system uses deep learning to analyze and monitor cosmetic clinic procedures | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136795 | Application Pending | Invention uses machine learning to evaluate the accuracy of acne treatment procedures in a beauty clinic. | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136796 | Application Pending | Machine learning model developed for analyzing fat freezing procedure videos to detect complications | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136797 | Application Pending | A three-step procedure at a beauty clinic uses photographic evidence collected during a fat cooling treatment to create a machine learning model that assesses procedure compliance and symptom occurrence. | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136798 | Application Pending | Learning model developed from hyaluronic acid injection videos monitors for side effects and provides response instructions | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136799 | Application Pending | A medical audit system learns from images of various treatments in hospitals, and uses this learning model to evaluate and update treatment procedures for ailments such as liver spots, red face, and pores, using devices such as VISIA_Evolution. |
| 53 |
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136800 | Application Pending | Invasive short pulse bipolar high-frequency device utilizes a single-use chip with 25 micro needle electrode pins for facial treatments, with machine learning enhancing auditing of the process. | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136801 | Application Pending | Application of Machine Learning in Auditing and Improving RF Microneedling Therapeutic Procedures | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136802 | Application Pending | An invention that incorporates a machine learning model for assessing adherence to body contouring procedures in Asian patients using RF and BioEMS devices, coupled with image capture methods such as CT scan or ultrasound, through videos from beauty clinic treatments. | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136803 | Application Pending | This invention is a method for deploying a medical audit system using a Radio Frequency (RF) micro needling device to monitor and review treatment procedures. | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136804 | Application Pending | Invention for auditing medical procedures using a learning model generated from collected images | ||||||
| Evaluation and Effect Measurement Method for Aesthetic Medicine | Patent | Japan | 8/25/2023 | JP2023-136805 | Application Pending | Invention utilizes machine learning to analyze and validate procedure of age spot treatments in beauty clinics | ||||||
| Method for Accelerating Recovery of Motor Ability After Anesthesia | Patent | Japan | 8/25/2023 | JP2023-136806 | Application Pending | A staged auditing system utilizing machine learning from past surgical videos to provide guidelines on procedural technique, anesthetic dosage, and post-procedure recovery measures | ||||||
| Estimation Method for Recovery Time of Motor Ability | Patent | Japan | 8/25/2023 | JP2023-136807 | Application Pending | Machine learning model using in-hospital images and parameters to estimate anesthetic duration and ensure procedural adherence | ||||||
| Estimation Method for Anesthesia Effect | Patent | Japan | 8/25/2023 | JP2023-136808 | Application Pending | Patent for a system capturing and analyzing video footage of treatments in beauty clinics for machine-learning-based auditing of anesthesia administration. | ||||||
| Device for Puncturing Buried Double Eyelids | Patent | Japan | 8/25/2023 | JP2023-136809 | Application Pending | Deep learning model for evaluating surgical procedures at beauty clinics | ||||||
| Simplified Buried Suture Surgery Apparatus | Patent | Japan | 8/25/2023 | JP2023-136810 | Application Pending | Method and System for Auditing Surgical Procedures through Machine Learning | ||||||
| Surgical Thread | Patent | Japan | 8/25/2023 | JP2023-136811 | Application Pending | Medical audit system using machine learning to assess the appropriateness of medical procedures in cosmetic clinics from images | ||||||
| Silicone Bag for Breast Augmentation Simulation | Patent | Japan | 8/25/2023 | JP2023-136812 | Application Pending | Invention of a silicone bag for simulating breast augmentation surgery that assists in visualizing post-surgery appearance and monitoring surgical progress using a learning model. | ||||||
| Clinic Reservation Reception System | Patent | Japan | 8/25/2023 | JP2023-136813 | Application Pending | Invention for optimizing medical services by matching users with suited physicians using a personalized database | ||||||
| Surgery Applicability Determination System | Patent | Japan | 8/25/2023 | JP2023-136814 | Application Pending | A system utilizing a database of medical histories and a machine learning model based on hospital video data to ascertain surgical feasibility and process understanding | ||||||
| Surgery Applicability Determination System | Patent | Japan | 8/25/2023 | JP2023-136815 | Application Pending | Automated System for Managing Treatment Intervals Using a Learning Model | ||||||
| Information Sharing Fixed System | Patent | Japan | 8/25/2023 | JP2023-136816 | Application Pending | Machine learning method to monitor and analyze hospital procedures through images and video data |
| 54 |
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136817 | Application Pending | Invention that tracks and verifies the number of cotton balls used in surgery via image analysis and deep learning algorithms | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136818 | Application Pending | Invention of a Medical Audit System Using Machine Learning for Procedure Verification and Reoperation Decision-Making | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136819 | Application Pending | Method for auditing medical procedures through machine learning from hospital images | ||||||
| Safety Management Method for Full Incision Method Double Eyelid Surgery | Patent | Japan | 8/25/2023 | JP2023-136820 | Application Pending | An invention of an auditing system that uses a machine learning model to analyze medical procedures through images, ensuring procedures are carried out correctly without human visual inspection. | ||||||
| Safety Management Method for Outer Corner Cutting Surgery | Patent | Japan | 8/25/2023 | JP2023-136821 | Application Pending | Machine learning model generated from past surgical images to automatically audit new surgical videos for correct procedure | ||||||
| Safety Management Method for Brow Lift Surgery | Patent | Japan | 8/25/2023 | JP2023-136822 | Application Pending | Invention for a Learning Model to Monitor and Assess Correctness of Beauty Clinic Procedures Using Filmed Footage and Machine Learning | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136823 | Application Pending | Invention uses Machine Learning to Evaluate the Compliance of Procedure Performance | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136824 | Application Pending | A machine learning model based on medical procedure steps for analyzing and verifying procedural adherence in new videos | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136825 | Application Pending | A medical audit system using machine learning to map surgical images to pre-surgical procedures, identify procedures in new surgical images, and verify their sequence against therapeutic procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136826 | Application Pending | Innovation in a Surgical Procedure: Monitoring Compliance through Machine Learning | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136827 | Application Pending | Invention of a learning model using recorded actions from blepharoptosis surgery to analyze new surgical videos | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136828 | Application Pending | Machine Learning Model for Quality Analysis of Epicanthoplasty Procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136829 | Application Pending | A medical audit system for ophthalmological procedures that uses a machine learning model to analyze surgical videos for procedural adherence. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136830 | Application Pending | System that creates learning model based on surgical images to audit newly recorded surgical procedures and provide detailed surgical records for future medical care | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136831 | Application Pending | Technology that uses surgical videos for machine learning to standardize medical procedures. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136832 | Application Pending | Machine learning model using Convolutional Neural Network identifies actions in beauty clinic treatment videos to ensure predetermined procedures are being followed. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136833 | Application Pending | A medical audit system that uses machine learning to analyze image data and ensure procedural compliance in surgical operations |
| 55 |
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136834 | Application Pending | A system that uses machine learning to audit and improve surgical procedures in a beauty clinic | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136835 | Application Pending | The medical audit system employs two methods; the first one uses a micropore and a Denver splint, while the second method uses an Orfit and hot water combined with a series of taping procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136836 | Application Pending | Invention of an audit system for capturing and analyzing physician’s procedural steps during nose tip surgery | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136837 | Application Pending | Invention involves a surgical procedure with application of machine learning model trained by deep learning to verify newly acquired images against procedure steps | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136838 | Application Pending | The process involves designing thread placement in surgery, creating a learning model using images, utilizing image recognition technology for feature extraction, and employing the model to analyze the adherence to proper procedures. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136839 | Application Pending | A method for monitoring medical procedures using machine learning analysis of image data | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136840 | Application Pending | A method of using a machine learning model to monitor the removal and suturing of nasal wing skin in a cosmetic procedure, notifying stakeholders if the process is being improperly performed. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136841 | Application Pending | Machine learning method for error detection and quality improvement in alar reduction surgeries | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136842 | Application Pending | Invention involves a procedure including creating a design, administering anesthesia, inserting a thread into the puncture site, carrying out hemostasis, auditing number of needles used, erasing the design and protecting the puncture site, all informing the creation of a learning model from hospital images for procedural compliance audit. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136843 | Application Pending | Invention for a machine-learning algorithm to record, analyze and provide feedback on the correctness of nasal septum extension procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136844 | Application Pending | Invention involves creating learning model from hospital procedure images for auditing accuracy of procedures using machine learning | ||||||
| Safety Management Method for Equipment | Patent | Japan | 8/25/2023 | JP2023-136845 | Application Pending | Method for Efficient Management and Utilization of PDS Sheets in Medical Procedures | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136846 | Application Pending | Development of a learning model from image analysis of cosmetic surgery procedure for chin repositioning using prosthetic cartilage | ||||||
| Cheek Sag Prevention Method | Patent | Japan | 8/25/2023 | JP2023-136847 | Application Pending | Medical audit system uses machine learning to record procedures, generate learning models, and evaluate new procedures’ appropriateness. | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136848 | Application Pending | Invention of a Monitoring System utilizing Machine Learning to Audit Procedures based on Captured Images |
| 56 |
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136849 | Application Pending | Invention related to an auditing system for ensuring adherence to prescribed steps in liposuction surgery to improve healthcare quality | ||||||
| Safety Management Method for Procedures | Patent | Japan | 8/25/2023 | JP2023-136850 | Application Pending | This patent describes a minimally invasive surgery procedure for obesity and body contouring, using an 18G perforator and fat suction injections, with the operation filmed and continuously improved through the advancement of machine learning models. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the white face bandage (balance cargo) method. | Patent | Japan | 8/25/2023 | JP2023-136851 | Application Pending | A patent system involving White Faceband (Balance Cargo) method with manual compliance monitoring and recording systems, display guide system, and a robotics application system. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the chin-neck bandage (Lumbic) method. | Patent | Japan | 8/25/2023 | JP2023-136852 | Application Pending | A system for monitoring, guiding, recording compliance, and utilizing robotics for the Ranbick method for Chin Neck Bandages. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance recording system, and robotics application system for the upper arm S compression method. | Patent | Japan | 8/25/2023 | JP2023-136853 | Application Pending | This is regarding various systems for implementing upper arm S compression, such as manual compliance monitoring, display guidance, recording systems, and robotic application. | ||||||
| Abdomen, waist, and hip S Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for compression methods. | Patent | Japan | 8/25/2023 | JP2023-136854 | Application Pending | System for manual monitoring, guidance, and recording of abdomen, waist, and lower back compression with robotics application | ||||||
| Waist and waist S Compression method of liposuction — Amulet — Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the method. | Patent | Japan | 8/25/2023 | JP2023-136855 | Application Pending | A system for waist and abdominal fat liposuction using the ‘Amulet’ compression method with compliance monitoring, guidance display, record keeping, and robotic applications. | ||||||
| Waist and waist liposuction compression method — abdominal band — manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the method. | Patent | Japan | 8/25/2023 | JP2023-136856 | Application Pending | A system for monitoring compliance with manual guidelines in the compression method for waist fat suction using an abdominal band, including a guide display, record system, and application of robotics. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the gluteal knee S compression method. | Patent | Japan | 8/25/2023 | JP2023-136857 | Application Pending | Patent regarding systems for applying major gluteal knee S compression methods including monitoring, guiding, recording compliance, and robotic application. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance recording system, and robotics application system for the lower leg S compression method. | Patent | Japan | 8/25/2023 | JP2023-136858 | Application Pending | Systems for monitoring and recording compliance with a manual for lower leg S compression method, manual guidance display, and application system for robotics |
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| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the lower body S compression method. | Patent | Japan | 8/25/2023 | JP2023-136859 | Application Pending | Systems related to lower body comfort involving pressure techniques, including systems for manual adherence, guidance, recording compliance, and robotics applications. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems for thigh fixation methods. | Patent | Japan | 8/25/2023 | JP2023-136860 | Application Pending | A femur fixation method with manual adherence monitoring, guidance display, compliance recording, and robotic application system. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems related to the two arm fixation method. | Patent | Japan | 8/25/2023 | JP2023-136861 | Application Pending | System for Monitoring and Recording Compliance with Upper Arm Securing Manual using a Guide Display and Robotics | ||||||
| Induction Method for Hair Removal Device | Patent | Japan | 7/25/2023 | JP2023-120738 | Application Pending | Patent for Surgery Audit System Using Machine Learning for Quality and Safety Assessment | ||||||
| Induction Method for Hair Removal Device | Patent | Japan | 7/25/2023 | JP2023-120739 | Application Pending | Using a machine learning model to evaluate the accuracy of laser hair removal treatment based on observed laser movements | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 7/25/2023 | JP2023-120740 | Application Pending | Invention uses machine learning to audit hospital procedures and compliance, checking actions against generated models and ensuring record keeping. | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 7/25/2023 | JP2023-120741 | Application Pending | Use of Multiscale Health Assessment Procedure with Machine Learning for Risk Evaluation and Compliance Check in Treatment Procedures | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 7/25/2023 | JP2023-120742 | Application Pending | Invention involves utilizing captured images of hospital procedures to develop a learning model for operations, specifically for evaluating correct use of a spacer and guide light in irradiation range. | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 7/25/2023 | JP2023-120743 | Application Pending | Improve Laser Surgery Techniques and Cleanliness in Beauty Clinics using Machine Learning | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 7/25/2023 | JP2023-120744 | Application Pending | Invention embodies a process of evaluating and reducing levels of pain, redness, swelling and hypersensitivity post exposure, and generates a learning model using machine learning algorithms to monitor new operations. | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 7/25/2023 | JP2023-120745 | Application Pending | Invention for auditing medical procedures using a learning model generated from filmed actions, focusing on irradiation speed and overlap degree. | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 7/25/2023 | JP2023-120746 | Application Pending | Invention for auditing health procedures using a learning model generated from recorded data | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 7/25/2023 | JP2023-120747 | Application Pending | A patent detailing a machine learning model that generates and uses a database of images captured within a hospital to analyze and determine proper actions | ||||||
| Safety Management Method for Hair Removal Treatment | Patent | Japan | 7/25/2023 | JP2023-120748 | Application Pending | An auditing system for procedures in aesthetic clinics utilizing hair removal lasers, providing monitoring, learning models, analysis and feedback on procedure accuracy. |
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| Checklist Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for implantation double prosthesis method. | Patent | Japan | 7/25/2023 | JP2023-120749 | Application Pending | System for monitoring, guiding, recording checklist compliance and applying robotics for buried double-treatment methods | ||||||
| Checklist Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the chin prosthesis method. | Patent | Japan | 7/25/2023 | JP2023-120750 | Application Pending | The document discusses systems related to the Agoprosthesis method, including monitoring, guiding, record tracking, and robotics application. | ||||||
| Checklist Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the bacar fat and molluscum contagiosum method. | Patent | Japan | 7/25/2023 | JP2023-120751 | Application Pending | Invention related to a system for monitoring adherence to the Checklist Buckelfat-Meelerfat method, displaying guidelines, logging compliance, and application in robotics. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the fat injection breast augmentation method. | Patent | Japan | 7/25/2023 | JP2023-120752 | Application Pending | Manual and robotics systems for compliance monitoring, display guide, recording, related to fat injection for breast augmentation. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the pure graft 1UP method. | Patent | Japan | 7/25/2023 | JP2023-120753 | Application Pending | The patent pertains to the PureGraft 1UP method incorporating a manual compliance monitoring system, display guide system, recording system, and a robotics application system. | ||||||
| A manual compliance monitoring system, a manual display guide system, a manual compliance record system, and a robotics application system related to the condensed rich liposuction method. | Patent | Japan | 7/25/2023 | JP2023-120754 | Application Pending | A system pertaining to condensed rich fat injection featuring a monitoring system for manual compliance, a descriptive manual guide system, a record system, and a robotics application system. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the serration method. | Patent | Japan | 7/25/2023 | JP2023-120755 | Application Pending | Invention about cell fusion techniques systems including supervision, display and recording of manual guidelines, and a robotics application system. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the method of fat augmentation injection (petit breast augmentation) with anesthesia for peace of mind. | Patent | Japan | 7/25/2023 | JP2023-120756 | Application Pending | System for Monitoring and Automating Fat Grafting Breast Enhancement Injection Procedures | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the submammary method of breast augmentation by inserting artificial breast implants. | Patent | Japan | 7/25/2023 | JP2023-120757 | Application Pending | System for monitoring and recording the compliance of implantation procedures for artificial breast augmentation with sub-mammary techniques |
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| Breast augmentation by insertion of artificial breast implants: Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the submammary method. | Patent | Japan | 7/25/2023 | JP2023-120758 | Application Pending | A system for breast augmentation with artificial implants using subpectoral method featuring manual adherence monitoring, display guide, recording compliance, and application of robotics. | ||||||
| Breast augmentation with artificial breast implants: Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the subpectoral fascia method. | Patent | Japan | 7/25/2023 | JP2023-120759 | Application Pending | A system related to breast augmentation surgery using the Subpectoral method, comprising a manual adherence monitoring system, display guide system, compliance record system, and robotics application. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the ENT method. | Patent | Japan | 7/25/2023 | JP2023-120760 | Application Pending | The manual paper discusses the ENT method including systems for manual compliance monitoring, display guides, recording adherence and the use of robotics. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems related to MMBAG compression methods. | Patent | Japan | 7/25/2023 | JP2023-120761 | Application Pending | Document on MMBAG compression method featuring monitoring, display guide, compliance recording, and robotics application systems | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for MMBAG breath band fixation method. | Patent | Japan | 7/25/2023 | JP2023-120762 | Application Pending | Patent on MMBAG wristband fixation method in compliance monitoring, manual display guide, compliance recording and robotics application systems | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for SNP breast duct preservation method. | Patent | Japan | 7/25/2023 | JP2023-120763 | Application Pending | System related to SNP ductal preservation method including manual adherence monitoring, display guide, record system and robotics application | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for SNP conventional method. | Patent | Japan | 7/25/2023 | JP2023-120764 | Application Pending | SNP method involves systems for monitoring, displaying, recording manual adherence, and applying robotics. | ||||||
| LA Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the nipple base excision method. | Patent | Japan | 7/25/2023 | JP2023-120765 | Application Pending | Document on LA mammary papillary base resection method, discussing compliance monitoring, guide and recording systems, and robotic application |
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| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for LA nipple circumference excision method. | Patent | Japan | 7/25/2023 | JP2023-120766 | Application Pending | A system related to the LA nipple periphery excision method, featuring a manual compliance monitoring, display guide, recording system, and applications in robotics. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the method of sunken nipple removal. | Patent | Japan | 7/25/2023 | JP2023-120767 | Application Pending | A system related to the innie nipple method, including monitoring, display guide, compliance recording, and robotics application systems. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for Montgomery gland removal method. | Patent | Japan | 7/25/2023 | JP2023-120768 | Application Pending | A method for removing Montgomery glands using a manual adherence monitoring, display guide, recording system, and robotics application system. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for breast reduction round method. | Patent | Japan | 7/25/2023 | JP2023-120769 | Application Pending | Patent for a manual and robotic system for monitoring, guiding and recording compliance in breast reduction surgeries using the ‘Round method’ | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the inverted T-shape breast reduction method. | Patent | Japan | 7/25/2023 | JP2023-120770 | Application Pending | An oversight and guidance system for ‘Reverse T’ breast reduction surgery ensuring procedural adherence and record compliance | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for rich face, CRF, and nano rich methods. | Patent | Japan | 7/25/2023 | JP2023-120771 | Application Pending | A system involving RichFace, CRF, and NanoRich methods with manual compliance monitoring, display guide, recording systems and a robotics application. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance record systems, and robotics application systems related to filagelar methods. | Patent | Japan | 7/25/2023 | JP2023-120772 | Application Pending | The excerpt discusses a system connected to the Filagera method that incorporates manual compliance monitoring, display guide systems, compliance recording, and robotics application. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance record systems, and robotics application systems related to balancer handling methods. | Patent | Japan | 7/25/2023 | JP2023-120773 | Application Pending | Systems pertaining to balancer handling including monitoring adherence to manual, manual display guidance, compliance recording, and robotics applications. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems for muftogun methods. | Patent | Japan | 7/25/2023 | JP2023-120774 | Application Pending | The Maftogan method encompasses systems for manual compliance monitoring, display guide, compliance recording, and robotics application, providing an efficient framework for procedural tasks execution and oversight. |
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| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems for the thread lift floating method in which the piercing part is not a hairy part. | Patent | Japan | 7/25/2023 | JP2023-120775 | Application Pending | A system including a thread lift floating method, a compliance monitoring system, a display guide system, a compliance recording system, and a robotics application system without hairy area insertion. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for methods in which the thread lift floating insertion site is a hairy part. | Patent | Japan | 7/25/2023 | JP2023-120776 | Application Pending | A method involving thread lift floating with hair insertion, alongside monitoring, display, recording systems for manual compliance, and an application for robotics. | ||||||
| (Limited) A manual compliance monitoring system, a manual display guide system, a manual compliance recording system, and a robotics application system relating to a small face rejuvenation lift method. | Patent | Japan | 7/25/2023 | JP2023-120777 | Application Pending | A facial rejuvenation lift system featuring compliance monitoring, display guide, compliance recording and a robotic application to ensure correct and efficient procedures. | ||||||
| A manual compliance monitoring system, a manual display guide system, a manual compliance recording system, and a robotics application system relating to an incisional forehead lift method. | Patent | Japan | 7/25/2023 | JP2023-120778 | Application Pending | A system related to the Incision Forehead Lift method including a manual compliance monitoring system, display guide, recording system, and a robotics application. | ||||||
| A manual compliance monitoring system, a manual display guide system, a manual compliance record system, and a robotics application system related to the submental muscle binding method. | Patent | Japan | 7/25/2023 | JP2023-120779 | Application Pending | Patent about systems related to restraining submandibular muscles, including adherence monitoring, manual guide display, compliance record keeping, and robotics application. | ||||||
| A manual compliance monitoring system, a manual display guide system, a manual compliance record system, and a robotics application system related to a baser shaving method. | Patent | Japan | 7/25/2023 | JP2023-120780 | Application Pending | Patent for systems that supervise, guide, and record manual compliance with ‘Beyzer Shaving Methods’ and apply robotics. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for shaving method. | Patent | Japan | 7/25/2023 | JP2023-120781 | Application Pending | System for monitoring adherence to a shaving manual, providing display guides, recording compliance, and applying robotics. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the complete extraction method. | Patent | Japan | 7/25/2023 | JP2023-120782 | Application Pending | Detailed extraction method system featuring manual compliance monitoring, display guide, record system, and robotics application. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems related to the Sooso OS method. | Patent | Japan | 7/25/2023 | JP2023-120783 | Application Pending | SksoOS method concerning a monitoring system for manual compliance, a display guide system, documentation system for manual compliance and an application system for robotics |
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| Manual Compliance Monitoring System, Manual Display Guide System, Manual Compliance Recording System, and Robotics Application System for Tattoo Removal Method by Excision. | Patent | Japan | 7/25/2023 | JP2023-120784 | Application Pending | The system for tattoo removal by ablation includes compliance monitoring, instruction guide display, manual compliance record, and robotics application. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for tattoo removal by skin grafting. | Patent | Japan | 7/25/2023 | JP2023-120785 | Application Pending | A patent about a tattoo removal system utilizing skin grafts, which includes features for operation manual compliance monitoring, display guidance, record keeping, and robotics application. | ||||||
| Tattoo removal by skin grafting Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for skin grafting method. | Patent | Japan | 7/25/2023 | JP2023-120786 | Application Pending | A tattoo removal method using skin grafting with system to track and ensure adherence to the manual procedures, including a guide display and robotics application. | ||||||
| Tattoo removal by skin grafting Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for full-layer skin grafting methods. | Patent | Japan | 7/25/2023 | JP2023-120787 | Application Pending | System for tattoo removal via skin transplantation with compliance monitoring, display guide, recording system, and robotics application | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the “Cachi” and “Folded ear” methods. | Patent | Japan | 7/25/2023 | JP2023-120788 | Application Pending | System incorporating manual compliance monitoring, display guide, recording systems, and applied robotics for manipulating ears | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for the split-ear straight line method. | Patent | Japan | 7/25/2023 | JP2023-120789 | Application Pending | A system for monitoring, displaying, recording adherence to manuals, and a robotics implementation using the straight-line method of split ear. | ||||||
| The manual compliance monitoring system, the manual display guide system, the manual compliance record system, and the robotics application system related to the cleft ear W-type method. | Patent | Japan | 7/25/2023 | JP2023-120790 | Application Pending | A system related to the ‘W-type’ method for monitoring manual compliance, display guidance, record adherence, and robotics application. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system related to the split-ear Z-type method. | Patent | Japan | 7/25/2023 | JP2023-120791 | Application Pending | Systems for the ‘Split-ear Z-type’ method involving manual compliance monitoring, display guide, compliance recording, and robotics application | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for NVL method. | Patent | Japan | 7/25/2023 | JP2023-120792 | Application Pending | The text discusses NVL method-based systems for monitoring, displaying, recording compliance with manuals and applications for robotics |
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| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for lip enlargement method. | Patent | Japan | 7/25/2023 | JP2023-120793 | Application Pending | Lip enlargement method incorporating systems of compliance monitoring, guide display, adherence recording, and robotics utilization | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for lip reduction method. | Patent | Japan | 7/25/2023 | JP2023-120794 | Application Pending | A system for monitoring, guiding, recording compliance, and applying robotics to a lip reduction method | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for gummiesmile and mucous membrane resection methods. | Patent | Japan | 7/25/2023 | JP2023-120795 | Application Pending | A system for monitoring and recording adherence to a manual, guidance display, and application of robotics in the method of mucosal excision for gummy smile treatment | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for gum resection method. | Patent | Japan | 7/25/2023 | JP2023-120796 | Application Pending | A system for gummy smile gingival resection including manual compliance monitoring, display guide, recording, and robotics application. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance recording system, and robotics application system for the gummintomy method. | Patent | Japan | 7/25/2023 | JP2023-120797 | Application Pending | A system for monitoring compliance, displaying manual guides, recording compliance, and applying robotics in muscle resection for gummy smile correction. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems related to lip lift methods. | Patent | Japan | 7/25/2023 | JP2023-120798 | Application Pending | A lip lift procedure that employs a system for monitoring, guiding, documenting compliance with manual, and robot application. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems for osteotomy and mandibular angioplasty (gill osteotomy and osteotomy) methods. | Patent | Japan | 7/25/2023 | JP2023-120799 | Application Pending | A system concerning bone cutting and mandibular angle formation procedural methods, incorporating manual adherence monitoring, display guide, compliance recording systems and a component for robotics application. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for osteotomy and mastoid (jaw) plasty methods. | Patent | Japan | 7/25/2023 | JP2023-120800 | Application Pending | A system for bone cutting and jaw reshaping procedures with compliance monitoring, display guide, adherence recording features, and the application of robotic technology. | ||||||
| Manual compliance monitoring system, manual display guide system, manual compliance record system, and robotics application system for osteotomy (upper and lower setback) method. | Patent | Japan | 7/25/2023 | JP2023-120801 | Application Pending | A system encompassing osteotomy method, manual compliance monitoring, manual display guide, records keeping, and robotics applications. |
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| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems related to forehead shaping methods. | Patent | Japan | 7/25/2023 | JP2023-120802 | Application Pending | Methodology for designing a frontal area featuring a monitoring and guiding system for manual adherence, record-keeping for compliance, and application of robotics | ||||||
| A manual compliance monitoring system, a manual display guide system, a manual compliance recording system, and a robotics application system related to the pre-procedure photography procedure and the points to keep in mind when taking photographs. | Patent | Japan | 7/25/2023 | JP2023-120803 | Application Pending | The patent relates to various systems for manual adherence monitoring, manual display, recording adherence to manuals, and a robotic application, specifically regarding surgical imaging procedures. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems related to pre-procedure photography procedures and methods to keep in mind when taking photographs. | Patent | Japan | 7/25/2023 | JP2023-120804 | Application Pending | A technology system for monitoring adherence to pre-treatment photography manual procedures, including a displaying guide, compliance recording, and a robotics application system. | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance recording systems, and robotics application systems related to cleaning methods. | Patent | Japan | 7/25/2023 | JP2023-120805 | Application Pending | Methods of cleansing involving manual compliance monitoring, display guide, compliance recording systems, and robotics application system | ||||||
| Manual compliance monitoring systems, manual display guide systems, manual compliance record systems, and robotics application systems for equipment assembly and sterilization process methods. | Patent | Japan | 7/25/2023 | JP2023-120806 | Application Pending | Invention relating to systems for the assembly and sterilization process of equipment with monitoring, guidance, recording compliance, and robotic application features. |
We recognize the importance of protecting and enforcing our intellectual property rights. We believe that we have registered all the principal trademarks and internet domain names in Japan that are necessary for us to carry out our business operations. We believe that we have filed all patent applications in Japan that are necessary for us to carry out our business operations. We have no patents or patent applications in Vietnam, Singapore or the United States. We will take the necessary legal action to protect our intellectual property rights if we discover any infringement of those rights.
We license certain intellectual property relating to our business to our franchisee clinics. In addition, we rely on trade secrets, proprietary know-how, and concepts that are critical to our business, which we also license to our franchisee clinics. Any termination or limitation of, or loss of intellectual property rights would have a material adverse effect on us and could adversely affect our business, financial condition or results of operations.
We are not currently aware of any material infringement of our intellectual property rights and we believe that we have taken reasonable measures to prevent infringement of our own intellectual property rights. We do not currently have any pending or, to our knowledge, threatened claims against us or any of our subsidiaries relating to the infringement of any intellectual property rights owned by third parties.
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It is possible that our current patent applications, or patents which we may later acquire or develop, may be successfully challenged or invalidated in whole or in part. It is also possible that we may not obtain issued patents from our pending patent applications or for other inventions we seek to protect. Due to uncertainties inherent in prosecuting patent applications, sometimes patent applications are rejected and we subsequently abandon them. It is also possible that we may develop proprietary products or technologies in the future that are not patentable or that the patents of others will limit or altogether preclude our ability to do business. In addition, any patent issued to us in the future, or any of our pending patent applications, may provide us with little or no competitive advantage, in which case we may abandon such patent, or patent applications, or license them to another entity. Please refer to “Part I, Item 1A. Risk Factors — Risks Related to our Intellectual Property” for more information.
Insurance
We do not maintain product liability insurance for the medical devices, products, and equipment that we sell to the MCs are part of our provision of purchases services, since we are not the manufacturer of those products. We have fire insurance, leaseholder liability insurance, and facility liability insurance for our leased spaces (consisting primarily of office space) in case of damages which may be caused by any incidents or disasters. Further, we maintain cyber insurance in order to combat the increasing risks of cyber-attacks and theft of patient information, which may lead to litigation, damage to our brand, loss of existing customers and potential customers, regulatory violations, suspension of operations, and ultimately deterioration of business performance and financial position. We do not maintain business interruption insurance or key employee insurance for our executive officers. The MCs are responsible for maintaining fire insurance, leaseholder liability insurance, and facility liability insurance for the franchisee clinic properties. Accordingly, we might be subject to liabilities that exceed our insurance coverage. See “Part I, Item 1A. Risk Factors — Risk relating to our business and our industry — Our business is subject to liabilities for which we may not be insured.”
Available Information
We file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports electronically with the U.S. Securities and Exchange Commission (“SEC”) and such reports can be accessed on our Investor Relations website at sbc-holdings.com. Alternatively, you may access these reports at the SEC’s website at www.sec.gov. We make available, free of charge, copies of these reports as soon as reasonably practicable after filing these reports with the SEC or otherwise furnishing it to the SEC. The contents of our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our website is intended to be an inactive textual references only.
| Item 1A. | Risk Factors |
An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this Annual Report, including our historical financial statements and related notes included elsewhere in this Annual Report, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our common shares and warrants. Refer to “Cautionary Note Regarding Forward-Looking Statements.”
We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.
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Risks Relating to Our Business and Industry
We are a holding company and depend upon our operating subsidiaries for our cash flows.
We are a holding company. Almost all of our operations are conducted, and almost all of our assets are owned, by our operating subsidiaries. Consequently, our cash flows and our ability to meet our obligations depend upon the cash flows of our operating subsidiaries and the payment of funds by these operating subsidiaries to us in the form of dividends, distributions or otherwise. The ability of our operating subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our operating subsidiaries when needed could have a material adverse effect on our business, results of operations or financial condition.
We may need additional capital, and we cannot be sure that additional financing will be available.
Although we currently anticipate that our available funds and cash flow from operations will be sufficient to meet our cash needs for the foreseeable future, we may require additional financing. Our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance and condition of the capital markets at the time we seek financing. We cannot assure you that additional financing will be available to it on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences, or privileges senior to the rights of our common stock, and the existing stockholders may experience dilution.
We may not grow our franchise system or we may lose business by failing to compete effectively or by failing to manage the reputation of our brand.
Our success and growth prospects depend on the strength and desirability of our brand. We believe that potential franchisees choose clinics based primarily on the value and quality of the brand and services, the extent to which affiliation with that franchisor may increase the franchisee’s revenue, and the franchise management service fees charged. Demographic, economic or other changes in markets may adversely affect the desirability of our brand and, correspondingly, the number of clinics franchised.
The terms of new franchise management service agreements may not be as favorable as our current franchise management service agreements. For example, we may be required to reduce or change fee structures due to regulatory changes, make greater use of financial incentives such as loans and guaranties to induce the MCs to open new clinics and/or reduce the level of property improvements required before operating under our brand names. This could potentially impact our margins negatively. In addition, unfavorable borrowing conditions may discourage potential franchisees from expanding or constructing new clinics, thereby limiting a source of growth of the franchise management service fees received by us.
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Also, each of our franchisee clinics competes with major clinic chains in national and international markets and with independent companies in regional markets. Our ability to remain competitive and to attract and retain franchisee clinic customers depends on our success in distinguishing our management service, including but not limited to resale of cosmetic products, and services from those offered by competitors to our franchisee clinics. If we are unable to compete successfully in these areas, this could adversely affect our market share and our results of operations.
The financial performance of our franchisees can negatively impact our business.
As all of the MC’s clinics, except clinics of Medical Corporation Association Furinkai and Medical Corporation Association Junikai and one clinic located in Vietnam, were franchised as of December 31, 2024, our financial results are dependent in significant part upon the operational and financial success of our franchisees. To the extent we are unable to increase the number of franchise clinic locations in certain locations, are prevented from increasing franchise clinic locations due to historical performance, government regulations, licensing, registrations, or other factors, we will have a material negative impact on future revenues. Our revenue model and cash flows rely heavily on franchise management service fees as well as the expiration of clinic customer reward points. A significant reduction in the total number of new franchisee clinics opened would have a material adverse effect on future revenues. We have established operational standards and guidelines for our franchisees; however, we have limited control over how our franchisees’ businesses are run. While we are responsible for the anticipated success of our entire system of clinics and for taking a longer-term view with respect to system improvements, our franchisees have individual business strategies and objectives, which might conflict with our interests. Our franchisees may not be able to secure adequate financing to open or continue operating their clinics. If they incur too much debt or if economic or sales trends deteriorate such that they are unable to repay existing debt, our franchisees could experience financial distress or even bankruptcy. If a significant number of franchisees become financially distressed, it could harm our operating results through reduced management services revenues and the impact on our profitability could be greater than the percentage decrease in the management services revenues. Closure of franchised clinics would reduce our management services revenues and other sources of income and could negatively impact margins, since we may not be able to reduce fixed costs which we continue to incur.
The interests of our franchisees may conflict with ours or yours in the future and we could face liability from our franchisees or related to our relationship with our franchisees.
The MCs, even though considered related parties, may from time to time disagree with us and our strategies regarding the business or our interpretation of our respective rights and obligations under the franchise and management services agreements and the terms and conditions of the franchisee/franchisor relationship. This may lead to disputes with our franchisees, and we expect such disputes to occur from time to time in the future as we continue to offer franchises. Such disputes may result in legal action against us. To the extent we have such disputes, the attention, time and financial resources of our management and our franchisees will be diverted from the clinics, which could have a material adverse effect on our business, financial condition, results of operations and cash flows even if we have a successful outcome in the dispute.
In addition, various state and federal laws govern our relationship with our franchisees and our potential addition of a franchise clinic location. A franchisee and/or a government agency may bring legal action against us based on the franchisee/franchisor relationships that could result in the award of damages to franchisees and/or the imposition of fines or other penalties against us.
We could face liability from or as a result of our franchisees.
Various laws will govern the relationship between us and our franchisees and the potential addition of a franchise clinic location. If we fail to comply with these laws, we could be liable for damages to franchisees and fines or other penalties. A franchisee or government agency may bring legal action against us based on the franchisee/franchisor relationship. Also, under the franchise and management services business model, we may face claims and liabilities based on vicarious liability, joint-employer liability, or other theories or liabilities. Such legal actions could result in expensive litigation with our franchisees or government agencies that could adversely affect both our profit and our important relations with our franchisees. In addition, regulatory or legal developments could result in changes to laws or the franchisor/franchisee relationship that could negatively impact the franchise business model and, accordingly, our profit.
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We have limited control with respect to the operations of our medical corporation customers, which could have a negative impact on our business.
The MCs, even though considered related parties, are independent business operators and are not our employees. Generally speaking, the Company does not exercise control over the day-to-day operations of their clinics (except to the extent governed by our management services contracts). In addition, the CEO of the Company is not able to exert influence over the MC. This is because he neither has any equity interest of the MC nor is a member (or shain) or a director of the MC. In particular, however, the immediate family members of CEO are able to exert influence over the MC to the extent of the voting rights, since they are shain of the MC. The immediate family members of our CEO are members of the following MCs for which we provide services:
| ● | Medical Corporation Shobikai | |
| ● | Medical Corporation Kowakai | |
| ● | Medical Corporation Nasukai | |
| ● | Medical Corporation Aikeikai | |
| ● | Medical Corporation Jukeikai | |
| ● | Medical Corporation Ritz Cosmetic Surgery | |
| ● | Medical Corporation Association Furinkai | |
| ● | Medical Corporation Association Junikai |
The immediate family members of our CEO account for two-thirds of the general meeting of member (or shain), which is the decision-making body in these MCs.
We provide training and support to franchisees, and set and monitor operational standards, but the quality of franchised clinics may be diminished by any number of factors beyond our control. Consequently, franchisees may not successfully operate clinics in a manner consistent with our standards and requirements or may not hire and train qualified personnel. If franchisees do not operate to our expectations, our image and reputation, and the image and reputation of other franchisees, may suffer materially and system-wide sales could decline significantly, which would reduce our management services fees and other revenues, and the impact on profitability could be greater than the percentage decrease in management services fees.
The challenging economic environment may affect our franchisees, with adverse consequences to us.
We rely substantially on our franchisees and the manner in which they operate their locations to develop and promote our brand and business. Due to the continuing challenging economic environment, it is possible that some franchisees could file for bankruptcy or become delinquent in their payments to us, which could have a significant adverse impact on our business due to loss or delay in payments of management services fees and other fees. Bankruptcies by our franchisees could prevent us from terminating their franchise and management services agreements so that we can offer their territories to other franchisees, negatively impact our market share and operating results as we may have fewer well-performing franchisee clinics, and adversely impact our ability to open new franchisee clinics.
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We cannot be certain that the MCs and other franchisees we select in the future will have the business acumen or financial resources necessary to open and operate successful franchises in their franchise areas, and applicable franchise laws may limit our ability to terminate or modify these franchise arrangements and management services agreements. Moreover, franchisees may not successfully operate clinics in a manner consistent with our standards and requirements or may not hire and train qualified personnel. The failure of MCs and other franchisees to open and operate franchises successfully could have a material adverse effect on us, our reputation, our brand and our ability to open new franchisee clinics and could materially adversely affect our business, financial condition, results of operations and cash flows.
Franchisees may not have access to the financial or management resources that they need to open the clinics contemplated by their agreements with us or be able to find suitable sites on which to develop them. Franchisees may not be able to negotiate an acceptable lease or purchase terms for clinic sites, obtain the necessary permits and government approvals or meet construction schedules. Any of these problems could slow our growth and reduce our franchise revenues. Additionally, our franchisees typically depend on financing from banks and other financial institutions, which may not always be available to them, in order to construct and open new clinics. For these reasons, franchisees may not be able to meet the new clinic opening dates required under the franchise agreements.
If we are unable to obtain, maintain or protect intellectual property rights, in Japan, in Vietnam, in Singapore, in the U.S. and throughout the world, we may not be able to compete effectively in our market or globally.
Our success depends in significant part on our and our licensees’ ability to establish, maintain and protect patents and other intellectual property rights and operate without infringing the intellectual property rights of others.
The patent prosecution process is expensive and time-consuming, and we may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and certain periodic maintenance and annuity fees following patent issuance. It is also possible that we will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. The lack of such patent protection may have a materially adverse effect on our business and financial condition.
Finally, our patent portfolio encompasses entire pending patent applications and unpatented intellectual property in various jurisdictions, and the pending patent applications encompassing each of the different technology areas may be assigned different relative and future values, either based on commercial relevance, patent position strength, patent coverage, claim scope, or any other variables associated with intellectual property. That is, some aspects of our patent portfolio may be more valuable than other aspects of our patent portfolio. Inability to obtain patents encompassing critical technologies could more adversely impact our business than inability to obtain patents encompassing other aspects of our business. Thus, adverse events experienced within specific patent portfolios could critically hamper our ability to commercialize and conduct business in these key technology areas.
Globally, filing, prosecuting, enforcing and defending patents in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in certain countries can be less extensive than those in other jurisdictions. In addition, as noted above, the laws of some foreign countries do not protect intellectual property rights to the same extent as laws in Japan. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries. Since we have not obtained patent protection, competitors may use our technologies and our intellectual property rights may not be effective or sufficient to prevent them from competing.
We have substantial franchisee concentration.
The number of our franchisees is severely limited since our franchisees primarily consist of the MCs. There are inherent risks whenever a large percentage of revenues are concentrated with a limited number of franchisees that mainly operate the franchise locations in Japan, rather than in broad, mainstream commercial operations. We are unable to predict the future level of demand for our services that will be generated by these franchisees.
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Our reputation and the trading price of our common stock may be negatively affected by adverse publicity or detrimental conduct against us.
Adverse publicity concerning our failure or perceived failure to comply with legal and regulatory requirements, alleged accounting or financial reporting irregularities, regulatory scrutiny and further regulatory action or litigation could harm our reputation and cause the trading price of our common stock to decline and fluctuate significantly. The negative publicity and the resulting decline of the trading price of our common stock may lead to the filing of stockholder class action lawsuits against us and some of our senior executive officers, and may potentially have further severe impact on the market price of our common stock and divert management’s attention from the day-to-day operations of our company. Our management team plans to conduct additional procedures and actions to mitigate risks of the short seller allegations that the Company may be subject to. We had not been the subject of short seller allegations, and this risk factor is discussing allegations that may potentially occur in the future with regard to the Company. As it is in short sellers’ interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions and allegations regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks on public entities have, in the past, led to selling of shares in the market. Much of the scrutiny and negative publicity in such circumstances has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to stockholder lawsuits and/or SEC enforcement actions. Such a situation could be costly and time-consuming, and could divert management’s attention from the day-to-day operations of our company. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact the market price of our securities and our business operations. However, we may be constrained in the manner in which we can proceed against the relevant short sellers by principles of freedom of speech, applicable state law or issues of commercial confidentiality.
We may continue to be the target of adverse publicity and detrimental conduct against us, including complaints, anonymous or otherwise, to regulatory agencies regarding our operations, accounting, revenues and regulatory compliance. Additionally, allegations against us may be posted on the internet by any person or entity which identifies itself or on an anonymous basis. We and our subsidiaries may be subject to government or regulatory investigation or inquiries, or stockholder lawsuits, as a result of such third-party conduct and may be required to incur significant time and substantial costs to defend ourselves, and there is no assurance that we and our subsidiaries will be able to conclusively refute each of the allegations within a reasonable period of time or at all. Our reputation may also be negatively affected as a result of the public dissemination of allegations or malicious statements about us, which in turn may materially and adversely affect the trading price of our common stock.
We are a relatively young company with a short operating history, and we may not be able to sustain our rapid growth, effectively manage our growth or implement our business strategies.
We and our subsidiaries have been providing our management services since 2003. Although we have experienced growth, our historical performance may not be indicative of our future performance due to our limited operating history. We are currently evaluating a continued expansion of franchisee locations to countries other than Japan, and have a short history of franchise locations outside of Japan. There is only a limited historical basis for making judgments on the demand for our franchisee clinic services in new locations in the future.
You should consider our business and future prospects in light of the risks and challenges associated with our ability to:
| ● | ensure that our franchisee clinics are providing safe, convenient and effective cosmetic services; | |
| ● | maintain reliable, secure, high-performance and scalable infrastructure; | |
| ● | identify suitable facilities to expand franchisee clinic capacity and customer base; |
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| ● | navigate the evolving and complex regulatory environment across all the markets in which we and the MCs’ franchisee clinics operate; | |
| ● | anticipate and adapt to changing market conditions, including technological developments and changes in the competitive landscape, and adjust, manage and execute our marketing and sales activities to cater to local economic and demographic conditions, cultural differences and customer preferences across all our current and future markets; | |
| ● | successfully market our brand; | |
| ● | improve and maintain our operational efficiency; and | |
| ● | attract, retain and motivate talented employees. |
If we fail to address any or all of these risks and challenges, our business may be materially and adversely affected.
As our business grows, we or our subsidiaries may adjust our management services offerings. These adjustments may not bring about expected results and may instead have a material and adverse impact on our financial condition and results of operations. Our revenue structure may continue to evolve in response to market demand in locations where the franchisee clinics are located. Our growth is dependent on the opening of such new franchisee clinic locations. We may not accurately identify market needs before we invest in the development of a new clinic service. In addition, we might face difficulties or delays in the development process, which may result in losses in our market share and competitive advantages.
In pursuit of our growth strategy, we or our subsidiaries may enter into new strategic relationships to further penetrate our targeted markets. Should these relationships fail to materialize and develop into demand for our services, or should we fail to work effectively with these companies, we may lose opportunities to generate clinic growth and our business, results of operations and financial condition could be adversely affected.
Our franchisee clinics may not be successful in competing in the cosmetic clinic industry.
We operate in the cosmetic clinic industry by providing management services to our franchisee clinics. Companies engaged in businesses similar to those of our franchisee clinics are entering the market one after another, and competition is fierce, with a wide range of cosmetic products and service formats. Our policy is to continue to respond to customer needs and enhance its services. However, if these efforts do not produce the anticipated results, or if the emergence of competitor clinics offering cosmetic services leads to customers leaving our franchisee clinics, leading to a decrease in revenues generated by our franchisee clinics, then our business and performance may be affected since we receive substantial revenue from the MCs as part of our compensation for management services.
Many of our franchisee clinics’ current and potential competitors, particularly international competitors, have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, promotion, and support of their clinics.
We expect competition in our industry to intensify in the future in light of increased demand for cosmetic services. Factors affecting competition include, among others, ability to innovate, service quality, reliability, safety, pricing, and customer service. Increased competition may lead to lower revenues generated by our franchisee clinics, which may result in downward price pressure and adversely affect our business, financial condition, operating results and prospects, since we receive substantial revenue from the MCs as part of our compensation for management services.
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The Company may face competition from senior management who cease working for it, and the Non-Competition Agreements (as defined below) may be unenforceable and expire two years following the Closing.
Following execution of the Merger Agreement, certain current and former key personnel of Legacy SBC, including Dr. Aikawa, Ryoji Murata, Yuya Yoshida and Akira Komatsu, entered into non-competition and non-solicitation agreements (the “Non-Competition Agreements”), pursuant to which they agreed not to compete with the Company and its subsidiaries during the two-year period following the Closing and, during such two-year restricted period, not to solicit employees or customers or clients of such entities.
We cannot be sure that one or more of these parties to the Non-Competition Agreements will not compete with the Company or solicit its employees or clients in the future. Even if ultimately resolved in its favor, any litigation associated with the Non-Competition Agreements could be time consuming, costly and distract management’s focus from operating the Company’s business. Moreover, states and foreign jurisdictions may interpret restrictions on competition narrowly and in favor of employees. Therefore, certain restrictions on competition or solicitation may be unenforceable. In addition, the Company may not pursue legal remedies if it determines that preserving cooperation and a professional relationship with the former employee, or other concerns, outweigh the benefits of any possible legal recourse or the likelihood of success does not justify the costs of pursuing a legal remedy. Furthermore, the term of the Non-Competition Agreements expires two years following the Closing. Upon expiration of the term, Dr. Aikawa, Ryoji Murata, Yuya Yoshida and Akira Komatsu, each of whom are current or former key personnel of Legacy SBC, and continue to be key personnel of the Company, may solicit employees or customers or clients of the Company. Such persons, because they have worked for Legacy SBC and the Company, may be able to compete more effectively with the Company, or be more successful in soliciting its employees and clients, than unaffiliated third parties.
Any significant change in the franchisee clinic customer reward program could have a negative impact on our business.
We depend on the franchisee clinic customer reward program. The customer’s points expire if the customer does not make any additional qualified purchase at a participating clinic within a year. Accordingly, at the time that a customer’s points expire, the Company earns 1 yen (approximately $0.0067) for each customer point that expires. Any material disruption to or changes to the franchisee clinic customer reward program could harm our brand and adversely affect our operating results. Further, if the franchisee clinics’ customers practices change and the number of reward points that remain unused and expire decreases, then our business and operating results could be adversely affected.
Any significant cybersecurity incident or disruption to our operating systems could subject us to significant reputational, financial, legal and operational consequences.
We depend on our and our franchisees’ operating systems to operate. Any material disruption to or slowdown of our operating systems could cause delays in our management services, which could harm our brand and adversely affect our operating results.
Problems with our telecommunications network providers could adversely affect our services. Our telecommunications network providers could decide to cease providing services to us without adequate notice. Any change in service levels of our telecommunications network or any errors, defects, disruptions or other performance problems with our operating systems or infrastructure could harm our brand and potentially affect our franchisee clinics access to our management services. If changes in technology cause our operating systems or infrastructure to become obsolete, or if our operating systems are inadequate to support our growth, we could lose customers, and our business and operating results could be adversely affected.
The Company, its subsidiaries, and the MCs could be subject to breaches of security by hackers. Although we proactively employ multiple measures to defend our systems against intrusions and attacks, our measures may not prevent unauthorized access or use of sensitive data.
A cybersecurity breach could harm our reputation, deter customers and potential customers from buying products or services from our franchisee clinics, and result in regulatory penalties due to the sensitive nature of our franchisee clinics’ customers’ medical information. In addition, any such breach could cause us to incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits and result in the imposition of material penalties and fines.
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We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and results of operations.
The cosmetic products, medical equipment, and medical supplies that we sell may not perform in line with customers’ expectations. Any product defects, accidents or any other failure of the cosmetic products, medical equipment, or medical supplies that we sell to perform as expected could harm our reputation and result in adverse publicity, revenue loss, delivery delays and product recalls, which could harm our brand and reputation. Any product recall or lawsuit seeking significant monetary damages may have a material adverse effect on our business and financial condition. In the future, our suppliers may, voluntarily or involuntarily, initiate a recall if any of the cosmetic products, medical equipment, or medical supplies that we sell, prove to be defective or noncompliant with applicable laws and regulations. Such recalls, whether voluntary or involuntary, could cause us to incur significant expenses and adversely affect our brand image in our target markets.
We may become subject to product liability claims or warranty claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
We may be exposed to significant product liability claims if the cosmetic products, medical equipment, and medical supplies that we sell do not perform as expected. Any defects in the cosmetic products, medical equipment, and medical supplies that we sell that we sell or the misuse of the cosmetic products, medical equipment, and medical supplies that we sell could also result in injury, death or property damage. Our risks in this area are reduced due to the fact that we only act as a seller of the cosmetic products and not as the developer or manufacturer. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about the cosmetic products, medical equipment, and medical supplies that we sell and our business and inhibit or prevent the sale of current and future cosmetic products, medical equipment, and medical supplies by us. Since we are not the developer or manufacturer of the cosmetic products, medical equipment, and medical supplies that we sell, we do not have insurance coverage to cover potential product liability claims. Even if a claim is without merit or subsequently disproven, the claim could nevertheless diminish our brand and divert management’s attention and resources, which could have a negative impact on our business, financial condition and result of operations.
We have limited experience in providing management services to franchisee clinics located outside of Japan and we are subject to a variety of costs and risks due to our continued international expansion.
One of our core strategies is international expansion. We generally have less experience in marketing and providing management services to franchisee clinics in markets outside Japan. International expansion will require us to invest significant capital and other resources, and our efforts may not be successful. International franchisee clinic operations are subject to risks such as:
| ● | limited brand recognition; | |
| ● | costs associated with establishing new supplier networks; | |
| ● | difficulty in finding qualified franchise partners; | |
| ● | inability to anticipate changes in local market conditions, economic landscapes, and consumers’ preferences and customs; | |
| ● | difficulties in staffing and managing foreign operations; |
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| ● | lack of familiarity with and understanding of the local legal, regulatory and policy frameworks, as well as burdens of complying with a wide variety of local laws and regulations, including those governing personal and customer data protection and safety control; | |
| ● | political and economic instability; | |
| ● | trade restrictions; | |
| ● | differing employment laws and practices, as well as potential labor disruptions; | |
| ● | the imposition of government controls; | |
| ● | lesser degrees of intellectual property protection; | |
| ● | tariffs and customs duties and the classifications of the cosmetic products, medical equipment, and medical supplies that we sell by applicable governmental bodies; and | |
| ● | a legal system subject to undue influence or corruption. |
The failure to manage any of these risks could negatively affect our international business and consequently our overall business and operating results. In addition, the concern over these risks may also prevent us from entering into or marketing our franchisee clinics in certain markets.
Our operations may be interrupted by utility shortages or stoppages, fire, natural disaster or other calamities at or near our facilities.
Our franchisee clinics and our clinic depend on a continuous supply of utilities, such as electricity and water, to operate. Any disruption to the supply of electricity or other utilities may disrupt the services that are provided at our franchisee clinics and our clinics in Vietnam and Singapore. This could adversely affect our ability to provide cosmetic services to the customers of our franchisee clinics and our clinics in Vietnam and Singapore, and consequently may have an adverse effect on our business and results of operations since we receive substantial revenue from the MCs as part of our compensation for management services. In addition, fire, natural disasters, pandemics or extreme weather, including droughts, floods, typhoons or other storms, or excessive cold or heat, could cause power outages, fuel shortages, water shortages, damage to our franchisee clinics and our clinics in Vietnam and Singapore, or disruption of transportation channels, any of which could impair or interfere with the operations of our franchisee clinics and our clinics in Vietnam and Singapore. We cannot assure you that such events will not happen in the future or that we will be able to take adequate measures to mitigate the likelihood or potential impact of such events, or to effectively respond to such events if they occur.
Our business and prospects depend significantly on our ability to build our Shonan Beauty Clinic brand.
Our business and prospects are heavily dependent on our ability to build, maintain and strengthen the Shonan Beauty Clinic brand. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a larger mass of customers for our franchisee clinics. Promoting and positioning our brand will likely depend significantly on our franchisee clinics’ ability to provide high-quality cosmetic treatments and engage with the customers as intended. In addition, we expect that our ability to develop, maintain and strengthen the Shonan Beauty Clinic brand will also depend heavily on the success of our branding efforts. Such efforts mainly include advertising for the franchisee clinics as part of the management services that we provide to the MCs. To promote our brand, we may be required to change our branding practices, which could result in substantially increased expenses. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.
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Our Shonan Beauty Clinic brand could be subject to adverse publicity if incidents related to the services provided at our franchisee clinics or our clinics in Vietnam or Singapore have occurred, whether or not we are at fault. In particular, given the popularity of social media, including Facebook, X (formerly Twitter), TikTok, Linkedin and Instagram in Japan, any negative publicity, regardless of its truthfulness, could quickly proliferate and harm consumer perceptions of and confidence in our brand. Furthermore, we may be affected by adverse publicity related to our franchisees or other partners, whether or not such publicity is related to their collaboration with us. Our ability to successfully position our brand could also be adversely affected by perceptions of the quality of the services at our franchisee clinics and our clinics in Vietnam and Singapore. In addition, from time to time, the services at our franchisee clinics and our clinics in Vietnam and Singapore are evaluated and reviewed by third party customers. Any unfavorable reviews could adversely affect consumer perceptions of our brand and the quality of services provided at our franchisee clinics and our clinics in Vietnam and Singapore.
Our employees, agents, business partners or subcontractors may engage in misconduct or other improper activities, which could cause us to lose contracts, expose us to damages, harm our reputation and diminish investor confidence in our company.
We are exposed to the risk that an employee or subcontractor could commit fraud or other misconduct, including noncompliance with laws (including anti-bribery laws) or insider trading, which could subject us to civil or criminal investigations in the U.S. and in other jurisdictions, lead to civil and criminal penalties and related stockholder lawsuits, cause us to incur significant legal fees, and damage our reputation. As discussed elsewhere in this Annual Report, in January 2024, in connection with a routine tax examination of SBC Medical Group Co., Ltd.’s income tax returns, the Japanese tax authority discovered misappropriations of SBC Medical Group Co., Ltd. funds by a former director of general affairs and legal department of L’Ange Cosmetique Co., Ltd., which is a subsidiary of SBC Medical Group Co., Ltd. (the “former director”), not a relative of the CEO of SBC Medical Group Co., Ltd. or any identified related party, who received kickbacks from multiple vendors of SBC Japan (collectively with the former director, the “participants”). The investigation, which was completed in March 2024, revealed that the participants had misappropriated approximately JPY632 million ($5.6 million), including consumption tax, from SBC Medical Group Co., Ltd., of which the former director received approximately JPY335 million ($3.0 million), between April 2016 and the discovery of the misappropriations in January 2024. This discovery has required us to incur investigative expenses, required us to restate certain past annual financial statements, subjected us to certain government investigations, and diverted management attention away from other activities of the business. Were we to discover additional instances of employee fraud or misconduct, we anticipate such discovery would have similar adverse effects on our business and operations.
Employee or subcontractor misconduct could involve the improper use of our customers’ sensitive or classified information, which could result in regulatory sanctions against us, liability to third parties, and serious harm to our reputation and could result in a loss of customers and a reduction in revenue or profitability.
We maintain a system of internal controls to prevent such occurrences, but it is not always possible to deter employee or subcontractor misconduct, and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses. Any instances of employee or subcontractor fraud or misconduct could cause us to lose customers, cause a reduction in our revenue, expose us to damages, harm our reputation and diminish investor confidence in our company.
Any decline in the business of our business partners or the deterioration of our relationship with them could have a material adverse effect on our operating results.
We collaborate with various business partners to promote our Shonan Beauty Clinic brand. There can be no guarantee that those business partners will continue to collaborate with us in the future. If we are unable to maintain good relationships with our business partners, or the business of our business partners declines, the reach of our products and services may be adversely affected and our ability to maintain and expand our user base may decrease.
Most of the agreements with our business partners do not prohibit them from working with our competitors or from offering competing services. If our partners change their standard terms and conditions in a manner that is detrimental to our business, or if our business partners decide not to continue working with us, or choose to devote more resources to supporting our competitors or their own competing products, we may not be able to find a substitute on commercially favorable terms, or at all, and our competitive advantages may diminish.
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Safety issues or public perceptions of safety issues concerning cosmetic services could have a material adverse impact on our business.
We believe that the cosmetic services provided at our franchisee clinics and our clinics in Vietnam, Singapore and United States are generally safe, however, there is a possibility of risk when undergoing any cosmetic procedure. On rare occasions, a cosmetic procedure may not go as planned, which may result in an adverse reaction, injury, accidents, casualty, or damages, and subject us to lawsuits.
Also, negative public perceptions regarding the safety of cosmetic procedures, even if such incident does not involve our franchisee clinics or our clinics in Vietnam, Singapore or United States, could seriously harm our business. While we have implemented safety procedures related to the provision of cosmetic services at our franchisee clinics and our clinic, a safety issue related to the cosmetic services provided could disrupt our operations, which could have a negative impact on our business, financial condition and result of operations or could lead to adverse publicity.
If our franchisee clinics or our clinics in Vietnam or Singapore fail to comply with environmental and work safety laws and regulations, the Company and the franchisee clinics could become subject to fines or penalties or incur costs that could harm our business.
The Company, its subsidiaries, and the MCs are subject to numerous environmental and work safety laws and regulations. For more details, see “Part I, Item 1. Business — Government Regulation and Environmental Matters” in this Annual Report. The Company, its subsidiaries, and the MCs also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. Environmental and social laws and regulations have tended to become increasingly stringent. There has been increased global focus on environmental and social issues and it is possible that countries may potentially adopt more stringent standards or new regulations in these areas. To the extent regulatory changes occur in the future, they could result in, among other things, increased costs to the Company, its subsidiaries, and the MCs. In addition, the Company, its subsidiaries, and the MCs may incur substantial costs in order to comply with current or future environmental and work safety laws and regulations. These current or future laws and regulations may impair our franchisee clinic growth efforts. The Company, its subsidiaries, and the MCs’ failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions, which could directly result in a material adverse effect with respect to the Company and/or its subsidiaries, since we receive substantial revenue from the MCs as part of our compensation for management services.
If our business partners, independent contractors, suppliers, or franchisee clinics fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity beyond our own control.
Our reputation is sensitive to allegations of unethical business practices. We do not control the business practices of our business partners, independent contractors, suppliers, or franchisee clinics (except to the extent of the guidelines that we provided to the franchisee clinics). Accordingly, we cannot guarantee their compliance with ethical business practices, such as environmental responsibilities, fair wage practices, and compliance with child labor laws, among others. A lack of demonstrated compliance could lead us to seek alternative business partners, independent contractors, or suppliers, which could increase our costs and result in disruptions of our operations. Violation of labor or other laws by our business partners, independent contractors, suppliers, or franchisee clinics or the divergence of their labor or other practices from those generally accepted as ethical in the markets in which we do business could also attract negative publicity, diminish our brand image and reduce demand for cosmetic services at our franchisee clinics and our clinics in Vietnam and Singapore.
Failure to safeguard personal information could subject us to penalties, damage our reputation and brand, and harm our business and results of operations.
The regulatory framework for privacy and personal information security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. The U.S. federal and various state, local and foreign government bodies and agencies have adopted or are considering adopting laws and regulations limiting, or laws and regulations regarding, the collection, distribution, use, disclosure, storage, security and other processing of personal information.
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Concerns or claims about our practices with regard to the processing of personal information or other privacy-related matters, even if unfounded, could damage our reputation and results of operations. In Japan, governmental authorities have enacted a series of laws and regulations to enhance the protection of privacy and data. We may need to adjust our business to comply with data security requirements and other laws and regulations from time to time. In Japan, the Act on the Protection of Personal Information (the “APPI”) and its related guidelines impose various requirements on businesses, including us, that use databases containing personal information. Under the APPI, the Company, its subsidiaries, and the MCs are required to lawfully use personal information we have obtained within the purpose of use we have specified and taken appropriate measures to maintain the security of such personal information. The Company, its subsidiaries, and the MCs are also restricted from providing the personal information of a person (the “principal”) to third parties without the consent of the principal. The APPI also includes regulations relating to the handling of sensitive personal data and anonymous personal data and the transfer of personal information to foreign countries. A Personal Information Handling Business Operator (as defined below) shall not transfer a person’s personal data to third parties, including its affiliated entities without the prior consent of the principal unless an exception applies (Article 27, Paragraph 1 of the APPI). A failure by the MCs to comply with the APPI may harm our franchised brand and directly result in a reduction of the Company’s revenue, since we receive substantial revenue from the MCs as part of our compensation for management services.
As laws and regulations in Japan on the protection of privacy and data are constantly evolving, complying with new laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.
Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, it is possible that our practices, offerings or platform could fail to meet all of the requirements imposed on us by such laws, regulations or obligations. Any failure on our part to comply with applicable laws or regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in unauthorized access, collection, transfer, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing customers of our franchisee clinics and our clinics in Vietnam and Singapore from obtaining services or result in investigations, fines, suspension of our app, or other penalties by government authorities and private claims or litigation, any of which could materially adversely affect our business, financial condition and results of operations. In addition, the interpretation and application of the aforementioned laws and regulations are often uncertain and in flux. Our practice may become inconsistent with these laws and regulations.
Our platform and internal systems depend on the ability of software and hardware developed and maintained internally and/or by third parties to store, retrieve, process and manage immense amounts of data, including personal information or other privacy-related matters. The software and hardware on which we rely may now or in the future contain, undetected programming errors, bugs, or vulnerabilities which may result in errors or compromise our ability to protect the data of our users and in turn adversely affect our business, financial condition and operation results. Any systems failure or compromise of security that results in the unauthorized access to or release of the data, photo or messaging history of our users could significantly limit the adoption of our services, as well as harm our reputation and brand, result in litigation against us, liquidation and other damages, regulatory investigations and penalties, and we could be subject to material liability.
If customers of our franchisee clinics or our clinics in Vietnam or Singapore allege that we have improperly used, released or disclosed their personal information, we could face legal claims and reputational damage. We may incur significant expenses to comply with privacy, consumer protection and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. A major breach of our network security and systems could create serious negative consequences for our business and future prospects, including possible fines, penalties, reduced customer demand for services at our clinics in Vietnam and Singapore and franchisee clinics, and harm to our reputation and brand. See “Part I, Item 1. Business — Government Regulation and Environmental Matters — Japan Laws and Regulations” in this Annual Report for further details.
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Failure by the MCs to comply with the Medical Care Act in Japan could subject us to penalties, damage our reputation and brand, and harm our business and results of operations.
The Medical Care Act defines rights and obligations regarding medical treatment, advertisement, authority, license, treatment of information, safety and security for patients, doctors and other individuals and organizations engaged in medical activities in Japan. A failure by the MCs to comply with the Medical Care Act may harm our franchised brand and directly result in a reduction of the Company’s revenue, since we receive substantial revenue from the MCs as part of our compensation for management services.
The execution of our business plans requires a significant amount of capital. In addition, our future capital needs may require us to sell additional equity or debt securities that may dilute the equity interests of our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends.
We will need significant capital to, among other things, conduct research and development and expand our franchisee clinic locations. We may also need significant capital to maintain our existing property and equipment. Our expected sources of capital include both equity and debt financing. However, financing might not be available to us in a timely manner or on acceptable terms, or at all.
Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business plans. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities, substantially change our current corporate structure, or even curtail or discontinue our operations.
In addition, our future capital needs and other business concerns could require us to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could dilute the equity interests of our stockholders. Additional indebtedness would increase our debt-service obligations and may be accompanied by covenants that would restrict our operations or our ability to pay dividends to our stockholders.
We are subject to risks associated with strategic alliances or acquisitions. If we cannot manage the growth of our business or execute our strategies effectively, our business and prospects may be materially and adversely affected.
We have entered into strategic alliances with various business partners, including but not limited to the MCs with respect to the franchisee clinics, and may in the future enter into other agreements with related parties and third parties to further our business purpose from time to time. These alliances could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the related parties and third parties and increased expenses in establishing new strategic alliances, any of which may materially and adversely affect our business. We may have limited ability to monitor or control the actions of these third parties. If any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third party.
Although we currently do not have any specific acquisition plans, if appropriate opportunities arise, we may acquire additional assets, products, technologies or businesses that are complementary to our existing business. In addition to any required stockholders’ approval, we may also have to obtain approvals and licenses from relevant government authorities for the acquisitions and to comply with any applicable Japanese laws and regulations, which could result in delays and increased costs, and may derail our business strategy if we fail to do so. Furthermore, past and future acquisitions and the subsequent integration of new assets and businesses into our own require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our business operations. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant.
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Our business could be adversely affected by trade tariffs or other trade barriers.
The United States and other countries may in the future impose tariffs on the importation of consumer products related to our business, such as the resale of cosmetic products, medical equipment, and medical supplies. We plan to sell our cosmetic products, medical equipment, and medical supplies in the United States and other countries. Any new tariffs on cosmetic products, medical equipment, and medical supplies or other relevant products imposed by the United States or other countries may significantly increase our costs. It is not yet clear what impact these tariffs may have or what actions other governments, including the Japanese government, may take in retaliation. In addition, these developments could have a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.
We and our subsidiaries have limited insurance coverage, which could subject us to significant costs and business disruption.
Our company, its subsidiaries, and the related parties MC such as maintain equipment liability insurance, data security insurance and medical accident liability insurance for each clinic. Additionally, for medical devices, pharmaceuticals, etc., for which we serve as a sales agent, the manufacturer assumes primary product liability. However, our company, its subsidiaries, and related parties, such as MCs, bear responsibility for the medical devices and pharmaceuticals used in treatments on end customers. Given the potential for lawsuits or complaints related to medical errors, workmanship, or treatment results, we do not participate in the medical insurance of our company, subsidiaries, or related parties. Due to the difficulty in determining the customer’s subjectivity and the insurance company’s premium payment standards concerning treatment results, we abstain from such insurance coverage.
The financial condition, operational results, and reputation of our company, subsidiaries, or MCs could be adversely affected if a claim is established against us, resulting from injuries or damages sustained by our franchised clinics or customers in Vietnam and Singapore. Such claims, even if unsuccessful, may lead to negative publicity, significant defense costs, and a diversion of management’s time and attention. Furthermore, the absence of business interruption insurance exposes us to potential significant costs and resource diversion in case of disruptions. Additionally, operating jurisdictions like Japan, the United States, or others may impose requirements for maintaining specific minimum liability or other insurance for franchised clinics, potentially increasing service costs.
The Company has never faced substantial compensation payouts or multiple compensations due to medical accidents in the past, with no material impact on business performance and a clean financial record. We have not incurred any significant liability in the past that was not covered by our existing insurance coverage. Each MC carries medical professional liability insurance for the physicians who belongs to each MC and we have not faced any significant claim beyond such insurance coverage. We believe that we maintain adequate levels of insurance relative to our business operations.
We are involved in litigation from time to time and, as a result, we could incur substantial judgments, fines, legal fees or other costs.
We may be the subject of complaints or litigation from franchisees, customers, suppliers, employees or other third parties for various actions. The damages sought against us in some of these litigation proceedings could be substantial. We cannot assure you that we will always have meritorious defenses to the plaintiffs’ claims. While the ultimate effect of these legal actions cannot be predicted with certainty, our reputation and the result of operations could be negatively impacted. The proceedings we may be involved in from time to time, including the aforementioned bankruptcy proceedings, could incur substantial judgments, fines, legal fees or other costs and have a material adverse effect on our business, financial condition, results of operations and cash flows.
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Any financial or economic crisis or perceived threat of such a crisis may materially and adversely affect our business, financial condition and results of operations.
We are subject to risks inherent in economic volatility and disruptions that may arise. COVID-19 had a severe and negative impact on the global economy from 2020 through 2022, and the global macroeconomic environment still faces numerous challenges. In response to inflation, central bank interest rate increases, slowing of economic growth and other factors, stock markets across the world have experienced significant volatility and downward price pressure. The Russia-Ukraine conflict, the Hamas-Israel conflict and attacks on shipping in the Red Sea have heightened geopolitical tensions across the world. The impact of the Russia-Ukraine conflict on Ukraine food exports has contributed to increases in food prices and thus to inflation more generally. It is unclear whether these challenges will be contained and what global effects they each may have. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by the central banks and financial authorities of some of the world’s leading economies, including Japan’s. Economic conditions in Japan are sensitive to global economic conditions. Any prolonged slowdown in Japan’s economic development might lead to tighter credit markets, increased market volatility, sudden drops in business and customer confidence, and dramatic changes in business and customer behaviors.
We face risks related to natural disasters and health epidemics, which could significantly disrupt our operations.
Our clinics in Vietnam and Singapore and the franchisee clinics, as well as our corporate offices, are vulnerable to natural disasters and other calamities such as typhoons, tornadoes, floods, earthquakes and other adverse weather and climate conditions, as well as the outbreak of health epidemics. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis, and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may also give rise to interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide services to customers at our clinics in Vietnam and Singapore and the MCs’ ability to provide services at the franchisee clinics. In addition, our business could also be adversely affected if our employees are affected by health epidemics and our business and operations may be disrupted. In addition, our results of operations could be adversely affected to the extent that any health epidemic harms the Japanese and global economy in general.
If the landlords of our and our subsidiaries’ leased properties fail to properly maintain and renovate such premises, buildings or facilities in a timely manner or at all, the operation of our offices could be materially and adversely affected.
We and our subsidiaries lease all the premises used in our operations from related parties and third parties. We and our subsidiaries require the landlords’ cooperation to effectively manage the condition of such premises, buildings and facilities. In the event that the condition of the office premises, buildings and facilities deteriorates, or if any or all of our and our subsidiaries’ landlords fail to properly maintain and renovate such premises, buildings or facilities in a timely manner or at all, the operation of our offices could be materially and adversely affected.
The MCs may fail to pay us in accordance with the terms of their franchise and management services agreements, at times necessitating action by us to attempt to compel payment.
If the MCs fail to pay us in accordance with the terms of our franchise and management services agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our agreements, including litigation and arbitration costs. The risk of these issues increases with the term length of our franchise and management services arrangements. Furthermore, some of the MCs may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of which could adversely affect our results of operations, financial condition and cash flow. We believe that this risk is reduced by the fact that the MCs are deemed to be related parties.
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We believe our success depends on continuing to invest in the growth of our worldwide operations by expanding franchisee clinics to new geographic markets. If the franchisee clinic opportunities in these new markets are less than anticipated, or if the customer growth or sales in these markets do not meet our expectations, our results of operations and financial condition may be adversely affected.
We believe our success depends on expanding our business into new geographic markets and attracting customers in countries other than primarily in Japan. We anticipate continuing to expand our operations worldwide and have made, and will continue to make, substantial investments and incur substantial costs as we permit franchisee clinics to open in new geographic markets. This includes investments in offices, information technology investments, sales, marketing and administrative personnel and facilities. Often we must make these investments when it is still unclear whether a franchisee clinic in the new market will justify the costs of these investments. In addition, these investments may be more expensive than we initially anticipate. If our investments are greater than we initially anticipate or if the customer growth or sales in these markets do not meet our expectations or justify the cost of the initial investments, our results of operations and financial condition may be adverse affected. The failure of new franchisee clinics would directly impact our success since we receive substantial revenue from the franchisee clinics as part of our compensation for management services.
If we fail to maintain an effective system of internal controls over financial reporting, including remediating known material weaknesses in our internal controls as of December 31, 2024, we may not be able to report our financial results timely and accurately or prevent fraud, which could adversely affect investor confidence in our company, and in turn, our results of operations and our stock price.
Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their systems of internal control over financial reporting.
During the tax investigation in January 2024, the Japanese tax authority had informed SBC Medical Group Co., Ltd.’s tax consultant about significant fund transfers from several advertising agencies, to whom SBC Medical Group Co., Ltd. had outsourced work, to the bank account of the former director of the general affairs and legal department at L’Ange Cosmetique Co., Ltd. The Japanese tax authority suggested that these transfers could represent kickbacks that the former director allegedly received personally, extracted from the fees SBC Medical Group Co., Ltd. paid to these agencies. The Japanese tax authority, who has the authority to access bank deposit information of companies and individuals under investigation, uncovered this misconduct during their examination of such deposits.
We have identified material weaknesses as of December 31, 2024, in our internal controls over financial reporting resulting from our failure to maintain an effective control environment, risk assessment processes and monitoring activities. Due to these material weaknesses in our internal control over financial reporting, we have also concluded our disclosure controls and procedures were not effective as of December 31, 2024.
Our system of internal controls failed to detect this misappropriation of funds due to the following material weaknesses of SBC Medical Group Co., Ltd.
| 1. | Control Environment. We did not maintain an effective control environment that fully emphasized the establishment of adherence to effective internal controls over financial reporting throughout SBC Medical Group Co., Ltd.’s management. We did not give sufficient consideration to the risk of senior management override of internal controls. SBC Medical Group Co., Ltd. had not ensured that certain personnel were adequately trained to properly execute critical internal controls. | |
| 2. | Control Activities. We did not effectively implement or maintain control activities, such as ensuring a sufficient functioning of the mechanism of reconciliation of invoices to contracts and multi-level approvals of contracts, invoices and payments. SBC Medical Group Co., Ltd. did not maintain sufficient segregation of duties with respect to certain activities and did not maintain adequate monitoring and oversight for those activities. | |
| 3. | Risk Assessment. We did not have an effective risk assessment process and the related documentation. | |
| 4. | Information and Communication. We did not adequately communicate to all employees of the organization information regarding the importance of internal controls over financial reporting and employees’ duties and responsibilities, including segregation of duties. | |
| 5. | Monitoring Activities. We did not maintain effective monitoring controls related to the evaluation and testing of our internal controls over financial reporting. |
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Management has implemented, or is in the process of implementing, the following changes to the Company’s internal control systems and procedures:
| ● | We will clarify the organization structure and employee positions promoting (i) segregation of duties, (ii) monitoring and oversight, (iii) reconciliation of invoices to contracts and (iv) multi-level approvals of contracts, invoices and payments. | |
| ● | We will communicate to all employees of the organization information regarding the importance of internal controls and employees’ duties and responsibilities, including segregation of duties. | |
| ● | We have initiated a project led by Head of Internal Control and Internal Audit Office, and aided by outside consultants, to fully document our processes to serve as the basis for activities during 2024 to assess our fraud risks and evaluate and test our internal controls over financial reporting. | |
| ● | We have updated our delegation of authority over our banking activities, and are establishing a treasury function that will improve the segregation of duties surrounding the general manager to better safeguard cash. |
In light of the material weaknesses described above, we performed additional procedures to ensure that the consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, management has concluded that the consolidated financial statements included in this Annual Report present fairly, in all material respects, the financial position, results of our operations and cash flows in accordance with U.S. generally accepted accounting principles (GAAP). Our management has taken immediate action to begin remediating these material weaknesses, as discussed in more detail under “Part I, Item 1. Business — Misappropriations of Funds — Remediation Plan,” and is committed to remediating them as expeditiously as possible. However, certain remedial actions have not started or have only recently been undertaken, and while we expect to continue to implement our remediation plan through 2024, we cannot be certain as to when such remediation will be fully completed. Implementing and monitoring effective internal controls requires us to incur significant incremental expenses and diverts management’s attention and resources from other activities of the business.
If our remedial measures are insufficient to address the material weaknesses, or if we, or our independent registered public accounting firm, identify additional internal control deficiencies that could rise to the level of a material weakness or uncover errors in financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price. In addition, a failure to maintain effective internal controls could cause a delay in compliance with our reporting obligations, SEC rules and regulations or Section 404 of the Sarbanes-Oxley Act of 2002, which could subject us to a variety of administrative sanctions, including SEC enforcement action, ineligibility for short form resale registration, the suspension or delisting of our common stock from the stock exchange on which it is listed and the inability of registered broker-dealers to make a market in our common stock, which could adversely affect our business and the trading price of our common stock.
Risks Related to Employee Matters
If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success and our business may be harmed.
We believe that a critical component to our success has been our company culture, which is based on transparency and personal autonomy. We have invested substantial time and resources in building our team within this company culture. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives. As we grow and continue to develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our company culture. If we fail to maintain our company culture, our business may be adversely impacted.
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Our success depends on the continuing efforts of our key employees, including our senior management members and other key personnel. If we fail to hire, retain and motivate our key employees, we could lose the innovation, collaboration and focus that contribute to our business.
We believe that our success depends substantially on the continued efforts of our key employees, including our senior management members and other qualified and key personnel. We rely on our executive officers, senior management and key employees to generate business and execute our initiatives successfully. Yoshiyuki Aikawa, our Chief Executive Officer, has a wealth of knowledge and business experience in the cosmetic clinic industry and the related management services, the core business of our group, as well as numerous personal and business relationships in this industry, and plays an extremely important role in the management of the Company. In addition, the relationships and reputation that members of our management and key employees have established and maintain with government personnel and other business partners contribute to our ability to maintain good relations and to identify new business opportunities. The loss of any key personnel or our failure to attract additional talent could reduce our employee retention, disrupt our research and development activities and operations, and impair our revenue growth and competitiveness. If one or more of our executive officers or key employees were unable or unwilling to continue their services with us, we might not be able to replace them easily, in a timely manner, or at all, and we might lose the innovation, collaboration and focus that contribute to our business.
The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.
To execute our business strategy, we must attract and retain highly qualified personnel. In particular, marketing, services, and content management domain experts are very important to our brand success and are difficult to replace. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and difficulty in retaining highly skilled employees with appropriate qualifications. In particular, we have experienced a competitive hiring environment in Japan, where we are headquartered and will continue to experience a competitive hiring environment as we recruit for remote talent worldwide. Many of the companies with which we compete for experienced personnel have greater resources than we do. In addition, in making employment decisions, job candidates often consider the value of the stock options or other equity incentives they are to receive in connection with their employment. If the price of our stock declines, or experiences significant volatility, our ability to attract or retain key employees will be adversely affected. If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed.
Risks Related to Intellectual Property
We and our subsidiaries may need to defend ourselves against claims of intellectual property infringement, which may be time-consuming and costly.
Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with the ability of our franchisee clinics and our clinics in Vietnam and Singapore to utilize our medical technologies, which could make it more difficult for our franchisee clinics and our clinics in Vietnam and Singapore to operate competitively. Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights by us, our subsidiaries, and our franchisees, or otherwise assert their rights against us, our subsidiaries, and our franchisees. Moreover, our and our subsidiaries’ applications and uses of trademarks relating to our brand could be found to infringe upon existing trademark ownership and rights. We or our subsidiaries may also fail to apply for key trademarks in a timely manner. We, our subsidiaries, and our franchisees may continue to face intellectual property infringement claims in the future.
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If we, our subsidiaries, or our franchisees are determined to have infringed upon a third party’s intellectual property rights, we, our subsidiaries, or our franchisees may be required to do one or more of the following:
| ● | cease offering products or services that incorporate or use the challenged intellectual property; | |
| ● | pay substantial damages; | |
| ● | seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; or | |
| ● | establish and maintain alternative branding for our brand and services. |
In the event of a successful claim of infringement against us, our subsidiaries, or our franchisees failure or inability to obtain a license to the infringed technology or other intellectual property right, our business, prospects, operating results and financial condition could be materially and adversely affected. In addition, any litigation or claims, even if frivolous, could result in substantial costs, negative publicity and diversion of resources and management attention.
Our or our subsidiaries’ intellectual property rights may not protect us effectively.
As of December 31, 2024, we and our subsidiaries together had filed a significant number of patent and trademark applications in Japan, and have registered numerous patents and trademarks in Japan. Additionally, a subsequent number of trademark applications have been filed with the International Bureau of the World Intellectual Property Organization. Through the subsidiary acquired in late November, the Company also holds several trademarks in Singapore. However, the Company does not have any registered trademarks, domain names, or patents in Vietnam or the United States.
We cannot assure you that our or our subsidiaries’ pending patent applications will be granted. Even if our or our subsidiaries’ applications are successful, patents may be contested, circumvented or invalidated in the future.
In addition, the rights granted under any patents issued in the future may not provide us with proprietary protection or competitive advantages. The claims under any patents that issue from our or our subsidiaries’ patent applications may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours or our subsidiaries’ results. It is also possible that the intellectual property rights of others could bar us or our subsidiaries from licensing and exploiting any patents that are issued from our or our subsidiaries’ pending applications. Numerous patents and pending patent applications owned by others exist in the fields in which we and our subsidiaries have developed and are developing our technologies. These patents and patent applications might have priority over our or our subsidiaries’ patent applications and could subject our or our subsidiaries’ patent applications to invalidation. Finally, in addition to those who may claim priority, any of our or our subsidiaries’ existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable.
Implementation and enforcement of Japanese laws on intellectual property rights have historically been deficient and ineffective. Accordingly, protection of intellectual property rights in Japan may not be as effective as in the United States or other developed countries. Furthermore, policing unauthorized use of proprietary technologies is difficult and expensive. We and our subsidiaries rely on a combination of trademark and trade secret laws and restrictions on disclosure to protect our and our subsidiaries’ intellectual property rights. Despite our efforts to protect our and our subsidiaries’ proprietary rights, third parties may attempt to copy or otherwise obtain and use our or our subsidiaries’ intellectual property or seek court declarations that they do not infringe upon our or our subsidiaries’ intellectual property rights. Any unauthorized use of our or our subsidiaries’ intellectual property by third parties may adversely affect our current and future revenues and our reputation. Monitoring unauthorized use of our and our subsidiaries’ intellectual property is difficult and costly, and we cannot assure you that the steps we or our subsidiaries have taken or will take will prevent misappropriation of our and our subsidiaries’ intellectual property. From time to time, we or our subsidiaries may have to resort to litigation to enforce our and our subsidiaries’ intellectual property rights, which could result in substantial costs and diversion of our resources.
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The Company may not be able to protect its intellectual property rights throughout the world.
Filing, prosecuting, and defending trademark and trade secret rights of the Company and its subsidiaries throughout the world would be prohibitively expensive. The Company has (i) filed patent applications in Japan, (ii) filed trademark applications in Japan and with the International Bureau of the World Intellectual Property Organization, and (iii) obtained trademarks in Japan. Competitors may use the Company’s technologies in jurisdictions where it has not obtained intellectual property protection.
If we fail to protect, or incur significant costs in defending or enforcing our intellectual property and other proprietary rights, our business, financial condition and results of operations could be materially harmed.
Our success depends, in large part, on our ability to protect our intellectual property and other proprietary rights. We rely primarily on trademarks, trade secrets, and unfair competition laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. However, existing Japanese legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and our rights may be challenged by third parties. The laws of countries other than Japan may be even less protective of our intellectual property rights. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. Unauthorized third parties may try to copy or reverse engineer the medical technologies utilized at our clinics in Vietnam and Singapore and the franchisee clinics or otherwise obtain and use our intellectual property. Moreover, many of our employees and the MCs’ employees have access to our trade secrets and other intellectual property. If one or more of these employees leave our employment to work for one of our competitors, then they may disseminate this proprietary information, which may as a result damage our competitive position. If we fail to protect our intellectual property and other proprietary rights, then our business, results of operations or financial condition could be materially harmed. From time to time, we may have to initiate lawsuits to protect our intellectual property and other proprietary rights. Pursuing these claims is time consuming and expensive and could adversely impact our results of operations.
In addition, affirmatively defending our intellectual property rights and investigating whether any of our medical technologies violate the rights of others may entail significant expense. Our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, then the proceedings could result in significant expense to us and divert the attention and efforts of our management and technical employees, even if we prevail.
Risks Related to Government Regulation
Failure to comply with laws and regulations could harm our business.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in Japan.
Although the Company, its subsidiaries, and the MCs strive to comply with these laws and regulations, including the APPI, Antimonopoly Act, the Medical Care Act, Dispatch Act, Poisonous and Deleterious Substances Control Act, the Labor Standards Act, Act on Land and Building Leases, Act on Special Provisions to the Civil Code Concerning Electronic Consumer Contracts and Electronic Acceptance Notice, and other laws and regulations related to our business, it is possible that regulations will be unexpectedly enacted, amended, or abolished in the future, or that planned deregulation will not proceed as planned. In such cases, if any of the Company, its subsidiaries, or the MCs receive some administrative sanction for violating such laws and regulations, etc., or if excessive legal restrictions are applied in the future, our activities may be restricted, which may affect our business and earnings. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. A failure by the MCs to comply with government regulations may harm our franchised brand and directly result in a reduction of the Company’s revenue, since we receive substantial revenue from the MCs as part of our compensation for management services.
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We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and noncompliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation.
We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which the Company, its subsidiaries, and the MCs conduct its business or operate franchisee clinics, including the Japanese anti-corruption laws and regulations, the U.S. Foreign Corrupt Practices Act, or the FCPA and other anti-corruption laws and regulations. The FCPA prohibits us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The Japanese anti-corruption laws and regulations prohibit bribery to government agencies, state or government owned or controlled enterprises or entities, to government officials or officials that work for state or government owned enterprises or entities, as well as bribery to non-government entities or individuals. There is uncertainty in connection with the implementation of Japanese anti-corruption laws. A violation of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation.
We have direct or indirect interactions with officials and employees of government agencies and state-owned affiliated entities in the ordinary course of business. We have also entered into joint ventures and/or other business partnerships with government agencies and state-owned or affiliated entities. These interactions subject us to an increased level of compliance-related concerns. We are in the process of implementing policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants, agents and business partners with applicable anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations. However, our policies and procedures may not be sufficient, and our directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible.
Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation. In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our shares.
General Risks
Weakened global economic conditions may harm our industry, business and results of operations.
Our overall performance depends in part on worldwide economic conditions. Global financial developments and downturns seemingly unrelated to us or the cosmetic clinic industry may harm us. Japan, the United States and other key international economies have been affected from time to time by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, and overall uncertainty with respect to the economy, including with respect to tariff and trade issues. If economic conditions in Japan, the United States, Singapore, Vietnam, or any other future key markets for our franchisee clinics remain uncertain or deteriorate further, it could adversely affect clinic customers’ ability or willingness to purchase cosmetic products or services and delay prospective customers’ purchasing decisions, all of which could harm our operating results. A decrease in the revenue of the MCs’ franchisee clinics as a result of such worldwide economic conditions would directly result in a reduction of the Company’s revenue since we receive substantial revenue from the MCs as part of our compensation for management services.
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We are exposed to fluctuations in currency exchange rates.
We face exposure to movements in currency exchange rates, which may cause our revenue and operating results to differ materially from expectations. As exchange rates vary, revenue, cost of revenue, operating expenses and other operating results, when re-measured, may differ materially from expectations. In addition, our operating results are subject to fluctuation if our mix of U.S. and foreign currency denominated transactions and expenses changes in the future. Furthermore, global political events and developments, fluctuating commodity prices and trade tariff developments, have caused global economic uncertainty, which could amplify the volatility of currency fluctuations. Such volatility, even when it increases our revenues or decreases our expenses, impacts our ability to predict our future results and earnings accurately. Although we may apply certain strategies to mitigate foreign currency risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications. Additionally, as we anticipate growing our business further outside of Japan, the effects of movements in currency exchange rates will increase as our transaction volume outside of Japan increases.
Our actual operating results may differ significantly from our guidance and projections.
From time to time, we may provide forward-looking estimates regarding our future performance that represent management’s estimates as of a point in time. These forward-looking statements are based on projections prepared by our management. These projections are not and were not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our independent registered public accountants nor any other independent expert or outside party compiles or examines the projections and, accordingly, no such person expresses any opinion or any other form of assurance on our projections.
Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions and conditions, some of which will change. The principal reason that we provide forward-looking information is to provide a basis for our management to discuss its business outlook with stakeholders. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions of its forward-looking statements will not materialize or will vary significantly from actual results. Accordingly, our forward-looking statements are only an estimate of what management believes is realizable as of the date of release. Actual results will vary from our forward-looking statements and the variations may be material. In light of the foregoing, investors are urged not to rely upon, or otherwise consider, our guidance or projections in making investment decisions.
Risk Relating to Ownership of Our Securities
An active market for our securities may not develop, which would adversely affect the liquidity and price of our securities.
Our common stock began trading on the Nasdaq Global Market under the symbol “SBC” and our public warrants began trading on the Nasdaq Capital Market under the symbol “SBCWW” on September 18, 2024. The price of our securities may vary significantly due to factors specific to the Company as well as to general market or economic conditions. Furthermore, an active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless a market can be established and sustained.
Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject the Company to additional trading restrictions.
Our common stock began trading on the Nasdaq Global Market under the symbol “SBC” and our public warrants began trading on the Nasdaq Capital Market under the symbol “SBCWW” on September 18, 2024. However, we cannot assure you that our securities will continue to be listed on Nasdaq in the future. In order to continue listing its securities on Nasdaq, the Company must maintain certain financial, distribution and stock price levels. Generally, the Company must maintain a minimum number of holders of its securities (generally 400 public holders).
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If Nasdaq delists the Company’s securities from trading on its exchange and the Company is not able to list its securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, the Company could face significant material adverse consequences, including:
| ● | a limited availability of market quotations for its securities; | |
| ● | reduced liquidity for its securities; | |
| ● | a determination that our common stock is a “penny stock” which will require brokers trading in the common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; | |
| ● | a limited amount of news and analyst coverage; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
The market price of our common stock may decline.
The market price of our common stock and public warrants may decline as a result of the Business Combination for a number of reasons including if:
| ● | investors react negatively to the prospects of our business and the prospects of the Business Combination; | |
| ● | the effect of the Business Combination on our business and prospects is not consistent with the expectations of financial or industry analysts; or | |
| ● | We do not achieve the perceived benefits of the Business Combination as rapidly or to the extent anticipated by financial or industry analysts. |
The market price of our common stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock is likely to be volatile. The stock market recently has experienced extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies. You may not be able to resell your shares of common stock and/or Private Placement Warrants at an attractive price due to a number of factors such as those listed in this Risk Factors section and the following:
| ● | results of operations that vary from the expectations of securities analysts and investors; | |
| ● | results of operations that vary from those of the Company’s competitors; | |
| ● | changes in expectations as to the Company’s future financial performance, including financial estimates and investment recommendations by securities analysts and investors; | |
| ● | declines in the market prices of stocks generally; | |
| ● | strategic actions by the Company or its competitors; | |
| ● | announcements by the Company or its competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments; |
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| ● | announcements of estimates by third parties of actual or anticipated changes in the size of the Company’s customer base or the level of customer engagement; | |
| ● | any significant change in the Company’s management; | |
| ● | changes in general economic or market conditions or trends in the Company’s industry or markets; | |
| ● | changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to the Company’s business; | |
| ● | additional shares of the Company’s securities being sold or issued into the market by the Company or any of the existing stockholders or the anticipation of such sales, including if the Company issues shares to satisfy restricted stock unit related tax obligations or if existing stockholders sell shares into the market when applicable “lock-up” periods end; | |
| ● | investor perceptions of the investment opportunity associated with the Company’s common stock relative to other investment alternatives; | |
| ● | the public’s response to press releases or other public announcements by the Company or third parties, including the Company’s filings with the SEC; | |
| ● | litigation involving the Company, the Company’s industry, or both, or investigations by regulators into the Company’s operations or those of the Company’s competitors; | |
| ● | guidance, if any, that the Company provides to the public, any changes in this guidance or the Company’s failure to meet this guidance; | |
| ● | the development and sustainability of an active trading market for the Company’s common stock; | |
| ● | actions by institutional or activist stockholders; | |
| ● | developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; | |
| ● | changes in accounting standards, policies, guidelines, interpretations or principles; and | |
| ● | other events or factors, including those resulting from pandemics, natural disasters, war, acts of terrorism or responses to these events. |
These broad market and industry fluctuations may adversely affect the market price of the Company’s common stock and Private Placement Warrants, regardless of the Company’s actual operating performance. In addition, price volatility may be greater if the public float and trading volume of the Company’s common stock and/or Private Placement Warrants is low.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If the Company’ was involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
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Because there are no current plans to pay cash dividends on the Company’s common stock for the foreseeable future, you may not receive any return on investment unless you sell your shares of the Company’s common stock at a price greater than what you paid for it.
The Company intends to retain future earnings, if any, for future operations, expansion and debt repayment, and there are no current plans to pay any cash dividends for the foreseeable future. The declaration, amount and payment of any future dividends on shares of the Company’s common stock will be at the sole discretion of the Company’s board of directors. The Company’s board of directors may take into account general and economic conditions, the Company’s financial condition and results of operations, the Company’s available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, implications of the payment of dividends by the Company to its stockholders or by its subsidiaries to it and such other factors as the Company’s board of directors may deem relevant. As a result, you may not receive any return on an investment in the Company’s common stock unless you sell your shares of the Company’s common stock for a price greater than that which you paid for it.
The Company’s stockholders may experience dilution in the future.
The percentage of shares of the Company’s common stock owned by current stockholders may be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that the Company may grant to its directors, officers and employees, exercise of the Company’s warrants. Such issuances may have a dilutive effect on the Company’s earnings per share, which could adversely affect the market price of the Company’s common stock.
If securities or industry analysts do not publish research or reports about the Company’s business, if they change their recommendations regarding the Company’s common stock or if the Company’s operating results do not meet their expectations, the Company’s common stock price and trading volume could decline.
The trading market for the Company’s common stock and public warrants will depend in part on the research and reports that securities or industry analysts publish about the Company or its businesses. If no securities or industry analysts commence coverage of the Company, the trading price for the Company’s common stock and/or public warrants could be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover the Company downgrade its securities or publish unfavorable research about its businesses, or if the Company’s operating results do not meet analyst expectations, the trading price of the Company’s common stock and/or public warrants would likely decline. If one or more of these analysts cease coverage of the Company or fail to publish reports on the Company regularly, demand for the Company’s common stock and/or public warrants could decrease, which might cause the Company’s common stock and/or public warrants price and trading volume to decline.
Future sales, or the perception of future sales, by the Company or its stockholders in the public market following the Business Combination could cause the market price for the Company’s common stock to decline.
The sale of shares of the Company’s common stock and/or public warrants in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of the Company’s common stock and/or public warrants. These sales, or the possibility that these sales may occur, also might make it more difficult for the Company to sell equity securities in the future at a time and at a price that it deems appropriate.
As an emerging growth company within the meaning of the Securities Act, the Company is permitted to rely on certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We qualify as an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. We plan to continue to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, the company’s stockholders may not have access to certain information they may deem important. We cannot predict whether investors will find securities issued by the Company less attractive because the Company will rely on these exemptions. If some investors find those securities less attractive as a result of its reliance on these exemptions, the trading prices of the Company’s securities may be lower than they otherwise would be, there may be a less active trading market for the Company’s securities and the trading prices of the Company’s securities may be more volatile.
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Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
The Company will remain an emerging growth company until the earliest of: (i) the last day of the fiscal year following the fifth anniversary of the closing of the IPO, (ii) the last day of the fiscal year in which the Company has total annual gross revenue of at least $1.235 billion; (iii) the last day of the fiscal year in which the Company is deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of the Company’s common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; or (iv) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
The Company may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous for the Company’s warrant holders.
The Company will have the ability to redeem outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of the Company’s common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date the Company sends the notice of redemption to the warrant holders. If and when the public warrants become redeemable by the Company, the Company may exercise its redemption right if there is a current registration statement in effect with respect to the shares of the Company’s common stock underlying such warrants. Redemption of the outstanding public warrants could force you to: (i) exercise your warrants and pay the related exercise price at a time when it may be disadvantageous for you to do so; (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants; or (iii) accept the nominal redemption price which, at the time the outstanding public warrants are called for redemption, is likely to be substantially less than the market value of your warrants.
Our securities holders may face significant restrictions on the resale of our securities due to state “Blue Sky” laws.
Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state. We do not know whether our common stock will be registered or exempt from registration under the laws of any state. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our common stock. You should therefore consider the resale market for our common stock to be limited, as you may be unable to resell your common stock without the significant expense of state registration or qualification.
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Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.
The market price of shares of our common stock could decline as a result of substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares.
If we fail to maintain effective internal control over financial reporting, the price of our securities may be adversely affected.
Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our common stock.
As an emerging growth company, our auditor is not required to attest to the effectiveness of our internal controls.
Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting while we are an emerging growth company. This means that the effectiveness of our financial operations may differ from our peer companies in that they may be required to obtain independent registered public accounting firm attestations as to the effectiveness of their internal controls over financial reporting and we are not. While our management will be required to attest to internal control over financial reporting and we will be required to detail changes to our internal controls on a quarterly basis, we cannot provide assurance that the independent registered public accounting firm’s audit process in assessing the effectiveness of our internal controls over financial reporting, if obtained, would not find one or more material weaknesses or significant deficiencies. Further, once we cease to be an emerging growth company and cease to be a smaller reporting company (as described below), we will be subject to independent registered public accounting firm attestation regarding the effectiveness of our internal controls over financial reporting. Even if management finds such controls to be effective, our independent registered public accounting firm may decline to attest to the effectiveness of such internal controls and issue a qualified report.
Our common stock and warrants may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities classified as “penny stock.”
Our common stock may be subject to “penny stock” rules (generally defined as non-exchange traded stock with a per-share price below $5.00) in the future. While our common stock and warrants are not currently considered “penny stock” since it is listed on Nasdaq, if we are unable to maintain that listing and our common stock and/or warrants are no longer listed on Nasdaq, unless we maintain a per-share price above $5.00, our common stock and/or warrants will become “penny stock.” These rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.
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Legal remedies available to an investor in “penny stocks” may include the following:
| ● | If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment. | |
| ● | If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages. |
These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock or our Private Placement Warrants and may affect your ability to resell our common stock and our Private Placement Warrants.
Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.
For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock or our Private Placement Warrants will not be classified as a “penny stock” in the future.
We believe we will be considered a smaller reporting company and will be exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors.
Rule 12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:
| ● | had a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or | |
| ● | in the case of an initial registration statement under the Securities Act or the Exchange Act for shares of its common equity, had a public float of less than $250 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or | |
| ● | in the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero or whose public float was less than $700 million, had annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial statements are available. |
As a smaller reporting company, we are not required to, and may not, include a Compensation Discussion and Analysis section in our proxy statements; we will provide only two years of financial statements; and we need not provide the table of selected financial data. We also will have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our common stock less attractive to potential investors, which could make it more difficult for our stockholders to sell their shares.
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We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses that we did not previously incur as a private company. In addition, the Sarbanes-Oxley Act has imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting in the first annual report on Form 10-K following the date on which we are no longer an emerging growth company or non-accelerated filer. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the value of our securities could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on value of our securities, and could adversely affect our ability to access the capital markets.
Delaware law and the Company certificate of incorporation and bylaws contains certain provisions, including anti-takeover provisions, that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
The Amended Charter and the Company’s bylaws and the DGCL, contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by the Company’s board of directors and therefore depress the trading price of the Company’s common stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the Company’s board of directors or taking other corporate actions, including effecting changes in the management of the Company. Among other things, the Amended Charter and the Company’s bylaws include provisions regarding:
| ● | the ability of the Company’s board of directors to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; | |
| ● | a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of the Board; |
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| ● | the limitation of the liability of, and the indemnification of, the Company’s directors and officers; | |
| ● | the exclusive right of the Company’s board of directors to elect a director to fill a vacancy created by the expansion of the Company’s board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the Company’s board of directors; | |
| ● | the requirement that directors may only be removed from the Company’s board of directors for cause; | |
| ● | a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors; | |
| ● | the requirement that a special meeting of stockholders may be called only by the Company’s board of directors, the chairperson of the Company’s board of directors, the Company’s chief executive officer or the Company’s president (in the absence of a chief executive officer), which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; | |
| ● | the procedures for the conduct and scheduling of board of directors and stockholder meetings; | |
| ● | the requirement for the affirmative vote of holders of at least 2/3 of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal any provision of the Amended Charter or the Company’s bylaws, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Company’s board of directors and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; | |
| ● | the ability of the Company’s board of directors to amend the bylaws, which may allow the Company’s board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and | |
| ● | advance notice procedures with which stockholders must comply to nominate candidates to the Company’s board of directors or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Company’s board of directors and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company. |
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the Company’s board of directors or management.
Any provision of the Amended Charter, the Company’s bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for stockholders to receive a premium for their shares of the Company’s capital stock and could also affect the price that some investors are willing to pay for the Company’s common stock.
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The Amended Charter designates a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between the Company and its stockholders, and also provide that the federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, each of which could limit the ability of the Company’s stockholders to choose the judicial forum for disputes with the Company or its directors, officers, or employees.
The Amended Charter provides that, unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on its behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of its directors, officers, or other employees to the Company or its stockholders, (iii) any action arising pursuant to any provision of the DGCL, or the certificate of incorporation or the bylaws or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants. The Amended Charter also provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. The exclusive forum provision will be applicable to the fullest extent permitted by applicable law, subject to certain exceptions. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Any person or entity purchasing or otherwise acquiring any interest in any of the Company’s securities shall be deemed to have notice of and consented to this provision. This exclusive-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with the Company or its directors, officers, or other employees, which may discourage lawsuits against the Company and its directors, officers, and other employees. If a court were to find the exclusive-forum provision to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm its results of operations.
Anti-takeover effects of certain provisions of Delaware state law could hinder a potential takeover of the Company.
The Company is subject to statutory “anti-takeover” provisions under Delaware law; the provisions of Section 203 of the DGCL, an anti-takeover law. In general, Section 203 of the DGCL which may prohibit certain business combinations with stockholders owning 15% or more of the Company’s outstanding voting stock. These anti-takeover provisions and other provisions in the Company’s Amended Charter and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of the Company’s board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving the Company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause the Company to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in the Company’s board of directors could cause the market price of the Company’s common stock to decline.
Certain provisions of the Company’s amended and restated bylaws are intended to strengthen the position of the Company’s board of directors in the event of a hostile takeover attempt. These provisions have the effect of providing the Company’s board of directors with the sole power to fill vacancies on the Company’s board of directors and providing that stockholders may only call a special meeting by the request, in writing, of stockholders owning individually or together ten percent (10%) or more of the entire capital stock of the corporation issued and outstanding and entitled to vote. The Company may include provisions in its certificate of incorporation that may discourage a third party from making a proposal to acquire us, even if some of its stockholders might consider the proposal to be in their best interests. For example, the Company may amend its certificate of incorporation to authorize its board of directors to issue one (1) or more classes or series of preferred stock that could discourage or delay a tender offer or change in control. In addition, the Company may enter into a stockholder rights plan, commonly known as a “poison pill,” that may delay or prevent a change of control.
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Provisions in the Amended Charter and Delaware law may have the effect of discouraging lawsuits against the Company and its directors and officers.
The Amended Charter requires, unless the Company consents in writing to the selection of an alternative forum, that (i) any derivative action or proceeding brought on the Company’s behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to the Company or the Company’s stockholders, (iii) any action asserting a claim against the Company, the Company’s directors, officers or employees arising pursuant to any provision of the DGCL or the Amended Charter or the Company’s bylaws, or (iv) any action asserting a claim against the Company, the Company’s directors, officers or employees governed by the internal affairs doctrine may be brought only in the Court of Chancery in the State of Delaware, except any claim (A) as to which the Court of Chancery of the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a Court or forum other than the Court of Chancery or (C) for which the Court of Chancery does not have subject matter jurisdiction. If an action is brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. Although the Pono believes this provision benefits it by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, a Court may determine that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging lawsuits against the Company’s directors and officers, although the Company’s stockholders will not be deemed to have waived the Company’s compliance with federal securities laws and the rules and regulations thereunder.
The Company’s bylaws further provide that, unless the Company consents in writing to an alternative forum, the United States District Court for the District of Delaware will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. The Company’s bylaws also provide that any person or entity purchasing or otherwise acquiring any interest in shares of the Company’s capital stock will be deemed to have notice of and to have consented to this choice of forum provision. The Company recognizes that the forum selection clause in the Company’s bylaws may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware. Additionally, the forum selection clause in the Company’s bylaws may limit the Company’s stockholders’ ability to bring a claim in a forum that they find favorable for disputes with us or the Company’s directors, officers or employees, which may discourage such lawsuits against us and the Company’s directors, officers and employees even though an action, if successful, might benefit the Company’s stockholders. If a court were to find these exclusive-forum provisions in the Company’s certificate of incorporation or bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm the Company’s business. Nothing in the Company’s certificate of incorporation or bylaws will preclude stockholders that assert claims under the Securities Act or the Exchange Act from bringing such claims in state or federal court, subject to applicable law.
The Company is a “controlled company” within the meaning of the applicable rules of Nasdaq and, as a result, we qualify for exemptions from certain corporate governance requirements. If the Company relies on these exemptions, its stockholders will not have the same protections afforded to stockholders of companies that are subject to such requirements.
As of December 31, 2024, Dr. Yoshiyuki Aikawa controls approximately 87.36% of the voting power of our outstanding common stock, and, therefore controls a majority of the voting power of the Company’s outstanding common stock, and the Company is a “controlled company” within the meaning of applicable rules of Nasdaq. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirements:
| ● | that a majority of the board consists of independent directors; | |
| ● | for an annual performance evaluation of the nominating and corporate governance and compensation committees; | |
| ● | that the controlled company has a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and | |
| ● | that the controlled company has a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibility. |
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While the Company does not intend to rely on these exemptions, the Company may use these exemptions now or in the future. As a result, the Company’s stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
If the voting power of our capital stock continues to be highly concentrated, it may prevent you and other minority shareholders from influencing significant corporate decisions and may result in conflicts of interest.
As of December 31, 2024, Dr. Aikawa controls approximately 87.36% of the voting power of our outstanding shares of common stock. As a result, Dr. Aikawa has majority voting power over all matters requiring shareholder votes, including: the election of directors; mergers, consolidations and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; amendments to our certificate of incorporation or our bylaws; and our winding up and dissolution.
This concentration of voting power may delay, deter or prevent acts that would be favored by our other stockholders. The interests of Dr. Aikawa may not always coincide with our interests or the interests of our other stockholders. This concentration of voting power may also have the effect of delaying, preventing or deterring a change in control of us. Also, Dr. Aikawa may seek to cause us to take courses of action that, in his judgment, could enhance his investment in us, but which might involve risks to our other stockholders or adversely affect us or our other stockholders. As a result, the market price of our shares of common stock could decline or stockholders might not receive a premium over then-current market price of our shares of common stock upon a change in control. In addition, this concentration of voting power may adversely affect the trading price of our shares of common.
In the event that our common stock price does not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement Warrants are exercisable, the Private Placement Warrants may not have any value.
The warrants will be immediately exercisable and expire on the fifth anniversary following the closing of the Business Combination. The Private Placement Warrants will have an initial exercise price per share equal to $11.50. In the event that our common stock price does not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement Warrants are exercisable, the Private Placement Warrants may not have any value.
There is no established trading market for the Private Placement Warrants to be sold in this offering, and the market for the Private Placement Warrants may be highly volatile or may decline regardless of our operating performance. We do not intend to list the Private Placement Warrants, nor do we expect the Private Placement Warrants to be quoted, on any securities exchange.
There must be a current registration statement in order for you to exercise the Private Placement Warrants.
Holders of Private Placement Warrants will be able to exercise the Private Placement Warrants only if a current registration statement relating to the common stock underlying the Private Placement Warrants is then in effect. Although we will attempt to maintain the effectiveness of a current registration statement covering the common stock underlying the Private Placement Warrants, there can be no assurance that we will be able to do so. If the registration statement covering the shares issuable upon exercise of the Private Placement Warrants is no longer effective, the Private Placement Warrants may only be exercised on a “cashless” basis and will be issued with restrictive legends unless such shares are eligible for sale under Rule 144 of the Securities Act of 1933, as amended.
Holders of our Private Placement Warrants will have no rights as a common stockholder until they acquire our common stock.
Until you acquire shares of our common stock upon exercise of your Private Placement Warrants, you will have no rights with respect to our common stock. Upon exercise of your Private Placement Warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
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Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
The Company prioritizes the security of its information systems and data integrity. We have developed a cybersecurity strategy to manage and mitigate potential cybersecurity risks. Our strategy is designed to safeguard our systems and data.
Cybersecurity Risk Management and Strategy
The Company’s Information Systems Department is in charge of network construction and cybersecurity management. If a system failure, serious accident, or sign of such an accident is detected, the Information Systems Department reports to the CEO and other executives, who then consider countermeasures. The following are considered important cybersecurity issues, and countermeasures are being implemented.:
| ● | Malware infection: There is a risk of losing sales due to information leaks or system downtime caused by unauthorized access due to malware infection. We are protecting against this by introducing email training and detection products. | |
| ● | Vulnerability: There is a risk of loss of corporate trust and sales opportunities due to system downtime or information leaks caused by the exploitation of vulnerabilities in servers, etc. We are conducting vulnerability assessments for services that are open to the public, and will continue to expand the scope of these assessments in the future. | |
| ● | Ransomware: If the system is infected with ransomware, there is a risk of data being encrypted, resulting in business stoppages and information leaks. We have prepared multiple backup mechanisms and recovery procedures in case of damage. | |
| ● | Information leaks: If data is taken from databases or other sources due to unauthorized access or internal crime, the Company’s credibility will be lost, resulting in a loss of profits or the occurrence of compensation for damages. | |
| ● | Denial of Service (DOS) attacks: There is a risk that a DOS attack could bring down our website and make it impossible to make appointments at clinics, which would have a negative impact on sales. For this reason, we have introduced a WAF to prevent malicious access and DOS attacks. | |
| ● | Applying patches and upgrading: There is a risk that not applying patches and upgrades could leave the system vulnerable to attacks, allowing unauthorized access. We are taking measures by regularly updating the operating system and applying patches. |
Governance and Oversight
There is currently no director specializing in cybersecurity. Important cybersecurity matters are reported to the board of directors, and implementations are carried out based on the Company’s organizational chart, with the approval and oversight of the board of directors, CEO, and/or other executive officers, as applicable.
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Employee Training and Awareness
Cybersecurity threats are monitored and prevented by the head of the Information Systems Department, and the training plan is reported to the CEO and other executives, who implement the following:
| ● | We are planning to conduct annual training for the entire company on cybersecurity response. | |
| ● | We are conducting recovery simulation training in the event of a system failure. | |
| ● | We are conducting email training that simulates malicious attacks. |
Third-Party Service Providers
To operate our business, we utilize certain third-party service providers to perform a variety of functions. We intend to use the same outsourcing partners as much as possible for consistency. We are planning to establish selection and management policies in the future.
Item 2. Properties.
Our headquarters is located at 200 Spectrum Center Dr., Suite 300, Irvine, CA 92618, where we lease and occupy our office space with an aggregate floor area of approximately 215 square feet from an unrelated third party under an operating lease agreement.
As of the date of this Annual Report, we do not currently own any of our facilities. The following table shows the location of our primary leased facilities, the name of the entity leasing the space, the annual rent, approximate square footage, primary use, and lease expiration date.
We believe that our existing facilities are generally adequate to meet our current needs, but we expect to seek additional space as needed to accommodate our future growth. There are no major facilities currently inactive. Annual rent below does not include consumption tax.
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| Name of Lessee | Location | Primary Use | Annual rent (US dollars) |
Approximate Size in Square Feet |
Lease Expiration Date |
Note (Related Party) | ||||||||||||
| SBC Medical Group Holdings Incorporated | California | Headquarters | 8,520 | 215 | 07/01/2025 | |||||||||||||
| SBC Medical Group Co., Ltd. | Tokyo | Office | 553,808 | 9,536 | 10/31/2025 | |||||||||||||
| SBC Medical Group Co., Ltd. | Tokyo | Meeting Room | 403,903 | 7,543 | 12/31/2025 | |||||||||||||
| SBC Medical Group Co., Ltd. | Tokyo | Beauty salon | 128,280 | 1,807 | 1/31/2025 | |||||||||||||
| SBC Medical Group Co., Ltd. | Tokyo | Lounge | 66,586 | 1,048 | 4/22/2025 | |||||||||||||
| SBC Medical Group Co., Ltd. | Tokyo | Equipment warehouse | 67,044 | 1,843 | 2/9/2026 | |||||||||||||
| SBC Medical Group Co., Ltd. | Tokyo | Main Office | 99,914 | 1,935 | 6/30/2030 | |||||||||||||
| L’Ange Cosmetique Co., Ltd. | Tokyo | Office | 237,139 | 4,280 | 8/31/2025 | |||||||||||||
| L’Ange Cosmetique Co., Ltd. | Osaka | Office | 53,849 | 3,338 | 7/31/2026 | |||||||||||||
| L’Ange Cosmetique Co., Ltd. | Osaka | Call center | 236,999 | 6,121 | 8/31/2026 | |||||||||||||
| L’Ange Cosmetique Co., Ltd. | Tokyo | Office | 56,828 | 2,402 | 2/28/2025 | |||||||||||||
| Shobikai Co., Ltd. | Kanagawa | Main Office | 10,437 | 1,882 | 9/30/2027 | Y | ||||||||||||
| Shobikai Co., Ltd. | Tokyo | Call center | 114,479 | 4,853 | 1/31/2026 | |||||||||||||
| Shobikai Co., Ltd. | Sendai | Call center | 87,233 | 5,754 | 10/31/2026 | |||||||||||||
| SBC Sealane Co., Ltd. | Tokyo | Main Office | 38,268 | 4,558 | 4/30/2026 | |||||||||||||
| Wen & Weng Medical Group PTE LTD | Singapore | Clinic | 165,710 | 1,206 | 2025/5/12 | |||||||||||||
| Wen & Weng Medical Group PTE LTD | Singapore | Office | 137,542 | 1,001 | 2025/11/30 | |||||||||||||
Item 3. Legal Proceedings.
From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined. As of the date hereof, there are no legal claims currently pending or, to our knowledge, threatened against us or any of our officers or directors in their capacity as such or against any of our properties that, in the opinion of our management, would be likely to have a material adverse effect on our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Market Information
Our common stock began trading on the Nasdaq Global Market under the symbol “SBC” and our warrants began trading on the Nasdaq Capital Market under the symbol “SBCWW” on September 18, 2024. On March 21, 2025, the closing price of our common stock was $3.74 per share and the closing price of our warrants was $0.201.
Holders of Record
As of February 28, 2025, we had approximately 34 holders of record of our common stock, with 103,881,251 shares issued (including 270,000 shares of treasury stock) and 103,611,251 shares outstanding. We also had two holders of record of our Public Warrants, consisting of 11,500,000 Public Warrants originally issued in Legacy Pono’s IPO and 634,375 Private Placement Warrants held by the Sponsor, with total of 12,134,375 warrants issued and outstanding. The number of record holders does not include beneficial owners of common stock or warrants whose shares are held in the names of banks, brokers, nominees, or other fiduciaries.
Dividends
We have not paid any cash dividends on our common stock and do not currently anticipate paying cash dividends in the foreseeable future. The agreements into which we may enter in the future, including indebtedness, may impose limitations on our ability to pay dividends or make other distributions on our capital stock. Payment of future dividends on our common stock, if any, will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business.
Transfer Agent and Registrar
The Company’s transfer agent and registrar for our Common Stock and Public Warrants is Continental Stock Transfer & Trust Company located at 1 State Street, New York, NY 10004 and their telephone is (212) 509-4000.
Unregistered Stock Issuances
Simultaneously with the closing of the Company’s Initial Public Offering on August 9, 2022, the Company consummated the sale of 634,375 units (the “Placement Units”) at a price of $10.00 per Placement Unit in a private placement to Mehana Capital LLC (the “Sponsor”), including 63,000 Placement Units issued pursuant to the exercise of the underwriters’ over-allotment option in full, generating gross proceeds of $6,343,750.
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Stock Performance Graph
As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide the information required under this Item.
| Item 6. | [Reserved]. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis summarize the significant factors affecting our operating results, financial condition, liquidity, and cash flows for the periods presented below. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report. The forward-looking statements contained herein are based on management’s judgment, assumptions made by management and information currently available to it. Actual results could differ materially from those discussed or implied in the forward-looking statements as a result of various factors, including those described below and elsewhere in this Annual Report, particularly in “Part I, Item 1A. Risk Factors” and the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
Unless the context otherwise requires, any reference in this section of this Annual Report to the “Company,” “SBC,” “we,” “us” or “our” refers to Legacy SBC and its consolidated subsidiaries and variable interest entity (“VIE”), prior to the consummation of the Business Combination and to SBC Medical Group Holdings Incorporated, the Combined Entity and its consolidated subsidiaries and VIE following the Business Combination.
Overview
SBC Medical Group, Inc. (formerly known as SBC Medical Group Holdings Incorporated), a Delaware corporation and subsidiary of the Company (“Legacy SBC”) is a management company headquartered in Irvine, California and Tokyo, Japan, that provides management services to cosmetic treatment centers mainly in Japan. The Company and its subsidiaries are primarily focused on providing comprehensive management services to franchisee clinics, including but not limited to advertising and marketing needs across various platforms (such as social media networks), staff management (such as recruitment and training), booking reservations for franchisee clinic customers, assistance with franchisee employee housing rentals and facility rentals, construction and design of franchisee clinics, medical equipment and medical consumables procurement (resale), the provision of cosmetic products to franchisee clinics for resale to clinic customers, licensure of the use of patent-pending and non-patented medical technologies, trademark and brand use, IT software solutions (including but not limited to remote medical consultations), management of the franchisee clinic’s customer rewards program (customer loyalty point program), and payment tools for the franchisee clinics.
Our wholly owned subsidiaries, SBC Medical Group Co., Ltd., a Japan corporation (“SBC Medical Sub”), L’Ange Cosmetique Co., Ltd., a Japan corporation (“Lange Sub”), and Shobikai Co., Ltd., a Japan corporation (“Shobikai Sub”), are each designated as a “medical service corporation” in Japan. In Japan, a medical service corporation is a legal entity that provides management service to “medical corporations”. The management services are conducted through franchisor-franchisee contracts and/or service contracts between certain subsidiaries of the Company (SBC Medical Sub, Lange Sub, and Shobikai Sub) and the medical corporations that own all 241 of the treatment centers in Japan. These clinics provide include but are not limited to breast augmentation, liposuction, rejuvenation treatments (including treatment of wrinkles, acne, scars, cellulite, excess fat, discoloration, and signs of aging), laser skin toning and spot removal, eyes double fold surgery, rhinoplasty, treatment of osmidrosis and hyperhidrosis, hair transplants, gynecological formation treatments, laser hair removal, face line surgeries, cosmetical dental procedures, tattoo removal, lasik eye surgery, lateral canthoplasty, brow lift procedures, androgenetic alopecia treatment, and cheek sagging prevention methods.
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There are currently six medical corporations that the Company’s subsidiaries have entered into franchisor-franchisee contracts and service contracts, consisting of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, Medical Corporation Jukeikai and Medical Corporation Ritz Cosmetic Surgery. In addition, the Company has entered into service contracts since September 2023 with two additional medical corporations, Medical Corporation Association Furinkai and Medical Corporation Association Junikai (collectively with the six franchisee medical corporations, the “Medical Corporations” or “MCs”). All of the Medical Corporations are deemed to be related parties of the Company since relatives of the CEO of the Company are the members (or shain) of general meetings of members of the Medical Corporations. The CEO of the Company was previously a member of the six franchisee Medical Corporations until he ceased being a member in July 2023. The Company, through SBC Medical Sub, owns equity “deposit” interests (or mochibun) of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai). Although the Company, through SBC Medical Sub, has an equity “deposit” interest to the rights to receive a distribution of residual assets in proportion to the amount of contribution in certain circumstances as provided in the articles of incorporation of each of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai), the Company or SBC Medical Sub does not have voting control over the corporate actions at general meetings of members (or shain) of the Medical Corporations per the requirements of the Japanese Medical Care Act.
Financial Overview
For the years ended December 31, 2024 and 2023, we generated revenues of $205,415,542 and $193,542,423, respectively, we reported net income attributable to SBC Medical Group Holdings Incorporated of $46,614,275 and $39,370,036, respectively, and cash flow provided by operating activities of $20,582,933 and $50,670,322, respectively. As of December 31, 2024, we had retained earnings of $ 189,463,007.
Our primary mission is to provide quality comprehensive management services to the Medical Corporations and expand our “Shonan Beauty Clinic” brand. We plan to achieve the mission by maintaining and strengthening our market position and brand in the cosmetic medical treatment management market in Japan, Vietnam, and the United States, and by growing our presence globally.
Further information regarding our business is provided in “Part 1, Item 1. Business” of this Annual Report.
Results of Operations
Comparison of Results of Operations for the Years Ended December 31, 2024 and 2023
The following table summarizes our operating income as reflected in our audited consolidated statements of operations and comprehensive income for the years ended December 31, 2024 and 2023, and presents information regarding amounts and percentage changes during those periods.
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2024 | 2023 | Variance | ||||||||||||||||||||||
| Amount | % of revenue | Amount | % of revenue | Amount | % | |||||||||||||||||||
| Revenues, net (including net revenues provided to related parties) | $ | 205,415,542 | 100.00 | % | $ | 193,542,423 | 100.00 | % | $ | 11,873,119 | 6.13 | % | ||||||||||||
| Cost of revenues | 49,365,035 | 24.03 | % | 56,238,385 | 29.06 | % | (6,873,350 | ) | (12.22 | )% | ||||||||||||||
| Gross profit | 156,050,507 | 75.97 | % | 137,304,038 | 70.94 | % | 18,746,469 | 13.65 | % | |||||||||||||||
| Operating expenses | 85,746,797 | 41.74 | % | 66,643,972 | 34.43 | % | 19,102,825 | 28.66 | % | |||||||||||||||
| Income from operations | 70,303,710 | 34.23 | % | 70,660,066 | 36.51 | % | (356,356 | ) | (0.50 | )% | ||||||||||||||
| Other income | 3,152,107 | 1.53 | % | 2,919,269 | 1.51 | % | 232,838 | 7.98 | % | |||||||||||||||
| Income before income taxes | 73,455,817 | 35.76 | % | 73,579,335 | 38.02 | % | (123,518 | ) | (0.17 | )% | ||||||||||||||
| Income tax expense | 26,765,925 | 13.03 | % | 35,018,729 | 18.09 | % | (8,252,804 | ) | (23.57 | )% | ||||||||||||||
| Net income | 46,689,892 | 22.73 | % | 38,560,606 | 19.93 | % | 8,129,286 | 21.08 | % | |||||||||||||||
| Less: net income (loss) attributable to non-controlling interests | 75,617 | 0.04 | % | (809,430 | ) | (0.41 | )% | 885,047 | (109.34 | )% | ||||||||||||||
| Net income attributable to SBC Medical Group Holdings Incorporated | $ | 46,614,275 | 22.69 | % | $ | 39,370,036 | 20.34 | % | $ | 7,244,239 | 18.40 | % | ||||||||||||
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Revenues, Net
Revenues, net generated from different revenue streams consist of the following:
For the Years Ended December 31, | Variance | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| Franchising revenue | $ | 61,033,032 | $ | 42,103,380 | $ | 18,929,652 | 44.96 | % | ||||||||
| Procurement revenue | 54,814,399 | 53,186,662 | 1,627,737 | 3.06 | % | |||||||||||
| Management services revenue | 53,113,155 | 72,282,549 | (19,169,394 | ) | (26.52 | )% | ||||||||||
| Rental services revenue | 16,141,714 | 7,336,768 | 8,804,946 | 120.01 | % | |||||||||||
| Others | 20,313,242 | 18,633,064 | 1,680,178 | 9.02 | % | |||||||||||
| Total | $ | 205,415,542 | $ | 193,542,423 | $ | 11,873,119 | 6.13 | % | ||||||||
Revenues, net, increased by 6.13% from $193,542,423 for the year ended December 31, 2023 to $205,415,542 for the year ended December 31, 2024.
Japanese Yen (“JPY”) against the U.S. dollar depreciated during the year ended December 31, 2024, compared to the year ended December 31, 2023. The spot rate against the dollar was 156.7890 yen on December 31, 2024 compared to 141.0350 yen on December 31, 2023 and the average rate against the dollar was 151.4405 yen for the year ended December 31, 2024 compared to 140.5261 yen for the same period in 2023. For the years ended December 31, 2024 and 2023, we generated net revenues of $205,415,542 (JPY31,108 million) and $193,542,423 (JPY 27,198 million), respectively. For the years ended December 31, 2024 and 2023, we reported net income of $46,689,892 (JPY7,059 million) and $38,560,606 (JPY 5,419 million), respectively. Overall, the unfavorable impacts of the year-to-year foreign exchange rate changes on net revenues and net income were $15,954,241 and $3,545,053, respectively, for the year ended December 31, 2024.
The main reasons for the variance of $11,873,119 in revenues, net per revenue stream are as follows:
Franchising Revenue
Franchising revenue for the year ended December 31, 2024 increased to $61,033,032 by $18,929,652 or 44.96% from $42,103,380 for the same period in 2023. This increase was mainly due to (i) a change in the billing base of royalty fees from a percentage of sales of MCs to a fixed amount for each clinic of MCs since April 2023 combined with an increase in the number of clinics operated by MCs, (ii) authorizing the six MCs, which are our main recurring customers, to use our patents and trademarks starting from September 2023, and (iii) the business expansion of the MCs, partially offset by the depreciation of JPY.
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Procurement Revenue
The procurement revenue for the year ended December 31, 2024 increased to $54,814,399 by $1,627,737 or 3.06% from $53,186,662 for the same period in 2023. This increase was mainly due to the increase in the demand on medical materials due to the business expansion of MCs, partially offset by the depreciation of JPY.
Management Services Revenue
The management services revenue for the year ended December 31, 2024 decreased to $53,113,155 by $19,169,394 or 26.52% from $72,282,549 for the same period in 2023. This decrease was mainly due to (i) the discontinuation of clinic operation staff supporting services provided by Shobikai Sub to MCs since the third quarter of 2024, because the Company plans to merge Shobikai Sub with and into Lange Sub and the related business license, held by Shobikai Sub, will be invalid upon the merger, (ii) a significant decline in loyalty program management services revenue compared with 2023, primarily because the charge rate of handling fee decreased from 5% to 4%, and there were more free point redemptions, and (iii) the depreciation of JPY, partially offset by (i) the increase in revenue generated from management consulting services and loyalty program management services provided to two MCs that the Company started to conduct business since September 2023 (Medical Corporation Association Furinkai and Medical Corporation Association Junikai), (ii) the business expansion of MCs and (iii) the increase in the number of the clinics of MCs.
Rental Services Revenue
The rental services revenue for the year ended December 31, 2024 increased to $16,141,714 by $8,804,946 or 120.01% from $7,336,768 for the same period in 2023. This increase was mainly due to the increased demand for medical equipment from MCs due to the business expansion of MCs, partially offset by the depreciation of JPY.
Others
The other revenues for the year ended December 31, 2024 increased to $20,313,242 by $1,680,178 or 9.02% from $18,633,064 for the same period in 2023. This increase was mainly due to the business expansion of the subsidiary acquired in April 2023, partially offset by the depreciation of JPY.
Cost of Revenues
Cost of revenues, for the year ended December 31, 2024, was $49,365,035 compared to $56,238,385 for the same period in 2023. The decrease by $6,873,350 or 12.22% was mainly due to the Company’s effort of the cost reduction for the year ended December 31, 2024, as well as the discontinuation of clinic operation supporting services provided by Shobikai Sub to MCs since the third quarter of 2024, and the Company then terminated the employment of the related staff. As a result, labor cost significantly decreased.
Gross Profit
Gross profit, for the year ended December 31, 2024, was $156,050,507 compared to $137,304,038 for the same period in 2023. The increase in gross profit by $18,746,469 or 13.65% was mainly due to the increase in franchising revenue with a relatively high gross margin as a result of the factors described above, offset by the decrease in management services revenue as a result of the factors described above.
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Operating Expenses
Operating expenses for the years ended December 31, 2024 and 2023 were as follows:
For the Years Ended December 31, | Variance | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| Salaries and welfare | $ | 26,843,524 | $ | 26,847,863 | $ | (4,339 | ) | (0.02 | )% | |||||||
| Depreciation and amortization expense | 2,258,364 | 10,924,452 | (8,666,088 | ) | (79.33 | )% | ||||||||||
| Impairment loss on intangible asset | 15,058,965 | — | 15,058,965 | 100.00 | % | |||||||||||
| Consulting and professional service fees | 14,555,087 | 9,481,719 | 5,073,368 | 53.51 | % | |||||||||||
| Advertising expense | 2,782,944 | 3,367,608 | (584,664 | ) | (17.36 | )% | ||||||||||
| Taxes and dues | 596,122 | 1,904,967 | (1,308,845 | ) | (68.71 | )% | ||||||||||
| Recruiting expense | 1,570,299 | 2,038,591 | (468,292 | ) | (22.97 | )% | ||||||||||
| Lease expense | 2,369,666 | 2,897,683 | (528,017 | ) | (18.22 | )% | ||||||||||
| Office, utility and other expenses | 6,689,134 | 8,772,059 | (2,082,925 | ) | (23.74 | )% | ||||||||||
| Misappropriation loss | — | 409,030 | (409,030 | ) | (100.00 | )% | ||||||||||
| Stock-based compensation | 13,022,692 | — | 13,022,692 | 100.00 | % | |||||||||||
| Total | $ | 85,746,797 | $ | 66,643,972 | $ | 19,102,825 | 28.66 | % | ||||||||
The operating expenses increased to $85,746,797 for the year ended December 31, 2024 by $19,102,825 or 28.66% from $66,643,972 for the same period in 2023.The increase in operating expenses was mainly attributed to the increase in impairment loss on intangible asset, the increase in stock-based compensation, and the increase in consulting and professional service fees, partially offset by the decrease in depreciation and amortization expenses.
Depreciation and amortization expense decreased to $2,258,364 by $8,666,088 or 79.33% for the year ended December 31, 2024 from $10,924,452 for the same period in 2023, mainly because the decrease in amortization expense incurred from the intangible assets owned by Cell Pro Japan Co., Ltd. (“Cellpro”), a former subsidiary of the Company, due to the disposal of Cellpro on January 1, 2024.
Consulting and professional service fees increased to $14,555,087 by $5,073,368 or 53.51% for the year ended December 31, 2024 from $9,481,719 for the same period in 2023, mainly due to the increase of the professional service fees incurred related to the business combination transaction.
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Stock-based compensation relates to the warrants issued to the service provider that supported SBC’s listing process. These warrants were issued in November 2022 and became exercisable upon the consummation of business combination with Pono Two Capital, Inc., and the fair value was recognized as an expense.
For the year ended December 31, 2024, the Company fully impaired an intangible asset, patent use right, because the estimated cash flows from the use and its eventual disposal of this intangible asset were determined to be negligible. This conclusion was reached through a careful decision-making process and was approved by the Company’s board of directors.
Other Income (Expenses)
Other income (expenses) for the years ended December 31, 2024 and 2023, were as follows:
For the Years ended December 31, | Variance | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| Interest income | $ | 19,943 | $ | 86,748 | $ | (66,805 | ) | (77.01 | )% | |||||||
| Interest expense | (28,300 | ) | (45,292 | ) | 16,992 | (37.52 | )% | |||||||||
| Other income | 4,810,008 | 3,623,332 | 1,186,676 | 32.75 | % | |||||||||||
| Other expenses | (5,463,153 | ) | (745,519 | ) | (4,717,634 | ) | 632.80 | % | ||||||||
| Gain on disposal of subsidiary | 3,813,609 | — | 3,813,609 | 100.00 | % | |||||||||||
| Total | $ | 3,152,107 | $ | 2,919,269 | $ | 232,838 | 7.98 | % | ||||||||
Although an unrealized loss was recognized from the Company’s investment in a public entity with readily determinable fair value under other expenses, a gain on disposal of subsidiary was recorded due to the disposal of Cellpro on January 1, 2024. The total other income (expenses) for the year ended December 31, 2024 was $3,152,107, compared to $2,919,269 for the same period in 2023, reflecting only a minor overall fluctuation.
Income Tax Expense
Income tax expense, for the year ended December 31, 2024, was $26,765,925 compared to $35,018,729 for the same period in 2023. The decrease in income tax expense by $8,252,804 or 23.57% was mainly due to the increase in the deferred tax benefit as no valuation allowance on deferred tax assets of Lange Sub was reserved during the year ended December 31, 2024. It was mainly due to the merger among SBC Medical Sub, Lange Sub and Shobikai Sub, with Lange Sub as the surviving entity after the merger, that expected to be effective in January 2025, resulting in the potential ability of Lange Sub to generate income and utilize the carried forward net operating loss.
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The effective tax rate for the fiscal year ended December 31, 2024 was 36.44%, a decrease of 11.16% compared to the 47.59% rate for the fiscal year ended December 31, 2023. This decrease was mainly due to a reduction in valuation allowance on deferred tax assets as described in the income tax expense comparison above.
Net Income
As a result of the foregoing, we reported a net income of $46,689,892 for the year ended December 31, 2024, representing an increase of $8,129,286 from $38,560,606 for the year ended December 31, 2023.
Net Income (Loss) Attributable to Non-controlling Interests
Net Income attributable to non-controlling interests was $75,617 for the year ended December 31, 2024, as compared to the net loss attributable to non-controlling interests of $809,430 for the year ended December 31, 2023, which was mainly due to the disposal of Cellpro on January 1, 2024.
Liquidity and Capital Resources
As of December 31, 2024, the Company had $125,044,092 in cash and cash equivalents compared to $103,022,932 as of December 31, 2023. In addition, the Company had $30,260,113 in accounts receivable as of December 31, 2024 compared to $35,113,749 as of December 31, 2023. The Company’s accounts receivable includes balances due from customers for the services and goods provided by the Company and accepted by customers.
As of December 31, 2024, the Company’s working capital balance was $123,259,130. In assessing liquidity, management monitors and analyzes the Company’s cash and cash equivalents, ability to generate sufficient future earnings, and operating and capital investment commitments. The Company believes that its current cash and cash equivalents from operations and borrowings from banks will be sufficient to meet its working capital needs for the next 12 months from the date of issuance of the audited financial statements included in this Annual Report.
To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of indebtedness, equity financings or a combination of these potential sources of funds. While we face uncertainties regarding the size and timing of our fundraising, which will be affected by general economic, financial, and other factors that may be beyond our control, we believe that we will be able to continue to meet our current business needs through the use of cash flows generated from operations and stockholder working capital, as needed.
The Company evaluates its capital allocation practices with the objective of enhancing shareholder value, while considering performance, the business environment, macroeconomic conditions and other relevant factors. The Company expects to deploy capital for investment opportunities that align with its growth strategy, selectively pursuing prospects in the expanding global medical aesthetics market.
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Cash Flows for the Years Ended December 31, 2024 and 2023
The following table provides a summary of our cash flows for the years indicated.
| For
the Years ended December 31, | Variance | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| Net cash provided by operating activities | $ | 20,582,933 | $ | 50,670,322 | $ | (30,087,389 | ) | (59.38 | )% | |||||||
| Net cash provided by (used in) investing activities | (10,102,410 | ) | 1,793,631 | (11,896,041 | ) | (663.24 | )% | |||||||||
| Net cash provided by financing activities | 22,965,400 | 6,135,368 | 16,830,032 | 274.31 | % | |||||||||||
| Effect of changes in foreign currency exchange rate | (11,424,763 | ) | (7,314,383 | ) | (4,110,380 | ) | 56.20 | % | ||||||||
| Net change in cash and cash equivalents | 22,021,160 | 51,284,938 | (29,263,778 | ) | (57.06 | )% | ||||||||||
| Cash and cash equivalents as of the beginning of the period | 103,022,932 | 51,737,994 | 51,284,938 | 99.12 | % | |||||||||||
| Cash and cash equivalents as of the end of the period | $ | 125,044,092 | $ | 103,022,932 | $ | 22,021,160 | 21.38 | % | ||||||||
Operating Activities
Net cash provided by operating activities for the year ended December 31, 2024 was $20,582,933, compared to net cash provided in operating activities of $50,670,322 for the year ended December 31, 2023, reflecting a decrease of $30,087,389. The decrease was mainly due to a decrease in changes in notes payable - related parties of $34.7 million, finance lease receivables – related parties of $22.6 million and accounts payable of $21.8 million, partially offset by an increase in changes in accounts receivable - related parties of $23.8 million and accrued retirement compensation expense – related party of $22.1 million.
Investing Activities
During the year ended December 31, 2024, net cash used in investing activities of $10,102,410 was mainly the result of payments made on behalf of a related party of $5.6 million, cash paid for acquisition of a subsidiary, net of cash received of $4.2 million, purchase of property and equipment of $2.6 million and purchase of convertible note of $1.7 million, partially offset by repayments from related parties of $6.6 million. During the year ended December 31, 2023, net cash provided by investing activities of $1,793,631 was mainly the result of proceeds from disposal of property and equipment of $8.0 million, sales of short-term investments of $4.1 million, and proceeds from surrender of life insurance policies of 4.0 million, and offset by payments made for the purchase of property and equipment of $8.5 million, purchase of short-term investments of $2.1 million and advances to related parties of $2.3 million.
Financing Activities
During the year ended December 31, 2024, net cash provided by financing activities of $22,965,400 was the result of proceeds from reverse recapitalization, net of transaction costs of $11.7 million, borrowings from a long-term loan of $6.6 million and borrowings from related parties of $5.5 million. During the year ended December 31, 2023, net cash provided by financing activities of $6,135,368 was the result of borrowings from related parties of $12.3 million and deemed contribution in connection with disposal of property and equipment of $9.6 million and offset by repayments of long-term loans of $8.7 million and repayments to related parties of $7.7 million.
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Recent Developments
Upcoming Changes to Service Fee Structure
The Company has decided to revise the fee structure to pursue a long-term growth strategy aimed at expanding and stabilizing the business foundation by creating an environment that can better facilitate the establishment of new clinics by MCs.
If the revised fee structure had been applied starting in April 2024, it is estimated that total revenues for fiscal year 2024 would have decreased by approximately 10%. However, the Company expects the impact on total revenues and income from operations for fiscal year 2025 to be offset by the absence of one-time losses that were recorded in fiscal year 2024, which were impairment loss on intangible asset and stock-based compensation. Nevertheless, the ultimate financial impact remains uncertain and will depend on a number of factors, many of which are beyond the Company’s control.
Upcoming Insurance Policy Maturing
Certain corporate-owned life insurance policies that the Company purchased to insure its CEO and a key officer will mature on March 29, 2025, according to the contract term.
The policies of these life insurances were structured so that the surrender value was equivalent to 50% of the initial premium before the maturity of the contract and the initial premium was paid out in a lump sum at the inception of the contract. The surrender value as of the contract mature date agreed to be the initial premium or accumulated initial premium amount considering interest, which is larger. As of December 31, 2024, the insurance policies were recorded at their cash surrender values, included in other assets in the consolidated balance sheets with changes in cash surrender value during the period recorded in selling, general and administrative expenses.
The Company expected the maturity of these policies would result in a gain on surrender of life insurance policies of approximately $9.3 million in the first quarter of fiscal year 2025.
Misappropriations of Funds
In January 2024, before the issuance of the Company’s consolidated financial statements as of December 31, 2023 and for the year then ended, in connection with a routine tax examination of the Company’s income tax returns, the Japanese tax authority discovered misappropriations of Company funds by a former director of general affairs and legal department of L’Ange Cosmetique Co., Ltd., which is a subsidiary of the Company (the “former director”), not a relative of the CEO of the Company or any identified related party, who received kickbacks from multiple vendors of SBC Japan (collectively with the former director, the “participants”) possibly beginning as early as 2012 until the misappropriations were discovered. The former director was suspended immediately upon the discovery and was terminated effective February 23, 2024. The Company has commenced a criminal complaint in Tokyo against the participants, which was accepted by the police on February 25, 2025.
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Shortly after this discovery, the Company engaged independent legal counsel and forensic consultants to investigate the misappropriations. The investigation, which was completed in March 2024, revealed that the participants had misappropriated approximately JPY632 million ($5.6 million), including consumption tax, from the Company of which the former director received approximately JPY335 million ($3.0 million), between April 2016 and the discovery of the misappropriations in January 2024. The amount misappropriated prior to April 2016 could not be accurately determined because certain data for the period prior to April 2016 was unavailable, the Company does not expect such amount to be material based on current estimates.
The Company found no evidence that any other employee of the Company was aware of, or colluded in, the misappropriations of Company funds or that there was any unlawful activity apart from that associated with the participants’ misappropriations of Company funds. The misappropriated amounts, excluding the consumption tax, representing advertising services purchased on behalf of a related-party MC, were originally included in the revenues reported on a net basis. After discovery of the misappropriations, the amounts were reported as a misappropriation loss. For the year ended December 31, 2023, the Company recorded a misappropriation loss of $409,030.
Contractual Obligations
Lease Agreements
The Company has 95 leases classified as operating leases for offices and sublease purposes.
As of December 31, 2024, the future maturity of lease liabilities is as follows:
| Years ending December 31, | Lease Payment | |||
| 2025 | $ | 4,361,879 | ||
| 2026 | 712,869 | |||
| 2027 | 263,412 | |||
| 2028 | 109,906 | |||
| 2029 | 109,906 | |||
| Thereafter | 54,950 | |||
| Total undiscounted lease payments | 5,612,922 | |||
| Less: imputed interest | (29,874 | ) | ||
| Total operating lease liabilities | $ | 5,583,048 | ||
Bank and Other Borrowings
The Company borrowed loans from various banks and a financial institution for working capital purpose.
As of December 31, 2024, future minimum borrowing payments are as follows:
| Years ending December 31, | Principal Repayment | |||
| 2025 | $ | 96,824 | ||
| 2026 | 66,580 | |||
| 2027 | 6,436,102 | |||
| 2028 | — | |||
| 2029 and thereafter | — | |||
| Total | $ | 6,599,506 | ||
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Off-Balance Sheet Arrangements (Off-Balance Sheet Transactions)
There are no off-balance sheet arrangements as of December 31, 2024 and 2023.
Foreign Exchange Rate Risk
We are exposed to foreign currency exchange rate fluctuations because our business is primarily conducted in Japan and most of our revenues and costs are denominated in Japanese yen, whereas our reporting currency is U.S. dollar. The weakening of the Japanese yen against the U.S. dollar would have a negative impact on our financial results and vice versa.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates. We believe that critical accounting policies as disclosed in this Annual Report reflect the more significant judgements and estimates used in preparation of our consolidated financial statements.
The following descriptions of critical accounting policies and estimates should be read in conjunction with our consolidated financial statements and other disclosures included in this Annual Report. When reviewing our consolidated financial statements, you should consider our selection of critical accounting policies, the judgments and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions.
Revenue Recognition
The Company recognizes revenue from franchising services, procurement services, management services and other services under ASC Topic 606, “Revenue from Contracts with Customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of consumption tax and applicable local government levies, if any. The consumption tax on sales is calculated at 10% of gross sales. The Company does not have significant remaining unfulfilled performance obligations or contract balances.
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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 (royalty income) by licensing its intellectual properties, including but not limited to the Company’s brand name (“Shonan Beauty Clinic”), trade name, patents, and trademarks, as a franchisor pursuant to franchise agreements with certain MCs (the “MCs”) in Japan. Prior to April 2023, Franchising Revenue is based on a percentage of sales and recognized at the time when the related sales occurred; since April 2023, it is based on a fixed amount to each clinic of the MCs; since September 2023, it is based on a fixed amount to each MC and a fixed amount to each clinic of the MCs and recognized over time as services are rendered.
Procurement Revenue
The Company generates procurement revenue by purchasing primarily advertising services and medical materials from qualified vendors on behalf of MCs to maintain brand quality consistency. Procurement revenue is recognized at the point in time upon the delivery of products or over time as services are performed. Occasionally, the Company receives vendor discounts on certain large purchases. It recognizes revenue based on actual payments and will return the over-collection resulting from such discounts to MCs.
Management Services Revenue
The Company provides loyalty program management services, labor supporting services, function supporting services and management consulting services to MCs.
| ● | Loyalty program management services |
| 115 |
The Company awards loyalty points on behalf of MCs to MCs’ customers, who earn loyalty points from each qualified purchase made at the loyalty program participating clinics of MCs, in exchange for a handling fee. The revenue is based on a percentage of the related payment amount made by MCs’ customers and is recognized when the loyalty points are awarded.
At the time loyalty points are awarded, a MC pays the Company cash in an amount equivalent to the awarded loyalty points, which is recorded as advances from customers. When a MC’s customers redeem the loyalty points, the Company returns the cash back to the MC in an amount equivalent to the redeemed loyalty points. The awarded loyalty points expire if a MC’s customer does not make any additional qualified purchase at a participating clinic within a year. The Company accumulates and tracks the points on behalf of MCs until the loyalty points expire, at which time the Company recognizes an amount equivalent to the expired loyalty points as revenue, which is normally not significant.
The Company also awards certain points to MCs’ customers on behalf of MCs for free in order to increase the volume of MC’s sales, from which the Company earns other types of revenues, such as franchising revenue. When a MC’s customers redeem such points, the Company reimburses MC in an amount equivalent to the used free points and records it as a reduction of the revenue recognized.
The Company is an agent in the management of loyalty programs, and as a result, revenues are recognized net of the cost of redemptions.
| ● | Labor supporting services |
The Company generates revenue by dispatching staff to MCs to provide a range of services, primarily including clinic operation, IT, and administrative services, among which, clinic operation service has been fully terminated since October 2024. The Company recognizes the revenue over the time when services are rendered.
| ● | Function supporting services |
The revenue is derived from providing functional supporting services to MCs, such as accounting and human resources services. The Company recognizes the revenue over the time when services are rendered.
| ● | 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 straight-line basis over the terms of the lease agreements and sales-type leases revenue is generally recognized on the lease commitment date.
| 116 |
Other Revenues
The Company generates other miscellaneous revenues such as accommodation services income, medicine dispensed sales revenue, brokerage services revenue, construction services revenue, pilot training services revenue, interest income, etc. These revenues are recognized when the Company satisfies performance obligations.
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 Japanese Medical Care 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 benefit to be realized at the time of dissolution of MCs or the equity interests being sold. The payments made for such investments are classified as investing activities in the 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.
The investments in MCs — related parties are accounted for using a measurement alternative, under which the 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, especially the investments in Medical Corporation Jukeikai (“MC Jukeikai”) and Medical Corporation Ritz Cosmetic Surgery (“MC Ritz”), which represent the vast majority of the Company’s investments in MCs balance.
Impairment Consideration of Investments in MC Jukeikai and MC Ritz
Although these two MCs are non-profit entities, their principal operations are providing health care services and they derive primary source of their revenue from the sale of goods and services, rather than the fund contributions.
No indicator of impairment was noticed based on the Company’s qualitative assessment of impairment. As the Company provides comprehensive management services to these two MCs, including accounting and bookkeeping services, the Company has access to MCs’ unaudited financial information. In addition to the external market conditions and trends within the MCs’ industry, the Company considered the MCs’ operating performance, such as sales, increase in sales, and net income (loss) when performing its qualitative assessment. As of December 31, 2024, the carrying value of the investments in the two MCs was higher than their net assets, respectively, because the Company acquired the equity interests with the considerations paid higher than the net asset values at the respective purchase dates due to the expected growth and expansion of the MCs.
For management’s additional internal analysis purposes, the Company estimates the residual values of the two MCs at dissolution when needed, using the income approach with the discounted cash flow method, which estimates the fair values of the MCs by the present worth of the net economic benefit to be received by MCs. Management applies significant judgment and assumptions related to estimation, including but not limited to the forecasted revenues, the selection of an expected EBITDA margin assumption for the forecast period, forecasted future cash flows, and the discounted rate. The Company currently expects the residual values at the dissolution of the MCs will not be less than the carrying values of the investments in MCs. The management is not aware of any legal or regulatory limitations on the Company’s ability to realize the full amount of proceeds generated from a liquidation of the MCs.
| 117 |
Stock Based Compensation
The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation — Stock Compensation”, under which the Company determines whether stock-based compensation awards should be classified and accounted for as an equity award. There were no liability awards granted during any of the periods stated herein. For all grants of stock-based compensation classified as equity awards, the cost of services received from employees and non-employees in exchange for awards is recognized in the consolidated statements of operations and comprehensive income based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures and cancellations as they occur.
The Company, with the assistance of an independent valuation specialist, determined the fair value of the warrants recognized in the consolidated financial statements using the binomial option pricing model, and the equity value as of the grant date was estimated using 1) 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, and 2) market approach with metrics of publicly traded companies or historically completed transactions of comparable businesses. The Company applied a weighting to the income approach and market approach to determine the fair value. We believe the accounting estimate for valuation of stock-based compensation is a critical accounting estimate because our estimates of fair value of stock-based compensation are based upon assumptions believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ from estimates.
Emerging Growth Company
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we will take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
Smaller Reporting Company
Additionally, we are a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250 million as of the last business day of our second fiscal quarter, or (ii) our annual revenue exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our second fiscal quarter. If we continue to be a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from these certain reduced disclosure requirements that are available to smaller reporting companies.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
| 118 |
| Item 8. | Financial Statements and Supplementary Data. |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
INDEX TO FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
SBC Medical Group Holdings Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SBC Medical Group Holdings Incorporated and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company’s auditor since 2023.
Tokyo, Japan
March 28, 2025
| F-2 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 125,044,092 | $ | 103,022,932 | ||||
| Accounts receivable | 1,413,433 | 1,437,077 | ||||||
| Accounts receivable – related parties | 28,846,680 | 33,676,672 | ||||||
| Inventories | 1,494,891 | 3,090,923 | ||||||
| Finance lease receivables, current – related parties | 5,992,585 | 6,143,564 | ||||||
| Customer loans receivable, current | 10,382,537 | 8,484,753 | ||||||
| Prepaid expenses and other current assets | 11,276,802 | 10,050,005 | ||||||
| Total current assets | 184,451,020 | 165,905,926 | ||||||
| Non-current assets: | ||||||||
| Property and equipment, net | 8,771,902 | 13,582,017 | ||||||
| Intangible assets, net | 1,590,052 | 19,739,276 | ||||||
| Long-term investments, net | 3,049,972 | 849,434 | ||||||
| Goodwill, net | 4,613,784 | 3,590,791 | ||||||
| Finance lease receivables, non-current – related parties | 8,397,582 | 3,420,489 | ||||||
| Operating lease right-of-use assets | 5,267,056 | 5,919,937 | ||||||
| Deferred tax assets | 9,798,071 | |||||||
| Customer loans receivable, non-current | 5,023,551 | 6,444,025 | ||||||
| Long-term prepayments | 1,745,801 | 4,099,763 | ||||||
| Long-term investments in MCs – related parties | 17,820,910 | 19,811,555 | ||||||
| Other assets | 15,553,453 | 15,442,058 | ||||||
| Total non-current assets | 81,632,134 | 92,899,345 | ||||||
| Total assets | $ | 266,083,154 | $ | 258,805,271 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 13,875,179 | $ | 26,531,944 | ||||
| Accounts payable – related party | 659,044 | |||||||
| Current portion of long-term loans | 96,824 | 156,217 | ||||||
| Notes payable, current – related parties | 26,255 | 3,369,203 | ||||||
| Advances from customers | 820,898 | 2,074,457 | ||||||
| Advances from customers – related parties | 11,739,533 | 23,058,175 | ||||||
| Income tax payable | 18,705,851 | 8,782,930 | ||||||
| Operating lease liabilities, current | 4,341,522 | 3,885,812 | ||||||
| Accrued liabilities and other current liabilities | 8,103,194 | 21,009,009 | ||||||
| Due to related party | 2,823,590 | 3,583,523 | ||||||
| Total current liabilities | 61,191,890 | 92,451,270 | ||||||
| F-3 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
CONSOLIDATED BALANCE SHEETS — (Continued)
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Non-current liabilities: | ||||||||
| Long-term loans | 6,502,682 | 1,062,722 | ||||||
| Notes payable, non-current – related parties | 5,334 | 11,948,219 | ||||||
| Deferred tax liabilities | 926,023 | 6,013,565 | ||||||
| Operating lease liabilities, non-current | 1,241,526 | 2,444,316 | ||||||
| Other liabilities | 1,193,541 | 1,074,930 | ||||||
| Total non-current liabilities | 9,869,106 | 22,543,752 | ||||||
| Total liabilities | 71,060,996 | 114,995,022 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock ($par value, shares authorized; shares issued and outstanding as of December 31, 2024 and 2023)** | ||||||||
| Common stock ($par value, shares authorized, and shares issued, and shares outstanding as of December 31, 2024 and 2023, respectively)** | 10,302 | 9,419 | ||||||
| Additional paid-in capital** | 62,513,923 | 36,879,281 | ||||||
| Treasury stock (at cost, and shares as of December 31, 2024 and 2023, respectively) | (2,700,000 | ) | ||||||
| Retained earnings | 189,463,007 | 142,848,732 | ||||||
| Accumulated other comprehensive loss | (54,178,075 | ) | (37,578,255 | ) | ||||
| Total SBC Medical Group Holdings Incorporated stockholders’ equity | 195,109,157 | 142,159,177 | ||||||
| Non-controlling interests | (86,999 | ) | 1,651,072 | |||||
| Total stockholders’ equity | 195,022,158 | 143,810,249 | ||||||
| Total liabilities and stockholders’ equity | $ | 266,083,154 | $ | 258,805,271 | ||||
| ** | Retrospectively restated for effect of reverse recapitalization on September 17, 2024. |
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues, net – related parties | $ | 195,173,889 | $ | 182,738,049 | ||||
| Revenues, net | 10,241,653 | 10,804,374 | ||||||
| Total revenues, net | 205,415,542 | 193,542,423 | ||||||
| Cost of revenues (including cost of revenues from a related party of $8,472,202 and $2,842,588 for the years ended December 31, 2024 and 2023, respectively) | 49,365,035 | 56,238,385 | ||||||
| Gross profit | 156,050,507 | 137,304,038 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | 57,665,140 | 66,234,942 | ||||||
| Stock-based compensation | 13,022,692 | |||||||
| Impairment loss on intangible asset | 15,058,965 | |||||||
| Misappropriation loss | 409,030 | |||||||
| Total operating expenses | 85,746,797 | 66,643,972 | ||||||
| Income from operations | 70,303,710 | 70,660,066 | ||||||
| Other income (expenses): | ||||||||
| Interest income | 19,943 | 86,748 | ||||||
| Interest expense | (28,300 | ) | (45,292 | ) | ||||
| Other income (including other income from related parties of $2,673,077 and for the years ended December 31, 2024 and 2023, respectively) | 4,810,008 | 3,623,332 | ||||||
| Other expenses | (5,463,153 | ) | (745,519 | ) | ||||
| Gain on disposal of subsidiary | 3,813,609 | |||||||
| Total other income | 3,152,107 | 2,919,269 | ||||||
| Income before income taxes | 73,455,817 | 73,579,335 | ||||||
| Income tax expense | 26,765,925 | 35,018,729 | ||||||
| Net income | 46,689,892 | 38,560,606 | ||||||
| Less: net income (loss) attributable to non-controlling interests | 75,617 | (809,430 | ) | |||||
| Net income attributable to SBC Medical Group Holdings Incorporated | $ | 46,614,275 | $ | 39,370,036 | ||||
| Other comprehensive loss: | ||||||||
| Foreign currency translation adjustment | $ | (16,557,607 | ) | $ | (12,855,686 | ) | ||
| Reclassification of unrealized gain on available-for-sale debt security to net income when realized, net of tax effect of and $3,869 for the years ended December 31, 2024 and 2023, respectively | (8,760 | ) | ||||||
| Total comprehensive income | 30,132,285 | 25,696,160 | ||||||
| Less: comprehensive income (loss) attributable to non-controlling interests | 117,830 | (948,896 | ) | |||||
| Comprehensive income attributable to SBC Medical Group Holdings Incorporated | $ | 30,014,455 | $ | 26,645,056 | ||||
| Net income per share attributable to SBC Medical Group Holdings Incorporated** | ||||||||
| Basic and diluted | $ | $ | ||||||
| Weighted average shares outstanding** | ||||||||
| Basic and diluted | ||||||||
| ** | Retrospectively restated for effect of reverse recapitalization on September 17, 2024. |
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
| 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, 2022, previously reported | 1 | $ | $ | 26,624,694 | $ | $ | 103,478,696 | $ | (24,853,275 | ) | $ | 105,250,115 | $ | 2,599,968 | $ | 107,850,083 | ||||||||||||||||||||||||
| Effect of reverse recapitalization | 11 | — | ||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022, restated | 12 | 26,624,694 | 103,478,696 | (24,853,275 | ) | 105,250,115 | 2,599,968 | 107,850,083 | ||||||||||||||||||||||||||||||||
| Issuance of common stock* | 94,192,421 | 9,419 | (8,614 | ) | — | 805 | 805 | |||||||||||||||||||||||||||||||||
| Net income | — | — | 39,370,036 | 39,370,036 | (809,430 | ) | 38,560,606 | |||||||||||||||||||||||||||||||||
| Reclassification of unrealized gain on available-for-sale debt security to net income when realized, net of tax effect of $3,869 | — | — | (8,760 | ) | (8,760 | ) | (8,760 | ) | ||||||||||||||||||||||||||||||||
| Deemed contribution in connection with disposal of property and equipment | — | 9,620,453 | — | 9,620,453 | 9,620,453 | |||||||||||||||||||||||||||||||||||
| Deemed contribution in connection with disposal of reorganization | — | 642,748 | — | 642,748 | 642,748 | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | (12,716,220 | ) | (12,716,220 | ) | (139,466 | ) | (12,855,686 | ) | ||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | 94,192,433 | 9,419 | 36,879,281 | 142,848,732 | (37,578,255 | ) | 142,159,177 | 1,651,072 | 143,810,249 | |||||||||||||||||||||||||||||||
| Disposal of subsidiary | — | — | (1,221,795 | ) | (1,221,795 | ) | ||||||||||||||||||||||||||||||||||
| Reverse recapitalization, net of transaction costs | 5,080,820 | 508 | 8,407,380 | — | 8,407,888 | 8,407,888 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock to settle convertible note | 270,000 | 27 | 2,699,973 | (270,000 | ) | (2,700,000 | ) | |||||||||||||||||||||||||||||||||
| Issuance of common stock as incentive shares | 339,565 | 34 | (34 | ) | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | 13,022,692 | — | 13,022,692 | 13,022,692 | |||||||||||||||||||||||||||||||||||
| Issuance of common stock from exercise of stock warrants | 3,137,998 | 314 | 31,060 | — | 31,374 | 31,374 | ||||||||||||||||||||||||||||||||||
| Deemed contribution in connection with disposal of subsidiaries | — | 1,473,571 | — | 1,473,571 | (634,106 | ) | 839,465 | |||||||||||||||||||||||||||||||||
| Net income | — | — | 46,614,275 | 46,614,275 | 75,617 | 46,689,892 | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | (16,599,820 | ) | (16,599,820 | ) | 42,213 | (16,557,607 | ) | |||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||
| * | Retrospectively restated for effect of share issuances on September 8, 2023. |
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 46,689,892 | $ | 38,560,606 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization expense | 3,799,377 | 12,246,942 | ||||||
| Non-cash lease expense | 3,870,198 | 3,297,824 | ||||||
| Provision for (reversal of) credit losses | (402,196 | ) | 370,754 | |||||
| Stock-based compensation | 13,022,692 | |||||||
| Impairment loss on property and equipment | 204,026 | |||||||
| Impairment loss on intangible asset | 15,058,965 | |||||||
| Impairment loss on long-term investment | 529,596 | |||||||
| Realized gain on short-term investments | (223,164 | ) | ||||||
| Fair value change of long-term investments | 2,617,435 | |||||||
| Gain on disposal of subsidiary | (3,813,609 | ) | ||||||
| Loss (gain) on disposal of property and equipment and intangible assets | 511,947 | (249,532 | ) | |||||
| Deferred income taxes | (14,417,087 | ) | 4,113,395 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (733,219 | ) | (596,069 | ) | ||||
| Accounts receivable – related parties | 1,350,413 | (22,402,301 | ) | |||||
| Inventories | 1,124,805 | (1,825,942 | ) | |||||
| Finance lease receivables – related parties | (5,991,486 | ) | 16,575,319 | |||||
| Customer loans receivable | 18,477,327 | 413,867 | ||||||
| Prepaid expenses and other current assets | (2,268,209 | ) | 4,102,808 | |||||
| Long-term prepayments | 1,910,274 | (3,539,280 | ) | |||||
| Other assets | (1,692,642 | ) | (1,328,682 | ) | ||||
| Accounts payable | (9,588,067 | ) | 12,201,755 | |||||
| Accounts payable – related party | 682,320 | |||||||
| Notes payable – related parties | (34,756,754 | ) | (23,816 | ) | ||||
| Advances from customers | (1,476,240 | ) | 461,043 | |||||
| Advances from customers – related parties | (9,144,031 | ) | (4,264,184 | ) | ||||
| Income tax payable | 11,228,429 | 13,359,434 | ||||||
| Operating lease liabilities | (3,950,587 | ) | (3,158,619 | ) | ||||
| Accrued liabilities and other current liabilities | (12,096,825 | ) | 4,452,022 | |||||
| Accrued retirement compensation expense – related party | (22,082,643 | ) | ||||||
| Other liabilities | 40,215 | 4,759 | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 20,582,933 | 50,670,322 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | (2,564,643 | ) | (8,543,351 | ) | ||||
| Purchase of intangible assets | (1,683,030 | ) | ||||||
| Purchase of convertible note | (1,700,000 | ) | (1,000,000 | ) | ||||
| Prepayments for property and equipment | (843,740 | ) | (981,567 | ) | ||||
| Advances to related parties | (622,804 | ) | (2,283,020 | ) | ||||
| Payments made on behalf of a related party | (5,572,564 | ) | ||||||
| Purchase of short-term investments | (2,106,720 | ) | ||||||
| Purchase of long-term investments | (331,496 | ) | ||||||
| Long-term investments in MCs – related parties | (26,780 | ) | ||||||
| Cash received (paid) for acquisition of subsidiaries, net of cash acquired | (4,236,009 | ) | 722,551 | |||||
| Long-term loans to others | (172,411 | ) | (926,020 | ) | ||||
| Repayments from related parties | 6,597,564 | 1,912,266 | ||||||
| Repayments from others | 176,109 | 581,274 | ||||||
| Proceeds from sales of short-term investments | 4,127,261 | |||||||
| Proceeds from surrender of life insurance policies | 3,954,760 | |||||||
| Disposal of subsidiaries, net of cash disposed of | (832,416 | ) | ||||||
| Proceeds from disposal of property and equipment | 8,046,007 | |||||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (10,102,410 | ) | 1,793,631 | |||||
| F-7 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Borrowings from a long-term loan | 6,603,253 | |||||||
| Borrowings from related parties | 5,481,787 | 12,310,106 | ||||||
| Proceeds from reverse recapitalization, net of transaction costs | 11,707,417 | |||||||
| Proceeds from issuance of common stock | 10 | |||||||
| Proceeds from exercise of stock warrants | 31,374 | |||||||
| Repayments of long-term loans | (119,017 | ) | (8,730,942 | ) | ||||
| Repayments to related parties | (739,414 | ) | (7,707,007 | ) | ||||
| Deemed contribution in connection with disposal of property and equipment | 9,620,453 | |||||||
| Deemed contribution in connection with reorganization | 642,748 | |||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 22,965,400 | 6,135,368 | ||||||
| Effect of changes in foreign currency exchange rate | (11,424,763 | ) | (7,314,383 | ) | ||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 22,021,160 | 51,284,938 | ||||||
| CASH AND CASH EQUIVALENTS AS OF THE BEGINNING OF THE YEAR | 103,022,932 | 51,737,994 | ||||||
| CASH AND CASH EQUIVALENTS AS OF THE END OF THE YEAR | $ | 125,044,092 | $ | 103,022,932 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest expense | $ | 28,300 | $ | 45,292 | ||||
| Net cash paid for income taxes | $ | 30,239,002 | $ | 17,842,407 | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Property and equipment transferred from long-term prepayments | $ | 597,602 | $ | 7,681,830 | ||||
| An intangible asset transferred from long-term prepayments | $ | $ | 17,666,115 | |||||
| Deemed contribution in connection with disposal of subsidiaries | $ | 1,473,571 | $ | |||||
| Settlement of loan payable to a related party in connection with disposal of property and equipment | $ | $ | 4,163,604 | |||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | 2,305,199 | |||||
| Remeasurement of operating lease liabilities and right-of-use assets due to lease modifications | $ | 2,908,554 | $ | 2,110,079 | ||||
| Issuance of common stock from conversion of convertible note | $ | 2,700,000 | $ | |||||
| Settlement of loan payable to a related party in connection with issuance of common stock | $ | $ | 795 | |||||
| Non-cash purchase consideration for an asset acquisition | $ | $ | 705,528 | |||||
| Issuance of promissory notes to related parties in connection with loan services provided | $ | 20,524,499 | $ | 15,396,709 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-8 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS
Business Overview
SBC Medical Group Holdings Incorporated (“SBC Holding”) was originally incorporated under the laws of the state of Delaware on March 11, 2022 as a special purpose acquisition corporation under the name Pono Two Capital, Inc. (“Pono”) for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
SBC Medical Group, Inc. (formerly known as SBC Medical Group Holdings Incorporated, “SBC USA”, “Legacy SBC”), through its consolidated subsidiaries and variable interest entity (“VIE”), is principally engaged in medical industry to provide comprehensive management services to the medical corporations and their clinics, including but not limited to licensure of the use of the trademark and brand name of “Shonan Beauty Clinic”, sales of medical equipment, medical consumables procurement services, and management of customer’s loyalty program, etc.
Reverse Recapitalization
On September 17, 2024, Pono consummated the merger transaction pursuant to the agreement by and among Pono, Pono Two Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of Pono, and SBC USA (the “Merger Agreement”), whereby Merger Sub merged with and into SBC USA, the separate corporation existence of Merger Sub ceased and SBC USA survived the merger as a wholly owned subsidiary of Pono (“Pono Merger”). In connection with the consummation of Pono Merger, Pono changed its name to “SBC Medical Group Holdings Incorporated” and SBC USA changed its name to “SBC Medical Group, Inc.” and, among other transactions contemplated by the Merger Agreement, the existing equity holders of SBC USA exchanged their equity interests of SBC USA for equity interests of Pono.
On September 17, 2024, the Company received net cash of $11,707,417 from Pono Merger. The Company also assumed $416,799 in prepaid expenses and other current assets, $1,108 in accounts payable, $14,431 in income tax payable, $2,700,000 in convertible note payable, which was subsequently converted to shares upon the consummation of Pono Merger, $1,000,789 in accrued liabilities and other current liabilities, common stock of $508 and additional paid-in capital of $8,407,380.
The total funds from Pono Merger of $11,707,417 were available to repay certain indebtedness, transaction costs and for general corporate purposes, which primarily consisted of investment banking, legal, accounting, and other professional fees as follows:
| Cash—Pono working capital cash | $ | 766,735 | ||
| Cash—Pono trust | 16,731,409 | |||
| Less: transaction costs and advisory fees | 5,790,727 | |||
| Net proceeds from Pono Merger | $ | 11,707,417 |
Pono Merger was accounted for as a reverse recapitalization under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). SBC USA was determined to be the accounting acquirer and Pono was treated as the acquired company for financial reporting purposes. Accordingly, the financial statements of the combined company represent a continuation of the financial statements of SBC USA.
Unless the context indicates otherwise, any references herein to the “Company”, “we”, “us” and “our” refer to 1) SBC USA and its consolidated subsidiaries and VIE prior to the consummation of Pono Merger and to 2) SBC Holding and its consolidated subsidiaries and VIE following Pono Merger; and reference herein to “Pono” refers to SBC Holding prior to the consummation of Pono Merger.
Reorganization
In June 2020 and April 2022, SBC Inc., a company incorporated in Japan in June 2007, and Advice Innovation Co., Ltd., a company incorporated in Japan in December 2018, were merged with and into SBC Medical Group Co., Ltd. (“SBC Japan”), respectively, with SBC Japan being the surviving entity in such mergers. SBC Japan is a company incorporated in Japan in September 2017 and previously known as Aikawa Medical Management Co., Ltd.
In April 2023, SBC Japan acquired 100% equity interest of L’Ange Cosmetique Co., Ltd. (“L’Ange Sub”), a company incorporated in Japan in June 2003, and Shobikai Co., Ltd. (“Shobikai Sub”), a company incorporated in Japan in June 2014, through share exchange. As a result, L’Ange Sub and Shobikai Sub become wholly owned subsidiaries of SBC Japan.
In August 2023, SBC Japan and L’Ange Sub disposed of their entire equity interest in Ai Inc. and Lange Inc., respectively, both incorporated in the Federated States of Micronesia in January 2022, for cash. As a result, Ai Inc. and Lange Inc. cease to be subsidiaries of the Company, with the related investment in capital being treated as a deemed distribution and the disposal proceeds treated as a deemed contribution.
In September 2023, SBC USA acquired 100% equity interest of SBC Japan through share exchange with one share of its common stock. As a result, SBC Japan becomes a wholly owned subsidiary of SBC USA.
The above reorganization has been accounted for as a recapitalization among entities under common control since the same controlling shareholder controlled these entities before and after the reorganization. The consolidation of the Company has been accounted for at historical cost and prepared on the basis as if the transactions had become effective as of the beginning of the earliest period presented in the accompanying consolidated financial statements.
| F-9 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS (cont.)
Corporate Structure
As of December 31, 2024, the Company’s major subsidiaries and VIE are as follows:
| Name | Place
of Incorporation | Date
of Incorporation or Acquisition | Percentage Ownership | Principal Activities | ||||||
| SBC Medical Group, Inc. | United States | January 20, 2023 | 100 | % | Investment holding | |||||
| SBC Medical Group Co., Ltd. | Japan | September 29, 2017 | 100 | % | Franchising, procurement and management services for the medical corporations | |||||
| L’Ange Cosmetique Co., Ltd. | Japan | June 18, 2003 | 100 | % | Management and rental services for the medical corporations | |||||
| Shobikai Co., Ltd. | Japan | June 4, 2014 | 100 | % | Procurement, management and rental services for the medical corporations | |||||
| Liesta Co., Ltd. | Japan | December 15, 2020 | 100 | % | Real estate brokerage services | |||||
| SBC Sealane Co., Ltd. | Japan | June 7, 2022 | 100 | % | Construction services | |||||
| SBC Marketing Co., Ltd. | Japan | June 30, 2022 | 100 | % | Marketing services | |||||
| Medical Payment Co., Ltd. | Japan | June 30, 2022 | 75 | % | Loan services | |||||
| SBC Medical Consulting Co., Ltd. | Japan | August 2, 2022 | 100 | % | Human resource services | |||||
| Shoubikai Medical Vietnam Co., Ltd. | Vietnam | August 29, 2013 | 100 | % | Cosmetic clinic | |||||
| SBC Healthcare Inc. | United States | December 16, 2019 | 100 | % | Management services for cosmetic clinic in the United States | |||||
| SBC Irvine, LLC * | United States | December 27, 2018 | 100 | % | Management services for cosmetic clinic in the United States | |||||
| Aesthetic Healthcare Holdings Pte. Ltd. | Singapore | November 20, 2024 | 100 | % | Investment holding | |||||
| Wen & Weng Family Clinic Pte. Ltd.** | Singapore | November 20, 2024 | 100 | % | General outpatient medical services | |||||
| Wen & Weng Medical Group Pte. Ltd.** | Singapore | November 20, 2024 | 100 | % | Healthcare-related businesses | |||||
| Rochor Clinic Pte. Ltd.** | Singapore | November 20, 2024 | 100 | % | General outpatient medical services | |||||
| Dermasolutions Pte. Ltd.** | Singapore | November 20, 2024 | 100 | % | Cosmetic and dermatological treatments and products | |||||
| Dermasolutions Services Pte. Ltd.** | Singapore | November 20, 2024 | 100 | % | Cosmetic services and products | |||||
| Aikawa Medical Management, Inc. | United States | May 10, 2017 | VIE | Management services for cosmetic clinic in the United States | ||||||
| * | A subsidiary of SBC Healthcare Inc. |
| ** | Subsidiaries of Aesthetic Healthcare Holdings Pte. Ltd. (“AHH”) |
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Principles of Consolidation
The accompanying 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 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 continues to be consolidated until the date that such control ceases. All significant transactions and balances among the Company’s subsidiaries, including the VIE, have been eliminated upon consolidation.
The Company reports AHH and its subsidiaries on a three-month calendar lag allowing for the timely preparation of financial statements. This three-month reporting lag is with the exception of significant transactions or events that occur during the intervening period, if any.
Variable Interest Entities
In accordance with ASC Topic 810, “Consolidation”, the Company identifies its variable interests and analyzes to determine if the entity in which the Company has a variable interest is a VIE. Determination if a variable interest is a VIE includes both quantitative and qualitative consideration. For those entities determined to be VIEs within the scope of the VIE model, a further quantitative and qualitative analysis is performed to determine if the Company is deemed the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant.
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.
| F-10 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company evaluates its relationship with its VIE on an ongoing basis to determine whether it continues to be the primary beneficiary of its consolidated VIE, or whether it has become the primary beneficiary of the VIE it does not consolidate.
Voting Model
If a legal entity fails to meet any of the three characteristics of a VIE, we then evaluate such entity under the voting model. Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting rights and that other equity holders do not have substantive participating rights.
Assessment of Medical Corporations in Japan
SBC Japan, L’Ange Sub and Shobikai Sub are each 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 and to secure the source of revenues from the MCs, the Company 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 MSCs, has no right to elect the Members, no decision-making ability and no right to dividend or any profit distribution, but has the right to receive distribution of the residual assets of the MCs.
Since the not-for-profit entities scope exception to the variable interest model is applicable to the MCs, the Company evaluates its business relationship, franchisor-franchisee agreements and/or services agreements with the MCs in Japan under the voting model. The Company has concluded that consolidation of the MCs is not appropriate for the periods presented as it does not have a majority voting interest in the Members of the MCs nor does it have a controlling financial interest in the MCs. The equity interests in the MCs held by the Company are recorded as long-term investments in MCs — related parties on the consolidated balance sheets. The transactions between the Company and the MCs are disclosed in Note 18 Related Party Transactions.
(b) Foreign Currency
The Company maintains its books and record in its local currency, 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 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 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:
December 31, 2024 | December 31, 2023 | |||||||
| Current JPY: US$1 exchange rate | 156.7890 | 141.0350 | ||||||
| Average JPY: US$1 exchange rate | 151.4405 | 140.5261 | ||||||
| F-11 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(c) Non-controlling Interests
Non-controlling interests in the 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 statements of operations.
(d) Use of Estimates
In preparing the 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 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 of stock-based compensation, 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 leases, valuation of intangible assets acquired in a business combination. 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) Business Combinations and Asset Acquisitions
Business combinations are recorded using the acquisition method of accounting. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible assets acquired and non-controlling interest, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred. Consideration transferred in a business acquisition is measured at the fair value as of the date of acquisition. Transaction costs directly attributable to the acquisition are expensed as incurred.
If investment involves the acquisition of an asset or group of assets that does not meet the definition of a business, the transaction is accounted for as an asset acquisition. An asset acquisition is recorded at cost, which includes capitalized transaction costs, and does not result in the recognition of goodwill. The cost of the acquisition is allocated to the assets acquired on the basis of relative fair values.
Fair value is determined based upon the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, and generally are determined using Level 2 inputs and Level 3 inputs. The determination of fair value involves the use of significant judgment and estimates. The Company utilizes the assistance of a third-party appraiser to determine the fair value as of the date of an acquisition.
In a business combination or asset acquisition, the Company may recognize identifiable intangibles that meet either or both the contractual legal criterion or the separability criterion.
(f) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and deposits in banks and other financial institutions that are unrestricted as to withdrawal or use, and which have original maturities of three months or less. The Company maintains bank accounts in the United States, Japan, Singapore and Vietnam.
(g) Accounts Receivable
Accounts receivable represent the Company’s right to an amount of consideration that is unconditional (only the passage of time is required before payment of the consideration is due). The Company’s accounts receivable balances are unsecured, bear no interest and are due upon normally within a year from the date of the sale.
| F-12 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company adopted Accounting Standards Updates (“ASU”) No. 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments on January 1, 2021.
The allowance for credit losses reflects the Company’s current estimate of credit losses expected to be incurred over the life of the receivables. The Company considers various factors in establishing, monitoring, and adjusting its allowance for credit losses including the aging of receivables and aging trends, customer creditworthiness and specific exposures related to particular customers. The Company also monitors other risk factors and forward-looking information, such as country specific risks and economic factors that may affect a customer’s ability to pay in establishing and adjusting its allowance for credit losses. Accounts receivable balances are written off after all collection efforts have ceased.
(h) Inventories
Inventories, mainly consist of medical supplies, beauty and skincare products and PC equipment, are stated at the lower of cost or estimated net realizable value, with cost computed on the first-in, first-out (“FIFO”) basis. The Company records inventory reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. Inventory reserves are recorded based on inventory obsolescence trends, historical experience and application of the specific identification method, if any.
(i) Finance Lease Receivables
Finance lease receivables, which result from sales-type leases, are measured at the discounted present value of (i) future minimum lease payments, (ii) any residual value not subject to a bargain purchase option, as finance lease receivables on its consolidated balance sheets, and (iii) accrued interest on the balance of the finance lease receivables based on the interest rate inherent in the applicable lease over the term of the leases.
Management periodically evaluates individual customer’s financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Finance lease receivables are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2024 and 2023, the Company determined no allowance for doubtful accounts was necessary for finance lease receivables.
(j) Customer Loans Receivable and Note Payables — Related Parties
In February 2023, the Company started to provide loan services to certain customers of the related-party MCs (“End Customers”). When a loan is granted to finance an End Customer’s purchase, the Company issues a promissory note to the MC to pay off the purchase transaction on behalf of the End Customer, and the End Customer is required to repay the Company in monthly installments. The loans provided to the End Customers are unsecured, interest-bearing, and due in three months to five years, depending on the End Customers’ choice of the loan service term.
The Company records the customer loans receivables at gross loan receivables less unamortized costs of issuance fees or discounts, which are amortized over the life of the loan to interest income. During the years ended December 31, 2024 and 2023, the Company generated interest income of $1,075,094 and $112,619, respectively, from the loan services, which were included in revenues.
| F-13 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Management periodically evaluates individual End Customer’s financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Customer loans receivable is charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. During the years ended December 31, 2024 and 2023, the Company recorded $169,968 and allowance for doubtful accounts, respectively, for customer loans receivable.
The Company repays each promissory note issued to the MCs when the End Customer fully repays the corresponding loan receivable or at an earlier date agreed by the parties. The promissory notes are unsecured, bear no interest, and are due in three months to five years, depending on the term of the loans provided to the corresponding End Customers.
(k) Property and Equipment, Net
Property and equipment are measured using the cost model and are stated at cost less accumulated depreciation. Acquisition cost includes mainly the costs directly attributable to the acquisition. Depreciation is calculated using the straight-line and declining methods over the following estimated useful lives:
| Depreciation Method | Useful Life | |||
| Land | Not depreciated | — | ||
| Buildings and facilities attached to buildings | Straight-line method | 3 – 47 years | ||
| Machinery, equipment and automobiles | Declining balance method | 2 – 15 years | ||
| Aircraft | Declining balance method | 2 – 8 years | ||
| Software* | Straight-line method | 5 years |
| * | Represents software that is non-detachable to the hardware. |
The costs incurred for assets that were still under construction as of the year-end were reported as construction in progress. No provision for depreciation is made on the assets under construction until such time as the relevant assets are completed and ready for their intended use.
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value of the item disposed and proceeds realized thereon.
(l) 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 combination 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 economic useful lives of the respective assets.
The estimated useful lives of intangible assets are as follows:
| Useful Life | ||
| Patent use right | 16 years | |
| Trademarks | 20 years | |
| Customer Relationships | 3 – 4 years | |
| Others | 3 years |
| F-14 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(m) 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.
(n) Impairment of Long-lived Assets Other Than Goodwill
Long-lived assets with finite lives, primarily property and equipment, intangible assets, and operating 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.
(o) Long-term Investments, Net
Investments in equity securities with readily determinable fair values
The Company holds investments in equity securities of publicly listed companies, for which the Company does not have significant influence. Investments in equity securities with readily determinable fair values are measured at fair value and any changes in fair value are recognized in other income (expenses).
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 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.
(p) Long-term Prepayments
Long-term prepayments consist primarily of prepayments made for purchasing property and equipment, cloud-based services, and deferred consumption tax.
(q) 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.
| F-15 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 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.
(r) Corporate-owned Life Insurance Policies
The Company has purchased corporate-owned life insurance policies to insure its CEO and a key officer of the Company. Management considers these policies to be operating assets. These insurance policies are recorded at their cash surrender values, included in other assets in the consolidated balance sheets with change in cash surrender value during the period recorded in selling, general and administrative expenses.
(s) Lease
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 sale-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.
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.
| F-16 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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. Amounts received currently but recognized as revenue in future periods are classified in other liabilities in the Company’s 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.
(t) 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”.
| F-17 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
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 (royalty income) by licensing its intellectual properties, including but not limited to the Company’s brand name (“Shonan Beauty Clinic”), trade name, patents, and trademarks, as a franchisor pursuant to franchise agreements with the medical corporations (the “MCs”) in Japan. Prior to April 2023, royalty income was based on a percentage of sales and recognized at the time when the related sales occurred; since April 2023, it is based on a fixed amount to each clinic of the MCs; since September 2023, it is based on a fixed amount to each MC and a fixed amount to each clinic of the MCs and 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 and will return the over-collection resulting from such discounts to MCs.
Management Services Revenue
The Company provides loyalty program management services, labor supporting services, function supporting services, and management consulting services to MCs.
Loyalty program management services
The Company awards loyalty points on behalf of MCs to MCs’ customers, who earn loyalty points from each qualified purchase made at the loyalty program participating clinics of MCs, in exchange for a handling fee. The revenue is based on a percentage of the related payment amount made by MCs’ customers and is recognized when the loyalty points are awarded.
At the time loyalty points are awarded, a MC pays the Company cash in an amount equivalent to the awarded loyalty points, which is recorded as advances from customers. When a MC’s customers redeem the loyalty points, the Company returns the cash back to the MC in an amount equivalent to the redeemed loyalty points. The awarded loyalty points expire if a MC’s customer does not make any additional qualified purchase at a participating clinic within a year. The Company accumulates and tracks the points on behalf of MCs until the loyalty points expire, at which time the Company recognizes an amount equivalent to the expired loyalty points as revenue, which is normally not significant.
| F-18 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company also awards certain points to MCs’ customers on behalf of MCs for free in order to increase the volume of MC’s sales, from which the Company earns other types of revenues, such as royalty income. When a MC’s customers redeem such points, the Company reimburses MC in an amount equivalent to the used free points and records it as a reduction of the revenue recognized.
The Company is an agent in the management of loyalty programs, and as a result, revenues are recognized net of the cost of redemptions.
Labor supporting services
The Company generates revenue by dispatching staff to MCs to provide a range of services, primarily including clinic operation, IT, and administrative services, among which, clinic operation service has been fully terminated since October 2024. The Company recognizes the revenue over the time when services are rendered.
Function supporting services
The revenue is derived from providing functional supporting services to MCs, such as accounting and human resources services. The Company recognizes the revenue over the time when services are rendered.
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 straight-line basis over the terms of the lease agreements and sales-type leases revenue is generally recognized on the lease commitment date. Also see Note 2(s).
Other Revenues
The Company generates other miscellaneous revenues such as accommodation services income, medicine dispensed sales revenue, brokerage services revenue, construction services revenue, pilot training services revenue, interest income, etc. These revenues are recognized when the Company satisfies performance obligations.
(u) Cost of Revenues
Cost of revenues primarily consists of costs of goods sold associated with sales-type leases, rent expenses associated with operating subleases, salaries and related expenses for personnel directly involved in delivery of services to customers, and allocation of indirect costs such as corporate overhead.
(v) 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 $2,782,944 and $3,367,608 for the years ended December 31, 2024 and 2023, respectively.
| F-19 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(w) Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable 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 year ended December 31, 2024, customer A, B and C represent 26%, 23% and 23% of the Company’s total revenues, respectively. For the year ended December 31, 2023, customer A, B, C and D represent 29%, 24%, 23% and 11% of the Company’s total revenues, respectively.
As of December 31, 2024, customer A, B, C and D represent 17%, 28%, 26% and 10% of the Company’s total outstanding accounts receivable, respectively. As of December 31, 2023, customer A, B, C and D represent 26%, 24%, 22% and 13% of the Company’s total outstanding accounts receivable, respectively.
For the year ended December 31, 2024, no vendor accounts for more than 10% of the Company’s total purchase. For the year ended December 31, 2023, vendor A and B represent 14% and 12% of the Company’s total purchase, respectively.
As of December 31, 2024, vendor A and B represent 12% and 15% of the Company’s total outstanding accounts payable, respectively. As of December 31, 2023, vendor A, B and C represent 19%, 14% and 14% of the Company’s total outstanding accounts payable, respectively.
(x) 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.
(y) Comprehensive Income or Loss
ASC Topic 220, “Comprehensive Income,” establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in stockholders’ equity during a period from non-owner sources.
Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted net income per share reflects the potential dilution that could occur if stock options and other commitments to issue common shares were exercised or equity awards vest resulting in the issuance of common shares that could share in the net income of the Company.
(aa) Stock Based Compensation
The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation — Stock Compensation”, under which the Company determines whether stock-based compensation awards should be classified and accounted for as an equity award. There were no liability awards granted during any of the periods stated herein. For all grants of stock-based compensation classified as equity awards, the cost of services received from employees and non-employees in exchange for awards is recognized in the consolidated statements of operations and comprehensive income based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures and cancellations as they occur.
| F-20 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(bb) 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.
(cc) Income Taxes
Income taxes are accounted for using an asset and liability method in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income.
| F-21 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(dd) 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 December 31, 2024 and 2023, the carrying values of current assets and current liabilities approximated their fair values reported in the consolidated balance sheets due to the short-term maturities of these instruments. Debt that bears variable interest rates index to prime also approximates fair value as it reprices when market interest rates change.
Assets measured at fair value on a recurring basis as of December 31, 2024 and 2023 are summarized below.
| Fair Value Measurements as of December 31, 2024 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Fair Value at December 31, 2024 | |||||||||||||
| Long-term investments: | ||||||||||||||||
| Equity investments at fair value with readily determinable fair value | $ | 2,478,531 | $ | 2,478,531 | ||||||||||||
| Fair Value Measurements as of December 31, 2023 | ||||||||||||||||
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, 2023 | |||||||||||||
| Long-term investments: | ||||||||||||||||
| Equity investments at fair value with readily determinable fair value | ||||||||||||||||
(ee) Commitments and Contingences
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
(ff) Recent Accounting Pronouncements
In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU No. 2023-09 is effective for public entities for annual reporting periods beginning after December 15, 2023, on a retrospective basis. Early adoption is permitted. The Company adopted this standard on December 31, 2024. See Note 20 for relevant segment disclosures.
| F-22 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvement to Income Tax Disclosures” to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024, on a prospective basis. Early adoption is permitted. In addition, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2023-09. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.
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” to improve disclosures about the nature of expenses in commonly presented financial statement captions. ASU 2024-03 is effective for all public business entities for annual reporting periods beginning after December 15, 2026, on either a prospective or retrospective basis. Early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.
NOTE 3 — VARIABLE INTEREST ENTITY
A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE.
The Company followed ASC Topic 810, “Consolidation”, utilizing a qualitative approach, and determined that it is the primary beneficiary of its VIE, Aikawa Medical Management, Inc. (“AMM”) and consolidated the result of operations, financial conditions, and cash flows of AMM in the consolidated financial statements.
The following amounts and balances of AMM were included in the Company’s consolidated financial statements of December 31, 2024 and 2023 and for the years then ended:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 41,247 | $ | 28,934 | ||||
| Accounts receivable | 20,076 | 26,916 | ||||||
| Prepaid expenses and other current assets | 32,493 | 11,074 | ||||||
| Total Current Assets | 93,816 | 66,924 | ||||||
| Property and equipment, net | 1,799,372 | 1,799,372 | ||||||
| Loans receivable from subsidiaries of the Company | 3,122,157 | 3,060,581 | ||||||
| Other assets | 2,275 | 2,275 | ||||||
| Total Non-Current Assets | 4,923,804 | 4,862,228 | ||||||
| Total Assets | $ | 5,017,620 | $ | 4,929,152 | ||||
| LIABILITIES | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 18,904 | $ | 17,942 | ||||
| Accrued liabilities and other current liabilities | 17,824 | 17,824 | ||||||
| Due to related party | 2,797,018 | 2,875,408 | ||||||
| Total Current Liabilities | 2,833,746 | 2,911,174 | ||||||
| Loan payable to a subsidiary of the Company | 8,245,328 | 9,157,660 | ||||||
| Total Non-current Liabilities | 8,245,328 | 9,157,660 | ||||||
| Total Liabilities | $ | 11,079,074 | $ | 12,068,834 | ||||
| F-23 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — VARIABLE INTEREST ENTITY (cont.)
For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | 269,800 | $ | 163,146 | ||||
| Cost of revenues | $ | 56,510 | $ | 61,647 | ||||
| Total operating expenses | $ | 402,397 | $ | 128,549 | ||||
| Net loss | $ | (47,782 | ) | $ | (27,050 | ) | ||
| Net cash provided by (used in) operating activities | $ | (182,991 | ) | $ | 202,624 | |||
| Net cash provided by (used in) investing activities | $ | 195,000 | $ | (90,000 | ) | |||
| Net cash used in financing activities | $ | (78,390 | ) | $ | (158,714 | ) | ||
NOTE 4 — BUSINESS COMBINATION AND ASSET ACQUISITION
Business Combination and Goodwill
The Company accounted for business combination using the acquisition method of accounting under ASC Topic 805. The total purchase price was allocated to the tangible and identifiable intangible assets acquired, liabilities assumed and non-controlling interest based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill.
The determination of fair values involves the use of significant judgments and estimates. The judgments used to determine the estimated fair value assigned to assets acquired and liabilities assumed, and the intangible asset useful lives, as well as the expected future revenue from the identifiable intangible assets and related discount rates, can materially impact the Company’s consolidated financial statements. Significant inputs and assumptions used for the model included the amount and timing of expected future revenues and discount rates.
Aesthetic Healthcare Holdings Pte. Ltd.
On November 20, 2024, the Company acquired 100% equity interest in Aesthetic Healthcare Holdings Pte. Ltd. (“AHH”) and its subsidiaries, which operate medical aesthetics clinics in Singapore, with a cash consideration of 7.80 million Singapore Dollars ($5,725,590). The Company aimed to enter the medical aesthetics industry in the Singaporean market through this acquisition.
The purchase price allocation was determined by the Company with assistance of a third-party valuation. The purchase price was allocated on the acquisition date as follows:
| Cash and cash equivalents | $ | 1,489,581 | ||
| Inventories | 259,086 | |||
| Prepaid expense and other current assets | 114,379 | |||
| Property and equipment, net | 650,119 | |||
| Intangible assets, net | 1,534,349 | |||
| Operating lease right-of-use assets | 1,187,640 | |||
| Long-term prepayments | 398,834 | |||
| Other assets | 352,802 | |||
| Accounts payable | (399,037 | ) | ||
| Accrued liabilities and other current liabilities | (354,557 | ) | ||
| Advance from customers | (726,857 | ) | ||
| Operating lease liabilities, current | (832,314 | ) | ||
| Current portion of long-term loans | (35,742 | ) | ||
| Income tax payable | (47,229 | ) | ||
| Deferred tax liabilities | (345,269 | ) | ||
| Operating lease liabilities, non-current | (405,107 | ) | ||
| Other liabilities | (269,155 | ) | ||
| Total identifiable net assets | 2,571,523 | |||
| Goodwill | 3,154,067 | |||
| Total purchase consideration | $ | 5,725,590 |
The intangible assets identified in conjunction with the acquisition of AHH primarily consist of trademarks, which will be amortized over a useful life of twenty years on a straight-line basis.
| F-24 |
Pro forma results of operations for the business combination have not been presented because they are not material to the consolidated statements of operations and comprehensive income for the years ended December 31, 2024 and 2023.
The Company consolidates AHH and its subsidiaries’ financial information on a three-month reporting lag. Accordingly, given the acquisition closing date of November 20, 2024, the operating results of AHH for the period subsequent to the acquisition date will be recorded in the Company’s consolidated financial statements beginning 2025.
The Company’s policy is to perform its annual impairment testing on goodwill for its reporting unit at the end of each fiscal year or more frequently if events or changes in circumstances indicate that an impairment may exist. The Company did not recognize any impairment loss on goodwill during the years ended December 31, 2024 and 2023.
Asset Acquisition
The following acquisition did not meet the definition of a business combination under ASC Topic 805, so the Company accounted for the transaction as asset acquisition. In an asset acquisition, goodwill is not recognized, but rather any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets. In addition, related transaction expenses are capitalized and allocated to the net assets acquired on a relative fair value basis.
Kijimadairakanko Inc.
On April 3, 2023, the Company acquired 100% equity interest of Kijimadairakanko Inc. (“Kijima”), a company operating ski resorts and tourism-related business, with a cash consideration of JPY1,026,152 ($7,029). Meanwhile, the Company’s preexisting loans of JPY103,000,000 ($705,528) to Kijima were considered effectively settled upon the acquisition. The settlement amount was included in the total purchase consideration summarized as follows:
| Cash consideration | $ | 7,029 | ||
| Effective settlement of preexisting loans | 705,528 | |||
| Total consideration | $ | 712,557 |
The following table summarizes the amounts for the Kijima acquisition which were allocated to the fair value of aggregated net assets acquired:
| Cash and cash equivalents | $ | 729,580 | ||
| Accounts receivable | 36,389 | |||
| Inventories | 17,636 | |||
| Prepaid expenses and other current assets | 5,717 | |||
| Property and equipment, net | 889,397 | |||
| Other assets | 30,983 | |||
| Accounts payable | (143,340 | ) | ||
| Advances from customers | (647,061 | ) | ||
| Income tax payable | (1,250 | ) | ||
| Long-term loans | (205,494 | ) | ||
| Net assets acquired | $ | 712,557 |
The assets in the purchase price allocation are stated at fair value based on estimates of fair value using available information and making assumptions management believes are reasonable.
The results of operations, financial position and cash flows of Kijima have been included in the Company’s consolidated financial statements since the date of acquisition.
| F-25 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 — DISPOSAL OF SUBSIDIARIES
Cellpro Japan Co., Ltd.
On January 1, 2024, the Company disposed of its subsidiary, Cellpro Japan Co., Ltd. (“Cellpro”), to Waqoo Inc. (“Waqoo”), a Japanese company listed on the Tokyo Stock Exchange, of which the CEO of the Company is a non-controlling shareholder with more than 10% ownership interest, in exchange for shares of Waqoo’s common stock through a share exchange agreement. The disposal of Cellpro did not constitute a strategic shift that would have a major effect on the Company’s operations and financial results. As a result, the results of operations for Cellpro were not reported as discontinued operations. During the year ended December 31, 2024, the Company recognized a gain of $3,813,609 on the disposal of Cellpro.
After the stock exchange, SBC Japan became a shareholder with less than 10% ownership interest of Waqoo. The common stock of Waqoo was recorded as an investment in a public entity with readily determinable fair value, which was included in long-term investments. Also see Note 10 for further details.
Kijimadairakanko Inc. and Skynet Academy Co., Ltd.
On December 23, 2024, the Company disposed of its subsidiary, Kijimadairakanko Inc. (“Kijima”) to SBC Inc., formerly known as SBC China Inc., a company controlled by the CEO of the Company, who is also the controlling shareholder of the Company, for a cash consideration of JPY 1. In connection with this transaction, Kijima’s existing loans of JPY826,000,000 ($5,268,227) from SBC Inc. were deemed effectively settled as a result of the disposal. The settlement amount was included in the total disposal consideration summarized as follows:
| Cash consideration | $ | 0 | ||
| Effective settlement of existing loans | 5,268,227 | |||
| Total consideration | $ | 5,268,227 |
On December 23, 2024, the Company disposed of its subsidiary, Skynet Academy Co., Ltd. (“Skynet”), to Hariver Inc., a company controlled by the CEO of the Company, who is also the controlling shareholder of the Company, for a cash consideration of JPY70,000,000 ($446,460).
The consideration received in excess of the net book value of net assets disposed, totaling $1,473,571 for Kijima and Skynet, was included as a deemed contribution in connection with disposal of subsidiaries in the Company’s consolidated statements of changes in stockholders’ equity, including the derecognition of goodwill of $1,724,040. The disposal of Kijima and Skynet did not constitute a strategic shift that would have a major effect on the Company’s operations and financial results. As a result, the results of operations for Kijima and Skynet were not reported as discontinued operations.
NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of December 31, 2024 and 2023, prepaid expenses and other current assets consist of the following:
December 31, 2024 | December 31, 2023 | |||||||
| Advances to suppliers | $ | 9,693,043 | $ | 6,497,608 | ||||
| Convertible note receivable* | 1,000,000 | |||||||
| Other receivables** | 1,558,223 | 2,390,276 | ||||||
| Others | 25,536 | 162,121 | ||||||
| Total | $ | 11,276,802 | $ | 10,050,005 | ||||
| * | In May 2023, the Company purchased from Pono, a special purpose acquisition company, a convertible promissory note (“Pono Promissory Note”) in aggregate principal amount of $1,000,000, which will automatically convert into shares of Class A common stock of Pono at a conversion price of $10.00 per unit immediately prior to the expected Pono Merger. In February 2024, the Company and Pono entered into an Amendment to the Note Purchase Agreement, which increased the principal amount of the convertible promissory note from $1,000,000 to $2,700,000. On September 17, 2024, upon the consummation of Pono Merger, the promissory note was converted into common shares. See Note 16 for further details. |
| ** | Represent a refundable deposit to be returned by a supplier, reimbursement receivables from a business partner, and other miscellaneous receivables. |
| F-26 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — FINANCE LEASE RECEIVABLES
As of December 31, 2024 and 2023, finance lease receivables consist of the following:
December 31, 2024 | December 31, 2023 | |||||||
| Future minimum lease payments receivable | $ | 14,427,511 | $ | 9,586,741 | ||||
| Estimated residual value | ||||||||
| Gross finance lease receivables | 14,427,511 | 9,586,741 | ||||||
| Less: unearned interest income | (37,344 | ) | (22,688 | ) | ||||
| Finance lease receivables | $ | 14,390,167 | $ | 9,564,053 | ||||
| Finance lease receivables, current | $ | 5,992,585 | $ | 6,143,564 | ||||
| Finance lease receivables, non-current | $ | 8,397,582 | $ | 3,420,489 | ||||
As of December 31, 2024, maturities of the Company’s gross finance lease receivables are as follow:
| Years ending December 31, | ||||
| 2025 | $ | 6,000,609 | ||
| 2026 | 5,505,139 | |||
| 2027 | 2,921,763 | |||
| Thereafter | ||||
| Total | $ | 14,427,511 | ||
NOTE 8 — PROPERTY AND EQUIPMENT, NET
As of December 31, 2024 and 2023, property and equipment, net consist of the following:
December 31, 2024 | December 31, 2023 | |||||||
| Land | $ | 2,008,132 | $ | 1,799,443 | ||||
| Buildings and facilities attached to buildings | 5,373,424 | 8,412,348 | ||||||
| Machinery, equipment and automobiles | 4,312,270 | 5,539,542 | ||||||
| Aircraft | 3,510,376 | 4,091,772 | ||||||
| Software | 4,811,260 | 3,778,911 | ||||||
| Construction in progress | 591,306 | |||||||
| Subtotal | 20,015,462 | 24,213,322 | ||||||
| Less: accumulated depreciation | (8,749,391 | ) | (8,231,990 | ) | ||||
| Less: accumulated impairment | (2,494,169 | ) | (2,399,315 | ) | ||||
| Property and equipment, net | $ | 8,771,902 | $ | 13,582,017 | ||||
In August 2023, the Company disposed of certain properties to General Incorporated Association SBC, an entity controlled by the CEO of the Company, who is the sole stockholder of the Company. The payment in excess of the net book value received from General Incorporated Association SBC of $9,620,453 was included as a deemed contribution in connection with disposal of property and equipment in the Company’s consolidated statements of changes in stockholders’ equity.
Depreciation expense was $2,726,348 and $6,586,036 for the years ended December 31, 2024 and 2023, respectively.
The Company recognized an impairment loss of and $204,026, and a gain on disposal of property and equipment of $325,761 and $249,532 for the years ended December 31, 2024 and 2023, respectively.
| F-27 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — INTANGIBLE ASSETS, NET
INTANGIBLE ASSETS, NET
As of December 31, 2024 and 2023, intangible assets, net consist of the following:
December 31, 2024 | December 31, 2023 | |||||||
| Assembled workforce | $ | $ | 8,976,567 | |||||
| Patent use right | 16,582,795 | 18,435,140 | ||||||
| Trademarks | 1,237,820 | |||||||
| Customer Relationships | 192,911 | |||||||
| Others | 159,321 | 212,190 | ||||||
| Subtotal | 18,172,847 | 27,623,897 | ||||||
| Less: accumulated amortization | (2,072,849 | ) | (7,884,621 | ) | ||||
| Less: accumulated impairment | (14,509,946 | ) | ||||||
| Intangible assets, net | $ | 1,590,052 | $ | 19,739,276 | ||||
Amortization expense was $1,073,029 and $5,660,906 for the years ended December 31, 2024 and 2023, respectively.
The Company recognized an impairment loss of $15,058,965 on patent use right for the year ended December 31, 2024.
Estimated future amortization expense related to intangible assets as of December 31, 2024 is as follows:
| For the Years Ended December 31, | Amortization Expenses | |||
| 2025 | $ | 133,945 | ||
| 2026 | 160,734 | |||
| 2027 | 160,734 | |||
| 2028 | 78,365 | |||
| 2029 | 61,891 | |||
| Thereafter | 994,383 | |||
| Total | $ | 1,590,052 | ||
NOTE 10 — LONG-TERM INVESTMENTS, NET
As of December 31, 2024 and 2023, long-term investments, net consist of the following:
December 31, 2024 | December 31, 2023 | |||||||
| Investments in private entities or organizations that do not report NAV per share: | ||||||||
| Entities or organizations without observable price changes | $ | 1,719,770 | $ | 1,557,366 | ||||
| Investment in a public entity with readily determinable fair value – related party | 2,478,531 | |||||||
| Less: accumulated impairment | (1,148,329 | ) | (707,932 | ) | ||||
| Long-term investments, net | $ | 3,049,972 | $ | 849,434 | ||||
The Company recognized a realized gain on available-for-sale debt securities of and $223,164 for the years ended December 31, 2024 and 2023, respectively.
In January 2024, in connection with the disposal of Cellpro, the Company acquired shares of common stock of Waqoo, representing less than a 10% ownership interest, a related-party company listed on the Tokyo Stock Exchange. During the year ended December 31, 2024, the Company recognized an unrealized loss of $2,617,435 on the investment in Waqoo.
The Company recognized an impairment loss of $529,596 and on long-term investments in privately held entities that do not repot NAV per share for the years ended December 31, 2024 and 2023, respectively.
| F-28 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 — OTHER ASSETS
As of December 31, 2024 and 2023, other assets consist of the following:
December 31, 2024 | December 31, 2023 | |||||||
| Security deposits | $ | 2,921,855 | $ | 3,049,112 | ||||
| Corporate-owned life insurance policies | 11,563,720 | 11,529,700 | ||||||
| Long-term loans receivable, primarily student loans | 578,995 | 647,641 | ||||||
| Others | 488,883 | 215,605 | ||||||
| Total | $ | 15,553,453 | $ | 15,442,058 | ||||
NOTE 12 — ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES
As of December 31, 2024 and 2023, accrued liabilities and other current liabilities consist of the following:
December 31, 2024 | December 31, 2023 | |||||||
| Individual income tax withheld on behalf of employees | $ | 859,446 | $ | 943,195 | ||||
| Wages and bonus payables | 3,173,679 | 6,264,711 | ||||||
| Consumption tax payable | 3,827,080 | 12,968,580 | ||||||
| Liabilities assumed in connection with purchase of property and equipment | 25,312 | 656,508 | ||||||
| Excise and franchise tax payable | 15,095 | |||||||
| Others | 202,582 | 176,015 | ||||||
| Total | $ | 8,103,194 | $ | 21,009,009 | ||||
NOTE 13 — LONG-TERM LOANS
As of December 31, 2024 and 2023, the Company’s long-term loans from banks and other financial institution consist of following:
| Indebtedness | Weighted Average Interest Rate* | Weighted Average Years to Maturity* | December 31, 2024 | December 31, 2023 | ||||||||||||
| Guaranteed loans | ||||||||||||||||
| Fixed rate loans | 0.04 | % | 0.08 | $ | 185,766 | $ | 575,191 | |||||||||
| Variable rate loans | 1.15 | % | 2.83 | 6,377,998 | 289,226 | |||||||||||
| Subtotal | 1.19 | % | 2.91 | 6,563,764 | 864,417 | |||||||||||
| Unsecured loans | ||||||||||||||||
| Fixed rate loans | 0.01 | % | 0.00 | 35,742 | 354,522 | |||||||||||
| Subtotal | 0.01 | % | 0.00 | 35,742 | 354,522 | |||||||||||
| Total long-term loans | 1.20 | % | 2.91 | 6,599,506 | 1,218,939 | |||||||||||
| Less: current portion | (96,824 | ) | (156,217 | ) | ||||||||||||
| Non-current portion | $ | 6,502,682 | $ | 1,062,722 | ||||||||||||
| * | Pertained to information for loans outstanding as of December 31, 2024. |
| F-29 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 — LONG-TERM LOANS (cont.)
The Company borrowed loans from various banks and a financial institution for working capital purposes.
Interest expense was $28,300 and $45,292 for the years ended December 31, 2024 and 2023, respectively.
The guaranteed information of the Company’s outstanding loans as of December 31, 2024 and 2023 consists of the following:
December 31, 2024 | December 31, 2023 | |||||||
| Co-guaranteed by CEO of subsidiaries within the Company’s organizational structure and Tokyo Credit Guarantee Association | $ | 185,766 | $ | 747,474 | ||||
| Co-guaranteed by CEO of a subsidiary within the Company’s organizational structure and Kanagawa Credit Guarantee Association | $ | $ | 116,943 | |||||
| Guaranteed by a subsidiary within the Company’s organizational structure | $ | 6,377,998 | $ | |||||
As of December 31, 2024, future minimum payments for long-term loans are as follows:
| Years ending December 31, | Principal Repayment | |||
| 2025 | $ | 96,824 | ||
| 2026 | 66,580 | |||
| 2027 | 6,436,102 | |||
| 2028 | ||||
| 2029 and thereafter | ||||
| Total | $ | 6,599,506 | ||
NOTE 14 — OPERATING LEASES — AS A LESSEE
The Company has entered into operating leases for offices and sublease purposes, with terms ranging from two to seven years. The estimated effect of lease renewal and termination options, as applicable, that are reasonably certain to be exercised in the determination of the lease term and initial measurement of right-of-use assets and lease liabilities was included in the consolidated financials.
During the years ended December 31, 2024 and 2023, certain operating leases were guaranteed by related parties of the Company.
Operating lease expenses for lease payments are recognized on a straight-line basis over the lease term. Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheets.
The components of lease costs are as follows:
| For
the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease costs | $ | 3,877,048 | $ | 4,056,387 | ||||
| Short-term lease costs | 286,009 | 757,457 | ||||||
| Total lease costs | $ | 4,163,057 | $ | 4,813,844 | ||||
| F-30 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 — OPERATING LEASES — AS A LESSEE (cont.)
The following table presents supplemental information related to the Company’s operating leases:
For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating cash flows from operating leases | $ | 4,105,434 | $ | 4,005,952 | ||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | 2,305,199 | |||||
| Remeasurement of operating lease liabilities and right-of use assets due to lease modifications | $ | 2,908,554 | $ | 2,110,079 | ||||
| Weighted average remaining lease term (years) | 1.66 | 2.30 | ||||||
| Weighted average discount rate (per annum) | 0.65 | % | 0.19 | % | ||||
As of December 31, 2024, the future maturity of lease liabilities is as follows:
| Years ending December 31, | Lease Payment | |||
| 2025 | $ | 4,361,879 | ||
| 2026 | 712,869 | |||
| 2027 | 263,412 | |||
| 2028 | 109,906 | |||
| 2029 | 109,906 | |||
| Thereafter | 54,950 | |||
| Total undiscounted lease payments | 5,612,922 | |||
| Less: imputed interest | (29,874 | ) | ||
| Total operating lease liabilities | $ | 5,583,048 | ||
NOTE 15 — INCOME TAXES
United States
SBC Holding, SBC USA, SBC Healthcare Inc., SBC Irvine, LLC, and Aikawa Medical Management, Inc. are incorporated in the United States and subject to federal income tax rate at 21% and California state income tax rate at 6.98%.
Japan
The Company conducts its major businesses in Japan and is subject to tax in this jurisdiction. During the years ended December 31, 2024 and 2023, substantially all the taxable income of the Company is generated in Japan. As a result of its business activities, the Company files tax returns that are subject to examination by the local tax authority. Income taxes in Japan applicable to the Company are imposed by the national, prefectural, and municipal governments, and in the aggregate resulted in an effective statutory rate of approximately 34.69% and 34.69% for the years ended December 31, 2024 and 2023, respectively.
Vietnam
Shoubikai Medical Vietnam Co., Ltd. is incorporated in Vietnam and subject to income tax rate at 20% statutory tax rate with respect to the assessable profits generated from Vietnam.
Singapore
Aesthetic Healthcare Holdings Pte. Ltd. and its subsidiaries are incorporated in Singapore and subject to income tax rate at 17% statutory tax rate with respect to the assessable profits generated from Singapore.
| F-31 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 — INCOME TAXES (cont.)
For the years ended December 31, 2024 and 2023, the Company’s income tax expenses are as follows:
For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Current | $ | 41,183,012 | $ | 30,905,334 | ||||
| Deferred | (14,417,087 | ) | 4,113,395 | |||||
| Total | $ | 26,765,925 | $ | 35,018,729 | ||||
From October 2023, the Company underwent a tax examination conducted by the Japanese tax authority for the income tax returns filed by SBC Japan for the years ended March 31, 2016 through March 31, 2023, the income tax returns filed by L’Ange Sub for the years ended February 28, 2021 through February 28, 2023, and the income tax returns filed by Shobikai Sub for the years ended March 31, 2021 through March 31, 2023. The tax examination was completed, and the subsidiaries of the Company filed the amended tax returns or received the correction notices from the Japanese tax authority in May 2024. There was no material difference between the final result and the income tax liabilities recorded by the Company for the year ended December 31, 2023.
A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of operations and comprehensive income to the statutory federal tax rates for the years ended December 31, 2024 and 2023 are as follows:
For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Statutory federal rate | 21.00 | % | 34.69 | % | ||||
| State income tax expense, net of federal income tax effect | 6.98 | % | ||||||
| Effect of income tax rate difference under different tax jurisdictions | 8.79 | % | 0.59 | % | ||||
| Expenses not deductible for tax purpose | 0.46 | % | (1.88 | )% | ||||
| Effect of change in valuation allowance | 2.10 | % | 12.04 | % | ||||
| Effect of tax payments and dues | (3.27 | )% | (1.38 | )% | ||||
| Other adjustments | 0.38 | % | 3.53 | % | ||||
| Effective tax rate | 36.44 | % | 47.59 | % | ||||
The tax effects of temporary differences that give rise to the deferred income tax assets and liabilities on December 31, 2024 and 2023 are presented below:
December 31, 2024 | December 31, 2023 | |||||||
| Deferred income tax assets | ||||||||
| Revenue and expense adjustments | $ | 2,317,931 | $ | 4,142,338 | ||||
| Change in cash surrender value of life insurance policies | 370,625 | (1,168,097 | ) | |||||
| Lease liabilities | 1,507,518 | 2,195,824 | ||||||
| Net operating losses carried forward | 13,543,915 | 7,397,655 | ||||||
| Impairment on intangible asset | 5,498,205 | |||||||
| Fair value change of long-term investments | 877,026 | |||||||
| Others | 178,597 | 220,885 | ||||||
| Total deferred income tax assets | 24,293,817 | 12,788,605 | ||||||
| Less: valuation allowance | (8,640,332 | ) | (7,397,655 | ) | ||||
| Total deferred income tax assets, net | $ | 15,653,485 | $ | 5,390,950 | ||||
| F-32 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 — INCOME TAXES (cont.)
December 31, 2024 | December 31, 2023 | |||||||
| Deferred income tax liabilities | ||||||||
| Revenue and expense adjustments | $ | (2,602,712 | ) | $ | (9,131,874 | ) | ||
| Change in cash surrender value of life insurance policies | (1,720,120 | ) | ||||||
| Right-of-use assets | (1,415,168 | ) | (2,053,535 | ) | ||||
| Intangible assets acquired through business acquisition | (354,739 | ) | ||||||
| Others | (688,698 | ) | (219,106 | ) | ||||
| Total deferred income tax liabilities | $ | (6,781,437 | ) | $ | (11,404,515 | ) | ||
| Deferred income tax assets, net | $ | 9,798,071 | $ | |||||
| Deferred income tax liabilities, net | $ | (926,023 | ) | $ | (6,013,565 | ) | ||
The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Company regularly assesses the ability to realize its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The Company weighs all available positive and negative evidence, including its earnings history and results of recent operations, projected future taxable income, and tax planning strategies.
The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth. The adjustments of a valuation allowance against deferred tax assets may cause greater volatility in the effective tax rate in the periods in which the valuation allowance is adjusted. Based upon the level of historical taxable profit and projections for future taxable profit over the periods for which the deferred tax assets are deductible, management believes it is probable that the Company will utilize the benefits of these deferred tax assets as of December 31, 2024 and 2023. Uncertainty of estimates of future taxable profit could increase due to changes in the economic environment surrounding the Company, effects by market conditions, effects of currency fluctuations or other factors.
Uncertain tax positions
The Company evaluates each uncertain tax position (including the applicability of interest and penalties) based on technical merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2024 and 2023, the management considered the Company did not have any significant unrecognized uncertain tax positions. The Company does not participate in any significant increases or decreases in unrecognized tax benefits in the next twelve months from December 31, 2024. Open tax years in Japan are five years. The Company’s income tax returns filed in Japan for the tax years prior March 31, 2023 were examined by the relevant tax authorities.
| F-33 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 — SHAREHOLDERS’ EQUITY
The Company is authorized to issue shares of common stock, par value of $per share (“Common Stock”), and shares of undesignated preferred stock, par value of $ per share.
Shares issued under Pono Merger
On September 17, 2024, upon the consummation of Pono Merger, the Company issued shares of common stock to the former shareholder of SBC USA as merger consideration, and the Company gave effect to the issuance of shares of common stock for the Class A common stock that were previously issued by Pono and outstanding at the closing date of Pono Merger. In addition, Pono Promissory Note of $2,700,000 was automatically converted to shares of common stock, held by SBC USA, which were recorded as treasury stock on the consolidated balance sheets.
On September 18, 2024, the Company issued shares of common stock for no proceeds as follows: (i) shares to Wolverine Flagship Fund Trading Limited, (ii) shares to Amethyst Arbitrage International Master Fund, (iii) shares to Radcliffe SPAC Master Fund, L.P. and (iv) shares to Verition Multi-Strategy Master Fund Ltd. as incentive shares pursuant to the Non-Redemption Agreements, entered into in May 2023, by and among Pono, Mehana Capital LLC and certain unaffiliated stockholders, including Wolverine Flagship Fund Trading Limited, Amethyst Arbitrage International Master Fund, Radcliffe SPAC Master Fund, L.P. and Verition Multi-Strategy Master Fund Ltd (“Non-Redemption Agreements”).
As of December 31, 2024 and December 31, 2023, there were and shares issued, and shares outstanding, respectively, and preferred stock issued and outstanding, after giving retrospective effects of reverse recapitalization on September 17, 2024.
Stock-based compensation
On November 18, 2022 (“Effective Date”), the Company entered into a Common Stock Purchase Warrant Agreement (the “Warrant Agreement”) with HeartCore Enterprise, Inc. (“HeartCore”) pursuant to which it agreed to compensate HeartCore with common stock purchase warrants (the “Warrants”) in exchange for professional services to be provided by HeartCore in connection with its merger or other transaction with a special purpose acquisition company (“SPAC”) wherein the Company becomes a subsidiary of the SPAC (the “Merger”). The Warrants were fully vested as of the Effective Date, however, HeartCore can exercise the Warrants in 10 years only upon the Company’s consummation of the Merger or the occurrence of other fundamental events defined in the Warrant Agreement to purchase 2.7% of the fully diluted shares of the Company’s common stock as of the date of the Merger, for an exercise price per share of $0.01. As the performance condition of exercisability was satisfied upon the consummation of Pono Merger, the Company recognized stock-based compensation of $during the year ended December 31, 2024. On September 27, 2024, the Warrants were fully exercised, and 3,137,998 shares of common stock were issued.
In January 2024, the Company terminated common stock options granted to doctors of related-party MCs (the “Holders”) in September 2023. In connection with the termination, the Company entered into a common stock purchase warrant agreement (the “Warrant Agreement III”) pursuant to which the Company issued to the Holders warrants to acquire an equal number of shares of common stock as previously subject to the options issued to each of the Holders in September 2023. The warrants may be exercised on the three-month, fifteen-month, and twenty-seven-month anniversary of the date of the Company completes its merger or other transaction with a special purpose acquisition company (“SPAC”) wherein the Company becomes a subsidiary of the SPAC (the “Merger”) or the occurrence of other fundamental events defined in the Warrant Agreement III (the “Trigger Date”), to acquire an amount equal to one-third of the applicable shares of common stock, respectively, with an exercise price per share of $0.0001. The warrants were fully vested on the grant date and will expire on the tenth anniversary of the Trigger Date.
In June and July 2024, the Company terminated all common stock options and warrants ever granted, except for Warrants granted to HeartCore in November 2022.
As of December 31, 2024 and 2023, there were and common stock options and warrants granted to related parties of the Company, respectively.
| F-34 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 — SHAREHOLDERS’ EQUITY (cont.)
Number of Warrants* | Weighted Average Exercise Price | Weighted Average Remaining Term (Years) | Intrinsic Value | |||||||||||||
| As of January 1, 2023 | 3,137,998 | $ | 10.00 | $ | ||||||||||||
| Granted | 1,781,000 | 10.00 | — | |||||||||||||
| Exercised | — | — | ||||||||||||||
| Forfeited | — | — | ||||||||||||||
| As of December 31, 2023 | 4,918,998 | $ | 10.00 | $ | ||||||||||||
| Granted | 449,190 | 10.00 | — | |||||||||||||
| Additions pursuant to Pono Merger** | 12,134,375 | — | ||||||||||||||
| Exercised | (3,137,998 | ) | — | — | ||||||||||||
| Forfeited/Cancelled | (2,230,190 | ) | — | — | ||||||||||||
| As of December 31, 2024** | 12,134,375 | $ | 4.80 | $ | ||||||||||||
| Vested and exercisable as of December 31, 2024 | 12,134,375 | $ | 4.80 | $ | ||||||||||||
| * | The number of Warrants granted to HeartCore was updated to reflect the adjustment upon the consummation of Pono Merger. |
| ** | As of December 31, 2024, there were warrants issued by Pono, prior to Pono Merger, among which warrants were issued through its initial public offering (“IPO”) (“Public Warrants”) and were issued through a private placement (“Placement Warrants”). Each warrant entitles the registered holder to purchase one share of common stock at a price of $ per share at any time commencing on October 17, 2024 until October 17, 2029, or earlier upon redemption or liquidation. |
The fair value of the stock-based compensation recognized in the consolidated financial statements was estimated using the binomial option pricing model, and based on the equity value estimated using 1) 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, and 2) market approach with metrics of publicly traded companies or historically completed transactions of comparable businesses, with the assistance of an independent valuation specialist. The Company applied a weighting to the income approach and market approach to determine the fair value.
NOTE 17 — DISAGGREGATION OF REVENUES
Revenues generated from different revenue streams consist of the following:
For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Franchising revenue | $ | 61,033,032 | $ | 42,103,380 | ||||
| Procurement revenue | 54,814,399 | 53,186,662 | ||||||
| Management services revenue | 53,113,155 | 72,282,549 | ||||||
| Rental services revenue | 16,141,714 | 7,336,768 | ||||||
| Others | 20,313,242 | 18,633,064 | ||||||
| Total | $ | 205,415,542 | $ | 193,542,423 | ||||
| F-35 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 — DISAGGREGATION OF REVENUES (cont.)
During the years ended December 31, 2024 and 2023, the Company recognized revenue of $1,970,889 and $973,866 from the opening balance of advances from customers, respectively; and revenue of and $1,382,803 from the opening balance of advances from customers — related parties, respectively.
As of December 31, 2024 and 2023, and for the years then ended, substantially all of our long-lived assets and revenues generated were attributed to the Company’s operation in Japan.
NOTE 18 — RELATED PARTY TRANSACTIONS
The related parties that had material transactions for the years ended December 31, 2024 and 2023 consist of the following:
| Name of Related Parties | Nature of Relationship as of December 31, 2024 | |
| Yoshiyuki Aikawa | Controlling shareholder, director and CEO of the Company | |
| Yoshiko Aikawa | Representative director of subsidiaries of the Company | |
| Mizuho Yamashita | Director of a subsidiary of the Company | |
| Medical Corporation Shobikai | The relatives of the CEO of the Company being the Members of the MC | |
| Medical Corporation Kowakai | The relatives of the CEO of the Company being the Members of the MC | |
| Medical Corporation Nasukai | The relatives of the CEO of the Company being the Members of the MC | |
| Medical Corporation Aikeikai | The relatives of the CEO of the Company being the Members of the MC | |
| Medical Corporation Jukeikai | The relatives of the CEO of the Company being the Members of the MC | |
| Medical Corporation Ritz Cosmetic Surgery | The relatives of the CEO of the Company being the Members of the MC | |
| Medical Corporation Association Junikai | The relatives of the CEO of the Company being the Members of the MC | |
| Medical Corporation Association Furinkai | The relatives of the CEO of the Company being the Members of the MC | |
| Japan Medical & Beauty Inc. | Controlled by the CEO of the Company | |
| SBC Inc., previously known as SBC China Inc. | Controlled by the CEO of the Company | |
| Hariver Inc. | Controlled by the CEO of the Company | |
| General Incorporated Association SBC | The CEO of the Company being the Member of General Incorporated Association SBC | |
| Public Interest Foundation SBC Medical Promotion Foundation | The relative of CEO of the Company being a Member of Public Interest Foundation SBC Medical Promotion Foundation | |
| AI Med Inc. | The CEO of the Company is a principal shareholder of AI Med Inc. | |
| Amulet Inc. | Controlled by Mizuho Yamashita, a director of a subsidiary of the Company | |
| SBC Irvine MC | Significantly influenced by the Company | |
| SBC Tokyo Medical University, previously known as Ryotokuji University | The CEO of the Company is the chairman of SBC Tokyo Medical University | |
| SBC Shonan Osteopathic Clinic Inc. | The CEO of the Company is a principal shareholder of SBC Shonan Osteopathic Clinic Inc. | |
| Waqoo Inc. | The CEO of the Company is a principal shareholder of Waqoo Inc. | |
| General Incorporated Association Taiseikai | The relatives of CEO of the Company being the Members of General Incorporated Association Taiseikai | |
| Skynet Academy Co., Ltd.* | Controlled by the CEO of the Company | |
| Kijimadairakanko Inc.* | Controlled by the CEO of the Company |
| * | Former subsidiaries of the Company that were disposed of to companies controlled by the CEO of the Company on December 23, 2024. |
| F-36 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 — RELATED PARTY TRANSACTIONS (cont.)
During the years ended December 31, 2024 and 2023, the transactions with related parties are as follows:
| For
the Years Ended December 31, | ||||||||
| Revenues from related parties | 2024 | 2023 | ||||||
| Medical Corporation Shobikai | $ | 53,862,520 | $ | 56,554,316 | ||||
| Medical Corporation Kowakai | 46,756,189 | 45,115,149 | ||||||
| Medical Corporation Nasukai | 46,355,437 | 45,893,461 | ||||||
| Medical Corporation Aikeikai | 17,997,072 | 21,521,302 | ||||||
| Medical Corporation Jukeikai | 5,666,907 | 4,518,846 | ||||||
| Medical Corporation Ritz Cosmetic Surgery | 7,435,446 | 2,603,405 | ||||||
| Japan Medical & Beauty Inc. | 39,620 | 488,023 | ||||||
| Hariver Inc. | 19,810 | 21,740 | ||||||
| SBC Inc., previously known as SBC China Inc. | 2,512 | 467 | ||||||
| Public Interest Foundation SBC Medical Promotion Foundation | 107 | 387 | ||||||
| General Incorporated Association SBC | 801 | 569 | ||||||
| SBC Tokyo Medical University, previously known as Ryotokuji University | 45,286 | 231,191 | ||||||
| Yoshiyuki Aikawa | 98,445 | 67,516 | ||||||
| Mizuho Yamashita | 19,214 | |||||||
| Amulet Inc. | 3,587 | |||||||
| AI Med Inc. | 787 | 556,397 | ||||||
| SBC Irvine MC | 1,204,107 | 1,298,539 | ||||||
| Medical Corporation Association Furinkai | 11,708,183 | 2,923,608 | ||||||
| Medical Corporation Association Junikai | 3,923,228 | 851,105 | ||||||
| General Incorporated Association Taiseikai | 692 | |||||||
| SBC Shonan Osteopathic Clinic Co., Ltd. | 56,740 | 69,227 | ||||||
| Total | $ | 195,173,889 | $ | 182,738,049 | ||||
| F-37 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 — RELATED PARTY TRANSACTIONS (cont.)
As of December 31, 2024 and 2023, the balances with related parties are as follows:
| Accounts receivable | December 31, 2024 | December 31, 2023 | ||||||
| Medical Corporation Shobikai | $ | 5,091,430 | $ | 9,251,427 | ||||
| Medical Corporation Nasukai | 8,552,722 | 8,447,448 | ||||||
| Medical Corporation Kowakai | 7,742,251 | 7,841,059 | ||||||
| Medical Corporation Aikeikai | 3,071,378 | 4,661,649 | ||||||
| Medical Corporation Jukeikai | 993,944 | 1,358,213 | ||||||
| Medical Corporation Association Furinkai | 1,263,602 | 1,039,074 | ||||||
| Medical Corporation Ritz Cosmetic Surgery | 817,283 | 520,891 | ||||||
| Medical Corporation Association Junikai | 283,298 | 348,187 | ||||||
| Japan Medical & Beauty Inc. | 139,767 | |||||||
| SBC Tokyo Medical University, previously known as Ryotokuji University | 536 | 66,546 | ||||||
| AI Med Inc. | 33 | 2,329 | ||||||
| SBC Inc., previously known as SBC China Inc. | 137 | 45 | ||||||
| Public Interest Foundation SBC Medical Promotion Foundation | 36 | 37 | ||||||
| SBC Shonan Osteopathic Clinic Co., Ltd. | 4 | |||||||
| SBC Irvine MC | 693,850 | |||||||
| Kijimadairakanko Inc. | 336,176 | |||||||
| Total | $ | 28,846,680 | $ | 33,676,672 | ||||
| Finance lease receivables | December 31, 2024 | December 31, 2023 | ||||||
| Medical Corporation Shobikai | $ | 1,877,291 | $ | 2,568,709 | ||||
| Medical Corporation Kowakai | 2,490,705 | 2,779,347 | ||||||
| Medical Corporation Nasukai | 3,872,683 | 2,019,117 | ||||||
| Medical Corporation Aikeikai | 1,047,821 | 1,782,124 | ||||||
| Medical Corporation Ritz Cosmetic Surgery | 2,479,771 | 79,439 | ||||||
| Medical Corporation Jukeikai | 500,244 | 335,317 | ||||||
| Medical Corporation Association Furinkai | 1,891,412 | |||||||
| Medical Corporation Association Junikai | 197,452 | |||||||
| SBC Shonan Osteopathic Clinic Co., Ltd. | 32,788 | |||||||
| Total | $ | 14,390,167 | $ | 9,564,053 | ||||
| Less: current portion | (5,992,585 | ) | (6,143,564 | ) | ||||
| Non-current portion | $ | 8,397,582 | $ | 3,420,489 | ||||
| Due from related party, net | December 31, 2024 | December 31, 2023 | ||||||
| SBC Irvine MC | $ | 2,836,013 | $ | 3,238,209 | ||||
| Less: allowance for credit loss | (2,836,013 | ) | (3,238,209 | ) | ||||
| Total | $ | $ | ||||||
| Long-term investments in MCs - related parties | December 31, 2024 | December 31, 2023 | ||||||
| Medical Corporation Shobikai | $ | 6,378 | $ | 7,090 | ||||
| Medical Corporation Kowakai | 6,378 | 7,090 | ||||||
| Medical Corporation Nasukai | 6,378 | 7,090 | ||||||
| Medical Corporation Aikeikai | 6,378 | 7,090 | ||||||
| Medical Corporation Jukeikai | 6,859,913 | 7,626,184 | ||||||
| Medical Corporation Ritz Cosmetic Surgery | 10,935,485 | 12,157,011 | ||||||
| Total | $ | 17,820,910 | $ | 19,811,555 | ||||
| F-38 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 — RELATED PARTY TRANSACTIONS (cont.)
| Accounts payable | December 31, 2024 | December 31, 2023 | ||||||
| Japan Medical & Beauty Inc. | $ | 659,044 | $ | |||||
| Total | $ | 659,044 | $ | |||||
Advances from customers | December 31, 2024 | December 31, 2023 | ||||||
| Medical Corporation Shobikai | $ | 5,076,300 | $ | 13,438,645 | ||||
| Medical Corporation Kowakai | 1,801,034 | 4,237,765 | ||||||
| Medical Corporation Nasukai | 1,745,069 | 4,117,597 | ||||||
| Medical Corporation Aikeikai | 379,931 | 1,168,947 | ||||||
| Medical Corporation Jukeikai | 140,170 | 85,044 | ||||||
| Medical Corporation Ritz Cosmetic Surgery | 45,701 | 10,177 | ||||||
| SBC Shonan Osteopathic Clinic Co., Ltd. | 16,395 | |||||||
| Medical Corporation Association Furinkai | 940,007 | |||||||
| Medical Corporation Association Junikai | 1,594,926 | |||||||
| Total | $ | 11,739,533 | $ | 23,058,175 | ||||
| Notes payable – related parties | December 31, 2024 | December 31, 2023 | ||||||
| Medical Corporation Shobikai | $ | 4,653 | $ | 5,264,101 | ||||
| Medical Corporation Kowakai | 14,672 | 3,855,650 | ||||||
| Medical Corporation Nasukai | 8,827 | 4,099,032 | ||||||
| Medical Corporation Aikeikai | 2,236 | 1,561,642 | ||||||
| Medical Corporation Jukeikai | 268,552 | |||||||
| Medical Corporation Ritz Cosmetic Surgery | 1,201 | 268,445 | ||||||
| Total | $ | 31,589 | $ | 15,317,422 | ||||
| Less: current portion | (26,255 | ) | (3,369,203 | ) | ||||
| Non-current portion | $ | 5,334 | $ | 11,948,219 | ||||
| Due to related party | December 31, 2024 | December 31, 2023 | ||||||
| Yoshiyuki Aikawa | $ | 2,823,590 | $ | 3,583,523 | ||||
| Total | $ | 2,823,590 | $ | 3,583,523 | ||||
| Allowance for credit loss movement | December 31, 2024 | December 31, 2023 | ||||||
| Beginning balance | $ | 3,238,209 | $ | 2,867,455 | ||||
| Provision for credit loss | 622,804 | 370,754 | ||||||
| Reversal of credit loss | (1,025,000 | ) | ||||||
| Ending balance | $ | 2,836,013 | $ | 3,238,209 | ||||
| Other income | December 31, 2024 |
December 31, 2023 |
||||||
| Medical Corporation Shobikai | $ | 999,350 | $ | |||||
| Medical Corporation Kowakai | 568,092 | |||||||
| Medical Corporation Nasukai | 764,809 | |||||||
| Medical Corporation Aikeikai | 316,352 | |||||||
| Medical Corporation Jukeikai | 24,474 | |||||||
| Total | $ | 2,673,077 | $ | |||||
The balances of due to and due from related parties represent the outstanding loans to and from related parties, respectively, as of December 31, 2024 and 2023. These loans are non-secured, interest-free and due on demand.
In February 2023, the Company paid off the retirement compensation expense accrued to Yoshiko Aikawa.
During the years ended December 31, 2024 and 2023, the Company purchased medical equipment and cosmetics of $8,472,202 and $2,842,588, respectively, from Japan Medical & Beauty Inc., which was recognized and included in the cost of revenues.
Also see Note 2(a), 5, 8, 10, 13, 14, 16, 17 and 21 for more transactions with related parties.
| F-39 |
SBC MEDICAL GROUP HOLDINGS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 — MISAPPROPRIATION LOSS
In January 2024, before the issuance of the Company’s consolidated financial statements as of December 31, 2023 and for the year then ended, in connection with a routine tax examination of the Company’s income tax returns, the Japanese tax authority discovered misappropriations of Company funds by a former director of general affairs and legal department of L’Ange Cosmetique Co., Ltd., which is a subsidiary of the Company (the “former director”), who received kickbacks from multiple vendors of SBC Japan (collectively with the former director, the “participants”) possibly beginning as early as 2012 until the misappropriations were discovered. The former director was suspended immediately upon the discovery and was terminated effective February 23, 2024. The Company has commenced a criminal complaint in Tokyo against the participants.
Shortly after this discovery, the Company engaged independent legal counsel and forensic consultants to investigate the misappropriations. The investigation, which was completed in March 2024, revealed that the participants had misappropriated approximately JPY632 million ($5.6 million), including consumption tax, from the Company of which the former director received approximately JPY335 million ($3.0 million), between April 2016 and the discovery of the misappropriations in January 2024. The amount misappropriated prior to April 2016 could not be accurately determined because certain data for the period prior to April 2016 was unavailable, the Company does not expect such amount to be material based on current estimates.
The Company found no evidence that any other employee of the Company was aware of, or colluded in, the misappropriations of Company funds or that there was any unlawful activity apart from that associated with the participants’ misappropriations of Company funds. The misappropriated amounts, excluding the consumption tax, representing advertising services purchased on behalf of a related-party MC, were originally included in the revenues reported on a net basis. After discovery of the misappropriations, the amounts were reported as a misappropriation loss. For the year ended December 31, 2023, the Company recorded a misappropriation loss of $409,030.
NOTE 20 — SEGMENT REPORTING
The Company’s chief operating decision maker (“CODM”), Chief Executive Officer, reviews consolidated results of operations to make decisions, therefore the Company views its operations and manages its business as a single operating segment. The Company’s revenues for its single operating segment are derived from providing comprehensive management services to MCs and their clinics.
The accounting policies for the single operating segment are the same as those described in Note 2. The CODM evaluates performance for the Company’s single operating segment and decides how to allocate resources based on the Company’s consolidated net income that is reported in the consolidated statements of operations and comprehensive income as net income. The measure of segment assets is reported on the consolidated balance sheets as total assets. The CODM allocates resources across the Company based on consolidated net income derived during the annual budgeting process and throughout the year in monitoring actual results compared to budget and updated forecasts. These results are used to assess segment performance.
The operating segment financial information regularly reviewed by the CODM, inclusive assets, revenues, expenses, profit or loss, and noncash items are presented on a consolidated basis in the same amount and using the same captions as those included in the consolidated statements of operations and comprehensive income, consolidated balance sheets, and consolidated statements of cash flows. There are no additional segment expense categories regularly provided to the CODM. Therefore, there are also no amounts classified as other segment items requiring disclosure.
NOTE 21 — COMMITMENT
As of December 31, 2024 and 2023, a subsidiary of the Company provided a guarantee on the debt of its CEO in the amounts of $262,095 and $329,155, respectively. As of December 31, 2024 and 2023, the Company did not record a liability in the consolidated balance sheets for the guarantee because it was not probable that the Company would be required to make payments under the guarantee.
NOTE 22 — SUBSEQUENT EVENTS
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.
In February 2025, the Company issued shares of common stock, with no proceeds, to Mehana Capital LLC as incentive shares pursuant to the Non-Redemption Agreements.
| F-40 |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report. Based on this evaluation, management concluded that our disclosure controls and procedures were not effective as of December 31, 2024 to provide reasonable assurance that information required to be disclosed in periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Specifically, as previously disclosed, as of the fiscal year ended December 31, 2023, and as described below, we identified material weaknesses in our internal control over financial reporting.
Despite the identified material weaknesses, we believe that our consolidated financial statements and other information contained in this Annual Report fairly present, in all material respects, our financial condition, and results of operations for the periods presented.
We remain committed to ongoing improvements in our disclosure controls and internal control over financial reporting, as outlined in the remediation plan below.
| 119 |
Material Weaknesses
A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
In connection with the discovery of the misappropriations of funds as described in more details under “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Misappropriations of Funds”, we have identified material weaknesses as of December 31, 2023, which remain un-remediated as of December 31, 2024, in our internal control over financial reporting resulting from our failure to maintain an effective control environment, risk assessment processes and monitoring activities.
Our system of internal control failed to detect the misappropriations of funds due to the following material weaknesses of the Company:
1. Control Environment. We did not maintain an effective control environment that fully emphasized the establishment of adherence to effective internal control over financial reporting throughout our management. We did not give sufficient consideration to the risk of senior management override of internal control. We had not ensured that certain personnel were adequately trained to properly execute critical internal control.
2. Control Activities. We did not effectively implement or maintain control activities, such as ensuring a sufficient functioning of the mechanism of reconciliation of invoices to contracts and multi-level approvals of contracts, invoices and payments. We did not maintain sufficient segregation of duties with respect to certain activities and did not maintain adequate monitoring and oversight for those activities.
3. Risk Assessment. We did not have an effective risk assessment process and the related documentation.
4. Information and Communication. We did not adequately communicate to all employees of the organization information regarding the importance of internal control over financial reporting and employees’ duties and responsibilities, including segregation of duties.
5. Monitoring Activities. We did not maintain effective monitoring controls related to the evaluation and testing of our internal control over financial reporting.
In addition, the Company completed its business combination in September 2024. Prior to the business combination, the Company operated as a private corporation with limited accounting personnel and supervisory resources necessary to support its accounting processes and address its internal control over financial reporting requirements. As a result, the existing internal control are no longer sufficient to meet the post-business combination financial reporting demands, and the Company is actively updating these controls. The design and implementation of internal control over financial reporting in a post-business combination environment has required, and will continue to require, significant time and resources from management and other personnel.
During the process of assessing the Company’s internal controls, management has summarized the material weaknesses in our internal control over financial reporting as follows:
| ● | Lack of sufficient controls implemented to ensure all the related party transactions are identified, approved and reported in compliance with the established related party policy. | |
| ● | Lack of sufficient financial reporting and accounting personnel to formalize, design, implement and operate key controls over financial reporting process in order to report financial information in accordance with U.S. GAAP and SEC reporting requirements. |
| ● | Lack of well-established procedures to ensure all the services provided by subcontractors or vendors are reviewed and verified before the approval of payments. | |
| ● | Lack of well-established procedures to prevent and detect fraudulent transactions or override of control activities, specifically failure to maintain sufficient segregation of duties with respect to certain activities of its former manager of general affairs and legal department of one of its subsidiaries and failure to maintain adequate monitoring and oversight of the work performed by this former manager. |
| 120 |
Remediation Plan
With respect to the material weaknesses identified in connection with the misappropriations of funds, management has implemented, or is in the process of implementing, the following changes to our internal control systems and procedures:
| ● | We established a related party policy in September 2024 to identify, approve, and report related party transactions; and implemented the corresponding procedures since November 2024. | |
| ● | We will clarify the organization structure and employee positions promoting (i) segregation of duties, (ii) monitoring and oversight, (iii) reconciliation of invoices to contracts and (iv) multi-level approvals of contracts, invoices and payments. | |
| ● | We will communicate to all employees of the organization information regarding the importance of internal control and employees’ duties and responsibilities, including segregation of duties. | |
| ● | We have updated our delegation of authority over banking activities and are establishing a new treasury function. This improvement enhances the segregation of duties related to the general manager role, thereby strengthening the safeguarding of cash. | |
| ● | We are progressing with a project, led by our Head of Internal Control and Internal Audit Office, to design, implement, and document internal controls to address risks related to financial reporting. This year, our activities are focused on “laying the foundation to complete our response to key financial reporting risks by the end of 2025,” and we are making progress as planned. |
Furthermore, management is fully committed to addressing the control deficiencies that contributed to the material weaknesses in a post-business combination environment. The steps we have already taken in 2024, and those we plan to take in 2025, are as follows:
| ● | We added accounting and finance personnel to strengthen our team. This has allowed us to enhance segregation of duties in the preparation and review of financial reporting, while improving oversight, structure, and reporting lines. | |
| ● | We have improved the financial reporting process of our group, including consolidated subsidiaries. As a result, the monitoring function over the application of U.S. GAAP, including financial statement disclosures, has been enhanced, allowing for more accurate and timely reporting than before. | |
| ● | To support the execution of the aforementioned project for designing, implementing, and documenting internal controls, we have engaged external consultants with expertise in SOX (The Sarbanes-Oxley Act of 2002）compliance. As a result, we expect to complete our response to key financial reporting risks by the end of 2025. |
We plan to confirm at the end of the fiscal year (end of 2025) that internal controls are operating effectively as a result of the implementation of the above remediation plans. In particular, we plan to focus on verifying the remediation status of the identified material weaknesses.
Thereafter, under the direction of our Audit Committee, management will continue to strengthen corporate governance and aim to establish a system in which internal controls operate effectively throughout the year. During this process, we may adjust our remediation plans or take additional measures to address control deficiencies as necessary. We believe that these continuous efforts will remediate the deficiencies in internal controls, including the identified material weaknesses, and significantly improve our internal control over financial reporting.
| 121 |
Management’s Report on Internal Control over Financial Reporting
As discussed elsewhere in this Annual Report, we completed the Business Combination on September 17, 2024. Prior to the Business Combination, Pono was a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. As a result, previously existing internal controls are no longer applicable or comprehensive enough as of the assessment date as the operations prior to the Business Combination were insignificant compared to those post-Business Combination. The design of internal controls over financial reporting for the Company post-Business Combination has required and will continue to require significant time and resources from management and other personnel. As a result, management was unable, without incurring unreasonable effort or expense to conduct an assessment of our internal control over financial reporting as of December 31, 2024. Accordingly, we are excluding management’s report on internal control over financial reporting pursuant to Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Compliance & Disclosure Interpretations.
Inherent Limitation on the Effectiveness of Internal Control
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations. These include the exercise of judgment in designing, implementing, and operating controls, as well as the inherent inability to completely eliminate the risk of misconduct or error. Accordingly, while we aim to establish robust controls, any system, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Additionally, the design of our disclosure controls and procedures is impacted by resource constraints and the necessity for management to balance the benefits of potential controls against their associated costs. Moreover, projections of effectiveness into future periods are subject to risks that controls may become inadequate over time due to evolving conditions or diminished compliance. We will continue to monitor and enhance our internal control as necessary or appropriate, but we cannot provide assurance that these improvements will fully eliminate all risks of material misstatement.
Changes in Internal Control over Financial Reporting
Other than the remediation efforts described above, there have been no material changes in our internal control over financial reporting during the three months ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
On March 27, 2025, the Company’s Board of Directors approved certain executive officer updates, including the replacement of Ryoji Murata, the Company’s current Chief Financial Officer (principal financial officer), effective April 1, 2025. Yuya Yoshida, 46, the Company’s current Chief Operating Officer will continue in that role and also serve as Chief Financial Officer (principal financial officer), effective April 1, 2025. Mr. Murata will continue to serve as the Company’s principal accounting officer.
Mr. Yoshida has served as our Chief Operating Officer and member of our Board of Directors since September 17, 2024, and in the same positions, since September 29, 2023, with SBC Medical Group, Inc. (the legacy business that because the Company’s business). Mr. Yoshida has also served as the Executive Vice President and the Chief Financial Officer of SBC Medical Group Co., Ltd. (Japan) since July 1, 2023. From January 2016 to June 2023, Mr. Yoshida worked in Corporate Development (Global Head and Director of Corporate Development in 2018) at Rakuten Group Co., Ltd. From 2003 to 2016, Mr. Yoshida worked in securities, principal M&A, and investment banking at Mitsubishi UFJ Financial Group. Mr. Yoshida has extensive knowledge in E-Commerce, logistics, settlement, finance, mergers and acquisitions and divestiture transactions. Mr. Yoshida graduated with a Master of Law degree from Keio University in 2003. Mr. Yoshida also graduated with a Master of Business Administration degree from UCLA Anderson Business School in 2014.
Mr. Yoshida was not appointed pursuant to any arrangement or understanding with any other person, has no family relationships with any director or executive officer of the Company, and other than his previously reported employment arrangement with the Company, and other than his previously reported employment arrangement with the Company, and there are no transactions involving Mr. Yoshida that would be required to be reported under Item 404(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item will be set forth in our definitive proxy statement for our 2025 Annual Meeting of Stockholders (the “Proxy Statement”) and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.
| 123 |
PART IV
| Item 15. | Exhibits and Financial Statement Schedules |
| a) | Financial Statements and Schedules: The required information is set forth in “Part II, Item 8 - Financial Statements and Supplementary Data” in this Annual Report. | |
| b) | Exhibits: The following exhibits are filed or furnished as an exhibit to this Annual Report on Form 10-K. |
| 124 |
| * | Filed herewith |
| ** | Furnished herewith |
| + | Indicates a management or compensatory plan |
| † | Schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby agrees to furnish a copy of any omitted schedules to the SEC upon request. |
| Item 16. | Form 10-K Summary |
None.
| 125 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SBC Medical Group Holdings Incorporated | ||
| Dated: March 28, 2025 | /s/ Yoshiyuki Aikawa | |
| Name: | Yoshiyuki Aikawa | |
| Title: | Director, Chairman and Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Position | Date | ||
| /s/ Yoshiyuki Aikawa | Director, Chairman and Chief Executive Officer | March 28, 2025 | ||
| Yoshiyuki Aikawa | (Principal Executive Officer) | |||
/s/ Ryoji Murata |
Chief Financial Officer | March 28, 2025 | ||
| Ryoji Murata | (Principal Financial and Accounting Officer) | |||
/s/ Yuya Yoshida |
Director and Chief Operating Officer | March 28, 2025 | ||
| Yuya Yoshida | ||||
| /s/ Ken Edahiro | Independent Director | March 28, 2025 | ||
| Ken Edahiro | ||||
| /s/ Mike Sayama | Independent Director | March 28, 2025 | ||
| Mike Sayama | ||||
| /s/ Fumitoshi Fujiwara | Independent Director | March 28, 2025 | ||
| Fumitoshi Fujiwara |
| 126 |
Exhibit 4.3
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION1 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
The following summary of the registered securities of SBC Medical Group Holdings Incorporated does not purport to be complete and is qualified in its entirety by reference to our certificate of incorporation, as amended and bylaws, as amended, each of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit is a part, and certain provisions of Delaware law. Unless the context requires otherwise, all references to the “Company,” “we,” “our,” and “us” in this Exhibit refer to SBC Medical Group Holdings Incorporated.
Authorized Capital Stock
Our authorized capital stock consists of 400,000,000 shares of common stock, $0.0001 par value, and 20,000,000 shares of undesignated preferred stock, $0.0001 par value. The number of shares of registrant’s Common Stock outstanding as of February 28, 2025 was 103,611,251, after deducting 270,000 shares of treasury stock.
Common Stock
Common stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Unless specified in the Amended Charter or bylaws, or as required by applicable provisions of the DGCL or applicable stock exchange rules, the affirmative vote of a majority of our shares of our common stock that are voted is required to approve any such matter voted on by our stockholders. Our board of directors will be divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors. Our stockholders are entitled to receive ratable dividends when, as and if declared by the board of directors out of funds legally available therefor.
No shareholders of the Company holding common stock have any preemptive or other right to subscribe for any additional unissued or treasury shares of stock or for other securities of any class, or for rights, warrants or options to purchase stock, or for scrip, or for securities of any kind convertible into stock or carrying stock purchase warrants or privileges unless so authorized by the Company.
Preferred Stock
The Amended Charter provides that shares of preferred stock may be issued from time to time in one or more series. Our board of directors is authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. Our board of directors will be able to, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the common stock and could have anti-takeover effects. The ability of our board of directors to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of us or the removal of existing management. We have no preferred stock outstanding at the date hereof. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.
Warrants
Public Warrants
Each Public Warrant entitles the registered holder to purchase one share of our common stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing 30 days after the closing of the Business Combination. The Public Warrants will expire five years after the Closing of the Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
We will not be obligated to deliver any shares of our common stock pursuant to the exercise of a Public Warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of our common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to our satisfying our obligations described below with respect to registration. No warrant will be exercisable and we will not be obligated to issue shares of our common stock upon exercise of a warrant unless the Company’s common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a Public Warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will we be required to net cash settle any warrant.
If a registration statement covering the shares of our common stock issuable upon exercise of the warrants is not effective by the 60th business day after the Closing of the Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when we will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the foregoing, if a registration statement covering the Company’s common stock issuable upon exercise of the warrants is not effective within a specified period following the Closing of the Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when we shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act of 1933, as amended, or the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
Once the Public Warrants become exercisable, we may call the warrants for redemption:
| ● | in whole and not in part; | |
| ● | at a price of $0.01 per warrant; | |
| ● | upon not less than 30 days’ prior written notice of redemption to each warrant holder; and | |
| ● | if, and only if, the reported last sale price of our common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three business days before we send the notice of redemption to the warrant holders. |
To date, the shares of common stock have not traded at a price that would allow us to call the Public Warrants for redemption. If and when the Public Warrants become redeemable by us, we may not exercise our redemption right if the issuance of shares of common stock upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or we are unable to effect such registration or qualification. In the event that the Company elects to redeem all of the redeemable warrants as described above, the Company will fix a date for the redemption (the “Redemption Date”). Pursuant to the terms of the warrant agreement, notice of redemption will be mailed by first class mail, postage prepaid, by the Company not less than 30 days prior to the Redemption Date to the registered holders of the redeemable warrants to be redeemed at their last addresses as they appear on the registration books. In addition, the Company will issue a press release and file a current report on Form 8-K with the Securities and Exchange Commission containing notice of redemption. The Company is not contractually obligated to notify investors when its warrants become eligible for redemption and does not intend to so notify investors upon eligibility of the warrants for redemption, unless and until it elects to redeem such warrants pursuant to the terms of the warrant agreement.
We have established the last of the redemption criteria discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the Public Warrants, each warrant holder will be entitled to exercise its warrant prior to the scheduled redemption date. However, the price of our common stock may fall below the $18.00 redemption trigger price (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) as well as the $11.50 warrant exercise price after the redemption notice is issued.
If we call the Public Warrants for redemption as described above, our management will have the option to require any holder that wishes to exercise its warrant to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” our management will consider, among other factors, our cash position, the number of warrants that are outstanding and the dilutive effect on our stockholders of issuing the maximum number of shares of our common stock issuable upon the exercise of our warrants. If our management takes advantage of this option, all holders of Public Warrants would pay the exercise price by surrendering their warrants for that number of shares of our common stock equal to the quotient obtained by dividing (x) the product of the number of shares of our common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of our common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. If our management takes advantage of this option, the notice of redemption will contain the information necessary to calculate the number of shares of our common stock to be received upon exercise of the Public Warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant redemption. We believe this feature is an attractive option to us if we do not need the cash from the exercise of the warrants after the Closing. If we call our Public Warrants for redemption and our management does not take advantage of this option, the Sponsor and its permitted transferees would still be entitled to exercise their Placement Warrants for cash or on a cashless basis using the same formula described above that other warrant holders would have been required to use had all warrant holders been required to exercise their warrants on a cashless basis, as described in more detail below.
A holder of a Public Warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (or such other amount as a holder may specify) of the shares of our common stock outstanding immediately after giving effect to such exercise.
If the number of outstanding shares of our common stock is increased by a stock dividend payable in shares of our common stock, or by a split-up of shares of our common stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number of shares of our common stock issuable on exercise of each Public Warrant will be increased in proportion to such increase in the outstanding shares of our common stock. A rights offering to holders of our common stock entitling holders to purchase shares of our common stock at a price less than the fair market value will be deemed a stock dividend of a number of shares of our common stock equal to the product of (i) the number of shares of our common stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for our common stock) and (ii) one (1) minus the quotient of (x) the price per share of our common stock paid in such rights offering divided by (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for our common stock, in determining the price payable for our common stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of our common stock as reported during the ten (10) trading day period ending on the trading day prior to the first date on which the shares of our common stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if we, at any time while the Public Warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or other assets to the holders of our common stock on account of such shares of our common stock (or other shares of our capital stock into which the warrants are convertible), other than (a) as described above, (b) certain ordinary cash dividends, (c) to satisfy the redemption rights of the holders of our common stock in connection with the Closing of the Business Combination, (d) to satisfy the redemption rights of the holders of our common stock in connection with an Extension requiring a stockholder vote to amend the Charter (i) for an Extension or (ii) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity, or (e) in connection with the redemption of our public shares upon our failure to complete our initial business combination, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of our common stock in respect of such event.
If the number of outstanding shares of our common stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of our common stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of our common stock issuable on exercise of each Public Warrant will be decreased in proportion to such decrease in outstanding shares of our common stock.
Whenever the number of shares of our common stock purchasable upon the exercise of the Public Warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of our common stock purchasable upon the exercise of the warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of shares of our common stock so purchasable immediately thereafter.
In case of any reclassification or reorganization of the outstanding shares of our common stock (other than those described above or that solely affects the par value of such shares of our common stock), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our outstanding shares of our common stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the Public Warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the shares of our common stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of our common stock in such a transaction is payable in the form of our common stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the warrant properly exercises the warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the Black-Scholes value (as defined in the warrant agreement) of the warrant. The purpose of such exercise price reduction is to provide additional value to holders of the warrants when an extraordinary transaction occurs during the exercise period of the warrants pursuant to which the holders of the warrants otherwise do not receive the full potential value of the warrants in order to determine and realize the option value component of the warrant. This formula is to compensate the warrant holder for the loss of the option value portion of the warrant due to the requirement that the warrant holder exercise the warrant within 30 days of the event. The Black-Scholes model is an accepted pricing model for estimating fair market value where no quoted market price for an instrument is available.
The Public Warrants and the Placement Warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and Pono. You should review a copy of the warrant agreement, which has been publicly filed with the SEC and which you can find in the list of exhibits to this registration statement, for a complete description of the terms and conditions applicable to the warrants. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least a majority of the then outstanding Public Warrants to make any change that adversely affects the interests of the registered holders of Public Warrants.
The Public Warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of our common stock and any voting rights until they exercise their warrants and receive shares of our common stock. After the issuance of shares of our common stock upon exercise of the warrants, each holder will be entitled to one (1) vote for each share held of record on all matters to be voted on by stockholders.
No fractional shares will be issued upon exercise of the Public Warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number of shares of our common stock to be issued to the warrant holder.
Placement Warrants
Except as described below, the Placement Warrants have terms and provisions that are identical to those of the Public Warrants, including as to exercise price, exercisability and exercise period. The Placement Warrants (including our common stock issuable upon exercise of the Placement Warrants) are not transferable, assignable or salable until 30 days after the Closing (except, among certain other limited exceptions to our officers and directors and other persons or entities affiliated with the Sponsor) and will be entitled to registration rights, so long as they are held by the Sponsor or its permitted transferees. The Sponsor, or its permitted transferees, has the option to exercise the Placement Warrants on a cashless basis. The Placement Warrants will be subject to the same terms and conditions as the Public Warrants, and among other matters, be redeemable by us and exercisable by the holders on the same basis as the Public Warrants.
If holders of the Placement Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering their warrants for that number of shares of our common stock equal to the quotient obtained by dividing (x) the product of the number of shares of our common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of our common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent.
Dividends
We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends in the foreseeable future. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial conditions. The payment of any cash dividends will be within the discretion of our board of directors at such time. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.
Our Transfer Agent and Warrant Agent
The transfer agent for our common stock and warrant agent for our warrants is Continental Stock Transfer & Trust Company. We have agreed to indemnify Continental Stock Transfer & Trust Company in its roles as transfer agent and warrant agent, its agents and each of its stockholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence, willful misconduct or bad faith of the indemnified person or entity.
Certain Anti-Takeover Provisions of Delaware Law and our Amended and Restated Certificate of Incorporation and Bylaws
The Amended Charter and the Company’s bylaws and the DGCL, contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by the Company’s board of directors and therefore depress the trading price of the Company’s common stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the Company’s board of directors or taking other corporate actions, including effecting changes in the management of the Company. Among other things, the Amended Charter and the Company’s bylaws include provisions regarding:
| ● | the ability of the Company’s board of directors to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; | |
| ● | a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of the board; | |
| ● | the limitation of the liability of, and the indemnification of, the Company’s directors and officers; | |
| ● | the exclusive right of the Company’s board of directors to elect a director to fill a vacancy created by the expansion of the Company’s board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the Company’s board of directors; | |
| ● | the requirement that directors may only be removed from the Company’s board of directors for cause; | |
| ● | a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors; | |
| ● | the requirement that a special meeting of stockholders may be called only by the Company’s board of directors, the chairperson of the Company’s board of directors, the Company’s chief executive officer or the Company’s president (in the absence of a chief executive officer), which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; | |
| ● | the procedures for the conduct and scheduling of board of directors and stockholder meetings; | |
| ● | the requirement for the affirmative vote of holders of at least 2/3 of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal any provision of the Amended Charter or the Company’s bylaws, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Company’s board of directors and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; | |
| ● | the ability of the Company’s board of directors to amend the bylaws, which may allow the Company’s board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and |
| ● | advance notice procedures with which stockholders must comply to nominate candidates to the Company’s board of directors or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Company’s board of directors and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company. |
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the Company’s board of directors or management.
Any provision of the Amended Charter, the Company’s bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for stockholders to receive a premium for their shares of the Company’s capital stock and could also affect the price that some investors are willing to pay for the Company’s common stock.
The Company is subject to statutory “anti-takeover” provisions under Delaware law; the provisions of Section 203 of the DGCL, an anti-takeover law. In general, Section 203 of the DGCL which may prohibit certain business combinations with stockholders owning 15% or more of the Company’s outstanding voting stock. These anti-takeover provisions and other provisions in the Company’s Amended Charter and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of the Company’s board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving the Company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause the Company to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in the Company’s board of directors could cause the market price of the Company’s common stock to decline.
Certain provisions of the Company’s amended and restated bylaws are intended to strengthen the position of the Company’s board of directors in the event of a hostile takeover attempt. These provisions have the effect of providing the Company’s board of directors with the sole power to fill vacancies on the Company’s board of directors and providing that stockholders may only call a special meeting by the request, in writing, of stockholders owning individually or together ten percent (10%) or more of the entire capital stock of the corporation issued and outstanding and entitled to vote. The Company may include provisions in its certificate of incorporation that may discourage a third party from making a proposal to acquire us, even if some of its stockholders might consider the proposal to be in their best interests. For example, the Company may amend its certificate of incorporation to authorize its board of directors to issue one (1) or more classes or series of preferred stock that could discourage or delay a tender offer or change in control. In addition, the Company may enter into a stockholder rights plan, commonly known as a “poison pill,” that may delay or prevent a change of control.
Exclusive Forum for Certain Lawsuits
The Amended Charter provides that, unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on its behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of its directors, officers, or other employees to the Company or its stockholders, (iii) any action arising pursuant to any provision of the DGCL, or the certificate of incorporation or the bylaws or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants. The Amended Charter also provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. The exclusive forum provision will be applicable to the fullest extent permitted by applicable law, subject to certain exceptions. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Any person or entity purchasing or otherwise acquiring any interest in any of the Company’s securities shall be deemed to have notice of and consented to this provision. This exclusive-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with the Company or its directors, officers, or other employees, which may discourage lawsuits against the Company and its directors, officers, and other employees. If a court were to find the exclusive-forum provision to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm its results of operations.
Registration Rights
The holders of the Founder Shares and Placement Units (and any securities underlying the Placement Units) are entitled to registration rights pursuant to the registration rights agreement that was signed at the time of the IPO, requiring the Company to register such securities for resale. The holders of the majority of these securities are entitled to make up to two demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Listing of Securities
The Company’s common stock and warrants are currently quoted on the Nasdaq Global Market and the Nasdaq Capital Market, respectively, under the symbols “SBC” and “SBCWW,” respectively.
Exhibit 10.1
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SBC Medical Group Holdings Incorporated 2024 Equity Incentive Plan |
Table of Contents
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Annex C |
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Article I. |
Purposes and Definitions |
C-1 |
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Section 1.01 |
Purposes of this Plan; Structure |
C-1 |
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Section 1.02 |
Definitions |
C-1 |
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Section 1.03 |
Additional Interpretations |
C-5 |
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Article II. |
Stock Subject to this Plan; Administration. |
C-5 |
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Section 2.01 |
Stock Subject to this Plan |
C-5 |
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Section 2.02 |
Administration of this Plan |
C-6 |
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Section 2.03 |
Eligibility |
C-7 |
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Section 2.04 |
Indemnification |
C-7 |
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Article III. |
Awards |
C-7 |
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Section 3.01 |
Stock Options |
C-7 |
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Section 3.02 |
Stock Appreciation Rights |
C-10 |
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Section 3.03 |
Restricted Stock |
C-10 |
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Section 3.04 |
Restricted Stock Units |
C-11 |
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Section 3.05 |
Performance Units and Performance Shares |
C-12 |
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Section 3.06 |
Cash-Based Awards and Other Stock-Based Awards |
C-14 |
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Section 3.07 |
Form of Award Agreements |
C-15 |
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Article IV. |
Additional Provisions Applicable to this Plan and Awards. |
C-16 |
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Section 4.01 |
Outside Director Limitations |
C-16 |
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Section 4.02 |
Compliance With Code Section 409A |
C-16 |
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Section 4.03 |
Leaves of Absence/Transfer Between Locations |
C-16 |
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Section 4.04 |
Limited Transferability of Awards |
C-16 |
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Section 4.05 |
Adjustments; Dissolution, Merger, Etc |
C-16 |
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Section 4.06 |
Tax Withholding |
C-18 |
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Section 4.07 |
Compliance with Securities Laws |
C-19 |
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Section 4.08 |
Tax Withholding |
C-19 |
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Section 4.09 |
No Effect on Employment or Service |
C-19 |
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Section 4.10 |
Repurchase Rights |
C-20 |
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Section 4.11 |
Fractional Shares |
C-20 |
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Section 4.12 |
Forfeiture Events |
C-20 |
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Section 4.13 |
Date of Grant |
C-20 |
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Section 4.14 |
Term of Plan |
C-20 |
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Section 4.15 |
Amendment and Termination of this Plan |
C-20 |
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Section 4.16 |
Conditions Upon Issuance of Shares |
C-21 |
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Section 4.17 |
Inability to Obtain Authority |
C-21 |
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Section 4.18 |
Shareholder Approval |
C-21 |
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Section 4.19 |
Retirement and Welfare Plans |
C-21 |
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Section 4.20 |
Beneficiary Designation |
C-21 |
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Section 4.21 |
Severability |
C-21 |
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Section 4.22 |
No Constraint on Corporate Action |
C-21 |
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Section 4.23 |
Unfunded Obligation |
C-22 |
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Section 4.24 |
Choice of Law |
C-22 |
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Annex C-i
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Exhibits |
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Exhibit A |
Form of Award Agreement for Options |
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Exhibit B |
Form of Award Agreement for Stock Appreciation Rights |
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Exhibit C |
Form of Award Agreement for Restricted Stock |
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Exhibit D |
Form of Award Agreement for Restricted Stock Units |
Annex C-ii
SBC Medical Group Holdings Incorporated
2024 Equity Incentive Plan
Article I. Purposes and Definitions
Section 1.01 Purposes of this Plan; Structure.
(a) The purposes of this Plan are (i) to attract and retain the best available personnel for positions of substantial responsibility, (ii) to provide additional incentive to Employees, Directors and Consultants, and (ii) to promote the success of the Company’s business.
(b) This Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards, Cash-Based Awards and Other Stock-Based Awards.
Section 1.02 Definitions. As used herein, the following definitions will apply:
(a) “Administrator” means the Board or any of its Committees as will be administering this Plan, in accordance with Section 2.02.
(b) “Affiliate” means, with respect to any Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with such Person.
(c) “Applicable Laws” means the legal and regulatory requirements relating to the administration of equity-based awards, including but not limited to the related issuance of shares of Common Stock, including but not limited to under U.S. federal and state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any non-U.S. country or jurisdiction where Awards are, or will be, granted under this Plan.
(d) “Award” means, individually or collectively, a grant under this Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, or Cash-Based Award or Other Stock-Based Award granted under this Plan.
(e) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under this Plan, which Award Agreement shall be is subject to the terms and conditions of this Plan.
(f) “Board” means the Board of Directors of the Company.
(g) “Cash-Based Award” means an Award denominated in cash and granted pursuant to Section 3.06.
(h) “Change in Control” means the occurrence of any of the following events, subject to the provisions of Section 1.03:
(i) Change in Ownership of the Company. A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this Section 1.02(h)(i), the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control. Further, if the shareholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company or of the ultimate parent entity of the Company, such event shall not be considered a Change in Control under this Section 1.02(h)(i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting
Annex C-1
securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities.
(ii) Change in Effective Control of the Company. A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this Section 1.02(h)(ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control.
(iii) Change in Ownership of a Substantial Portion of the Company’s Assets. A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this Section 1.02(h)(iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s shareholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in clause (B)(3) of this Section 1.02(h)(iii). For purposes of this Section 1.02(h)(iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
(i) “Code” means the Internal Revenue Code of 1986, as amended, and reference to a specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(j) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board, or by a duly authorized committee of the Board, in accordance with Section 2.02.
(k) “Common Stock” means the Class A common stock, par value $0.0001 per share, of the Company, or any other class of stock into which the Class A common stock is reclassified after the date of this Plan.
(l) “Company” means SBC Medical Group Holdings Incorporated, a Delaware corporation previously named Pono Capital Two, Inc., or any successor thereto.
(m) “Consultant” means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render bona fide services to such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital-raising transaction, and (ii) do not directly promote or maintain a market for the Company’s securities, in each case, within the meaning of Form S-8 promulgated under the Securities Act, and provided further, that a Consultant will include only those persons to whom the issuance of Shares may be registered under Form S-8 promulgated under the Securities Act.
(n) “Control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract, or otherwise.” Controlled”, “Controlling” and “under common Control with” have correlative meanings. Without limiting the foregoing a Person (the “Controlled Person”) shall be deemed Controlled by (a) any other Person (the “10% Owner”) (i) owning beneficially, as meant in Rule 13d-3 under the Exchange Act, securities entitling such Person to cast 10% or more of the votes
Annex C-2
for election of directors or equivalent governing authority of the Controlled Person or (ii) entitled to be allocated or receive 10% or more of the profits, losses, or distributions of the Controlled Person; (b) an officer, director, general partner, partner (other than a limited partner), manager, or member (other than a member having no management authority that is not a 10% Owner ) of the Controlled Person; or (c) a spouse, parent, lineal descendant, sibling, aunt, uncle, niece, nephew, mother-in-law, father-in-law, sister-in-law, or brother-in-law of an Affiliate of the Controlled Person or a trust for the benefit of an Affiliate of the Controlled Person or of which an Affiliate of the Controlled Person is a trustee.
(o) “Director” means a member of the Board.
(p) “Disability” means total and permanent disability as defined in Code Section 22(e)(3), provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.
(q) “Dividend Equivalent Right” means the right of a Participant, granted at the discretion of the Administrator or as otherwise provided by this Plan, to receive a credit for the account of such Participant in an amount equal to the cash dividends paid on one Share for each Share represented by an Award held by such Participant.
(r) “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company, provided that neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company or any Parent or Subsidiary of the Company.
(s) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(t) “Exchange Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Administrator, and/or (iii) the exercise price of an outstanding Award is reduced or increased. The Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.
(u) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system (other than an over-the counter market, which will not be considered an established stock exchange of national market system for the purposes of this definition), including without limitation the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market of The Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock (or, if no closing sales price was reported on that date, as applicable, on the last trading date such closing sales price was reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share will be the mean between the high bid and low asked prices for the Common Stock on the day of determination (or, if no bids and asks were reported on that date, as applicable, on the last trading date such bids and asks were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(iii) In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
(v) “Fiscal Year” means the fiscal year of the Company.
(w) “Incentive Stock Option” means an Option that by its terms qualifies and is otherwise intended to qualify as an incentive stock option within the meaning of Code Section 422 and the regulations promulgated thereunder.
Annex C-3
(x) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(y) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(z) “Option” means a stock option granted pursuant to this Plan.
(aa) “Outside Director” means a Director who is not an Employee.
(bb) “Other Stock-Based Award” means an Award denominated in Shares and granted pursuant to Section 3.06.
(cc) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Code Section 424(e).
(dd) “Participant” means the holder of an outstanding Award.
(ee) “Performance Award” means an Award of Performance Shares or Performance Units.
(ff) “Performance Award Formula” means, for any Performance Award, a formula or table established by the Administrator pursuant to Section 3.05 which provides the basis for computing the value of a Performance Award at one or more levels of attainment of the applicable Performance Goal(s) measured as of the end of the applicable Performance Period.
(gg) “Performance Share” means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine pursuant to Section 3.05.
(hh) “Performance Unit” means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 3.05.
(ii) “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.
(jj) “Person” means an individual, corporation, partnership (including a general partnership, limited partnership or limited liability partnership), limited liability company, association, trust or other entity or organization, including a government, domestic or foreign, or political subdivision thereof, or an agency or instrumentality thereof.
(kk) “Plan” means this 2024 Equity Incentive Plan.
(ll) “Restricted Stock” means Shares issued pursuant to an Award of Restricted Stock under Section 3.03, or issued pursuant to the early exercise of an Option.
(mm)“Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 3.04. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
(nn) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to this Plan.
(oo) “Section 16(b)” means Section 16(b) of the Exchange Act.
(pp) “Securities Act” means the Securities Act of 1933, as amended.
(qq) “Service Provider” means an Employee, Director or Consultant.
(rr) “Share” means a share of the Common Stock, as adjusted in accordance with Section 4.05.
Annex C-4
(ss) “Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that pursuant to Section 3.02 is designated as a Stock Appreciation Right.
(tt) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Code Section 424(f).
Section 1.03 Additional Interpretations. For purposes of Section 1.02(h), persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time. Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the jurisdiction of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
Article II. Stock Subject to this Plan; Administration.
Section 2.01 Stock Subject to this Plan.
(a) Subject to the provisions of Section 2.01(a) and Section 4.05, the maximum aggregate number of Shares that may be subject to Awards and sold under this Plan is equal to 15% of the fully diluted, and as converted, amount of common stock to be outstanding immediately following consummation of the Business Combination (as defined below), or approximately 15,000,000 shares of common stock (“Shares”). The Shares may be authorized but unissued, or reacquired Common Stock. “Business Combination” means the merger of Pono Two Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, with and into the entity that was previously named SBC Medical Group Holdings Incorporated, and which is expected to change its name to SBC Medical Group, Inc. prior to such merger.
(b) If an Award expires or becomes un-exercisable without having been exercised in full, is surrendered pursuant to an Exchange Program, or, with respect to Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased Shares (or for Awards other than Options or Stock Appreciation Rights the forfeited or repurchased Shares) which were subject thereto will become available for future grant or sale under this Plan (unless this Plan has terminated). With respect to Stock Appreciation Rights, only Shares actually issued pursuant to a Stock Appreciation Right will cease to be available under this Plan; all remaining Shares under Stock Appreciation Rights will remain available for future grant or sale under this Plan (unless this Plan has terminated). Shares that have actually been issued under this Plan under any Award will not be returned to this Plan and will not become available for future distribution under this Plan; provided, however, that if Shares issued pursuant to Awards of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company due to the failure to vest, such Shares will become available for future grant under this Plan. Shares used to pay the exercise price of an Award or to satisfy the tax withholdings related to an Award will become available for future grant or sale under this Plan. To the extent an Award under this Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under this Plan. Notwithstanding the foregoing and, subject to adjustment as provided in Section 4.05, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 2.01(a), plus, to the extent allowable under Code Section 422 and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under this Plan pursuant to Section 2.01(b) and Section 2.01(c).
(c) The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of this Plan.
Annex C-5
Section 2.02 Administration of this Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer this Plan.
(ii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.
(iii) Other Administration. Other than as provided above, this Plan will be administered by (A) the Board or (B) a Committee, which Committee will be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of this Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Awards may be granted hereunder;
(iii) to determine the number of Shares to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under this Plan;
(v) to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder, with such terms and conditions including, but not being limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine;
(vi) to determine whether an Award will be settled in Shares, cash, other property or in any combination thereof;
(vii) to institute and determine the terms and conditions of an Exchange Program;
(viii) to construe and interpret the terms of this Plan and Awards granted pursuant to this Plan;
(ix) to prescribe, amend and rescind rules and regulations relating to this Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable non-U.S. laws or for qualifying for favorable tax treatment under applicable non-U.S. laws;
(x) to modify or amend each Award (subject to Section 4.15(c)), including but not limited to the discretionary authority to extend the post-termination exercisability period of Awards; provided, however, that in no case will an Option or Stock Appreciation Right be extended beyond its original maximum term;
(xi) to allow Participants to satisfy tax withholding obligations in a manner prescribed in Section 4.05(d);
(xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
(xiii) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that otherwise would be due to such Participant under an Award;
(xiv) to prescribe, amend or rescind rules, guidelines and policies relating to this Plan, or to adopt sub-plans or supplements to, or alternative versions of, this Plan, including, without limitation, as the Administrator deems necessary or desirable to comply with the laws of, or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose residents may be granted Awards;
Annex C-6
(xv) to correct any defect, supply any omission or reconcile any inconsistency in this Plan or any Award Agreement and to make all other determinations and take such other actions with respect to this Plan or any Award as the Administrator may deem advisable to the extent not inconsistent with the provisions of this Plan or applicable law; and
(xvi) to make all other determinations deemed necessary or advisable for administering this Plan.
(c) Option or Stock Appreciation Right Repricing. The Administrator shall have the authority, without additional approval by the shareholders of the Company, to approve a program providing for either (a) the cancellation of outstanding Options or Stock Appreciation Rights having exercise prices per share greater than the then Fair Market Value of a Share (“Underwater Awards”) and the grant in substitution therefor of new Options or Stock Appreciation Rights covering the same or a different number of shares but with an exercise price per share equal to the Fair Market Value per share on the new grant date or payments in cash, or (b) the amendment of outstanding Underwater Awards to reduce the exercise price thereof to the Fair Market Value per share on the date of amendment.
(d) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards and will be given the maximum deference permitted by Applicable Laws
Section 2.03 Eligibility. Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
Section 2.04 Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or the Administrator or as officers or employees of the Company or any of its Affiliates, to the extent permitted by applicable law, members of the Board or the Administrator and any officers or employees of the Company or any of its Affiliates to whom authority to act for the Board, the Administrator or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with this Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
Article III. Awards.
Section 3.01 Stock Options.
(a) Grant of Options. Subject to the terms and provisions of this Plan, the Administrator, at any time and from time to time, may grant Options in such amounts as the Administrator, in its sole discretion, will determine.
(b) Option Agreement. Each Award of an Option will be evidenced by an Award Agreement that will specify the exercise price, the term of the Option, the number of Shares subject to the Option, the exercise restrictions, if any, applicable to the Option, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(c) Limitations. Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. Notwithstanding such designation, however, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated
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as Nonstatutory Stock Options. For purposes of this Section 3.01(c), Incentive Stock Options will be taken into account in the order in which they were granted, the Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted, and the calculation will be performed in accordance with Code Section 422 and Treasury Regulations promulgated thereunder.
(d) Term of Option. The term of each Option will be stated in the Award Agreement. In the case of an Incentive Stock Option, the term will be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.
(e) Option Exercise Price and Consideration.
(i) Exercise Price. The per Share exercise price for the Shares to be issued pursuant to the exercise of an Option will be determined by the Administrator, subject to the following:
(1) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than one hundred ten percent (110%) of the Fair Market Value per Share (or the fair market value per Share as determined in accordance with Treas. Reg. 1.409A-1(b)(5)(iv)(A)) on the date of grant;
(B) granted to any Employee other than an Employee described in paragraph (1) immediately above, the per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant;
(2) In the case of a Nonstatutory Stock Option, the per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant (or the fair market value per Share as determined in accordance with Treas. Reg. 1.409A-1(b)(5)(iv)(A)).
(3) Notwithstanding the foregoing provisions of this Section 3.01(e), Options may be granted with a per Share exercise price of less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Code Section 424(a).
(ii) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.
(iii) Form of Consideration. The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory note, to the extent permitted by Applicable Laws; (4) other Shares, provided that such Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option will be exercised and provided further that accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator determines in its sole discretion; (5) consideration received by the Company under a broker assisted (or other) cashless exercise program (whether through a broker or otherwise) implemented by the Company in connection with this Plan; (6) by net exercise; (7) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or (8) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator will consider if acceptance of such consideration may be reasonably expected to benefit the Company.
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(f) Exercise of Option.
(i) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder will be exercisable according to the terms of this Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share. An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Administrator may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable tax withholding). Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and this Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 4.05. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of this Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(ii) Termination of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon the Participant’s termination as the result of the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to this Plan. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to this Plan.
(iii) Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to this Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to this Plan.
(iv) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death. Unless otherwise provided by the Administrator, if at the time of
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death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to this Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to this Plan. .
Section 3.02 Stock Appreciation Rights.
(a) Grant of Stock Appreciation Rights. Subject to the terms and conditions of this Plan, a Stock Appreciation Right may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.
(b) Number of Shares. The Administrator will have complete discretion to determine the number of Shares subject to any Award of Stock Appreciation Rights.
(c) Exercise Price and Other Terms. The per Share exercise price for the Shares that will determine the amount of the payment to be received upon exercise of a Stock Appreciation Right as set forth in Section 3.02(f) will be determined by the Administrator and will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. Otherwise, the Administrator, subject to the provisions of this Plan, will have complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under this Plan. Stock Appreciation Rights which have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award Agreement, specifying the number of Stock Appreciation Rights to be exercised and the date on which such Stock Appreciation Rights were awarded and vested.
(d) Stock Appreciation Right Agreement. Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(e) Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under this Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 3.01(d) relating to the maximum term and Section 3.01(f) relating to exercise also will apply to Stock Appreciation Rights.
(f) Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying (i) the difference between the Fair Market Value of a Share on the date of exercise over the exercise price; and (ii) the number of Shares with respect to which the Stock Appreciation Right is exercised. At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalent value, or in some combination thereof.
(g) Deemed Exercise of Stock Appreciation Rights. If, on the date on which a Stock Appreciation Rights would otherwise terminate or expire, the Stock Appreciation Right by its terms remains exercisable immediately prior to such termination or expiration and, if so exercised, would result in a payment to the holder of such Stock Appreciation Right, then any portion of such Stock Appreciation Right which has not previously been exercised shall automatically be deemed to be exercised as of such date with respect to such portion.
Section 3.03 Restricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and provisions of this Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.
(b) Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, the Company as escrow agent will hold Shares of Restricted Stock until the restrictions on such Shares have lapsed.
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(c) Transferability. Except as provided in this Section 3.03 or as the Administrator determines, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.
(d) Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.
(e) Removal of Restrictions. Except as otherwise provided in this Section 3.03, Shares of Restricted Stock covered by each Restricted Stock grant made under this Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction or at such other time as the Administrator may determine. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.
(f) Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
(g) Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares, unless the Administrator provides otherwise. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
(h) Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under this Plan.
Section 3.04 Restricted Stock Units.
(a) Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. After the Administrator determines that it will grant Restricted Stock Units under this Plan, it will advise the Participant in an Award Agreement of the terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units.
(b) Vesting Criteria and Other Terms. The Administrator will set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.
(c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as determined by the Administrator or as set forth in the applicable Award Agreement. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.
(d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) determined by the Administrator and set forth in the Award Agreement. The Administrator, in its sole discretion, may settle earned Restricted Stock Units in cash, Shares, or a combination of both.
(e) Voting Rights, Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to Shares represented by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Administrator, in its discretion, may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated. Dividend Equivalent Rights, if any,
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shall be paid by crediting the Participant with a cash amount or with additional whole Restricted Stock Units as of the date of payment of such cash dividends on Stock, as determined by the Administrator. The number of additional Restricted Stock Units (rounded to the nearest whole number), if any, to be credited shall be determined by dividing (a) the amount of cash dividends paid on the dividend payment date with respect to the number of Shares represented by the Restricted Stock Units previously credited to the Participant by (b) the Fair Market Value per Share on such date. Such cash amount or additional Restricted Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time as the Restricted Stock Units originally subject to the Restricted Stock Unit Award. In the event of a dividend or distribution paid in Shares or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.05, appropriate adjustments shall be made in the Participant’s Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the Shares issuable upon settlement of the Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same vesting conditions as are applicable to the Award.
(f) Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.
Section 3.05 Performance Units and Performance Shares.
(a) Issuance. Performance Awards may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant.
(b) Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.
(c) Performance Objectives and Other Terms. The Administrator will set performance objectives or other vesting provisions (including, without limitation, continued status as a Service Provider) in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during which the performance objectives or other vesting provisions must be met will be called the “Performance Period.” Each Performance Awards will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(d) Performance Targets and Goals. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion (“Performance Goals”). Performance Goals shall be established by the Administrator on the basis of targets to be attained (“Performance Targets”) with respect to one or more measures of business or financial performance (each, a “Performance Measure”), subject to the following:
(i) Performance Measures. Performance Measures shall be calculated in accordance with the Company’s financial statements, or, if such measures are not reported in the Company’s financial statements, they shall be calculated in accordance with generally accepted accounting principles, a method used generally in the Company’s industry, or in accordance with a methodology established by the Administrator prior to the grant of the Performance Award. As specified by the Administrator, Performance Measures may be calculated with respect to the Company and its Subsidiaries consolidated therewith for financial reporting purposes, one or more Subsidiaries or such division or other business unit of any of them selected by the Administrator. Unless otherwise determined by the Administrator prior to the grant of the Performance Award, the Performance Measures applicable to the Performance Award shall be calculated prior to the accrual of expense for any Performance Award for the same Performance Period and excluding the effect (whether
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positive or negative) on the Performance Measures of any change in accounting standards or any unusual or infrequently occurring event or transaction, as determined by the Administrator, occurring after the establishment of the Performance Goals applicable to the Performance Award. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of Performance Measures in order to prevent the dilution or enlargement of the Participant’s rights with respect to a Performance Award. Performance Measures may be based upon one or more of the following, as determined by the Administrator: (1) revenue; (2) sales; (3) expenses; (4) operating income; (5) gross margin; (6) operating margin; (7) earnings before any one or more of: stock-based compensation expense, interest, taxes, depreciation and amortization; (8) pre-tax profit; (9) net operating income; (10) net income; (11) economic value added; (12) free cash flow; (13) operating cash flow; (14) balance of cash, cash equivalents and marketable securities; (15) stock price; (16) earnings per share; (17) return on shareholder equity; (18) return on capital; (19) return on assets; (20) return on investment; (21) total shareholder return; (22) employee satisfaction; (23) employee retention; (24) market share; (25) customer satisfaction; (26) product development; (27) research and development expenses; (28) completion of an identified special project; and (29) completion of a joint venture or other corporate transaction.
(ii) Performance Targets. Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the final value of a Performance Award determined under the applicable Performance Award Formula by the Performance Target level attained during the applicable Performance Period. A Performance Target may be stated as an absolute value, an increase or decrease in a value, or as a value determined relative to an index, budget or other standard selected by the Administrator.
(e) Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.
(f) Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units or Performance Shares will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.
(g) Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned or unvested Performance Units or Performance Shares will be forfeited to the Company, and again will be available for grant under this Plan.
(h) Qualified Performance-Based Awards. Restricted Stock and Restricted Stock Units granted to officers and Employees of the Company or any Parent or Subsidiary of the Company (within the meaning of Code Section 424) may be granted with the intent that the award satisfy the “Performance-Based Exception” (any such award intended to satisfy the Performance-Based Exception, a “Qualified Performance-Based Award”). The grant, vesting, or payment of a Qualified Performance-Based Awards may depend on the degree of achievement of one or more performance goals relative to a pre-established targeted level or levels using one or more performance targets as determined by the Administrator (on an absolute or relative (including, without limitation, relative to the performance of one or more other companies or upon comparisons of any of the indicators of performance relative to one or more other companies) basis, any of which may also be expressed as a growth or decline measure relative to an amount or performance for a prior date or period) for the Company on a consolidated basis or for one or more of the Company’s Subsidiaries, segments, divisions, or business or operational units, or any combination of the foregoing. The performance period applicable to any Performance
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Units or Performance Shares may not be less than three (3) months nor more than ten (10) years. To satisfy the Performance-Based Exception, the performance measure(s) applicable to the Qualified Performance-Based Award and specific performance formula, goal or goals (“targets”), including must be established and approved by the Administrator during the first ninety (90) days of the applicable Performance Period (and, in the case of Performance Periods of less than one year, in no event after 25% or more of the Performance Period has elapsed) and while performance relating to such target(s) remains substantially uncertain within the meaning of Section 162(m) of the Code.
(i) Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to Shares represented by Performance Share Awards until the date of the issuance of such Shares, if any (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Administrator, in its discretion, may provide in the Award Agreement evidencing any Performance Share Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date the Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date on which the Performance Shares are settled or the date on which they are forfeited. Such Dividend Equivalent Rights, if any, shall be credited to the Participant either in cash or in the form of additional whole Performance Shares as of the date of payment of such cash dividends on Stock, as determined by the Administrator. The number of additional Performance Shares (rounded to the nearest whole number), if any, to be so credited shall be determined by dividing (a) the amount of cash dividends paid on the dividend payment date with respect to the number of Shares represented by the Performance Shares previously credited to the Participant by (b) the Fair Market Value per Share on such date. Dividend Equivalent Rights, if any, shall be accumulated and paid to the extent that the related Performance Shares become nonforfeitable. Settlement of Dividend Equivalent Rights may be made in cash, Shares, or a combination thereof as determined by the Administrator, and may be paid on the same basis as settlement of the related Performance Share as provided in Section 3.05(e). Dividend Equivalent Rights shall not be paid with respect to Performance Units. In the event of a dividend or distribution paid in Shares or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.05, appropriate adjustments shall be made in the Participant’s Performance Share Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the Shares issuable upon settlement of the Performance Share Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Performance Goals as are applicable to the Award.
Section 3.06 Cash-Based Awards and Other Stock-Based Awards. Cash-Based Awards and Other Stock-Based Awards shall be evidenced by Award Agreements in such form as the Administrator shall establish. Such Award Agreements may incorporate all or any of the terms of this Plan by reference and shall comply with and be subject to the following terms and conditions.
(a) Grant of Cash-Based Awards. Subject to the provisions of this Plan, the Administrator, at any time and from time to time, may grant Cash-Based Awards to Participants in such amounts and upon such terms and conditions, including the achievement of performance criteria, as the Administrator may determine.
(b) Grant of Other Stock-Based Awards. The Administrator may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted securities, stock-equivalent units, stock appreciation units, securities or debentures convertible into common stock or other forms determined by the Administrator) in such amounts and subject to such terms and conditions as the Administrator shall determine. Other Stock-Based Awards may be made available as a form of payment in the settlement of other Awards or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock-Based Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of a Share and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
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(c) Value of Cash-Based and Other Stock-Based Awards. Each Cash-Based Award shall specify a monetary payment amount or payment range as determined by the Administrator. Each Other Stock-Based Award shall be expressed in terms of Shares or units based on such Shares, as determined by the Administrator. The Administrator may require the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 3.05, as shall be established by the Administrator and set forth in the Award Agreement evidencing such Award. If the Administrator exercises its discretion to establish performance criteria, the final value of Cash-Based Awards or Other Stock-Based Awards that will be paid to the Participant will depend on the extent to which the performance criteria are met. The establishment of performance criteria with respect to the grant or vesting of any Cash-Based Award or Other Stock-Based Award intended to result in Performance-Based Compensation shall follow procedures substantially equivalent to those applicable to Performance Awards set forth in Section 3.05.
(d) Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards. Payment or settlement, if any, with respect to a Cash-Based Award or an Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash, Shares or other securities or any combination thereof as the Administrator determines. The determination and certification of the final value with respect to any Cash-Based Award or Other Stock-Based Award intended to result in Performance-Based Compensation shall comply with the requirements applicable to Performance Awards set forth in Section 3.05. To the extent applicable, payment or settlement with respect to each Cash-Based Award and Other Stock-Based Award shall be made in compliance with the requirements of Section 409A.
(e) Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to Shares represented by Other Stock-Based Awards until the date of the issuance of such Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), if any, in settlement of such Award. However, the Administrator, in its discretion, may provide in the Award Agreement evidencing any Other Stock-Based Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated. Such Dividend Equivalent Rights, if any, shall be paid in accordance with the provisions set forth in Section 3.04(e). Dividend Equivalent Rights shall not be granted with respect to Cash-Based Awards. In the event of a dividend or distribution paid in Shares or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.05, appropriate adjustments shall be made in the Participant’s Other Stock-Based Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the Shares issuable upon settlement of such Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same vesting conditions and performance criteria, if any, as are applicable to the Award.
(f) Nontransferability of Cash-Based Awards and Other Stock-Based Awards. Prior to the payment or settlement of a Cash-Based Award or Other Stock-Based Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. The Administrator may impose such additional restrictions on any Shares issued in settlement of Cash-Based Awards and Other Stock-Based Awards as it may deem advisable, including, without limitation, minimum holding period requirements, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, or under any state securities laws or foreign law applicable to such Shares.
Section 3.07 Form of Award Agreements. A form of Award Agreement for a grant of Options is attached hereto as Exhibit A, a form of Award Agreement for a grant of Stock Appreciation Rights is attached hereto as Exhibit B, a form of Award Agreement for a grant of Restricted Stock is attached hereto as Exhibit C; and a form of Award Agreement for a grant of Restricted Stock Units is attached hereto as Exhibit D, provided that the Administrator
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shall have the discretion to modify such forms and to replace such forms with any other agreement as determined by the Administrator. In the event of a conflict between the terms of any Award Agreement and the provisions in the body of this Plan, the terms of the Award Agreement shall control.
Article IV. Additional Provisions Applicable to this Plan and Awards
Section 4.01 Outside Director Limitations. No Outside Director may be granted, in any Fiscal Year, Awards with a grant date fair value (computed as of the date of grant in accordance with U.S. generally accepted accounting principles) of more than $300,000. Any Awards granted to an individual while he or she was an Employee, or while he or she was a Consultant but not an Outside Director, will not count for purposes of the limitations under this Section 4.01.
Section 4.02 Compliance With Code Section 409A. Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Code Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A, except as otherwise determined in the sole discretion of the Administrator. This Plan and each Award Agreement under this Plan is intended to meet the requirements of Code Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to Code Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Code Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A. In no event will the Company have any obligation under the terms of this Plan to reimburse a Participant for any taxes or other costs that may be imposed on Participant as a result of Section 409A.
Section 4.03 Leaves of Absence/Transfer Between Locations. Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months following the first (1st) day of such leave, any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
Section 4.04 Limited Transferability of Awards. Unless determined otherwise by the Administrator, Awards may not be sold, pledged, assigned, hypothecated, or otherwise transferred in any manner other than by will or by the laws of descent and distribution, and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.
Section 4.05 Adjustments; Dissolution, Merger, Etc.
(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under this Plan, will adjust the number and class of shares of stock that may be delivered under this Plan and/or the number, class, and price of shares of stock covered by each outstanding Award, and the numerical Share limits of Section 2.01.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.
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(c) Change in Control.
(i) In the event of a merger of the Company with or into another corporation or other entity or a Change in Control, each outstanding Award will be treated as the Administrator determines (subject to the provisions of the following paragraph) without a Participant’s consent, including, without limitation, that (i) Awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an Affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a Participant, that the Participant’s Awards will terminate upon or immediately prior to the consummation of such merger or Change in Control; (iii) outstanding Awards will vest and become exercisable, realizable, or payable, or restrictions applicable to an Award will lapse, in whole or in part prior to or upon consummation of such merger or Change in Control, and, to the extent the Administrator determines, terminate upon or immediately prior to the effectiveness of such merger or Change in Control; (iv) (A) the termination of an Award in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment), or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion; or (v) any combination of the foregoing. In taking any of the actions permitted under this Section 4.05(c), the Administrator will not be obligated to treat all Awards, all Awards held by a Participant, or all Awards of the same type, similarly.
(ii) In the event that the successor corporation does not assume or substitute for the Award (or portion thereof), the Participant will fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met, in all cases, unless specifically provided otherwise under the applicable Award Agreement or other written agreement between the Participant and the Company or any of its Subsidiaries or Parents, as applicable. In addition, if an Option or Stock Appreciation Right is not assumed or substituted in the event of a merger or Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock Appreciation Right will be exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.
(iii) For the purposes of this Section 4.05(c) and Section 4.05(d), an Award will be considered assumed if, following the merger or Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, Performance Unit, or Performance Share, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control.
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(iv) Notwithstanding anything in this Section 4.05(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent, in all cases, unless specifically provided otherwise under the applicable Award Agreement or other written agreement between the Participant and the Company or any of its Subsidiaries or Parents, as applicable; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
(v) Notwithstanding anything in this Section 4.05(c) to the contrary, and unless otherwise provided in an Award Agreement, if an Award that vests, is earned or paid-out under an Award Agreement is subject to Code Section 409A and if the change in control definition contained in the Award Agreement does not comply with the definition of “change of control” for purposes of a distribution under Code Section 409A, then any payment of an amount that is otherwise accelerated under this Section 4.05(c) will be delayed until the earliest time that such payment would be permissible under Code Section 409A without triggering any penalties applicable under Code Section 409A.
(vi) The Administrator may, without affecting the number of Shares reserved or available hereunder, authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization upon such terms and conditions as it may deem appropriate, subject to compliance with Section 409A and any other applicable provisions of the Code.
(d) Outside Director Awards. In the event of a Change in Control, with respect to Awards granted to an Outside Director, the Outside Directors will fully vest in and have the right to exercise Options and/or Stock Appreciation Rights as to all of the Shares underlying such Award, including those Shares which would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met, unless specifically provided otherwise under the applicable Award Agreement or other written agreement between the Participant and the Company or any of its Subsidiaries or Parents, as applicable.
Section 4.06 Tax Withholding.
(a) Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof) or such earlier time as any tax withholding obligation is due, the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, non-U.S. or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).
(b) Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by such methods as the Administrator shall determine, including, without limitation, (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares having a fair market value equal to the minimum statutory amount required to be withheld or such greater amount as the Administrator may determine if such amount would not have adverse accounting consequences, as the Administrator determines in its sole discretion, (iii) delivering to the Company already-owned Shares having a fair market value equal to the minimum statutory amount required to be withheld or such greater amount as the Administrator may determine, in each case, provided the delivery of such Shares will not result in any adverse accounting consequences, as the Administrator determines in its sole discretion, (iv) selling a sufficient number of Shares otherwise deliverable to the Participant through such means as the Administrator may determine in its sole discretion (whether through a broker
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or otherwise) equal to the amount required to be withheld, or (v) any combination of the foregoing methods of payment. The amount of the withholding requirement will be deemed to include any amount which the Administrator agrees may be withheld at the time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Award on the date that the amount of tax to be withheld is to be determined or such greater amount as the Administrator may determine if such amount would not have adverse accounting consequences, as the Administrator determines in its sole discretion. The fair market value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.
Section 4.07 Compliance with Securities Laws. The grant of Awards and the issuance of Shares pursuant to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities and the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Award may be exercised or shares issued pursuant to an Award unless (a) a registration statement under the Securities Act shall at the time of such exercise or issuance be in effect with respect to the shares issuable pursuant to the Award, or (b) in the opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares under this Plan shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
Section 4.08 Tax Withholding.
(a) Tax Withholding in General. The Company shall have the right to deduct from any and all payments made under this Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes (including social insurance), if any, required by law to be withheld by the Company or any of its Affiliates with respect to an Award or the Shares acquired pursuant thereto. The Company shall have no obligation to deliver Shares, to release Shares from an escrow established pursuant to an Award Agreement, or to make any payment in cash under this Plan until the Company or its Affiliate’s, as applicable, withholding obligations have been satisfied by the Participant.
(b) Withholding in or Directed Sale of Shares. The Company shall have the right, but not the obligation, to deduct from the Shares issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole Shares having a Fair Market Value, as determined by the Administrator, equal to all or any part of the tax withholding obligations of any the Company or its Affiliates, as applicable. The Fair Market Value of any Shares withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates. The Administrator may require a Participant to direct a broker, upon the vesting, exercise or settlement of an Award, to sell a portion of the shares subject to the Award determined by the Administrator in its discretion to be sufficient to cover the tax withholding obligations of the Company or its Affiliates, as applicable, and to remit an amount equal to such tax withholding obligations to the Company or its Affiliates, as applicable, in cash.
Section 4.09 No Effect on Employment or Service. Neither this Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company or its Subsidiaries or Parents, as applicable, nor will they interfere in any way with the Participant’s right or the right of the Company and its Subsidiaries or Parents, as applicable to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.
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Section 4.10 Repurchase Rights. Shares issued under this Plan may be subject to one or more repurchase options, or other conditions and restrictions as determined by the Administrator in its discretion at the time the Award is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of Shares hereunder and shall promptly present to the Company any and all certificates representing Shares acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
Section 4.11 Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise or settlement of any Award.
Section 4.12 Forfeiture Events.
(a) All Awards under this Plan will be subject to recoupment under any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other Applicable Laws. In addition, the Administrator may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Administrator determines necessary or appropriate, including but not limited to a reacquisition right regarding previously acquired Shares or other cash or property. Unless this Section 4.12 is specifically mentioned and waived in an Award Agreement or other document, no recovery of compensation under a clawback policy or otherwise will be an event that triggers or contributes to any right of a Participant to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company or a Subsidiary or Parent of the Company.
(b) Notwithstanding any other provision of this Plan, if the Participant’s service to the Company or any of its Affiliates as a Service Provider is terminated or ceases for any reason, then any Award which has not vested as of such time in accordance with its terms shall automatically be forfeited and cancelled and shall cease to vest, be exercisable or otherwise provide any benefit to Participant, provided that such provision may be modified in any Award Agreement.
(c) The Administrator may specify in an Award Agreement that the Participant’s rights, payments, and may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of additional of specified events as determined by the Administrator, in addition to any otherwise applicable vesting or performance conditions of an Award.
Section 4.13 Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.
Section 4.14 Term of Plan. This Plan will become effective upon its adoption by the Board. It will continue in effect for a term of ten (10) years from the date adopted by the Board, unless terminated earlier under Section 4.15.
Section 4.15 Amendment and Termination of this Plan.
(a) Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate this Plan.
(b) Shareholder Approval. The Company will obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of this Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of this Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under this Plan prior to the date of such termination.
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Section 4.16 Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
Section 4.17 Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction or to complete or comply with the requirements of any registration or other qualification of the Shares under any state, federal or non-U.S. law or under the rules and regulations of the Securities and Exchange Commission, the stock exchange on which Shares of the same class are then listed, or any other governmental or regulatory body, which authority, registration, qualification or rule compliance is deemed by the Company’s counsel to be necessary or advisable for the issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority, registration, qualification or rule compliance will not have been obtained.
Section 4.18 Shareholder Approval. This Plan will be presented for approval by the shareholders of the Company within twelve (12) months after the date this Plan is adopted by the Board. Such shareholder approval will be obtained in the manner and to the degree required under Applicable Laws. No Option granted under this Plan may be treated as an Incentive Stock Option if this Plan is not approved by shareholders of the Company within twelve (12) months after the date this Plan is adopted by the Board.
Section 4.19 Retirement and Welfare Plans. Neither Awards made under this Plan nor Shares or cash paid pursuant to such Awards may be included as “compensation” for purposes of computing the benefits payable to any Participant under the Company’s or any of its Affiliates’ retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing a Participant’s benefit.
Section 4.20 Beneficiary Designation. Subject to local laws and procedures, each Participant may file with the Company a written designation of a beneficiary who is to receive any benefit under this Plan to which the Participant is entitled in the event of such Participant’s death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. If a married Participant designates a beneficiary other than the Participant’s spouse, the effectiveness of such designation may be subject to the consent of the Participant’s spouse. If a Participant dies without an effective designation of a beneficiary who is living at the time of the Participant’s death, the Company will pay any remaining unpaid benefits to the Participant’s legal representative.
Section 4.21 Severability. If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of this Plan shall not in any way be affected or impaired thereby.
Section 4.22 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (a) limit, impair, or otherwise affect the Company’s or any of its Affiliate’s right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or (b) limit the right or power of the Company any of its Affiliates to take any action which such entity deems to be necessary or appropriate.
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Section 4.23 Unfunded Obligation. Participants shall have the status of general unsecured creditors of the Company. Any amounts payable to Participants pursuant to this Plan shall be considered unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. Neither the Company nor any of its Affiliates shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Administrator, the Company or any of its Affiliates and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of the Company or any of its Affiliates. The Participants shall have no claim against the Company or any of its Affiliates for any changes in the value of any assets which may be invested or reinvested by the Company with respect to this Plan.
Section 4.24 Choice of Law. Except to the extent governed by applicable federal law, the validity, interpretation, construction and performance of this Plan and each Award Agreement shall be governed by the laws of the State of Delaware, without regard to its conflict of law rules.
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Exhibit A
Form of Option Award Agreement
SBC Medical Group Holdings Incorporated
Option Award Agreement
This grant of an Award to purchase Shares (“Grant”) is made as of [_______________] (the “Effective Date”) by SBC Medical Group Holdings Incorporated, a Delaware corporation (the “Company”) under the SBC Medical Group Holdings Incorporated 2024 Equity Incentive Plan (the “Plan”), to [__________________] (the “Participant”). Under applicable provisions of the Internal Revenue Code of 1986, as amended, the Option is treated as [an incentive option][a non-qualified option].
By signing this cover sheet, you hereby accept the Option (as defined below) and agree to all of the terms and conditions described herein and in this Plan.
Participant Name: _____________________________
Signature: _____________________________
SBC Medical Group Holdings Incorporated
By: _________________________
Name: _________________________
Title: _________________________
This is not a stock certificate or a negotiable instrument. This grant of Option is a
voluntary, revocable grant from the Company and Participant hereby acknowledges
that the Company has no obligation to make additional grants in the future.
UPON RECEIPT OF YOUR SIGNED AGREEMENT, A BOOKKEEPING
ENTRY WILL BE ENTERED INTO THE COMPANY’S BOOKS AND RECORDS
TO EVIDENCE THE OPTIONS GRANTED TO YOU.
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1. Grant. As of the Effective Date, the Company grants to the Participant an option (the “Option”) to purchase on the terms and conditions hereinafter set forth all or any part of an aggregate of [________________] shares of Common Stock (the “Option Shares”), at the purchase price of $[____________] per share (the “Option Price”). The Participant shall have the cumulative right to exercise the Option, and the Option is only exercisable, with respect to the following number of Option Shares on or after the following dates:
|
Date |
Number of Options Vested and Shares Which |
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The Administrator may, in its sole discretion, accelerate the date on which the Participant may purchase Option Shares.
2. Term. The Option granted hereunder shall expire in all events at 5:00 p.m., Eastern time on [______________], unless sooner terminated as provided in in this Section 2.
3. Change in Accounting Treatment. If the Administrator finds that a change in the financial accounting treatment for options granted under this Plan adversely affects the Company or, in the determination of the Administrator, may adversely affect the Company in the foreseeable future, the Administrator may, in its discretion, set an accelerated termination date for the Option. In such event, the Administrator may take whatever other action, including acceleration of any exercise provisions, it deems necessary.
4. Blackout Periods. The Administrator reserves the right to suspend or limit the Participant’s rights to exercise and sell Shares acquired through the exercise of Options to comply with Applicable Requirements and any Company’s insider trading policy, any Applicable Law, or at any other times that it deems appropriate.
5. Transfers. Except as otherwise provided herein or in any separate provisions applicable to this Option, the Option is transferable by the Participant only by will or pursuant to the laws of descent and distribution in the event of the Participant’s death, in which event the Option may be exercised by the heirs or legal representatives of the Participant as set forth in this Plan. Any attempt at assignment, transfer, pledge or disposition of the Option contrary to the provisions hereof or the levy of any execution, attachment or similar process upon the Option shall be null and void and without effect. Any exercise of the Option by a Person other than the Participant shall be accompanied by appropriate proofs of the right of such person to exercise the Option.
6. Adjustments on Changes in Common Stock. In the event that, prior to the delivery by the Company of all of the Option Shares in respect of which the Option is granted, there shall be an increase or decrease in the number of issued shares of Common Stock of the Company as a result of a subdivision or consolidation of Shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such Shares, effected without receipt of consideration by the Company, the remaining number of Option Shares still subject to the Option and the Option Price therefor shall be adjusted in a manner determined by the Administrator so that the adjusted number of Option Shares and the adjusted Option Price shall be the substantial equivalent of the remaining number of Option Shares still subject to the Option and the Option Price thereof prior to such change. For purposes of this Section 7 no adjustment shall be made as a result of the issuance of Common Stock upon the conversion of other securities of the Company which are convertible into Shares.
7. Legal Requirements. If the listing, registration or qualification of the Option Shares upon any securities exchange or under any federal or state law, or the consent or approval of any governmental regulatory body is necessary as a condition of or in connection with the purchase of such Option Shares, the Company shall not be obligated to issue or deliver the certificates representing the Option Shares as to which the Option has been exercised unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained. If registration is considered unnecessary by the Company or its counsel, the Company may cause a legend to be placed on the Option Shares being issued calling attention to the fact that they have been acquired for investment and have not been registered.
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8. Administration. The Option has been granted pursuant to, and is subject to the terms and provisions of, this Plan. All questions of interpretation and application of this Plan and the Option shall be determined by the Administrator, and such determination shall be final, binding and conclusive. The Option shall not be treated as an incentive stock option (as such term is defined in section 422(b) of the Code) for federal income tax purposes unless expressly indicated as same hereupon.
9. Severability. Should a court of competent jurisdiction deem any of the provisions in this Agreement to be unenforceable in any respect, it is the intention of the parties to this Agreement that this Agreement be deemed, without further action on the part of the parties hereto, modified, amended and limited to the extent necessary to render the same valid and enforceable. It is further the parties’ intent that all provisions not deemed to be overbroad shall be given their full force and effect. You acknowledge that you are freely, knowingly and voluntarily entering into this Agreement after having an opportunity for consultation with your own independent counsel.
10. Notices. Any notice to be given to the Company shall be addressed to the Administrator at its principal executive office, and any notice to be given to the Participant shall be addressed to the Participant at the address then appearing on the personnel or other records of the Company, or at such other address as either party hereafter may designate in writing to the other. Any such notice shall be deemed to have been duly given when deposited in the United States mail, addressed as aforesaid, registered or certified mail, and with proper postage and registration or certification fees prepaid.
11. Reservation of Right to Terminate. Nothing herein contained shall affect the right of the Company or any Affiliate to terminate the Participant in its applicable capacity as a Service Provider at any time for any reason whatsoever.
12. Choice of Law; Jurisdiction. This Grant shall be governed by and construed and interpreted in accordance with the substantive laws of the State of Delaware, without giving effect to any conflicts of law rule or principle that might require the application of the laws of another jurisdiction. ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT SHALL BE INSTITUTED SOLELY IN THE COURTS OF THE STATE OF CALIFORNIA OR THE FEDERAL COURTS OF THE UNITED STATES, IN EACH CASE LOCATED IN LOS ANGELES COUNTY, CALIFORNIA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING.
13. Taxes. You agree to comply with the appropriate procedures established by the Company, from time to time, to provide for payment or withholding of such income or other taxes as may be required by law to be paid or withheld in connection with the Options and exercise thereof.
***
Annex C-25
Exhibit B
Form of Stock Appreciation Right Award Agreement
SBC Medical Group Holdings Incorporated
Stock Appreciation Rights Award Agreement
|
Number of SARs |
Grant Date |
Vesting Schedule |
||
Exercise Price: $_______________ per share of Common Stock
SBC Medical Group Holdings Incorporated, a Delaware corporation (the “Company”), hereby grants to [_________] (the “Participant”, also referred to as “you”) Stock Appreciation Rights (the “SAR”), pursuant to the terms of the attached Stock Appreciation Rights Award Agreement and the SBC Medical Group Holdings Incorporated 2024 Equity Incentive Plan (the “Plan”).
By signing this cover sheet, you agree to all of the terms and conditions described in the attached Stock Appreciation Rights Award Agreement and this Plan.
Participant: _____________________________
Signature: ____________________________
SBC Medical Group Holdings Incorporated
By: _________________________
Name: _________________________
Title: _________________________
This is not a stock certificate or a negotiable instrument. This grant of SAR is a
voluntary, revocable grant from the Company and Participant hereby acknowledges that the
Company has no obligation to make additional grants in the future.
UPON RECEIPT OF YOUR SIGNED AGREEMENT, A BOOKKEEPING ENTRY
WILL BE ENTERED INTO THE COMPANY’S BOOKS AND RECORDS
TO EVIDENCE THE SAR GRANTED TO YOU.
Annex C-26
SBC Medical Group Holdings Incorporated
STOCK APPRECIATION RIGHTS AWARD AGREEMENT
1. SAR/Nontransferability. This Stock Appreciation Rights Award Agreement (this “Agreement”) evidences the grant to you on the Grant Date set forth on the cover page of this Agreement the Stock Appreciation Right as set forth therein (the “SAR”) under the SBC Medical Group Holdings Incorporated 2024 Equity Incentive Plan (the “Plan”). These SARs represent the right to receive, upon exercise thereof, an amount in cash as set forth in this Plan. This SAR will NOT be credited with dividends to the extent dividends are paid on the Common Stock of the Company. Your SAR may not be transferred, assigned, pledged or hypothecated, whether by operation of law or otherwise, nor may the SAR be made subject to execution, attachment or similar process. Any capitalized, but undefined, term used in this Agreement shall have the meaning ascribed to it in this Plan.
2. The Plan. The SAR is issued in accordance with and is subject to and conditioned upon all of the terms and conditions of this Agreement and this Plan as amended from time to time; provided, however, that no future amendment or termination of this Plan shall, without your consent, alter or impair any of your rights or obligations under this Plan, all of which are incorporated by reference in this Agreement as if fully set forth herein.
3. Cash Value Determination upon Vesting and Exercise. Subject to the terms and conditions set forth in this Agreement, the SARs covered by this grant shall vest on the vesting date set forth on the cover page of this Agreement, provided the Participant is a Service Provider of the Company on the Date of Vesting. The payment of the value of the SARs shall be made no later than ten (10) days following exercise. The payment of amounts with respect to the SARs is subject to the provisions of this Plan and to interpretations, regulations and determinations concerning this Plan as established from time to time by the Administrator in accordance with the provisions of this Plan, including, but not limited to, provisions relating to (i) rights and obligations with respect to withholding taxes, (ii) capital or other changes of the Company and (iii) other requirements of applicable law.
4. No Shareholder Rights. SARs are not Shares. Neither the Participant, nor any Person entitled to exercise the Participant’s rights in the event of the Participant’s death, shall have any of the rights and privileges of a holder of Shares.
5. Severability. Should a court of competent jurisdiction deem any of the provisions in this Agreement to be unenforceable in any respect, it is the intention of the parties to this Agreement that this Agreement be deemed, without further action on the part of the parties hereto, modified, amended and limited to the extent necessary to render the same valid and enforceable. It is further the parties’ intent that all provisions not deemed to be overbroad shall be given their full force and effect. You acknowledge that you are freely, knowingly and voluntarily entering into this Agreement after having an opportunity for consultation with your own independent counsel.
6. Notices. Any notice to be given to the Company shall be addressed to the Administrator at its principal executive office, and any notice to be given to the Participant shall be addressed to the Participant at the address then appearing on the personnel or other records of the Company, or at such other address as either party hereafter may designate in writing to the other. Any such notice shall be deemed to have been duly given when deposited in the United States mail, addressed as aforesaid, registered or certified mail, and with proper postage and registration or certification fees prepaid.
7. Reservation of Right to Terminate. Nothing herein contained shall affect the right of the Company or any Affiliate to terminate the Participant in its applicable capacity as a Service Provider at any time for any reason whatsoever.
Annex C-27
8. Choice of Law; Jurisdiction. This Grant shall be governed by and construed and interpreted in accordance with the substantive laws of the State of Delaware, without giving effect to any conflicts of law rule or principle that might require the application of the laws of another jurisdiction. ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT SHALL BE INSTITUTED SOLELY IN THE COURTS OF THE STATE OF CALIFORNIA OR THE FEDERAL COURTS OF THE UNITED STATES, IN EACH CASE LOCATED IN LOS ANGELES COUNTY, CALIFORNIA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING.
9. Taxes. You agree to comply with the appropriate procedures established by the Company, from time to time, to provide for payment or withholding of such income or other taxes as may be required by law to be paid or withheld in connection with the SARs.
***
Annex C-28
Exhibit C
Form of Restricted Stock Award Agreement
SBC Medical Group Holdings Incorporated
Restricted Stock Award Agreement
|
Number of Shares |
Grant Date |
Vesting Schedule |
||
SBC Medical Group Holdings Incorporated, a Delaware corporation (the “Company”), hereby grants to [_________] (the “Participant”, also referred to as “you”) shares of Restricted Stock (the “Shares”), pursuant to the terms of the attached Restricted Stock Award Agreement and the SBC Medical Group Holdings Incorporated 2024 Equity Incentive Plan (the “Plan”).
By signing this cover sheet, you agree to all of the terms and conditions described in the attached Restricted Stock Award Agreement and this Plan.
Participant: ____________________________
Signature: ____________________________
SBC Medical Group Holdings Incorporated
By: _________________________
Name: _________________________
Title: _________________________
This is not a stock certificate or a negotiable instrument. This grant of Shares is a
voluntary, revocable grant from the Company and Participant hereby acknowledges that the
Company has no obligation to make additional grants in the future.
UPON RECEIPT OF YOUR SIGNED AGREEMENT, A BOOKKEEPING ENTRY
WILL BE ENTERED INTO THE COMPANY’S BOOKS AND RECORDS
TO EVIDENCE THE SHARES GRANTED TO YOU.
Annex C-29
SBC Medical Group Holdings Incorporated
RESTRICTED STOCK AWARD AGREEMENT
1. Award. This Restricted Stock Award Agreement (this “Agreement”) evidences the grant to Participant on the Grant Date set forth on the cover page of this Agreement the shares of Restricted Stock as set forth therein (the “Shares”) under the SBC Medical Group Holdings Incorporated 2024 Equity Incentive Plan (the “Plan”). Any capitalized, but undefined, term used in this Agreement shall have the meaning ascribed to it in this Plan.
2. Non-Transferability of the Shares. Your Shares may not be transferred, assigned, pledged or hypothecated, whether by operation of law or otherwise, nor may the Shares be made subject to execution, attachment or similar process. Except as may be required by federal income tax withholding provisions or by the tax laws of any state, your interests (and the interests of your beneficiaries, if any) under this Agreement are not subject to the claims of your creditors and may not be voluntarily or involuntarily sold, transferred, alienated, assigned, pledged, anticipated, or encumbered. Any attempt to sell, transfer, alienate, assign, pledge, anticipate, encumber, charge or otherwise dispose of any right to benefits payable hereunder shall be void. Your rights to your Shares are no greater than that of other general, unsecured creditors of the Company.
3. Vesting. Subject to the terms and conditions set forth in this Agreement, the Shares covered by this grant shall vest on the vesting date set forth on the cover page of this Agreement, provided the Participant is a Service Provider of the Company or a member of the Company Group on the Date of Vesting.
4. Delivery of Shares.
(a) Vesting. Shares that vest (together with any payment due pursuant to the terms herein in respect of such Shares) shall be delivered to Participant (or the person to whom ownership rights may have passed by will or the laws of descent and distribution), on or as soon as administratively practicable after, the date of such vesting.
(b) Certain Limitations. Notwithstanding the foregoing provisions of this Section 3, delivery of Shares, if any, by reason of Participant’s termination of employment shall be delayed until the six (6) month anniversary of the date of Participant’s termination of employment to the extent necessary to comply with Code Section 409A(a)(B)(i), and the determination of whether or not there has been a termination of Participant’s employment with the Company shall be made by the Administrator consistent with the definition of “separation from service” (as that phrase is used for purposes of Code Section 409A, and as set forth in Treasury Regulation Section 1.409A-1(h)).
5. Withholding Taxes. Participant shall be responsible to pay to the Company the amount of withholding taxes as determined by the Company with respect to the date the Shares are delivered. If Participant does not arrange for payment of the applicable withholding taxes by providing such amount to the Company in cash prior to the date established by the Company as the deadline for such payment, Participant shall be treated as having elected to relinquish to the Company a portion of the Shares that would otherwise have been transferred to Participant having a fair market value, based on the Fair Market Value of the Common Stock on the business day immediately preceding the date of delivery of the Shares, equal to the amount of such applicable withholding taxes, in lieu of paying such amount to the Company in cash. Participant authorizes the Company to withhold in accordance with applicable law from any compensation payable to him or her any taxes required to be withheld for federal, state or local law in connection with this Agreement.
6. Legal Requirements. If the listing, registration or qualification of Shares deliverable in respect of an Shares upon any securities exchange or under any federal or state law, or the consent or approval of any governmental regulatory body is necessary as a condition of or in connection with the issuance of such Shares, the Company shall not be obligated to issue or deliver such Shares unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained. If registration is considered unnecessary by the Company or its counsel, the Company may cause a legend to be placed on any Shares being issued calling attention to the fact that they have been acquired for investment and have not been registered. The Administrator may from time to time impose any other conditions on the Shares it deems necessary or advisable to ensure that Shares are issued and resold in compliance with the Securities Act of 1933, as amended.
Annex C-30
7. Severability. Should a court of competent jurisdiction deem any of the provisions in this Agreement to be unenforceable in any respect, it is the intention of the parties to this Agreement that this Agreement be deemed, without further action on the part of the parties hereto, modified, amended and limited to the extent necessary to render the same valid and enforceable. It is further the parties’ intent that all provisions not deemed to be overbroad shall be given their full force and effect. You acknowledge that you are freely, knowingly and voluntarily entering into this Agreement after having an opportunity for consultation with your own independent counsel.
8. Notices. Any notice to be given to the Company shall be addressed to the Administrator at its principal executive office, and any notice to be given to the Participant shall be addressed to the Participant at the address then appearing on the personnel or other records of the Company, or at such other address as either party hereafter may designate in writing to the other. Any such notice shall be deemed to have been duly given when deposited in the United States mail, addressed as aforesaid, registered or certified mail, and with proper postage and registration or certification fees prepaid.
9. Reservation of Right to Terminate. Nothing herein contained shall affect the right of the Company or any Affiliate to terminate the Participant in its applicable capacity as a Service Provider at any time for any reason whatsoever.
10. Choice of Law; Jurisdiction. This Grant shall be governed by and construed and interpreted in accordance with the substantive laws of the State of Delaware, without giving effect to any conflicts of law rule or principle that might require the application of the laws of another jurisdiction. ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT SHALL BE INSTITUTED SOLELY IN THE COURTS OF THE STATE OF CALIFORNIA OR THE FEDERAL COURTS OF THE UNITED STATES, IN EACH CASE LOCATED IN LOS ANGELES COUNTY, CALIFORNIA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING.
11. Taxes. You agree to comply with the appropriate procedures established by the Company, from time to time, to provide for payment or withholding of such income or other taxes as may be required by law to be paid or withheld in connection with the Restricted Stock.
***
Annex C-31
Exhibit D
Form of Restricted Unit Award Agreement
SBC Medical Group Holdings Incorporated
Restricted Unit Award Agreement
|
Number of |
Grant Date |
Vesting Schedule/Performance |
||
SBC Medical Group Holdings Incorporated, a Delaware corporation (the “Company”), hereby grants to [_________] (the “Participant”, also referred to as “you”) the Restricted Stock Units (the “Restricted Stock Units” or “RSUs”), pursuant to the terms of the attached Restricted Unit Award Agreement and the SBC Medical Group Holdings Incorporated 2024 Equity Incentive Plan (the “Plan”).
By signing this cover sheet, you agree to all of the terms and conditions described in the attached Restricted Unit Award Agreement and this Plan.
Participant: _____________________________
Signature: ____________________________
SBC Medical Group Holdings Incorporated
By: _________________________
Name: _________________________
Title: _________________________
This is not a stock certificate or a negotiable instrument. This grant of RSUs is a
voluntary, revocable grant from the Company and Participant hereby acknowledges that the
Company has no obligation to make additional grants in the future.
UPON RECEIPT OF YOUR SIGNED AGREEMENT, A BOOKKEEPING ENTRY
WILL BE ENTERED INTO THE COMPANY’S BOOKS AND RECORDS
TO EVIDENCE THE RSUs GRANTED TO YOU.
Annex C-32
SBC Medical Group Holdings Incorporated
RESTRICTED UNIT AWARD AGREEMENT
1. Award. This Restricted Unit Award Agreement (this “Agreement”) evidences the grant to Participant on the Grant Date set forth on the cover page of this Agreement the Restricted Stock Units as set forth therein (the “Restricted Stock Units” or “RSUs”) under the SBC Medical Group Holdings Incorporated 2024 Equity Incentive Plan (the “Plan”). As used herein, the term “Restricted Stock Unit” or “RSU” shall mean a non-voting unit of measurement which is deemed for bookkeeping purposes to be equivalent to one outstanding Share solely for purposes of this Plan and this Agreement. The Restricted Stock Units shall be used solely as a device for the determination of the payment to eventually be made to the Participant if such Restricted Stock Units vest pursuant to this Award Agreement. The Restricted Stock Units shall not be treated as property or as a trust fund of any kind. Any capitalized, but undefined, term used in this Agreement shall have the meaning ascribed to it in this Plan.
2. Non-Transferability of the RSUs. Your RSUs may not be transferred, assigned, pledged or hypothecated, whether by operation of law or otherwise, nor may the RSUs be made subject to execution, attachment or similar process. Except as may be required by federal income tax withholding provisions or by the tax laws of any state, your interests (and the interests of your beneficiaries, if any) under this Agreement are not subject to the claims of your creditors and may not be voluntarily or involuntarily sold, transferred, alienated, assigned, pledged, anticipated, or encumbered. Any attempt to sell, transfer, alienate, assign, pledge, anticipate, encumber, charge or otherwise dispose of any right to benefits payable hereunder shall be void. Your rights to your RSUs are no greater than that of other general, unsecured creditors of the Company.
3. Vesting. Subject to the terms and conditions set forth in this Agreement, the RSUs covered by this grant shall vest on the vesting date set forth on the cover page of this Agreement and subject to the satisfaction or attainment of the performance criteria set forth therein, if any, provided the Participant is employed by the Company on the date of vesting. The Administrator may not accelerate vesting of Restricted Stock Units for any reason.
4. Dividends. Participant shall not be entitled to any cash, securities or property that would have been paid or distributed as dividends with respect to the RSUs subject to this Agreement prior to the date the RSUs are delivered to Participant; provided, however, that the Company shall keep a hypothetical account in which any such items shall be recorded, and shall pay to Participant the amount of such dividends (in cash or in kind as determined by the Company) on the same date that the RSUs to which such payments or distributions relate are required to be delivered under this Agreement.
5. Timing and Manner of Payment on RSUs.
(a) On or as soon as administratively practical following the vesting event pursuant to this Agreement (and in all events not later than two and one-half (2½) months after such vesting event), the Company shall deliver to the Participant a number of Shares (either by delivering one or more certificates for such Shares or by entering such Shares in book entry form, as determined by the Company in its discretion) equal to the number of Shares subject to the RSU that vest on the Vesting Date, less any withholding or expenses as set forth herein, or may settle the RSU in cash or other payment as provided in this Plan, as determined by the Administrator. The Company’s obligation to deliver Shares or otherwise make payment with respect to vested RSUs is subject to the condition precedent that the Participant or other person entitled under this Plan to receive any Shares or payment with respect to the vested RSUs deliver to the Company any representations or other documents or assurances required pursuant to this Plan. The Participant shall have no further rights with respect to any RSUs that are paid or that terminate pursuant to this Agreement or this Plan.
(b) Certain Limitations. Notwithstanding the foregoing provisions of this Section 3, delivery of Shares or other payment, if any, with respect to RSUs by reason of Participant’s termination of employment shall be delayed until the six (6) month anniversary of the date of Participant’s termination of employment to the extent necessary to comply with Code Section 409A(a)(B)(i), and the determination of whether or not there has been a termination of Participant’s employment with the Company shall be made by the Administrator consistent with the definition of “separation from service” (as that phrase is used for purposes of Code Section 409A, and as set forth in Treasury Regulation Section 1.409A-1(h)).
Annex C-33
6. Rights of Participant. Participant shall have none of the rights of a shareholder at any time prior to the delivery of any Shares pursuant to the RSUs subject to this Agreement, except as expressly set forth in this Plan or herein.
7. Withholding Taxes. Participant shall be responsible to pay to the Company the amount of withholding taxes as determined by the Company with respect to the date the RSUs are settled. If Participant does not arrange for payment of the applicable withholding taxes by providing such amount to the Company in cash prior to the date established by the Company as the deadline for such payment, Participant shall be treated as having elected to relinquish to the Company a portion of the Shares that would otherwise have been transferred to Participant having a fair market value, based on the Fair Market Value of the Common Stock on the business day immediately preceding the date of delivery of the Shares, equal to the amount of such applicable withholding taxes, in lieu of paying such amount to the Company in cash, or an amount in cash if the RSU is settled in cash. Participant authorizes the Company to withhold in accordance with applicable law from any compensation payable to him or her any taxes required to be withheld for federal, state or local law in connection with this Agreement.
8. Legal Requirements. If the listing, registration or qualification of Shares deliverable in respect of an RSU upon any Securities Exchange or any Applicable Requirement, or the consent or approval of any governmental regulatory body is necessary as a condition of or in connection with the issuance of such Shares, the Company shall not be obligated to issue or deliver such Shares unless and until such Applicable Requirements shall have been effected or obtained. If registration is considered unnecessary by the Company or its counsel, the Company may cause a legend to be placed on any Shares being issued calling attention to the fact that they have been acquired for investment and have not been registered. The Administrator may from time to time impose any other conditions on the Shares it deems necessary or advisable to ensure that Shares are issued and resold in compliance with the Securities Act of 1933, as amended.
9. Severability. Should a court of competent jurisdiction deem any of the provisions in this Agreement to be unenforceable in any respect, it is the intention of the parties to this Agreement that this Agreement be deemed, without further action on the part of the parties hereto, modified, amended and limited to the extent necessary to render the same valid and enforceable. It is further the parties’ intent that all provisions not deemed to be overbroad shall be given their full force and effect. You acknowledge that you are freely, knowingly and voluntarily entering into this Agreement after having an opportunity for consultation with your own independent counsel.
10. Notices. Any notice to be given to the Company shall be addressed to the Administrator at its principal executive office, and any notice to be given to the Participant shall be addressed to the Participant at the address then appearing on the personnel or other records of the Company, or at such other address as either party hereafter may designate in writing to the other. Any such notice shall be deemed to have been duly given when deposited in the United States mail, addressed as aforesaid, registered or certified mail, and with proper postage and registration or certification fees prepaid.
11. Reservation of Right to Terminate. Nothing herein contained shall affect the right of the Company or any Affiliate to terminate the Participant in its applicable capacity as a Service Provider at any time for any reason whatsoever.
12. Choice of Law; Jurisdiction. This Grant shall be governed by and construed and interpreted in accordance with the substantive laws of the State of Delaware, without giving effect to any conflicts of law rule or principle that might require the application of the laws of another jurisdiction. ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT SHALL BE INSTITUTED SOLELY IN THE COURTS OF THE STATE OF CALIFORNIA OR THE FEDERAL COURTS OF THE UNITED STATES, IN EACH CASE LOCATED IN LOS ANGELES COUNTY, CALIFORNIA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING.
13. Taxes. You agree to comply with the appropriate procedures established by the Company, from time to time, to provide for payment or withholding of such income or other taxes as may be required by law to be paid or withheld in connection with the RSUs.
***
Annex C-34
Exhibit 10.3
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of [__________], 2023 by and among (i) Pono Capital Two, Inc., a Delaware corporation (the “Purchaser”), and (ii) and the undersigned parties listed under Investor on the signature page hereto (each such party, together with any person or entity who hereafter becomes a party to this Agreement pursuant to Section 6.2 of this Agreement, an “Investor” and collectively the “Investors”). Each of the Purchaser and each Investor may be referred to herein individually as a “Party” and collectively as the “Parties”.
WHEREAS, on [__________], 2023, Purchaser, Pono Two Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Purchaser (“Merger Sub”), Mehana Capital LLC, a Delaware limited liability company (the “Purchaser Representative”), SBC Medical Group Holdings Incorporated, a Delaware corporation (the “Company”) and Dr. Yoshiyuki Aikawa (“Seller Representative”), entered into that certain Agreement and Plan of Merger (as amended from time to time in accordance with the terms thereof, the “Merger Agreement”);
WHEREAS, pursuant to the Merger Agreement, subject to the terms and conditions thereof, upon the consummation of the transactions contemplated thereby (the “Closing”), among other matters, Merger Sub will merge with and into the Company, with the Company continuing as the surviving entity and a wholly-owned subsidiary of Purchaser, and with the Investors, as stockholders of the Company, receiving shares of the Purchaser’s Class A common stock (the “Merger Consideration Shares”), all upon the terms and subject to the conditions set forth in the Merger Agreement and in accordance with the provisions of applicable law;
WHEREAS, in connection with the Closing, the Investors will enter into a lock-up agreement with Purchaser and the Purchaser Representative (as amended from time to time in accordance with the terms thereof, a “Lock-Up Agreement”), pursuant to which the Investors will agree not to transfer the Merger Consideration Shares for a certain period of time after the Closing as stated in the Lock-Up Agreement; and
WHEREAS, the Parties desire to enter into this Agreement to provide the Investors with certain rights relating to the registration of the Merger Consideration Shares received by the Investors under the Merger Agreement, including any additional Merger Consideration Shares issued after the Closing pursuant to Section 1.15 of the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. DEFINITIONS. Any capitalized term used but not defined in this Agreement will have the meaning ascribed to such term in the Merger Agreement. The following capitalized terms used herein have the following meanings:
“Agreement” means this Agreement, as amended, restated, supplemented, or otherwise modified from time to time.
“Closing” is defined in the recitals to this Agreement.
“Company” is defined in the recitals to this Agreement.
“Demand Registration” is defined in Section 2.1.1.
“Demanding Holder” is defined in Section 2.1.1.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, all as the same shall be in effect at the time.
“Founder Registration Rights Agreement” means that certain Registration Rights Agreement, dated as of August 4, 2022, by and among Purchaser, Purchaser Representative and certain holders listed therein.
“Founder Securities” means those securities included in the definition of “Registrable Security” specified in the Founder Registration Rights Agreement.
Annex A-103
“Indemnified Party” is defined in Section 4.3.
“Indemnifying Party” is defined in Section 4.3.
“Investors” is defined in the preamble to this Agreement, and includes any transferee of the Registrable Securities (so long as they remain Registrable Securities) of an Investor permitted under this Agreement and the Lock-Up Agreement.
“Investor Indemnified Party” is defined in Section 4.1.
“Lock-Up Agreement” is defined in the recitals to this Agreement.
“Maximum Number of Securities” is defined in Section 2.1.4.
“Merger Agreement” is defined in the recitals to this Agreement.
“Piggy-Back Registration” is defined in Section 2.2.1.
“Pro Rata” is defined in Section 2.1.4.
“Purchaser” is defined in the preamble to this Agreement, and shall include Purchaser’s successors by merger, acquisition, reorganization or otherwise.
“Purchaser Common Stock” means shares of Class A common stock, par value $0.0001 per share, of the Purchaser, and Class B common stock, par value $0.0001 per share of the Purchaser, along with any equity securities paid as dividends or distributions after the Closing with respect to such shares or into which such shares are exchanged or converted in connection with the Closing.
“Register,” “Registered” and “Registration” mean a registration or offering effected by preparing and filing a registration statement or similar document in compliance with the requirements of the Securities Act, and the applicable rules and regulations promulgated thereunder, and such registration statement becoming effective.
“Registrable Securities” means all of the Merger Consideration Shares and shares of Purchaser Common Stock beneficially owned by the Investors, including without limitation any shares issued after the Closing pursuant to Section 1.15 of the Merger Agreement and the Sponsor Shares. Registrable Securities also include any warrants, capital shares or other securities of Purchaser issued as a dividend, stock split or other distribution with respect to or in exchange for or in replacement of the foregoing securities or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation, other reorganization or other similar event with respect to the Purchaser Common Stock. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when: (a) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been sold, transferred, disposed of or exchanged in accordance with such Registration Statement; (b) such securities shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by Purchaser and subsequent public distribution of them shall not require registration under the Securities Act; (c) such securities shall have ceased to be outstanding; (d) such securities are freely saleable under Rule 144 without volume limitations; or (e) such securities have been sold to, or through, a broker, dealer or underwriter in a public distribution or other public securities transaction. Notwithstanding anything to the contrary contained herein, securities shall only be “Registrable Securities” under this Agreement if they are held by an Investor or a transferee of an Investor permitted under this Agreement and the Lock-Up Agreement.
“Registration Statement” means a registration statement filed by Purchaser with the SEC in compliance with the Securities Act and the rules and regulations promulgated thereunder for a public offering and sale of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities (other than a registration statement on Form S-4 or Form S-8, or their successors, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity).
“Rule 144” means Rule 144 promulgated under the Securities Act or any successor rule thereto.
“SEC” means the United States Securities and Exchange Commission or any successor thereto.
Annex A-104
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder, all as the same shall be in effect at the time.
“Short Form Registration” is defined in Section 2.3.
“Specified Courts” is defined in Section 6.9.
“Underwriter” means a securities dealer who purchases any Registrable Securities as principal in an underwritten offering and not as part of such dealer’s market-making activities.
2. REGISTRATION RIGHTS.
2.1 Demand Registration.
2.1.1 Request for Registration. Subject to this Section 2.1.1 and Section 2.4, at any time and from time to time after the Closing, Investors holding a majority-in-interest of the Registrable Securities then issued and outstanding may make a written demand for registration under the Securities Act of all or part of their Registrable Securities (a “Demand Registration”). Any demand for a Demand Registration shall specify the number of Registrable Securities proposed to be sold and the intended method(s) of distribution thereof. Within thirty (30) days following receipt of any request for a Demand Registration, Purchaser will notify all other Investors holding Registrable Securities of the demand, and each Investor holding Registrable Securities who wishes to include all or a portion of such Investor’s Registrable Securities in the Demand Registration (each such Investor including shares of Registrable Securities in such registration, a “Demanding Holder”) shall so notify Purchaser within fifteen (15) days after the receipt by the Investor of the notice from Purchaser. Upon any such request, the Demanding Holders shall be entitled to have their Registrable Securities included in the Demand Registration, subject to Section 2.1.4 and the provisos set forth in Section 3.1.1. Purchaser shall not be obligated to effect more than an aggregate of three (3) Demand Registrations under this Section 2.1.1 in respect of all Registrable Securities.
2.1.2 Effective Registration. A Registration will not count as a Demand Registration until the Registration Statement filed with the SEC with respect to such Demand Registration has been declared effective and Purchaser has complied in all material respects with its obligations under this Agreement with respect thereto; provided, however, that if, after such Registration Statement has been declared effective, the offering of Registrable Securities pursuant to a Demand Registration is interfered with by any stop order or injunction of the SEC or any other governmental agency or court, the Registration Statement with respect to such Demand Registration will be deemed not to have been declared effective, unless and until, (i) such stop order or injunction is removed, rescinded or otherwise terminated, and (ii) a majority-in-interest of the Demanding Holders thereafter elect to continue with such Registration and accordingly notify Purchaser in writing, but in no event later than five (5) days, of such election; provided, further, that Purchaser shall not be obligated to file a second Registration Statement until a Registration Statement that has been filed is counted as a Demand Registration or is terminated.
2.1.3 Underwritten Offering. If a majority-in-interest of the Demanding Holders so elect and advise Purchaser as part of their written demand for a Demand Registration, the offering of such Registrable Securities pursuant to such Demand Registration shall be in the form of an underwritten offering. In such event, the right of any Demanding Holder to include its Registrable Securities in such registration shall be conditioned upon such Demanding Holder’s participation in such underwritten offering and the inclusion of such Demanding Holder’s Registrable Securities in the underwritten offering to the extent provided herein. All Demanding Holders proposing to distribute their Registrable Securities through such underwritten offering shall enter into an underwriting agreement in customary form with the Underwriter or Underwriters selected for such underwritten offering by a majority-in-interest of the Investors initiating the Demand Registration and reasonably acceptable to Purchaser.
2.1.4 Reduction of Offering. If the managing Underwriter or Underwriters for a Demand Registration that is to be an underwritten offering, in good faith, advises Purchaser and the Demanding Holders in writing that the dollar amount or number of Registrable Securities which the Demanding Holders desire to sell, taken together with all other shares of Purchaser Common Stock or other securities which Purchaser desires to sell and the shares of Purchaser Common Stock or other securities, if any, as to which Registration by Purchaser has been requested pursuant to written contractual piggy-back registration rights held by other security holders of Purchaser who desire to sell, exceeds the maximum dollar amount or maximum number of shares that can be sold in such offering without adversely affecting the proposed offering price, the timing, the distribution method, or the probability of success of such offering (such maximum dollar amount or maximum number of securities, as applicable, the “Maximum Number of
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Securities”), then Purchaser shall include in such Registration: (i) first, the Registrable Securities as to which Demand Registration has been requested by the Demanding Holders, the Sponsor Shares and the Founder Securities for the account of any Persons who have exercised demand registration rights pursuant to the Founder Registration Rights Agreement during the period under which the Demand Registration hereunder is ongoing (all pro rata in accordance with the number of securities that each applicable Person has requested be included in such registration, regardless of the number of securities held by each such Person, as long as they do not request to include more securities than they own (such proportion is referred to herein as “Pro Rata”)) that can be sold without exceeding the Maximum Number of Securities; (ii) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (i) the Registrable Securities of Investors as to which registration has been requested pursuant to Section 2.2, the Sponsor Shares and the Founder Securities as to which registration has been requested pursuant to the applicable written contractual piggy-back registration rights of the Founder Registration Rights Agreement, Pro Rata among the holders thereof based on the number of securities requested by such holders to be included in such registration, that can be sold without exceeding the Maximum Number of Securities; (iii) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i) and (ii), the shares of Purchaser Common Stock or other securities that Purchaser desires to sell that can be sold without exceeding the Maximum Number of Securities; and (iv) fourth, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i), (ii) and (iii), the shares of Purchaser Common Stock or other securities for the account of other Persons that Purchaser is obligated to register pursuant to written contractual arrangements with such Persons that can be sold without exceeding the Maximum Number of Securities. In the event that Purchaser securities that are convertible into shares of Purchaser Common Stock are included in the offering, the calculations under this Section 2.1.4 shall include such Purchaser securities on an as-converted to Purchaser Common Stock basis.
2.1.5 Withdrawal. A Demanding Holder may withdraw all or any portion of their Registrable Securities included in a Demand Registration from such Demand Registration at any time prior to the effectiveness of the Demand Registration Statement. If a majority-in-interest of the Demanding Holders disapprove of the terms of any underwritten offering or are not entitled to include all of their Registrable Securities in any offering, such majority-in-interest of the Demanding Holders may elect to withdraw from such offering by giving written notice to Purchaser and the Underwriter or Underwriters of their request to withdraw prior to the effectiveness of the Registration Statement filed with the SEC with respect to such Demand Registration. If the majority-in-interest of the Demanding Holders withdraws from a proposed offering relating to a Demand Registration in such event, then such registration shall not count as a Demand Registration provided for in Section 2.1.
2.2 Piggy-Back Registration.
2.2.1 Piggy-Back Rights. Subject to Section 2.4, if at any time after the Closing Purchaser proposes to file a Registration Statement under the Securities Act with respect to the Registration of or an offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by Purchaser for its own account or for security holders of Purchaser for their account (or by Purchaser and by security holders of Purchaser including pursuant to Section 2.1), other than a Registration Statement (i) filed in connection with any employee share option or other benefit plan, (ii) for an exchange offer or offering of securities solely to Purchaser’s existing security holders, (iii) for an offering of debt that is convertible into equity securities of Purchaser, or (iv) for a dividend reinvestment plan, then Purchaser shall (x) give written notice of such proposed filing to Investors holding Registrable Securities as soon as practicable but in no event less than ten (10) days before the anticipated filing date or confidential submission date, which notice shall describe the amount and type of securities to be included in such Registration or offering, the intended method(s) of distribution, and the name of the proposed managing Underwriter or Underwriters, if any, of the offering, and (y) offer to Investors holding Registrable Securities in such notice the opportunity to register the sale of such number of Registrable Securities as such Investors may request in writing within five (5) days following receipt of such notice (a “Piggy-Back Registration”). To the extent permitted by applicable securities laws with respect to such registration by Purchaser or another demanding security holder, Purchaser shall use its commercially reasonable efforts to cause (i) such Registrable Securities to be included in such registration and (ii) the managing Underwriter or Underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of Purchaser and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. All Investors holding Registrable Securities proposing to distribute their securities through a Piggy-Back Registration that involves an Underwriter or Underwriters shall enter into an underwriting agreement in customary form with the Underwriter or Underwriters selected for such Piggy-Back Registration.
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2.2.2 Reduction of Offering. If the managing Underwriter or Underwriters for a Piggy-Back Registration that is to be an underwritten offering, in good faith, advises Purchaser and Investors holding Registrable Securities proposing to distribute their Registrable Securities through such Piggy-Back Registration in writing that the dollar amount or number of shares of Purchaser Common Stock or other Purchaser securities which Purchaser desires to sell, taken together with the shares of Purchaser Common Stock or other Purchaser securities, if any, as to which registration has been demanded pursuant to written contractual arrangements with Persons other than the Investors holding Registrable Securities hereunder, the Registrable Securities as to which registration has been requested under this Section 2.2, and the shares of Purchaser Common Stock or other Purchaser securities, if any, as to which registration has been requested pursuant to the written contractual piggy-back registration rights of other security holders of Purchaser, exceeds the Maximum Number of Securities, then Purchaser shall include in any such registration:
(a) If the registration is undertaken for Purchaser’s account: (i) first, the shares of Purchaser Common Stock, the Sponsor Shares or other securities that Purchaser desires to sell that can be sold without exceeding the Maximum Number of Securities; (ii) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (i), the Registrable Securities of Investors as to which registration has been requested pursuant to this Section 2.2 and the Founder Securities as to which registration has been requested pursuant to the applicable written contractual piggy-back registration rights under the Founder Registration Rights Agreement, Pro Rata among the holders thereof based on the number of securities requested by such holders to be included in such registration, that can be sold without exceeding the Maximum Number of Securities; and (iii) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i) and (ii), the shares of Purchaser Common Stock or other equity securities for the account of other Persons that Purchaser is obligated to register pursuant to separate written contractual arrangements with such Persons that can be sold without exceeding the Maximum Number of Securities;
(b) If the registration is a “demand” registration undertaken at the demand of Demanding Holders pursuant to Section 2.1: (i) first, the shares of Purchaser Common Stock or other securities for the account of the Demanding Holders, the Sponsor Shares and the Founder Securities for the account of any Persons who have exercised demand registration rights pursuant to the Founder Registration Rights Agreement during the period under which the Demand Registration hereunder is ongoing, Pro Rata among the holders thereof based on the number of securities requested by such holders to be included in such registration, that can be sold without exceeding the Maximum Number of Securities; (ii) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (i), the Registrable Securities of Investors as to which registration has been requested pursuant to this Section 2.2, the Sponsor Shares and the Founder Securities as to which registration has been requested pursuant to the applicable written contractual piggy-back registration rights under the Founder Registration Rights Agreement, Pro Rata among the holders thereof based on the number of securities requested by such holders to be included in such registration, that can be sold without exceeding the Maximum Number of Securities; (iii) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i) and (ii), the shares of Purchaser Common Stock or other securities that Purchaser desires to sell that can be sold without exceeding the Maximum Number of Securities; and (iv) fourth, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i), (ii) and (iii), the shares of Purchaser Common Stock or other equity securities for the account of other Persons that Purchaser is obligated to register pursuant to separate written contractual arrangements with such Persons that can be sold without exceeding the Maximum Number of Securities;
(c) If the registration is a “demand” registration undertaken at the demand of holders of Sponsor Shares: (i) first, the Sponsor Shares for the account of the demanding holders and the Registrable Securities for the account of Demanding Holders who have exercised demand registration rights pursuant to Section , Pro Rata among the holders thereof based on the number of securities requested by such holders to be included in such registration, that can be sold without exceeding the Maximum Number of Securities; (ii) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (i), the Registrable Securities of Investors as to which registration has been requested pursuant to this Section and the Founder Securities as to which registration has been requested pursuant to the applicable written contractual piggy-back registration rights under the Founder Registration Rights Agreement, Pro Rata among the holders thereof based on the number of securities requested by such holders to be included in such registration, that can be sold without exceeding the Maximum Number of
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Securities; (iii) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i) and (ii), the shares of Purchaser Common Stock or other securities that Purchaser desires to sell that can be sold without exceeding the Maximum Number of Securities; and (iv) fourth, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i), (ii) and (iii), the shares of Purchaser Common Stock or other equity securities for the account of other Persons that Purchaser is obligated to register pursuant to separate written contractual arrangements with such Persons that can be sold without exceeding the Maximum Number of Securities;
(d) If the registration is a “demand” registration undertaken at the demand of holders of Founder Securities under the Founder Registration Rights Agreement: (i) first, the Founder Securities for the account of the demanding holders and the Registrable Securities for the account of Demanding Holders who have exercised demand registration rights pursuant to Section 2.1 during the period under which the demand registration under the Founder Registration Rights Agreement is ongoing, Pro Rata among the holders thereof based on the number of securities requested by such holders to be included in such registration, that can be sold without exceeding the Maximum Number of Securities; (ii) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (i), the Registrable Securities of Investors as to which registration has been requested pursuant to this Section 2.2 and the Founder Securities as to which registration has been requested pursuant to the applicable written contractual piggy-back registration rights under the Founder Registration Rights Agreement, Pro Rata among the holders thereof based on the number of securities requested by such holders to be included in such registration, that can be sold without exceeding the Maximum Number of Securities; (iii) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i) and (ii), the shares of Purchaser Common Stock or other securities that Purchaser desires to sell that can be sold without exceeding the Maximum Number of Securities; and (iv) fourth, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i), (ii) and (iii), the shares of Purchaser Common Stock or other equity securities for the account of other Persons that Purchaser is obligated to register pursuant to separate written contractual arrangements with such Persons that can be sold without exceeding the Maximum Number of Securities; and
(e) If the registration is a “demand” registration undertaken at the demand of Persons other than either Demanding Holders under Section 2.1 or the holders of Founder Securities exercising demand registration rights under the Founder Registration Rights Agreement: (i) first, the shares of Purchaser Common Stock or other securities for the account of the demanding Persons that can be sold without exceeding the Maximum Number of Securities; (ii) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (i) the Registrable Securities of Investors as to which registration has been requested pursuant to this Section 2.2, the Sponsor Shares and the Founder Securities as to which registration has been requested pursuant to the applicable written contractual piggy-back registration rights under the Founder Registration Rights Agreement, Pro Rata among the holders thereof based on the number of securities requested by such holders to be included in such registration, that can be sold without exceeding the Maximum Number of Securities; (iii) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i) and (ii), the shares of Purchaser Common Stock or other securities that Purchaser desires to sell that can be sold without exceeding the Maximum Number of Securities; and (iv) fourth, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i), (ii) and (iii), the shares of Purchaser Common Stock or other equity securities for the account of other Persons that Purchaser is obligated to register pursuant to separate written contractual arrangements with such Persons that can be sold without exceeding the Maximum Number of Securities.
In the event that Purchaser securities that are convertible into shares of Purchaser Common Stock are included in the offering, the calculations under this Section 2.2.2 shall include such Purchaser securities on an as-converted to Purchaser Common Stock basis.
2.2.3 Withdrawal. Any Investor holding Registrable Securities may elect to withdraw such Investor’s request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to Purchaser of such request to withdraw prior to the effectiveness of the Registration Statement. Purchaser (whether on its own determination or as the result of a withdrawal by Persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement without any liability to the applicable Investor, subject to the next sentence and the provisions of Section 4.
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Notwithstanding any such withdrawal, Purchaser shall pay all expenses incurred in connection with such Piggy-Back Registration as provided in Section 3.3 (subject to the limitations set forth therein) by Investors holding Registrable Securities that requested to have their Registrable Securities included in such Piggy-Back Registration.
2.3 Short Form Registrations. After the Closing, subject to Section 2.4, Investors holding Registrable Securities may at any time and from time to time, request in writing that Purchaser register the resale of any or all of such Registrable Securities on Form S-3 or any similar short-form registration which may be available at such time and applicable to such Investor’s Registrable Securities (“Short Form Registration”); provided, however, that Purchaser shall not be obligated to effect such request through an underwritten offering. Upon receipt of such written request, Purchaser will promptly give written notice of the proposed registration to all other Investors holding Registrable Securities, and, as soon as practicable thereafter, effect the registration of all or such portion of such Investors’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities, if any, of any other Investors joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from Purchaser; provided, however, that Purchaser shall not be obligated to effect any such registration pursuant to this Section 2.3: (i) if Short Form Registration is not available to Purchaser for such offering; or (ii) if Investors holding Registrable Securities, together with the holders of any other securities of Purchaser entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at any aggregate price to the public of less than $500,000. Registrations effected pursuant to this Section 2.3 shall not be counted as Demand Registrations effected pursuant to Section 2.1.
2.4 Restriction of Offerings. Notwithstanding anything to the contrary contained in this Agreement, the Investors shall not be entitled to request, and Purchaser shall not be obligated to effect, or to take any action to effect, any registration (including any Demand Registration but not including Piggy-Back Registration) pursuant to this Section 2 with respect to any Registrable Securities that are subject to the transfer restrictions under the Lock-Up Agreement.
3. REGISTRATION PROCEDURES.
3.1 Filings; Information. Whenever Purchaser is required to effect the registration of any Registrable Securities pursuant to Section 2, Purchaser shall use its commercially reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method(s) of distribution thereof as expeditiously as practicable, and in connection with any such request:
3.1.1 Filing Registration Statement. Purchaser shall use its commercially reasonable efforts to, as expeditiously as possible after receipt of a request for a Demand Registration pursuant to Section 2.1, prepare and file with the SEC a Registration Statement on any form for which Purchaser then qualifies or which counsel for Purchaser shall deem appropriate and which form shall be available for the sale of all Registrable Securities to be registered thereunder in accordance with the intended method(s) of distribution thereof, and shall use its reasonable efforts to cause such Registration Statement to become effective and use its reasonable efforts to keep it effective for the period required by Section 3.1.3; provided, however, that Purchaser shall have the right to defer any Demand Registration for up to sixty (60) days, and any Piggy-Back Registration for such period as may be applicable to deferment of any demand registration to which such Piggy-Back Registration relates, in each case if Purchaser shall furnish to Investors requesting to include their Registrable Securities in such registration a certificate signed by the Chief Executive Officer, Chief Financial Officer or Chairman of Purchaser stating that, in the good faith judgment of the Board of Directors of Purchaser, it would be materially detrimental to Purchaser and its shareholders for such Registration Statement to be effected at such time or the filing would require premature disclosure of material information which is not in the interests of Purchaser to disclose at such time; provided further, however, that Purchaser shall not have the right to exercise the right set forth in the immediately preceding proviso more than twice in any 365-day period in respect of a Demand Registration hereunder.
3.1.2 Copies. Purchaser shall, prior to filing a Registration Statement or prospectus, or any amendment or supplement thereto, furnish without charge to Investors holding Registrable Securities included in such registration, and such Investors’ legal counsel, copies of such Registration Statement as proposed to be filed, each amendment and supplement to such Registration Statement (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such Registration Statement (including each preliminary prospectus), and such other documents as Investors holding Registrable Securities included in such registration or legal counsel for any such Investors may request in order to facilitate the disposition of the Registrable Securities owned by such Investors.
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3.1.3 Amendments and Supplements. Purchaser shall prepare and file with the SEC such amendments, including post-effective amendments, and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and in compliance with the provisions of the Securities Act until all Registrable Securities and other securities covered by such Registration Statement have been disposed of in accordance with the intended method(s) of distribution set forth in such Registration Statement or such securities have been withdrawn or until such time as the Registrable Securities cease to be Registrable Securities as defined by this Agreement.
3.1.4 Reporting Obligations. As long as any Investors shall own Registrable Securities, the Purchaser, at all times while it shall be a reporting company under the Exchange Act, covenants to file timely (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Purchaser after the date hereof pursuant to Sections 13(a) or 15(d) of the Exchange Act and to promptly furnish the Investors with true and complete copies of all such filings; provided that any documents publicly filed or furnished with the SEC pursuant to the Electronic Data Gathering, Analysis and Retrieval System shall be deemed to have been furnished or delivered to the Investors pursuant to this Section 3.1.4.
3.1.5 Other Obligations. In connection with a sale or transfer of Registrable Securities exempt from Section 5 of the Securities Act or through any broker-dealer transactions described in the plan of distribution set forth within the prospectus included in the Registration Statement, the Purchaser shall, subject to the receipt of the any customary documentation reasonably required from the applicable Investors in connection therewith, (a) promptly instruct its transfer agent to remove any restrictive legends applicable to the Registrable Securities being sold or transferred and (b) cause its legal counsel to deliver the necessary legal opinions, if any, to the transfer agent in connection with the instruction under subclause (a). In addition, the Purchaser shall cooperate reasonably with, and take such customary actions as may reasonably be requested by the Investors, in connection with the aforementioned sales or transfers.
3.1.4 Notification. After the filing of a Registration Statement, Purchaser shall promptly, and in no event more than five (5) Business Days after such filing, notify Investors holding Registrable Securities included in such Registration Statement of such filing, and shall further notify such Investors promptly and confirm such advice in writing in all events within five (5) Business Days after the occurrence of any of the following: (i) when such Registration Statement becomes effective; (ii) when any post-effective amendment to such Registration Statement becomes effective; (iii) the issuance or threatened issuance by the SEC of any stop order (and Purchaser shall take all actions required to prevent the entry of such stop order or to remove it if entered); and (iv) any request by the SEC for any amendment or supplement to such Registration Statement or any prospectus relating thereto or for additional information or of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the securities covered by such Registration Statement, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and promptly make available to Investors holding Registrable Securities included in such Registration Statement any such supplement or amendment; except that before filing with the SEC a Registration Statement or prospectus or any amendment or supplement thereto, including documents incorporated by reference, Purchaser shall furnish to Investors holding Registrable Securities included in such Registration Statement and to the legal counsel for any such Investors, copies of all such documents proposed to be filed sufficiently in advance of filing to provide such Investors and legal counsel with a reasonable opportunity to review such documents and comment thereon; provided that such Investors and their legal counsel must provide any comments promptly (and in any event within five (5) Business Days) after receipt of such documents.
3.1.5 State Securities Laws Compliance. Purchaser shall use its reasonable efforts to (i) register or qualify the Registrable Securities covered by the Registration Statement under such securities or “blue sky” laws of such jurisdictions in the United States as Investors holding Registrable Securities included in such Registration Statement (in light of their intended plan of distribution) may reasonably request and (ii) take such action necessary to cause such Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental authorities as may be necessary by virtue of the business and operations of Purchaser and do any and all other acts and things that may be necessary or advisable to enable Investors holding Registrable Securities included in such Registration Statement to consummate the disposition of such
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Registrable Securities in such jurisdictions; provided, however, that Purchaser shall not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph or take any action to which it would be subject to general service of process or to taxation in any such jurisdiction where it is not then otherwise subject.
3.1.6 Agreements for Disposition. To the extent required by the underwriting agreement or similar agreements, Purchaser shall enter into reasonable customary agreements (including, if applicable, an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities. The representations, warranties and covenants of Purchaser in any underwriting agreement which are made to or for the benefit of any Underwriters, to the extent applicable, shall also be made to and for the benefit of Investors holding Registrable Securities included in such Registration Statement. No Investor holding Registrable Securities included in such Registration Statement shall be required to make any representations or warranties in the underwriting agreement except, if applicable, with respect to such Investor’s organization, good standing, authority, title to Registrable Securities, lack of conflict of such sale with such Investor’s material agreements and organizational documents, and with respect to written information relating to such Investor that such Investor has furnished in writing expressly for inclusion in such Registration Statement.
3.1.7 Cooperation. The principal executive officer of Purchaser, the principal financial officer of Purchaser, the principal accounting officer of Purchaser and all other officers and members of the management of Purchaser shall reasonably cooperate in any offering of Registrable Securities hereunder, which cooperation shall include the preparation of the Registration Statement with respect to such offering and all other offering materials and related documents, and participation in meetings with Underwriters, attorneys, accountants and potential investors.
3.1.8 Records. Purchaser shall make available for inspection by Investors holding Registrable Securities included in such Registration Statement, any Underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other professional retained by any Investor holding Registrable Securities included in such Registration Statement or any Underwriter, all financial and other records, pertinent corporate documents and properties of Purchaser, as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause Purchaser’s officers, directors and employees to supply all information reasonably requested by any of them in connection with such Registration Statement; provided that Purchaser may require execution of a reasonable confidentiality agreement prior to sharing any such information.
3.1.9 Opinions and Comfort Letters. Purchaser shall obtain from its counsel and accountants to provide customary legal opinions and customary comfort letters, to the extent so reasonably required by any underwriting agreement.
3.1.10 Earnings Statement. Purchaser shall comply with all applicable rules and regulations of the SEC and the Securities Act, and make available to its shareholders if reasonably required, as soon as reasonably practicable, an earnings statement covering a period of twelve (12) months, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
3.1.11 Listing. Purchaser shall use its commercially reasonable efforts to cause all Registrable Securities that are shares of Purchaser Common Stock included in any registration to be listed on such national security exchange as similar securities issued by Purchaser are then listed or, if no such similar securities are then listed, in a manner satisfactory to Investors holding a majority-in-interest of the Registrable Securities included in such registration.
3.1.12 Road Show. If the registration involves the registration of Registrable Securities involving gross proceeds in excess of $25,000,000, Purchaser shall use its reasonable efforts to make available senior executives of Purchaser to participate in customary “road show” presentations that may be reasonably requested by the Underwriter in any underwritten offering.
3.2 Obligation to Suspend Distribution. Upon receipt of any notice from Purchaser of the happening of any event of the kind described in Section 3.1.4(iv), or in the event that the financial statements contained in the Registration Statement become stale, or in the event that the Registration Statement or prospectus included therein contains a misstatement of material fact or omits to state a material fact due to a bona fide business purpose, or, in the case of a resale registration on Short Form Registration pursuant to Section 2.3 hereof, upon any suspension by Purchaser, pursuant to a written insider trading compliance program adopted by Purchaser’s Board of Directors,
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of the ability of all “insiders” covered by such program to transact in Purchaser’s securities because of the existence of material non-public information, each Investor holding Registrable Securities included in any registration shall immediately discontinue disposition of such Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor receives the supplemented or amended prospectus contemplated by Section 3.1.4(iv) or the Registration Statement is updated so that the financial statements are no longer stale, or the restriction on the ability of “insiders” to transact in Purchaser’s securities is removed, as applicable, and, if so directed by Purchaser, each such Investor will deliver to Purchaser all copies, other than permanent file copies then in such Investor’s possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice.
3.3 Registration Expenses. Subject to Section 4, Purchaser shall bear all reasonable costs and expenses incurred in connection with any Demand Registration pursuant to Section 2.1, any Piggy-Back Registration pursuant to Section 2.2, and any registration on Short Form Registration effected pursuant to Section 2.3, and all reasonable expenses incurred in performing or complying with its other obligations under this Agreement, whether or not the Registration Statement becomes effective, including: (i) all registration and filing fees; (ii) fees and expenses of compliance with securities or “blue sky” laws (including fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities); (iii) printing expenses; (iv) Purchaser’s internal expenses (including all salaries and expenses of its officers and employees); (v) the fees and expenses incurred in connection with the listing of the Registrable Securities as required by Section 3.1.11; (vi) Financial Industry Regulatory Authority fees; (vii) fees and disbursements of counsel for Purchaser and fees and expenses for independent certified public accountants retained by Purchaser (including the expenses or costs associated with the delivery of any opinions or comfort letters requested pursuant to Section 3.1.9); (viii) the reasonable fees and expenses of any special experts retained by Purchaser in connection with such registration and (ix) the reasonable fees and expenses of one legal counsel selected by Investors holding a majority-in-interest of the Registrable Securities included in such registration for such legal counsel’s review, comment and finalization of the proposed Registration Statement and other relevant documents. Purchaser shall have no obligation to pay any underwriting discounts or selling commissions attributable to the Registrable Securities being sold by the holders thereof, which underwriting discounts or selling commissions shall be borne by such holders. Additionally, in an underwritten offering, only if the Underwriters require the selling security holders and/or Purchaser to bear the expenses of the Underwriter following good faith negotiations, all selling security holders and Purchaser shall bear the expenses of the Underwriter pro rata in proportion to the respective amount of securities each is selling in such offering.
3.4 Information. Investors holding Registrable Securities included in any Registration Statement shall provide such information as may reasonably be requested by Purchaser, or the managing Underwriter, if any, in connection with the preparation of such Registration Statement, including amendments and supplements thereto, in order to effect the registration of any Registrable Securities under the Securities Act pursuant to Section 2 and in connection with the obligation to comply with federal and applicable state securities laws. Investors selling Registrable Securities in any offering must provide all questionnaires, powers of attorney, custody agreements, stock powers, and other documentation reasonably requested by Purchaser or the managing Underwriter.
4. INDEMNIFICATION AND CONTRIBUTION.
4.1 Indemnification by Purchaser. Subject to the provisions of this Section 4.1, Purchaser agrees to indemnify and hold harmless each Investor, and each Investor’s officers, employees, affiliates, directors, partners, members, attorneys and agents, and each Person, if any, who controls an Investor (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) (each, an “Investor Indemnified Party”), from and against any expenses, losses, judgments, claims, damages or liabilities, whether joint or several, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arising out of or based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by Purchaser of the Securities Act or any rule or regulation promulgated thereunder applicable to Purchaser and relating to action or inaction required of Purchaser in connection with any such registration (provided, however, that the indemnity agreement contained in this Section 4.1 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if such settlement is effected without the consent of Purchaser, such consent not to be unreasonably withheld, delayed or conditioned); and Purchaser shall promptly reimburse the Investor Indemnified Party for any legal and any other expenses reasonably incurred by such Investor Indemnified
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Party in connection with investigating and defending any such expense, loss, judgment, claim, damage, liability or action; provided, however, that Purchaser will not be liable in any such case to the extent that any such expense, loss, claim, damage or liability arises out of or is based upon any untrue or alleged untrue statement or omission or alleged omission made in such Registration Statement, preliminary prospectus, final prospectus, or summary prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to Purchaser, in writing, by such selling holder or Investor Indemnified Party expressly for use therein. Purchaser also shall indemnify any Underwriter of the Registrable Securities, their officers, affiliates, directors, partners, members and agents and each Person who controls such Underwriter on substantially the same basis as that of the indemnification provided above in this Section 4.1.
4.2 Indemnification by Holders of Registrable Securities. Subject to the provisions of this Section 4.2, each Investor selling Registrable Securities will, in the event that any registration is being effected under the Securities Act pursuant to this Agreement of any Registrable Securities held by such selling Investor, indemnify and hold harmless Purchaser, each of its directors and officers and each Underwriter (if any), and each other selling holder and each other Person, if any, who controls another selling holder or such Underwriter within the meaning of the Securities Act, against any losses, claims, judgments, damages or liabilities, whether joint or several, insofar as such losses, claims, judgments, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading, if the statement or omission was made in reliance upon and in conformity with information furnished in writing to Purchaser by such selling Investor expressly for use therein (provided, however, that the indemnity agreement contained in this Section 4.2 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if such settlement is effected without the consent of the indemnifying Investor, such consent not to be unreasonably withheld, delayed or conditioned), and shall reimburse Purchaser, its directors and officers, each Underwriter and each other selling holder or controlling Person for any legal or other expenses reasonably incurred by any of them in connection with investigation or defending any such loss, claim, damage, liability or action. Each selling Investor’s indemnification obligations hereunder shall be several and not joint and shall be limited to the amount of any net proceeds actually received by such selling Investor in the applicable offering.
4.3 Conduct of Indemnification Proceedings. Promptly after receipt by any Person of any notice of any loss, claim, damage or liability or any action in respect of which indemnity may be sought pursuant to Section 4.1 or Section 4.2, such Person (the “Indemnified Party”) shall, if a claim in respect thereof is to be made against any other Person for indemnification hereunder, notify such other Person (the “Indemnifying Party”) in writing of the loss, claim, judgment, damage, liability or action; provided, however, that the failure by the Indemnified Party to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability which the Indemnifying Party may have to such Indemnified Party hereunder, except and solely to the extent the Indemnifying Party is actually prejudiced by such failure. If the Indemnified Party is seeking indemnification with respect to any claim or action brought against the Indemnified Party, then the Indemnifying Party shall be entitled to participate in such claim or action, and, to the extent that it wishes, jointly with all other Indemnifying Parties, to assume control of the defense thereof with counsel satisfactory to the Indemnified Party if the Indemnifying Party provides notice of such to the Indemnified Party within thirty (30) days of the Indemnifying Party’s receipt of notice of such claim. After notice from the Indemnifying Party to the Indemnified Party of its election to assume control of the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that in any action in which both the Indemnified Party and the Indemnifying Party are named as defendants, the Indemnified Party shall have the right to employ separate counsel (but no more than one such separate counsel) to represent the Indemnified Party and its controlling Persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, with the fees and expenses of such counsel to be paid by such Indemnifying Party if, based upon the written opinion of counsel of such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. No Indemnifying Party shall, without the prior written consent of the Indemnified Party (acting reasonably), consent to entry of judgment or effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such judgment or settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding.
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4.4 Contribution.
4.4.1 If the indemnification provided for in the foregoing Sections 4.1, 4.2 and 4.4 is unavailable to any Indemnified Party in respect of any loss, claim, damage, liability or action referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the Indemnified Parties and the Indemnifying Parties in connection with the actions or omissions which resulted in such loss, claim, damage, liability or action, as well as any other relevant equitable considerations. The relative fault of any Indemnified Party and any Indemnifying Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such Indemnified Party or such Indemnifying Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
4.4.2 The Parties agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding Section 4.4.1.
4.4.3 The amount paid or payable by an Indemnified Party as a result of any loss, claim, damage, liability or action referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4, no Investor holding Registrable Securities shall be required to contribute any amount in excess of the dollar amount of the net proceeds (after payment of any underwriting fees, discounts, commissions or taxes) actually received by such Investor from the sale of Registrable Securities which gave rise to such contribution obligation. Any contributions obligation of the Investors shall be several and not joint. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
5. RULE 144 AND 145.
5.1 Rule 144 and 145. Purchaser covenants that it shall file any reports required to be filed by it under the Securities Act and the Exchange Act and shall take such further action as Investors holding Registrable Securities may reasonably request, all to the extent required from time to time to enable such Investors to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 and 145 under the Securities Act, as such Rule 144 and 145 may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.
6. MISCELLANEOUS.
6.1 Other Registration Rights. Purchaser represents and warrants that as of the date of this Agreement, no Person, other than the holders of (i) Registrable Securities and (ii) Founder Securities, has any right to require Purchaser to register any of Purchaser’s share capital for sale or to include Purchaser’s share capital in any registration filed by Purchaser for the sale of share capital for its own account or for the account of any other Person.
6.2 Assignment; No Third Party Beneficiaries. This Agreement and the rights, duties and obligations of Purchaser hereunder may not be assigned or delegated by Purchaser in whole or in part, unless Purchaser first provides Investors holding Registrable Securities at least ten (10) Business Days prior written notice; provided that no assignment or delegation by Purchaser will relieve Purchaser of its obligations under this Agreement unless Investors holding a majority-in-interest of the Registrable Securities provide their prior written consent, which consent must not be unreasonably withheld, delayed or conditioned. This Agreement and the rights, duties and obligations of Investors holding Registrable Securities hereunder may be freely assigned or delegated by such Investor in conjunction with and to the extent of any transfer of Registrable Securities by such Investor which is permitted by the Lock-Up Agreement; provided that no assignment by any Investor of its rights, duties and obligations hereunder shall be binding upon or obligate Purchaser unless and until Purchaser shall have received (i) written notice of such assignment and (ii) the written agreement of the assignee, in a form reasonably satisfactory to Purchaser, to be bound by the terms and provisions of this Agreement (which may be accomplished by an addendum or certificate of joinder to this Agreement). This Agreement and the provisions hereof shall be binding upon and
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shall inure to the benefit of each of the Parties, to the permitted assigns of the Investors or of any assignee of the Investors. This Agreement is not intended to confer any rights or benefits on any Persons that are not party hereto other than as expressly set forth in Section 4 and this Section 6.2.
6.3 Notices. All notices, consents, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered (i) in person, (ii) by facsimile or other electronic means, with affirmative confirmation of receipt, (iii) one Business Day after being sent, if sent by reputable, nationally recognized overnight courier service or (iv) three (3) Business Days after being mailed, if sent by registered or certified mail, pre-paid and return receipt requested, in each case to the applicable Party at the following addresses (or at such other address for a Party as shall be specified by like notice):
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6.4 Severability. This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the Parties intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible that is valid and enforceable. Notwithstanding anything to the contrary contained in this Agreement, in the event that a duly executed copy of this Agreement is not delivered to Purchaser by a Person receiving Merger Consideration Shares in connection with the Closing, such Person failing to provide such signature shall not be a party to this Agreement or have any rights or obligations hereunder, but such failure shall not affect the rights and obligations of the other Parties to this Agreement as amongst such other Parties.
6.5 Entire Agreement. This Agreement (together with the Merger Agreement, and the Lock-Up Agreement to the extent incorporated herein, and including all agreements entered into pursuant hereto or thereto or referenced herein or therein and all certificates and instruments delivered pursuant hereto and thereto) constitutes the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations, understandings, negotiations and discussions between the Parties, whether oral or written, relating to the subject matter hereof; provided, that, for the avoidance of doubt, the foregoing shall not affect the rights and obligations of the Parties under the Merger Agreement or any other Ancillary Document or the rights or obligations of the Parties under the Founder Registration Rights Agreement.
6.6 Interpretation. Titles and headings of sections of this Agreement are for convenience only and shall not affect the construction of any provision of this Agreement. In this Agreement, unless the context otherwise requires: (i) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (ii) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding or succeeding such term and shall be deemed in each case to be followed by the words “without limitation”; (iii) the words “herein,” “hereto,” and “hereby” and other words of similar import in this Agreement shall be deemed in each case to refer to this Agreement as a whole and not to any particular section or other subdivision of this Agreement; and (iv) the term “or” means “and/or”. The Parties have participated jointly in the negotiation and drafting of this Agreement. Consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.
6.7 Amendments; Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written agreement or consent of Purchaser (after the Closing, following approval of such amendment by a majority of the directors of Purchaser who are deemed to be “independent” directors pursuant to the applicable rules of Nasdaq and the SEC) and Investors holding a majority-in-interest of the Registrable Securities; provided, that any amendment or waiver of this Agreement which affects an Investor in a manner materially and adversely disproportionate to other Investors will also require the consent of such Investor. No failure or delay by a Party in exercising any right hereunder shall operate as a waiver thereof. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
6.8 Remedies Cumulative. In the event a Party fails to observe or perform any covenant or agreement to be observed or performed under this Agreement, the other Parties may proceed to protect and enforce its rights by suit in equity or action at law, whether for specific performance of any term contained in this Agreement or for an injunction against the breach of any such term or in aid of the exercise of any power granted in this Agreement or to enforce any other legal or equitable right, or to take any one or more of such actions, without being required to post a bond. None of the rights, powers or remedies conferred under this Agreement shall be mutually exclusive, and each such right, power or remedy shall be cumulative and in addition to any other right, power or remedy, whether conferred by this Agreement or now or hereafter available at law, in equity, by statute or otherwise.
6.9 Governing Law; Jurisdiction. Sections 10.4 and 10.5 of the Merger Agreement shall apply to this Agreement mutatis mutandis, with any reference therein to the “Agreement” being a reference to this Agreement and any reference to a “Party” therein being a reference to any “Party” to this Agreement.
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6.10 Termination of Merger Agreement. This Agreement shall be binding upon each Party upon such Party’s execution and delivery of this Agreement at the Closing, and this Agreement shall only become effective upon the Closing.
6.11 Counterparts. This Agreement may be executed in multiple counterparts (including by facsimile or pdf or other electronic document transmission), each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Copies of executed counterparts of this Agreement transmitted by electronic transmission (including by email or in .pdf format) or facsimile as well as electronically or digitally executed counterparts (such as DocuSign) shall have the same legal effect as original signatures and shall be considered original executed counterparts of this Agreement.
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IN WITNESS WHEREOF, the Parties have caused this Registration Rights Agreement to be executed and delivered as of the date first written above.
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IN WITNESS WHEREOF, the Parties have caused this Registration Rights Agreement to be executed and delivered as of the date first written above.
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[Signature Page to Registration Rights Agreement]
| Annex A-119 |
Exhibit 10.4
LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT (this “Agreement”) is made and entered into as of January 31, 2023, by and between (i) Pono Capital Two, Inc., a Delaware corporation, which will be known after the consummation of the transactions contemplated by the Merger Agreement (as defined below) as “SBC Medical Group Holdings Incorporated” (the “Purchaser”), and (ii) the undersigned (“Holder”). Any capitalized term used but not defined in this Agreement will have the meaning ascribed to such term in the Merger Agreement (as defined herein). Purchaser and Holder may be referred to herein individually as a “Party” and collectively as the “Parties”.
WHEREAS, on January 31, 2023, (i) the Purchaser, (ii) Pono Two Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of the Purchaser (“Merger Sub”), (iii) Mehana Capital LLC, a Delaware limited liability company, (iv) Dr. Yoshiyuki Aikawa, in the capacity as the representative for the Company Stockholders, and (v) SBC Medical Group Holdings Incorporated, a Delaware corporation (the “Company”), entered into that certain Agreement and Plan of Merger (as amended from time to time in accordance with the terms thereof, the “Merger Agreement”), pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving entity (the “Merger”), and as a result of which, all of the issued and outstanding capital stock of the Company, immediately prior to the consummation of the Merger (the “Closing”), shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, in exchange for the Merger Consideration, all upon the terms and subject to the conditions set forth in the Merger Agreement and in accordance with the applicable provisions of the of the DGCL;
WHEREAS, immediately prior to the Closing, Holder is a holder of Company Stock; and
WHEREAS, pursuant to the Merger Agreement, and in view of the valuable consideration to be received by Holder thereunder, the Parties desire to enter into this Agreement, pursuant to which the Merger Consideration, received by Holder in the Merger (all such securities, together with any securities paid as dividends or distributions with respect to such securities or into which such securities are exchanged or converted, the “Restricted Securities”) shall become subject to limitations on disposition as set forth herein.
NOW, THEREFORE, in consideration of the premises set forth above, which are incorporated in this Agreement as if fully set forth below, and intending to be legally bound hereby, the Parties hereby agree as follows:
1. Lock-Up Provisions.
(a) Holder hereby agrees not to, during the period commencing from the Closing and ending on the earliest of (x) six month anniversary of the date of the Closing, and (y) the date after the Closing on which the Purchaser consummates a liquidation, merger, capital stock exchange, reorganization or other similar transaction with an unaffiliated third party that results in all of Purchaser’s stockholders having the right to exchange their shares of Purchaser Common Stock for cash, securities or other property, and (z) the date on which the closing sale price of the Purchaser Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred and fifty (150) days after the Closing (the “Lock-Up Period”): (i) lend, offer, pledge, hypothecate, encumber, donate, assign, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Restricted Securities, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Restricted Securities, or (iii) publicly disclose the intention to do any of the foregoing, whether any such transaction described in clauses (i), (ii) or (iii) above is to be settled by delivery of Restricted Securities or other securities, in cash or otherwise (any of the foregoing described in clauses (i), (ii) or (iii), a “Prohibited Transfer”) provided that ⅓ of such Restricted Securities shall be released from such restrictions if the closing stock price of the Purchaser common stock reaches each of $13.00, $15.00, and $17.00. The foregoing restrictions shall not apply to the transfer of any or all of the Restricted Securities owned by Holder (I) by gift, will or intestate succession upon the death of Holder, (II) to any Permitted Transferee or (III) pursuant to a court order or settlement agreement related to the distribution of assets in connection with the dissolution of marriage or civil union; provided, however, that in any of cases (I), (II) or (III) it shall be a condition to such transfer that the transferee executes and delivers to the Purchaser an agreement stating that the transferee is receiving and holding the Restricted Securities subject to the provisions of this Agreement
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applicable to Holder, and there shall be no further transfer of such Restricted Securities except in accordance with this Agreement. As used in this Agreement, the term “Permitted Transferee” shall mean: (1) the members of Holder’s immediate family (for purposes of this Agreement, “immediate family” shall mean with respect to any natural person, any of the following: such person’s spouse or domestic partner, the siblings of such person and his or her spouse or domestic partner, and the direct descendants and ascendants (including adopted and step children and parents) of such person and his or her spouses or domestic partners and siblings), (2) any trust for the direct or indirect benefit of Holder or the immediate family of Holder, (3) if Holder is a trust, to the trustor or beneficiary of such trust or to the estate of a beneficiary of such trust, (4) in the case of an entity, partners, members, managers, investment managers or stockholders of such entity that receive such transfer as a distribution, (5) to any affiliate of Holder, (6) any charitable foundation controlled by the undersigned, its members or stockholders or any of their respective immediate family; and (7) any transferee whereby there is no change in beneficial ownership. Holder further agrees to execute such agreements as may be reasonably requested by Purchaser that are consistent with the foregoing or that are necessary to give further effect thereto.
(b) If any Prohibited Transfer is made or attempted contrary to the provisions of this Agreement, such purported Prohibited Transfer shall be null and void ab initio, and Purchaser shall refuse to recognize any such purported transferee of the Restricted Securities as one of its equity holders for any purpose. In order to enforce this Section 1, Purchaser may impose stop-transfer instructions with respect to the Restricted Securities of Holder (and Permitted Transferees and assigns thereof) until the end of the Lock-Up Period except in compliance with the foregoing restrictions.
(c) During the Lock-Up Period, each certificate evidencing any Restricted Securities shall be stamped or otherwise imprinted with a legend in substantially the following form, in addition to any other applicable legends:
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH IN A LOCK-UP AGREEMENT, DATED AS OF [_], 2023, BY AND AMONG THE ISSUER OF SUCH SECURITIES (THE “ISSUER”) AND THE ISSUER’S SECURITY HOLDER NAMED THEREIN, AS AMENDED. A COPY OF SUCH LOCK-UP AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST.”
(d) For the avoidance of any doubt, Holder shall retain all of its rights as a stockholder of the Purchaser during the Lock-Up Period, including the right to vote any Restricted Securities.
2. Miscellaneous.
(a) Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their respective permitted successors and assigns. This Agreement and all obligations of Holder are personal to Holder and may not be transferred or delegated by Holder at any time. The Purchaser may freely assign any or all of its rights under this Agreement, in whole or in part, to any successor entity (whether by merger, consolidation, equity sale, asset sale or otherwise) without obtaining the consent or approval of Holder.
(b) Third Parties. Nothing contained in this Agreement or in any instrument or document executed by any Party in connection with the transactions contemplated hereby shall create any rights in, or be deemed to have been executed for the benefit of, any person or entity that is not a Party or thereto or a successor or permitted assign of such a Party.
(c) Governing Law; Jurisdiction. This Agreement and any dispute or controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of law principles thereof. All Actions arising out of or relating to this Agreement shall be heard and determined exclusively in any state or federal court located in New York, New York (or in any appellate courts thereof) (the “Specified Courts”). Each Party hereby (i) submits to the exclusive jurisdiction of any Specified Court for the purpose of any Action arising out of or relating to this Agreement brought by any Party and (ii) irrevocably waives, and agrees not to assert by way of motion, defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the transactions contemplated hereby may not be enforced in or by any
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Specified Court. Each Party agrees that a final judgment in any Action shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each Party irrevocably consents to the service of the summons and complaint and any other process in any other action or proceeding relating to the transactions contemplated by this Agreement, on behalf of itself, or its property, by personal delivery of copies of such process to such Party at the applicable address set forth in Section 2(f). Nothing in this Section 2(c) shall affect the right of any Party to serve legal process in any other manner permitted by applicable law.
(d) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO (i) CERTIFIES THAT NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SEEK TO ENFORCE THAT FOREGOING WAIVER AND (ii) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 2(d).
(e) Interpretation. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement. In this Agreement, unless the context otherwise requires: (i) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (ii) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding or succeeding such term and shall be deemed in each case to be followed by the words “without limitation”; (iii) the words “herein,” “hereto,” and “hereby” and other words of similar import in this Agreement shall be deemed in each case to refer to this Agreement as a whole and not to any particular section or other subdivision of this Agreement; and (iv) the term “or” means “and/or”. The Parties have participated jointly in the negotiation and drafting of this Agreement. Consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.
(f) Notices. All notices, consents, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered (i) in person, (ii) by facsimile or other electronic means, with affirmative confirmation of receipt, (iii) one Business Day after being sent, if sent by reputable, nationally recognized overnight courier service or (iv) three (3) Business Days after being mailed, if sent by registered or certified mail, pre-paid and return receipt requested, in each case to the applicable Party at the following addresses (or at such other address for a Party as shall be specified by like notice):
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(g) Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Purchaser and Holder. No failure or delay by a Party in exercising any right hereunder shall operate as a waiver thereof. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
(h) Authorization on Behalf of the Purchaser. The Parties acknowledge and agree that notwithstanding anything to the contrary contained in this Agreement, any and all determinations, actions or other authorizations under this Agreement on behalf of the Purchaser, including enforcing the Purchaser’s rights and remedies under this Agreement, or providing any waivers with respect to the provisions hereof, shall solely be made, taken and authorized by the Disinterested Director Majority. In the event that the Purchaser at any time does not have any Disinterested Directors, so long as Holder has any remaining obligations under this Agreement, the Purchaser will promptly appoint one in connection with this Agreement. Without limiting the foregoing, in the event that Holder or Holder’s Affiliate serves as a director, officer, employee or other authorized agent of the Purchaser or any of its current or future Affiliates, Holder and/or Holder’s Affiliate shall have no authority, express or implied, to act or make any determination on behalf of the Purchaser or any of its current or future Affiliates in connection with this Agreement or any dispute or Action with respect hereto.
(i) Severability. In case any provision in this Agreement shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties will substitute for any invalid, illegal or unenforceable provision a suitable and equitable provision that carries out, so far as may be valid, legal and enforceable, the intent and purpose of such invalid, illegal or unenforceable provision.
(j) Specific Performance. Holder acknowledges that its obligations under this Agreement are unique, recognizes and affirms that in the event of a breach of this Agreement by Holder, money damages will be inadequate and Purchaser will have no adequate remedy at law, and agrees that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by Holder in accordance with their specific terms or were otherwise breached. Accordingly, the Purchaser shall be entitled to an injunction or restraining order to prevent breaches of this Agreement by Holder and to enforce specifically the terms and provisions hereof, without the requirement to post any bond or other security or to prove that money damages would be inadequate, this being in addition to any other right or remedy to which the Purchaser may be entitled under this Agreement, at law or in equity.
(k) Entire Agreement. This Agreement constitutes the full and entire understanding and agreement among the Parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the Parties is expressly canceled; provided, that, for the avoidance of doubt, the foregoing shall not affect the rights and obligations of the Parties under the Merger Agreement or any Ancillary Document or under the Insider Letter. Notwithstanding the foregoing, nothing in this Agreement shall limit any of the rights or remedies of the Purchaser or any of the obligations of Holder under any other agreement between Holder and the Purchaser or any certificate or instrument executed by Holder in favor of the Purchaser, and nothing in any other agreement, certificate or instrument shall limit any of the rights or remedies of the Purchaser or any of the obligations of Holder under this Agreement.
(l) Further Assurances. From time to time, at another Party’s request and without further consideration (but at the requesting Party’s reasonable cost and expense), each Party shall execute and deliver such additional documents and take all such further action as may be reasonably necessary to consummate the transactions contemplated by this Agreement.
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(m) Counterparts; Facsimile. This Agreement may also be executed and delivered by facsimile signature or by email in portable document format in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(n) Effectiveness. This Agreement shall be binding upon the Holder upon the Holder’s execution and delivery of this Agreement, but this Agreement shall only become effective upon the consummation of the Transactions. In the event that the Merger Agreement is validly terminated in accordance with its terms prior to the consummation of the Transactions, this Agreement shall automatically terminate and become null and void, and the Parties shall have no obligations hereunder.
[Remainder of Page Intentionally Left Blank; Signature Pages Follow]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
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Purchaser: |
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PONO CAPITAL TWO, INC. |
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By: |
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Name: |
Darryl Nakamoto |
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Title: |
Chief Executive Officer |
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{Additional Signature on the Following Page}
{Signature Page to Lock-Up Agreement}
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IN WITNESS WHEREOF, the parties have executed this Lock-Up Agreement as of the date first written above.
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Holder: |
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By: |
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Name: |
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Number of Shares Company Stock: |
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{Signature Page to Lock-Up Agreement}
| Annex A-93 |
Exhibit 10.12
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
THIS NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this “Agreement”) is being executed and delivered as of January 31, 2023, by the individual set forth on the signature page hereto (the “Subject Party”) in favor of and for the benefit of Pono Capital Two, Inc., a Delaware corporation, which will be known after the consummation of the transactions contemplated by the Merger Agreement (as defined below) as “SBC Medical Group Holdings Incorporated” (including any successor entity thereto, the “Purchaser”), SBC Medical Group Holdings Incorporated, a Delaware corporation, which will be known after the consummation of the transactions contemplated by the Merger Agreement (as defined below) as “SBC Medical Operations, Inc.” (the “Company”), and each of the Purchaser’s and/or the Company’s respective Affiliates, successors and direct and indirect Subsidiaries including each of the Target Companies (as defined in the Merger Agreement) (collectively with the Purchaser and the Company, the “Covered Parties”). Any capitalized term used but not defined in this Agreement will have the meaning ascribed to such term in the Merger Agreement. Purchaser, the Company and Subject Party may be referred to herein individually as a “Party” and collectively as the “Parties”.
WHEREAS, simultaneously herewith, (i) the Purchaser, (ii) Pono Two Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Purchaser (“Merger Sub”), (iii) Mehana Capital LLC, a Delaware limited liability company, (iv) Dr. Yoshiyuki Aikawa, in the capacity as representative for the Company Stockholders, and (v) the Company are entering into that certain Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, subject to the terms and conditions thereof, the Merger Sub will merge with and into the Company, with the Company continuing as the surviving entity (the “Merger”), and with the Company’s stockholders receiving shares of the Purchaser’s Class A Common Stock as Merger Consideration;
WHEREAS, the Company and the Target Companies are engaged in the business of operating medical care and special treatment facilities specializing in cosmetic, medical and surgical dermatology practices dedicated to cosmetic surgery, skin and beauty, infertility, dental, and orthopedics (the “Business”);
WHEREAS, in connection with, and as a condition to the execution and delivery of the Merger Agreement and the consummation of the Merger and the other transactions contemplated thereby (the “Transactions”), and to enable the Purchaser to secure more fully the benefits of the Transactions, including the protection and maintenance of the goodwill and confidential information of the Company and the Target Companies, the Purchaser has required that the Subject Party enter into this Agreement;
WHEREAS, the Subject Party is entering into this Agreement in order to induce the Purchaser and Merger Sub to consummate the Transactions, pursuant to which the Subject Party will directly or indirectly receive a material benefit; and
WHEREAS, the Subject Party, as a former executive of the Company or one of its Affiliates, has contributed to the value of the Company and the Target Companies and has obtained extensive and valuable knowledge and confidential information concerning the business of the Company and the Target Companies.
NOW, THEREFORE, in order to induce the Purchaser to consummate the Transactions, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Subject Party hereby agrees as follows:
1. Restriction on Competition.
(a) Restriction. The Subject Party hereby agrees that during the period from the Closing until the two (2) year anniversary of the Closing Date (the “Termination Date,” and such period from the Closing until the Termination Date, the “Restricted Period”), the Subject Party will not, and will cause its Affiliates not to, without the prior written consent of Purchaser (which may be withheld in its sole discretion), anywhere in the United States, Japan, the European Union or in any other markets in which the Covered Parties are engaged, or are actively contemplating to become engaged, in the Business as of the Closing Date or during the Restricted Period (the “Territory”), directly or indirectly engage in the Business (other than through a Covered Party) or own, manage, finance or control, or participate in the ownership, management, financing or control of, or become engaged or serve as an officer, director, stockholder, member, partner, employee, agent, consultant, advisor or representative of, a business or entity (other than a Covered Party) that engages in the Business (a “Competitor”).
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(b) Acknowledgment. The Subject Party acknowledges and agrees, that (i) the Subject Party possesses knowledge of confidential information of the Company, the Target Companies and the Business, (ii) the Subject Party’s execution of this Agreement is a material inducement to Purchaser to consummate the Transactions and to realize the goodwill of the Company and the Target Companies, for which the Subject Party and/or its Affiliates will receive a substantial direct or indirect financial benefit, and that the Purchaser would not have entered into the Merger Agreement or consummated the Transactions but for the Subject Party’s agreements set forth in this Agreement, (iii) it would impair the goodwill of the Company and the Target Companies and reduce the value of the assets of the Company and the Target Companies and cause serious and irreparable injury if the Subject Party were to use its ability and knowledge by engaging in the Business in competition with a Covered Party, and/or to otherwise breach the obligations contained herein and that the Covered Parties would not have an adequate remedy at law because of the unique nature of the Business, (iv) the Subject Party and its Affiliates have no intention of engaging in the Business (other than through the Covered Parties) during the Restricted Period, (v) the relevant public policy aspects of restrictive covenants, covenants not to compete and non-solicitation provisions have been discussed, and every effort has been made to limit the restrictions placed upon the Subject Party to those that are reasonable and necessary to protect the Covered Parties’ legitimate interests, (vi) the Covered Parties conduct and intend to conduct the Business everywhere in the Territory and compete with other businesses that are or could be located in any part of the Territory, (vii) the foregoing restrictions on competition are fair and reasonable in type of prohibited activity, geographic area covered, scope and duration, (viii) the consideration provided to the Subject Party under this Agreement and the Merger Agreement is not illusory, and (ix) such provisions do not impose a greater restraint than is necessary to protect the goodwill or other business interests of the Covered Parties.
2. No Solicitation; No Disparagement.
(a) No Solicitation of Employees and Consultants. The Subject Party agrees that, during the Restricted Period, the Subject Party will not, and will not permit its Affiliates to, without the prior written consent of the Purchaser (which may be withheld in its sole discretion), either on its own behalf or on behalf of any other Person (other than, if applicable, a Covered Party in the performance of the Subject Party’s duties on behalf of the Covered Parties), directly or indirectly: (i) hire or engage as an employee, independent contractor, consultant or otherwise any Covered Personnel (as defined below); (ii) solicit, induce, encourage or otherwise knowingly cause (or attempt to do any of the foregoing) any Covered Personnel to leave the service (whether as an employee, consultant or independent contractor) of any Covered Party; or (iii) in any way interfere with or attempt to interfere with the relationship between any Covered Personnel and any Covered Party; provided, however, the Subject Party and its Affiliates will not be deemed to have violated this Section 2(a) if any Covered Personnel voluntarily and independently solicits an offer of employment from the Subject Party or its Affiliate (or other Person whom any of them is acting on behalf of) by responding to a general advertisement or solicitation program conducted by or on behalf of the Subject Party or its Affiliate (or such other Person whom any of them is acting on behalf of) that is not targeted at such Covered Personnel or Covered Personnel generally, so long as such Covered Personnel is not hired. For purposes of this Agreement, “Covered Personnel” shall mean any Person who is or was an employee, consultant or independent contractor of the Covered Parties, as of the Closing Date, at any time during the Restricted Period and as of the relevant time of determination.
(b) Non-Solicitation of Customers and Suppliers. The Subject Party agrees that, during the Restricted Period, the Subject Party and its Affiliates will not, without the prior written consent of the Purchaser (which may be withheld in its sole discretion), individually or on behalf of any other Person (other than, if applicable, a Covered Party in the performance of the Subject Party’s duties on behalf of the Covered Parties), directly or indirectly: (i) solicit, induce, encourage or otherwise knowingly cause (or attempt to do any of the foregoing) any Covered Customer (as defined below) to (A) cease being, or not become, a client or customer of any Covered Party with respect to the Business or (B) reduce the amount of business of such Covered Customer with any Covered Party, or otherwise alter such business relationship in a manner adverse to any Covered Party, in either case, with respect to or relating to the Business; (ii) knowingly interfere with or disrupt (or attempt to interfere with or disrupt) the contractual relationship between any Covered Party and any Covered Customer; (iii) divert any business with any Covered Customer relating to the Business from a Covered Party; (iv) solicit for business, provide services to, engage in or do business with, any Covered Customer for products or services that are part of the Business; or (v) interfere with or disrupt (or attempt to interfere with or disrupt), any Person that was a vendor, supplier, distributor, agent or other service provider of a Covered Party at the time of such interference or disruption, for a purpose competitive with a Covered Party as it relates to the Business. For purposes of this Agreement, a “Covered
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Customer” shall mean any Person who is or was an actual customer or client (or prospective customer or client with whom a Covered Party actively marketed or made or taken specific action to make a proposal) of a Covered Party, as of the Closing Date, at any time during the Restricted Period and as of the relevant time of determination.
(c) Non-Disparagement. The Subject Party agrees that from and after the Closing until the Second (2nd) anniversary of the end of the Restricted Period, the Subject Party and its Affiliates will not, directly or indirectly engage in any conduct that involves the making or publishing (including through electronic mail distribution or online social media) of any written or oral statements or remarks (including the repetition or distribution of derogatory rumors, allegations, negative reports or comments) that are disparaging, deleterious or damaging to the integrity, reputation or good will of one or more Covered Parties or their respective management, officers, employees, independent contractors or consultants. Notwithstanding the foregoing, subject to Section 3 below, the provisions of this Section 2(c) shall not restrict the Subject Party from providing truthful testimony or information in response to a subpoena or investigation by a Governmental Authority or in connection with any legal action by the Subject Party against any Covered Party under this Agreement, the Merger Agreement or any other Ancillary Document that is asserted by the Subject Party in good faith.
3. Confidentiality. From and after the Closing Date, the Subject Party will, and will cause its Representatives to, keep confidential and not (except, if applicable, in the performance of the Subject Party’s duties on behalf of the Covered Parties) directly or indirectly use, disclose, reveal, publish, transfer or provide access to, any and all Covered Party Information without the prior written consent of the Purchaser (which may be withheld in its sole discretion). As used in this Agreement, “Covered Party Information” means all material and information relating to the business, affairs and assets of any Covered Party, including material and information that concerns or relates to such Covered Party’s bidding and proposal, technical, computer hardware or software, administrative, management, operational, data processing, financial, marketing, sales, human resources, business development, planning and/or other business activities, regardless of whether such material and information is maintained in physical, electronic, or other form, that is: (A) gathered, compiled, generated, produced or maintained by such Covered Party through its Representatives, or provided to such Covered Party by its suppliers, service providers or customers; and (B) intended and maintained by such Covered Party or its Representatives, suppliers, service providers or customers to be kept in confidence. The obligations set forth in this Section 3 will not apply to any Covered Party Information where the Subject Party can prove that such material or information: (i) is known or available through other lawful sources not bound by a confidentiality agreement with, or other confidentiality obligation to, any Covered Party; (ii) is or becomes publicly known through no violation of this Agreement or other non-disclosure obligation of the Subject Party or any of its Representatives; (iii) is already in the possession of the Subject Party at the time of disclosure through lawful sources not bound by a confidentiality agreement or other confidentiality obligation as evidenced by the Subject Party’s documents and records; or (iv) is required to be disclosed pursuant to an order of any administrative body or court of competent jurisdiction (provided that (A) the applicable Covered Party is given reasonable prior written notice, (B) the Subject Party cooperates (and causes its Representatives to cooperate) with any reasonable request of any Covered Party to seek to prevent or narrow such disclosure and (C) if after compliance with clauses (A) and (B) such disclosure is still required, the Subject Party and its Representatives only disclose such portion of the Covered Party Information that is expressly required by such order, as it may be subsequently narrowed).
4. Representations and Warranties. The Subject Party hereby represents and warrants, to and for the benefit of the Covered Parties as of the date of this Agreement and as of the Closing Date, that: (a) the Subject Party has full power and capacity to execute and deliver, and to perform all of the Subject Party’s obligations under, this Agreement; and (b) neither the execution and delivery of this Agreement nor the performance of the Subject Party’s obligations hereunder will result directly or indirectly in a violation or breach of any agreement or obligation by which the Subject Party is a party or otherwise bound. By entering into this Agreement, the Subject Party certifies and acknowledges that the Subject Party has carefully read all of the provisions of this Agreement, and that the Subject Party voluntarily and knowingly enters into this Agreement.
5. Remedies. The covenants and undertakings of the Subject Party contained in this Agreement relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of this Agreement may cause irreparable injury to the Covered Parties, the amount of which may be impossible to estimate or determine and which cannot be adequately compensated. The Subject Party agrees that, in the event of any breach or threatened breach by the Subject Party of any covenant or obligation contained in this Agreement, each applicable Covered Party will be entitled to seek the following remedies (in addition to, and not in lieu of, any other remedy at
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law or in equity or pursuant to the Merger Agreement or the other Ancillary Documents that may be available to the Covered Parties, including monetary damages), and a court of competent jurisdiction may award: (i) an injunction, restraining order or other equitable relief restraining or preventing such breach or threatened breach, without the necessity of proving actual damages or posting bond or security, which the Subject Party expressly waives; and (ii) recovery of the Covered Party’s attorneys’ fees and costs incurred in enforcing the Covered Party’s rights under this Agreement. The Subject Party hereby consents to the award of any of the above remedies to the applicable Covered Party in connection with any such breach or threatened breach. The Subject Party hereby acknowledges and agrees that in the event of any breach of this Agreement, any value attributed or allocated to this Agreement (or any other non-competition agreement with the Subject Party) under or in connection with the Merger Agreement shall not be considered a measure of, or a limit on, the damages of the Covered Parties.
6. Survival of Obligations. The expiration of the Restricted Period will not relieve the Subject Party of any obligation or liability arising from any breach by the Subject Party of this Agreement during the Restricted Period. The Subject Party further agrees that the time period during which the covenants contained in Section 1 and Section 2 of this Agreement will be effective will be computed by excluding from such computation any time during which the Subject Party is in violation of any provision of such Sections.
7. Miscellaneous.
(a) Notices. All notices, consents, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered (i) in person, (ii) by facsimile or other electronic means, with affirmative confirmation of receipt, (iii) one Business Day after being sent, if sent by reputable, nationally recognized overnight courier service or (iv) three (3) Business Days after being mailed, if sent by registered or certified mail, pre-paid and return receipt requested, in each case to the applicable Party at the following addresses (or at such other address for a Party as shall be specified by like notice):
(b) Integration and Non-Exclusivity. This Agreement, the Merger Agreement and the other Ancillary Documents contain the entire agreement between the Subject Party and the Covered Parties concerning the subject matter hereof. Notwithstanding the foregoing, the rights and remedies of the Covered Parties under this Agreement are not exclusive of or limited by any other rights or remedies which they may have, whether at law, in equity, by contract or otherwise, all of which will be cumulative (and not alternative). Without limiting the generality of the foregoing, the rights and remedies of the Covered Parties, and the obligations and liabilities of the Subject Party and its Affiliates, under this Agreement, are in addition to their respective rights, remedies, obligations and liabilities (i) under the laws of unfair competition, misappropriation of trade secrets, or other requirements of statutory or
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common law, or any applicable rules and regulations and (ii) otherwise conferred by contract, including the Merger Agreement and any other written agreement between the Subject Party or its Affiliate and any of the Covered Parties. Nothing in the Merger Agreement will limit any of the obligations, liabilities, rights or remedies of the Subject Party or the Covered Parties under this Agreement, nor will any breach of the Merger Agreement or any other agreement between the Subject Party or its Affiliate and any of the Covered Parties limit or otherwise affect any right or remedy of the Covered Parties under this Agreement. If any term or condition of any other agreement between the Subject Party or its Affiliate and any of the Covered Parties conflicts or is inconsistent with the terms and conditions of this Agreement, the more restrictive terms will control as to the Subject Party or its Affiliate, as applicable.
(c) Severability; Reformation. Each provision of this Agreement is separable from every other provision of this Agreement. If any provision of this Agreement is found or held to be invalid, illegal or unenforceable, in whole or in part, by a court of competent jurisdiction, then (i) such provision will be deemed amended to conform to applicable laws so as to be valid, legal and enforceable to the fullest possible extent, (ii) the invalidity, illegality or unenforceability of such provision will not affect the validity, legality or enforceability of such provision under any other circumstances or in any other jurisdiction, and (iii) the invalidity, illegality or unenforceability of such provision will not affect the validity, legality or enforceability of the remainder of such provision or the validity, legality or enforceability of any other provision of this Agreement. The Subject Party and the Covered Parties will substitute for any invalid, illegal or unenforceable provision a suitable and equitable provision that carries out, so far as may be valid, legal and enforceable, the intent and purpose of such invalid, illegal or unenforceable provision. Without limiting the foregoing, if any court of competent jurisdiction determines that any part hereof is unenforceable because of the duration, geographic area covered, scope of such provision, or otherwise, such court will have the power to reduce the duration, geographic area covered or scope of such provision, as the case may be, and, in its reduced form, such provision will then be enforceable. The Subject Party will, at a Covered Party’s request, join such Covered Party in requesting that such court take such action.
(d) Amendment; Waiver. This Agreement may not be amended or modified in any respect, except by a written agreement executed by the Subject Party, the Purchaser and Disinterested Director Majority (or their respective permitted successors or assigns). No waiver will be effective unless it is expressly set forth in a written instrument executed by the waiving Party (and if such waiving Party is a Covered Party, the Disinterested Director Majority) and any such waiver will have no effect except in the specific instance in which it is given. Any delay or omission by a Party in exercising its rights under this Agreement, or failure to insist upon strict compliance with any term, covenant, or condition of this Agreement will not be deemed a waiver of such term, covenant, condition or right, nor will any waiver or relinquishment of any right or power under this Agreement at any time or times be deemed a waiver or relinquishment of such right or power at any other time or times.
(e) Dispute Resolution. Any dispute, difference, controversy or claim arising in connection with or related or incidental to, or question occurring under, this Agreement or the subject matter hereof (other than applications for a temporary restraining order, preliminary injunction, permanent injunction or other equitable relief or application for enforcement of a resolution under this Section 7(e)) (a “Dispute”) shall be governed by this Section 7(e). A Party must, in the first instance, provide written notice of any Disputes to the other Parties subject to such Dispute, which notice must provide a reasonably detailed description of the matters subject to the Dispute. Any Dispute that is not resolved may at any time after the delivery of such notice immediately be referred to and finally resolved by arbitration pursuant to the then-existing Expedited Procedures of the Commercial Arbitration Rules (the “AAA Procedures”) of the American Arbitration Association (the “AAA”). Any Party involved in such Dispute may submit the Dispute to the AAA to commence the proceedings after the Resolution Period. To the extent that the AAA Procedures and this Agreement are in conflict, the terms of this Agreement shall control. The arbitration shall be conducted by one arbitrator nominated by the AAA promptly (but in any event within five (5) Business Days) after the submission of the Dispute to the AAA and reasonably acceptable to each Party subject to the Dispute, which arbitrator shall be a commercial lawyer with substantial experience arbitrating disputes under acquisition agreements. The arbitrator shall accept his or her appointment and begin the arbitration process promptly (but in any event within five (5) Business Days) after his or her nomination and acceptance by the Parties subject to the Dispute. The proceedings shall be streamlined and efficient. The arbitrator shall decide the Dispute in accordance with the substantive law of the State of Delaware. Time is of the essence. Each Party shall submit a proposal for resolution of the Dispute to the arbitrator within twenty (20) days after confirmation of the appointment of the arbitrator. The arbitrator shall have the power to order any Party to do, or to refrain from doing, anything consistent with this Agreement, the Ancillary Documents and applicable Law, including to perform its contractual
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obligation(s); provided, that the arbitrator shall be limited to ordering pursuant to the foregoing power (and, for the avoidance of doubt, shall order) the relevant Party (or Parties, as applicable) to comply with only one or the other of the proposals. The arbitrator’s award shall be in writing and shall include a reasonable explanation of the arbitrator’s reason(s) for selecting one or the other proposal. The seat of arbitration shall be in New York, New York. The language of the arbitration shall be English.
(f) Governing Law; Jurisdiction. This Agreement shall be governed by, construed and enforced in accordance with the Laws of the State of Delaware without regard to the conflict of laws principles thereof. Subject to Section 7(e), all Actions arising out of or relating to this Agreement shall be heard and determined exclusively in any state or federal court located in New York, New York (or in any appellate courts thereof) (the “Specified Courts”). Subject to Section 7(e), each Party hereby (a) submits to the exclusive jurisdiction of any Specified Court for the purpose of any Action arising out of or relating to this Agreement brought by any Party, (b) irrevocably waives, and agrees not to assert by way of motion, defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the transactions contemplated hereby may not be enforced in or by any Specified Court and (c) waives any bond, surety or other security that might be required of any other Party with respect thereto. Each Party agrees that a final judgment in any Action shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law or in equity. Each Party irrevocably consents to the service of the summons and complaint and any other process in any other action or proceeding relating to the transactions contemplated by this Agreement, on behalf of itself, or its property, by personal delivery of copies of such process to such Party at the applicable address set forth in Section 7(a). Nothing in this Section 7(f) shall affect the right of any Party to serve legal process in any other manner permitted by Law.
(g) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SEEK TO ENFORCE THAT FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7(g). ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 7(g) WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
(h) Successors and Assigns; Third Party Beneficiaries. This Agreement will be binding upon the Subject Party and the Subject Party’s estate, successors and assigns, and will inure to the benefit of the Covered Parties, and their respective successors and assigns. No Covered Party may assign any or all of its rights under this Agreement, at any time, in whole or in part, to any Person without first obtaining the consent or approval of the Subject Party (which consent shall not be unreasonably withheld, conditioned or delayed). The Subject Party agrees that the obligations of the Subject Party under this Agreement are personal and will not be assigned by the Subject Party. Each of the Covered Parties are express third party beneficiaries of this Agreement and will be considered parties under and for purposes of this Agreement.
(i) Disinterested Director Majority Authorized to Act on Behalf of Covered Parties. The Parties acknowledge and agree that the Disinterested Director Majority is authorized and shall have the sole right to act on behalf of Purchaser and the other Covered Parties under this Agreement, including the right to enforce the Purchaser’s rights and remedies under this Agreement. Without limiting the foregoing, in the event that the Subject Party serves as a director, officer, employee or other authorized agent of a Covered Party, the Subject Party shall have no authority, express or implied, to act or make any determination on behalf of a Covered Party in connection with this Agreement or any dispute or Action with respect hereto.
(j) Construction. The Subject Party acknowledges that the Subject Party has been represented by counsel, or had the opportunity to be represented by counsel of the Subject Party’s choice. Any rule of construction to the effect that ambiguities are to be resolved against the drafting Party will not be applied in the construction
Annex A-99
or interpretation of this Agreement. Neither the drafting history nor the negotiating history of this Agreement will be used or referred to in connection with the construction or interpretation of this Agreement. The headings and subheadings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. In this Agreement: (i) the words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”; (ii) the definitions contained herein are applicable to the singular as well as the plural forms of such terms; (iii) whenever required by the context, any pronoun shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (iv) the words “herein,” “hereto,” and “hereby” and other words of similar import shall be deemed in each case to refer to this Agreement as a whole and not to any particular Section or other subdivision of this Agreement; (v) the word “if” and other words of similar import when used herein shall be deemed in each case to be followed by the phrase “and only if”; (vi) the term “or” means “and/or”; and (vii) any agreement or instrument defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement or instrument as from time to time amended, modified or supplemented, including by waiver or consent and references to all attachments thereto and instruments incorporated therein.
(k) Counterparts. This Agreement may be executed in one or more counterparts, and by the different Parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. A photocopy, faxed, scanned and/or emailed copy of this Agreement or any signature page to this Agreement, shall have the same validity and enforceability as an originally signed copy.
(l) Effectiveness. This Agreement shall be binding upon the Subject Party upon the Subject Party’s execution and delivery of this Agreement, but this Agreement shall only become effective upon the consummation of the Transactions. In the event that the Merger Agreement is validly terminated in accordance with its terms prior to the consummation of the Transactions, this Agreement shall automatically terminate and become null and void, and the Parties shall have no obligations hereunder.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
Annex A-100
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Agreement as of the date first written above.
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{Signature Page to Non-Competition Agreement}
Annex A-101
Acknowledged and accepted as of the date first written above:
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PONO CAPITAL TWO, INC. |
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SBC MEDICAL GROUP HOLDINGS INCORPORATED |
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{Signature Page to Non-Competition Agreement}
| Annex A-102 |
Exhibit 19.1
POLICY ON INSIDER TRADING
SBC MEDICAL GROUP HOLDINGS INCORPORATED
Company “insiders” are subject to individual responsibilities and restrictions in addition to the responsibilities and obligations of the company itself. An “insider” of a company is a person who is a director, officer, contractor, employee, advisor or consultant in possession of nonpublic material information regarding a company, as well as a shareholder owning 5% or more of the company’s stock. If you have been provided with a copy of the Policy on Insider Trading (“Policy”) of SBC Medical Group Holdings Incorporated (“Company”), you are subject to the rules contained herein. Accordingly, as Insiders of the Company, you are subject to restrictions imposed by federal securities laws with respect to purchases and sales of the Company’s shares.
THE BASICS
No person may trade in a company’s securities if the person has material information, which has not yet been publicly disclosed.
| Person: | directors, officers, advisors, consultants, contractors and employees at all levels within the Company (and, in addition, persons outside the Company that receive tips from insiders). | |
| Trade: | transactions involving the purchase or sale of company stock, exercise of company options and warrants, puts, calls and other company securities. | |
| Material Info: | information that a reasonable investor would consider important, as part of the total mix of available information, in reaching his or her investment decision. | |
| Publicly Disclosed: | disclosed broadly to the marketplace (such as by a company press releases or an SEC filing) and the investing public has had time to absorb the information fully. |
So long as you are an Insider, the rules contained herein apply to:
| ● | You; | |
| ● | Your family members who reside with you; and | |
| ● | Any family members who do not live in your household but whose transactions in Company securities are directed by you or are subject to your influence or control (such as parents or children who consult with you before they trade in company securities). |
You are responsible for the transactions of these other persons, and therefore, you should make them aware of these procedures and their need to confer with you before they engage in any transaction subject to these procedures. As used in this Policy, “you” or means any individual or entity subject to the policies and procedures described herein.
| Page 2 of 8 |
The consequences of illegal insider trading are severe and can result in civil and criminal liability, as well as disciplinary action by the Company. In addition, a person can be held responsible for the trading violations of others if inside information is passed on, resulting in insider trading by others. Penalties can include:
For Individuals:
| ● | Civil penalties up to three times the profit gained or loss avoided (including, in certain circumstances, from persons who “control” the primary violator). | |
| ● | Private remedy against insider trading for benefit of persons who traded in the same securities contemporaneously. | |
| ● | Maximum of 30 years imprisonment. | |
| ● | Fines of up to $5 million for individuals. |
For Entities:
| ● | Civil penalties of $1,000,000 or three times the profit gained or loss avoided (including, in certain circumstances, from persons who “control” the entity), whichever is greater; | |
| ● | Criminal penalties of up to $25,000,000. |
Any of the above consequences would seriously harm the reputation and career of the offender, as well as the Company. The size of a transaction in violation of this Policy has no impact on potential insider trading liability, SEC investigations and lawsuits. Additionally, if the Company concludes an employee has violated this Policy, the Company may dismiss the or commence other disciplinary actions against the violating employee, whether the act was intentional or not.
INSIDER TRADING EXPLAINED
No Trading or Acting on Inside Information
If you are aware of material nonpublic information relating to the Company, you may not, either directly or through family members or other persons or entities:
| ● | Buy or sell securities of the Company (other than as explained herein); or | |
| ● | Make a gift of Company securities; or | |
| ● | Engage in any other action to take personal advantage of that information; or | |
| ● | Pass that information on to others outside the Company, including family and friends. |
Also, if you learn of material nonpublic information about another company with which the Company does business, including a customer or supplier, you may not trade in the other company’s securities until the information becomes public or is no longer material.
Transactions that may be necessary or justifiable for independent, personal reasons (such as the need to raise money for an emergency expenditure) are not exempted from these rules. The securities laws do not recognize such mitigating circumstances, and, in any event, even the appearance of an improper transaction must be avoided to preserve the Company’s reputation for adhering to the highest standards of conduct.
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When Information Becomes Public
Information is not deemed to become “public” until the information has been disclosed broadly to the marketplace (such as by Company press releases or an SEC filing) and the investing public has had time to absorb the information fully. To avoid the appearance of impropriety, information will not be considered fully absorbed by the marketplace until the third trading day after the day the information has been publicly disclosed.
Examples:
| If the Information is Announced: | You May Begin Trading: |
| Monday | Thursday |
| Friday | Wednesday |
| Friday Before a Monday Holiday | Thursday |
What Constitutes Material Information
Material information is any information that a reasonable investor would consider important in making a decision to buy, hold, or sell securities. Any information that might reasonably be expected to affect the Company’s stock price, whether it is positive or negative, should be considered material. Some examples of information that would ordinarily be regarded as material are:
| ● | Projections of future earnings or losses, or other earnings guidance; | |
| ● | Earnings that are inconsistent with the consensus expectations of the investment community; | |
| ● | A pending or proposed merger, acquisition or tender offer; | |
| ● | A pending or proposed acquisition or disposition of a significant asset; | |
| ● | A change in dividend policy, the declaration of a stock split, or an offering of additional securities; | |
| ● | A change in management; | |
| ● | Development of a significant new product or process; | |
| ● | Impending bankruptcy or the existence of severe liquidity problems; | |
| ● | The gain or loss of a significant customer or supplier; or | |
| ● | Imminent issuance of a new patent |
Anyone scrutinizing your transactions will be doing so after the fact, with the benefit of hindsight. As a practical matter, before engaging in any transaction, you should carefully consider how enforcement authorities and others might view the transaction in hindsight.
Whether information is “material” may be difficult to determine. For this reason, you are urged to contact company counsel if you have any questions as to whether any particular information is or is not material.
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No Individual Disclosure of Information
You may not disclose information about the Company to anyone outside the Company, including family members and friends, and you may not discuss the Company or its business in an internet “chat room” or similar internet-based forum.
Transactions by Non-Residents
The same restrictions apply regardless of whether a person is resident within the United States.
Other Prohibited Transactions
The Company considers it improper and inappropriate for any director, officer or other employee of the Company to engage in speculative transactions in the Company’s securities or other transactions which might give the appearance of impropriety. A broker or a person whom you deem to be investment savvy, may suggest one of the following, more sophisticated types of transactions; however, they are prohibited. If you are unsure about the type of transaction that has been suggested to you, please contact company counsel. These types of transactions include:
| ● | Derivative Securities. This involves transactions with warrants. You may not engage in transactions in puts, calls or other derivative securities based on the Company’s securities. | |
| ● | Hedging Transactions. The best way to understand hedging is to think of it as insurance. When people decide to hedge, they are insuring themselves against a negative event. This doesn’t prevent a negative event from happening, but if it does happen and you’re properly hedged, the impact of the event is reduced. So, hedging occurs almost everywhere, and we see it everyday. For example, if you buy house insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters. Ask your broker or company counsel for details. | |
| ● | Margin Accounts and Pledges. You may not purchase Company securities on margin, or borrow against any account in which Company securities are held, or pledge Company securities as collateral for a loan. | |
| ● | Trading in securities on a short-term basis. Company securities purchased in the open market (i.e., not via obtained via an employee stock option or employee stock purchase plan) should be held for a six-months at minimum. Prior written consent from the Company must be obtained by any employee desiring to sell Company securities that were purchased in the open market and that have not been owned for greater than six months. A written request for such consent from the Company must be requested at least three (3) business days prior to the proposed sale, and cannot be requested more than five (5) days prior to the proposed sale. |
Transactions Under Company Plans
Stock Option Exercises. These rules do not apply to your cash exercise of an employee stock option given to you under and in connection with the Company’s Stock Incentive Plan or similar plan from time to time in effect, unless it is a sale of stock that is part of a broker-assisted cashless exercise of an option or any other market sale for the purpose of generating the cash needed to pay the exercise price of an option.
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Exception for Approved 10b5-1 Plans (See also separate 10b5-1 Plan Policy). Trades by members of the Board of Directors, officers or employees in the Company’s securities that are executed pursuant to an approved 10b5-1 trading plan (a “Trading Plan”) are not subject to the prohibition on trading on the basis of material non-public information contained in this Policy or to the restrictions set forth above relating to pre-clearance procedures and blackout periods.
Federal securities laws allow affirmative defenses from insider trading liability under SEC Rule 10b5-1 for trading plans that meet certain requirements. Insider trading lawsuits may still be brought against individuals trading under such a Trading Plan. This Policy permits individuals to adopt SEC Rule 10b5-1 compliant Trading Plans with brokers for trading of the Company’s securities and the exercise of options upon prior written approval by the Company. The Company may also choose to review a proposed Trading Plan, and reserves the right to reject a Trading Plan if it so chooses.
Revocation/Amendments to Trading Plans. Amendments of a Trading Plan may not occur once a Trading Plan is in Place. Revocations of a Trading Plan may occur upon written notice to the broker, but only if the individual is not aware of any material non-public information of the Company at the time of revocation. However, if the individual terminates the Trading Plan after the first option exercise or stock sale, then the individual must cancel all outstanding Trading Plans and agree not to enter into another Trading Plan until six months after termination of the Trading Plan.
Under certain circumstances, a Trading Plan must be revoked or suspended by the Company. This includes circumstances such as the announcement of a merger or the occurrence of an event that would cause the transaction either to violate the law or to have an adverse effect on the Company. The Company is authorized to notify the broker in such circumstances.
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HOW TO TRADE
Pre-Clearance Requirement
While you are subject to these rules, you may not engage in any transaction involving the Company’s securities (including a stock plan transaction such as an option exercise, gift, loan or pledge or hedge, contribution to a trust, or any other transfer) without first obtaining pre-clearance of the transaction from both the Chief Executive Officer and either (a) the General Counsel or (b) the Chief Financial Officer/Principal Financial Officer. A request for pre-clearance should be submitted to one of these persons at least one week in advance of the proposed transaction. The Chief Executive Officer, General Counsel and Chief Financial Officer/Principal Financial Officer are under no obligation to approve a trade submitted for pre-clearance and may determine not to permit the trade, and they will have no liability for any refusal to permit a trade or for any delay in making or communicating a decision.
Quarterly Blackout Periods
The Company’s announcement of its quarterly financial results almost always has the potential to have a material effect on the market for the Company’s securities. Therefore, in order to avoid even the appearance of trading while aware of material nonpublic information, you generally will not be pre-cleared to trade in the Company’s securities during the following periods:
| Quarterly Blackout Period Begins: | Seven (7) days prior to the end of the Company’s fiscal quarter. (The Company’s fiscal quarters end on March 31, June 30, September 30 and December 31 of each year.) | |
| Quarterly Blackout Period Ends: | At the close of trading on the Nasdaq, or any exchange upon which the Company’s stock is listed for trading on the second full trading day following the Company’s filing of its quarterly report with the Securities and Exchange Commission. |
Event-Specific Blackouts
From time to time, an event may occur that is material to the Company and is known by only a few individuals inside the Company. If you are one of those individuals, or if it would appear to an outsider that you were likely to have had access to information about such an event, then you will not be allowed to trade in the Company’s securities so long as the event remains material and nonpublic.
Also, the Company may on occasion issue interim earnings guidance or other potentially material information by means of a press release, SEC filing on Form 8-K or other means designed to achieve widespread dissemination of the information. You should anticipate that trades are unlikely to be pre-cleared while the Company is in the process of assembling the information to be released and until the information has been released and fully absorbed by the market. The existence of an event-specific blackout will not be announced. If you request pre-clearance of a transaction in the Company’s securities during an event-specific blackout, you will be informed of the existence of a blackout period, but you may not be advised of the reason for the blackout.
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If you are made aware of the existence of an event-specific blackout you should not disclose the existence of the blackout to any other person. Whether or not you are designated as being subject to an event-specific blackout you still have the obligation not to trade while aware of material nonpublic information.
The prohibitive rules described herein and imposed by the Company upon you as a term of your employment or retainer cease to apply to your transactions in Company securities upon the expiration of any “blackout period” in existence at the time of the termination of your service as a director, executive officer or employee. Be aware that many of the federal rules may continue to apply to you after the termination of your service with the Company.
COMPANY ASSISTANCE
Compliance with this Policy by all employees is of the utmost importance both for the employee and for the Company. If you have any questions about Insider Trading or its application to any proposed transaction you may obtain additional guidance from the Company’s outside General Counsel (Laura Anthony, Esq. at Anthony, Linder & Cacomanolis, PLLC), who can be reached by telephone at (561) 514-0936. Due to the serious consequences of illegal insider trading, we urge you to err on the side of caution and contact our General Counsel with any and all questions regarding this topic. Ultimately, however, the responsibility for adhering to Insider Trading rules and avoiding unlawful transactions rests with you.
AMENDMENTS
Officers of the Company may, from time to time, make non-substantive amendments to this Insider Trading Policy (including, without limitation, substitution of the names of the appropriate contact persons within the Company) without prior approval of the Company’s Board of Directors.
ACKNOWLEDGEMENTS
All directors, officers and employees of the Company and its subsidiaries must acknowledge their receipt of, understanding of, and intent to comply with, this Policy. Such acknowledgment must be evidenced by the individual’s signing of the “Acknowledgment” below, whether electronically or in writing. This acknowledgment will constitute each such person’s consent for the Company to issue any necessary stop-transfer orders to the Company’s transfer agent to enforce compliance with this Policy. As a condition of continued employment or engagement all employees (and all other persons, such as consultants or contractors, designated by the Company as subject to this Policy) must periodically acknowledge, electronically or in writing, that they have read and agree to abide by this Policy.
ADOPTED: This 6th day of September 2024.
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ACKNOWLEDGMENT
I have received and read the SBC Medical Group Holdings Incorporated Insider Trading Policy and I understand and agree to comply with all of the provisions contained therein. I agree that I will be subject to sanctions imposed by the Company, in its discretion, for violation of this policy, including dismissal for cause, and that the Company may give stop-transfer and other instructions to the Company’s transfer agent against transfer of Company securities by me in a transaction that the Company considers to be in contravention of this policy.
| Signed: | _________________ | ||
| Name: | _________________ | ||
| Title: | _________________ | ||
| Date: | _________________ |
Exhibit 21.1
List of Subsidiaries of the Registrant
| Name of Entity | Relationship with Registrant | Jurisdiction of Incorporation or Organization | ||
| SBC Medical Group, Inc. | Subsidiary | Delaware | ||
| SBC Medical Group Co., Ltd. | Subsidiary | Japan | ||
| L’Ange Cosmetique Co., Ltd. | Subsidiary | Japan | ||
| Shobikai Co., Ltd. | Subsidiary | Japan | ||
| Liesta Co., Ltd. | Subsidiary | Japan | ||
| SBC Sealane Co., Ltd. | Subsidiary | Japan | ||
| SBC Marketing Co., Ltd. | Subsidiary | Japan | ||
| SBC Medical Consulting Co., Ltd. | Subsidiary | Japan | ||
| Shoubikai Medical Vietnam Co. Ltd. | Subsidiary | Vietnam | ||
| SBC Healthcare, Inc. | Subsidiary | Delaware | ||
| SBC Irvine, LLC | Subsidiary | Delaware | ||
| Aesthetic Healthcare Holdings | Subsidiary | Singapore | ||
| Wen & Wang Family Clinic Pte., Ltd. | Subsidiary | Singapore | ||
| Wen & Wang Medical Group Pte., Ltd. | Subsidiary | Singapore | ||
| Rochor Clinic Pte., Ltd. | Subsidiary | Singapore | ||
| Dermasolutions Pte., Ltd. | Subsidiary | Singapore | ||
| Dermasolutions Services Pte., Ltd. | Subsidiary | Singapore | ||
| Medical Payment Co., Ltd. | Majority owned subsidiary | Japan | ||
| Aikawa Medical Management, Inc. | Variable interest entity | Japan |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Yoshiyuki Aikawa, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of SBC Medical Group Holdings Incorporated; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 28, 2025
| By: | /s/ Yoshiyuki Aikawa | |
| Name: | Yoshiyuki Aikawa | |
| Title: | Director, Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ryoji Murata, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of SBC Medical Group Holdings Incorporated; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 28, 2025
| By: | /s/ Ryoji Murata | |
| Name: | Ryoji Murata | |
| Title: | Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of SBC Medical Group Holdings Incorporated (the “Company”) on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission (the “Report”), I, Yoshiyuki Aikawa, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
Date: March 28, 2025
| By: | /s/ Yoshiyuki Aikawa | |
| Name: | Yoshiyuki Aikawa | |
| Title: | Director, Chairman and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of SBC Medical Group Holdings Incorporated (the “Company”) on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission (the “Report”), I, Ryoji Murata, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
Date: March 28, 2025
| By: | /s/ Ryoji Murata | |
| Name: | Ryoji Murata | |
| Title: | Chief Financial Officer |
Exhibit 97.1
SBC MEDICAL GROUP HOLDINGS INCORPORATED
CLAWBACK POLICY
| A. | OVERVIEW |
In accordance with the applicable rules of The Nasdaq Stock Market (the “Nasdaq Rules), Section 10D and Rule 10D-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (“Rule 10D-1”), the Board of Directors (the “Board”) of SBC Medical Group Holdings Incorporated (the “Company”) has adopted this Policy (the “Policy”) to provide for the recovery of erroneously awarded Incentive-based Compensation from Executive Officers. All capitalized terms used and not otherwise defined herein shall have the meanings set forth in Section H, below.
| B. | RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION |
(1) In the event of an Accounting Restatement, the Company will reasonably promptly recover the Erroneously Awarded Compensation Received in accordance with Nasdaq Rules and Rule 10D-1 as follows:
| (i) | After an Accounting Restatement, the Compensation Committee of the Board (the “Committee”) shall determine the amount of any Erroneously Awarded Compensation Received by each Executive Officer and shall promptly notify each Executive Officer with a written notice containing the amount of any Erroneously Awarded Compensation and a demand for repayment or return of such compensation, as applicable. |
| (a) | For Incentive-based Compensation based on (or derived from) the Company’s stock price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in the applicable Accounting Restatement: |
| i. | The amount to be repaid or returned shall be determined by the Committee based on a reasonable estimate of the effect of the Accounting Restatement on the Company’s stock price or total shareholder return upon which the Incentive-based Compensation was Received; and |
| ii. | The Company shall maintain documentation of the determination of such reasonable estimate and provide the relevant documentation as required to the Nasdaq. |
| (ii) | The Committee shall have discretion to determine the appropriate means of recovering Erroneously Awarded Compensation based on the particular facts and circumstances. Notwithstanding the foregoing, except as set forth in Section B(2) below, in no event may the Company accept an amount that is less than the amount of Erroneously Awarded Compensation in satisfaction of an Executive Officer’s obligations hereunder. | |
| (iii) | To the extent that the Executive Officer has already reimbursed the Company for any Erroneously Awarded Compensation Received under any duplicative recovery obligations established by the Company or applicable law, it shall be appropriate for any such reimbursed amount to be credited to the amount of Erroneously Awarded Compensation that is subject to recovery under this Policy. | |
| (iv) | To the extent that an Executive Officer fails to repay all Erroneously Awarded Compensation to the Company when due, the Company shall take all actions reasonable and appropriate to recover such Erroneously Awarded Compensation from the applicable Executive Officer. The applicable Executive Officer shall be required to reimburse the Company for any and all expenses reasonably incurred (including legal fees) by the Company in recovering such Erroneously Awarded Compensation in accordance with the immediately preceding sentence. |
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(2) Notwithstanding anything herein to the contrary, the Company shall not be required to take the actions contemplated by Section B(1) above if the Committee determines that recovery would be impracticable and any of the following three conditions are met:
| (i) | The Committee has determined that the direct expenses paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered. Before making this determination, the Company must make a reasonable attempt to recover the Erroneously Awarded Compensation, document such attempt(s) and provide such documentation to the Nasdaq; | |
| (ii) | Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of the Internal Revenue Code of 1986, as amended, and regulations thereunder. |
| C. | DISCLOSURE REQUIREMENTS |
The Company shall file all disclosures with respect to this Policy required by applicable U.S. Securities and Exchange Commission (“SEC”) filings and rules.
| D. | PROHIBITION OF INDEMNIFICATION |
The Company shall not be permitted to insure or indemnify any Executive Officer against (i) the loss of any Erroneously Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or (ii) any claims relating to the Company’s enforcement of its rights under this Policy. Further, the Company shall not enter into any agreement that exempts any Incentive-based Compensation that is granted, paid or awarded to an Executive Officer from the application of this Policy or that waives the Company’s right to recovery of any Erroneously Awarded Compensation, and this Policy shall supersede any such agreement (whether entered into before, on or after the Effective Date of this Policy). It is hereby acknowledged that Rule 10D-1(b)(1)(v) and Nasdaq Rule 5608 provide that the Company is prohibited from indemnifying any executive officer or former executive officer against the loss of erroneously awarded compensation. It is therefore acknowledged that such indemnification is prohibited by applicable law for all purposes, including any and all such agreements.
| E. | ADMINISTRATION AND INTERPRETATION |
This Policy shall be administered by the Committee, and any determinations made by the Committee shall be final and binding on all affected individuals.
The Committee is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy and for the Company’s compliance with Nasdaq Rules, Section 10D, Rule 10D-1 and any other applicable law, regulation, rule or interpretation of the SEC or Nasdaq promulgated or issued in connection therewith.
| F. | AMENDMENT; TERMINATION |
The Committee may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary. Notwithstanding anything in this Section F to the contrary, no amendment or termination of this Policy shall be effective if such amendment or termination would (after taking into account any actions taken by the Company contemporaneously with such amendment or termination) cause the Company to violate any federal securities laws, SEC rule or Nasdaq rule.
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| G. | OTHER RECOVERY RIGHTS |
This Policy shall be binding and enforceable against all Executive Officers and, to the extent required by applicable law or guidance from the SEC or Nasdaq, their beneficiaries, heirs, executors, administrators or other legal representatives. The Committee intends that this Policy will be applied to the fullest extent required by applicable law. Any employment agreement, equity award agreement, compensatory plan or any other agreement or arrangement with an Executive Officer shall be deemed to include, as a condition to the grant of any benefit thereunder, an agreement by the Executive Officer to abide by the terms of this Policy. Any right of recovery under this Policy is in addition to, and not in lieu of, any other remedies or rights of recovery that may be available to the Company under applicable law, regulation or rule or pursuant to the terms of any policy of the Company or any provision in any employment agreement, equity award agreement, compensatory plan, agreement or other arrangement.
| H. | DEFINITIONS |
For purposes of this Policy, the following capitalized terms shall have the meanings set forth below.
(1) “Accounting Restatement” means an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements (a “Big R” restatement), or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (a “little r” restatement).
(2) “Clawback Eligible Incentive Compensation” means all Incentive-based Compensation Received by an Executive Officer (i) on or after the effective date of the applicable Nasdaq rules, (ii) after beginning service as an Executive Officer, (iii) who served as an Executive Officer at any time during the applicable performance period relating to any Incentive-based Compensation (whether or not such Executive Officer is serving at the time the Erroneously Awarded Compensation is required to be repaid to the Company), (iv) while the Company has a class of securities listed on a national securities exchange or a national securities association, and (v) during the applicable Clawback Period (as defined below).
(3) “Clawback Period” means, with respect to any Accounting Restatement, the three completed fiscal years of the Company immediately preceding the Restatement Date (as defined below), and if the Company changes its fiscal year, any transition period of less than nine months within or immediately following those three completed fiscal years.
(4) “Erroneously Awarded Compensation” means, with respect to each Executive Officer in connection with an Accounting Restatement, the amount of Clawback Eligible Incentive Compensation that exceeds the amount of Incentive-based Compensation that otherwise would have been Received had it been determined based on the restated amounts, computed without regard to any taxes paid.
(5) “Executive Officer” means each individual who is currently or was previously designated as an “officer” of the Company as defined in Rule 16a-1(f) under the Exchange Act. For the avoidance of doubt, the identification of an executive officer for purposes of this Policy shall include each executive officer who is or was identified pursuant to Item 401(b) of Regulation S-K or Item 6.A of Form 20-F, as applicable, as well as the principal financial officer and principal accounting officer (or, if there is no principal accounting officer, the controller).
(6) “Financial Reporting Measures” means measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and all other measures that are derived wholly or in part from such measures. Stock price and total shareholder return (and any measures that are derived wholly or in part from stock price or total shareholder return) shall, for purposes of this Policy, be considered Financial Reporting Measures. For the avoidance of doubt, a Financial Reporting Measure need not be presented in the Company’s financial statements or included in a filing with the SEC.
(7) “Incentive-based Compensation” means any compensation that is granted, earned or vested based wholly or in part upon the attainment of a Financial Reporting Measure.
(8) “Nasdaq” means The Nasdaq Stock Market.
(9) “Received” means, with respect to any Incentive-based Compensation, actual or deemed receipt, and Incentive-based Compensation shall be deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-based Compensation award is attained, even if the payment or grant of the Incentive-based Compensation to the Executive Officer occurs after the end of that period.
(10) “Restatement Date” means the earlier to occur of (i) the date the Board, a committee of the Board or the officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement, or (ii) the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting Restatement.
Effective as of September 6, 2024.
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Exhibit A
ATTESTATION AND ACKNOWLEDGEMENT
OF
CLAWBACK POLICY
By my signature below, I acknowledge and agree that:
| ● | I have received and read the attached Policy for the Recovery of Erroneously Awarded Compensation (this “Policy”). | |
| ● | I hereby agree to abide by all of the terms of this Policy both during and after my employment with SBC Medical Group Holdings Incorporated, including, without limitation, by promptly repaying or returning any Erroneously Awarded Compensation to the Company as determined in accordance with this Policy. |