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
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.
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.
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.
Revenues
generated from these different revenue streams by the Company consist of the following:
For the Years Ended December 31,
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