SBC Medical Group Holdings Inc

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report. Based on this evaluation, management concluded that our disclosure controls and procedures were not effective as of December 31, 2025 as a result of the material weaknesses in our internal control over financial reporting as described below under "Material Weaknesses." Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Despite the identified material weaknesses, we believe that our consolidated financial statements and other information contained in this Annual Report fairly present, in all material respects, our financial condition and results of operations for the periods presented.

We remain committed to the ongoing improvements to our disclosure controls and internal control over financial reporting that we have undertaken, and will continue to undertake, in response to the weaknesses identified as of both the prior year and the current year, as outlined in the Remediation Plan section below.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

The Company acquired Waqoo, Inc. (“Waqoo”) in a business combination on December 19, 2025. Waqoo represented 13% of the Company's total assets on a consolidated basis as of December 31, 2025. The Company applies a three-month reporting lag for Waqoo. Accordingly, Waqoo’s results of operations from the acquisition date through December 31, 2025 were not included in the Company’s consolidated statements of operations for the fiscal year ended December 31, 2025 and will be included in subsequent periods. Because Waqoo was acquired late in fiscal year 2025, management did not have sufficient time to evaluate the design and operating effectiveness of internal control over financial reporting for Waqoo for the fiscal year ended December 31, 2025 and therefore excluded Waqoo from the scope of its assessment. This exclusion is consistent with SEC guidance permitting the omission of an assessment of a recently acquired business from the scope of management’s evaluation in the year of acquisition.

Our management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025. In making this assessment, the Company used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control—Integrated Framework (2013).”

Based on this evaluation, due to the material weaknesses identified in our internal control over financial reporting described below, management concluded that our internal control over financial reporting was not effective as of December 31, 2025.

Material Weaknesses

A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

In connection with the deficiencies identified in our approval processes for related party transactions and executive compensation, as described in more detail under “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Failures of Oversight of Related Party Transactions and Executive Compensation”, we have concluded that the material weaknesses in our internal control over financial reporting previously identified in the fiscal year ended December 31, 2024, had not been fully remediated and continued to exist as of December 31, 2025. These continuing material weaknesses resulted from our failure to maintain an effective control environment, risk assessment processes and monitoring activities, despite significant improvements achieved during the fiscal year through actions taken under the remediation plan described below.

Our system of internal control failed to ensure proper oversight and prior authorization of related party transactions and executive compensation because of the following continuing material weaknesses:

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Lack of effective operation of controls to ensure that certain non-routine or exception-based related party transactions, including those involving immediate family members of management, are identified, escalated, reviewed and approved in a timely manner in accordance with the Company’s related party transaction policy and governance procedures, including timely submission of any such contemplated transactions for Audit Committee review and approval, including advance submission where required.

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Lack of well-established procedures and effective controls to ensure that certain executive compensation arrangements, particularly non-routine or exceptional compensation matters, are identified, escalated and submitted to the Compensation Committee for formal review and approval prior to execution.

Remediation Plan

During the year ended December 31, 2025, our management, under the direction of the Audit Committee, implemented the remediation activities in accordance with the prior year remediation plan disclosed in our Annual Report on Form 10-K filed with the SEC on March 28, 2025. The activities our management has carried out primarily consisted of the following:

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Clarification of the organizational structure and employee positions of our group with respect to (i) segregation of duties, (ii) monitoring and oversight, (iii) reconciliation of invoices to contracts, and (iv) multi-layered approvals of contracts, invoices and payments. The clarification contributed to enhancement of relevant control activities, which were assessed to be operating effectively throughout the fiscal year ended December 31, 2025.

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Full establishment of a treasury function that improved the segregation of duties and safeguarding of cash. The updated delegation of authority over banking activities has been operating effectively throughout the fiscal year.

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Recruitment and addition of financial reporting and accounting personnel with technical expertise and accounting knowledge, including personnel with experience at listed companies in Japan and personnel holding Japanese CPA (Certified Public Accountant) qualifications, to formalize, design, implement and operate key controls over the financial reporting process in order to prepare financial statements in accordance with U.S. GAAP and SEC reporting requirements. The addition of such qualified personnel has allowed us to enhance segregation of duties in the preparation and review of financial reporting, while improving oversight, structure, and reporting lines.

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Communication to all employees regarding the importance of internal control over financial reporting and their duties and responsibilities, including segregation of duties. This communication has been reinforced through periodic training programs conducted throughout the fiscal year.

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Completion of the project led by our Head of Internal Control and Internal Audit Office, supported by external consultants with expertise in SOX (The Sarbanes-Oxley Act of 2002) compliance, to fully document our processes, assess our fraud risks and evaluate and test our internal controls over financial reporting.

However, the failures of oversight identified during fiscal year 2025 indicate that those activities had not fully remediated the previously identified material weaknesses as of December 31, 2025. In particular, these failures demonstrate that further strengthening of the Company’s control environment, risk assessment processes and monitoring activities remains necessary. Accordingly, the previously disclosed material weaknesses continued to exist as of December 31, 2025.

With respect to the material weaknesses identified in connection with related party transactions and executive compensation, our management has reviewed and ratified certain matters identified through its assessment process and is continuing to evaluate and finalize additional enhancements to the Company’s internal control systems, governance procedures and approval processes. Our management is committed to remediating these material weaknesses as promptly as practicable. These material weaknesses will not be considered remediated until the applicable controls have been in place for a sufficient period of time and our management has concluded, through testing, that such controls are appropriately designed and operating effectively.

Inherent Limitation on the Effectiveness of Internal Control

The effectiveness of any system of internal control over financial reporting is subject to inherent limitations. These include the exercise of judgment in designing, implementing, and operating controls, as well as the inherent inability to completely eliminate the risk of misconduct or error. Accordingly, while we aim to establish robust controls, any system, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Additionally, the design of our disclosure controls and procedures is impacted by resource constraints and the necessity for management to balance the benefits of potential controls against their associated costs. Moreover, projections of effectiveness into future periods are subject to risks that controls may become inadequate over time due to evolving conditions or diminished compliance. We will continue to monitor and enhance our internal control as necessary or appropriate, but we cannot provide assurance that these improvements will fully eliminate all risks of material misstatement.

Changes in Internal Control over Financial Reporting

There have been no material changes in our internal control over financial reporting during the fourth quarter ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.