UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
For
the fiscal year ended December 31, 2024
OR
Commission
File Number 001-41462
SBC
Medical Group Holdings Incorporated
(Exact
name of registrant as specified in its charter)
(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
Common Stock, $0.0001 par value per share SBC The Nasdaq Stock Market LLC
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 103,611,251, 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;
● public securities’ potential liquidity and trading;
● the impact from the outcome of any known and unknown litigation;
● expectations regarding future expenditures of the Company;
● the future mix of revenue and effect on gross margins of the Company;
● the ability of the Company to compete effectively in a competitive industry;
● future arrangements with, or investments in, other entities or associations;
● 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:
● risks related to macroeconomic or geopolitical developments;
● future exchange and interest rates;
Summary of Material
Risks
● We could face liability from or as a result of our franchisees.
● We have substantial franchisee concentration.
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
Page
PART I
Item 1. Business. 7
Item 1A. Risk Factors 66
Item 1B. Unresolved Staff Comments. 100
Item 1C. Cybersecurity. 100
Item 2. Properties. 101
Item 3. Legal Proceedings. 102
Item 4. Mine Safety Disclosures. 102
PART II
Item 6. [Reserved]. 104
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 118
Item 8. Financial Statements and Supplementary Data. F-1
Item 9A. Controls and Procedures. 119
Item 9B. Other Information. 122
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 123
Item 11. Executive Compensation. 123
Item 14. Principal Accountant Fees and Services. 123
PART IV
Item 15. Exhibits and Financial Statement Schedules 124
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.
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.
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.
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.
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
● Management consulting for medical corporations and facilities
● 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
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:
● 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
● Effective Period
● Termination Provisions & Penalties
● 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
● Consulting Services by the Company to Medical Corporation Association Furinkai
◌ selection of medical devices and medical materials for cosmetic dermatology
◌ planning management strategies related to cosmetic dermatology treatment
◌ support and management of business system implementation
● Effective Period
● Termination Provisions & Penalties
● 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
● 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
● Effective Period
● Termination Provisions & Penalties
● Fees Payable Under the Agreement
◌ JPY10,000,000 per month (excluding consumption tax).
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
● Consulting Services by the Company to Medical Corporation Association Junikai
◌ selection of medical devices and medical materials for cosmetic dermatology
◌ planning management strategies related to cosmetic dermatology treatment
◌ support and management of business system implementation
◌ support and advisory services for the use of marketing analysis tools, etc.
● Effective Period
● Termination Provisions & Penalties
● Fees Payable Under the Agreement
◌ JPY800,000 per month for each medical facility (excluding consumption tax).
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.
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
The
Company does not distribute the products above in the US or in Vietnam for the following reasons.
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
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 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.
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.
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.
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