SBC Medical Group Holdings (SBC) risk factors, FY2024 10-K

Risks Relating to Our Business and Industry

1. 01We are a holding company and depend upon our operating subsidiaries for our cash flows
2. 02We may need additional capital, and we cannot be sure that additional financing will be available
3. 03We may not grow our franchise system or we may lose business by failing to compete effectively or by failing to manage the reputation of our brand
4. 04The financial performance of our franchisees can negatively impact our business
5. 05The interests of our franchisees may conflict with ours or yours in the future and we could face liability from our franchisees or related to our relationship with our franchisees
6. 06We could face liability from or as a result of our franchisees
7. 07We have limited control with respect to the operations of our medical corporation customers, which could have a negative impact on our business
8. 08The immediate family members of our CEO account for two-thirds of the general meeting of member (or shain), which is the decision-making body in these MCs
9. 09The challenging economic environment may affect our franchisees, with adverse consequences to us
10. 10Our success depends in significant part on our and our licensees’ ability to establish, maintain and protect patents and other intellectual property rights and operate without infringing the intellectual property rights of others
11. 11We have substantial franchisee concentration
12. 12Our reputation and the trading price of our common stock may be negatively affected by adverse publicity or detrimental conduct against us
13. 13We are a relatively young company with a short operating history, and we may not be able to sustain our rapid growth, effectively manage our growth or implement our business strategies
14. 14If we fail to address any or all of these risks and challenges, our business may be materially and adversely affected
15. 15Our franchisee clinics may not be successful in competing in the cosmetic clinic industry
16. 16The Company may face competition from senior management who cease working for it, and the Non-Competition Agreements (as defined below) may be unenforceable and expire two years following the Closing
17. 17Any significant change in the franchisee clinic customer reward program could have a negative impact on our business
18. 18We depend on our and our franchisees’ operating systems to operate. Any material disruption to or slowdown of our operating systems could cause delays in our management services, which could harm our brand and adversely affect our operating results
19. 19The Company, its subsidiaries, and the MCs could be subject to breaches of security by hackers. Although we proactively employ multiple measures to defend our systems against intrusions and attacks, our measures may not prevent unauthorized access or use of sensitive data
20. 20We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and results of operations
21. 21We may become subject to product liability claims or warranty claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims
22. 22We have limited experience in providing management services to franchisee clinics located outside of Japan and we are subject to a variety of costs and risks due to our continued international expansion
23. 23Our operations may be interrupted by utility shortages or stoppages, fire, natural disaster or other calamities at or near our facilities
24. 24Our business and prospects depend significantly on our ability to build our Shonan Beauty Clinic brand
25. 25Our employees, agents, business partners or subcontractors may engage in misconduct or other improper activities, which could cause us to lose contracts, expose us to damages, harm our reputation and diminish investor confidence in our company
26. 26Any decline in the business of our business partners or the deterioration of our relationship with them could have a material adverse effect on our operating results
27. 27Safety issues or public perceptions of safety issues concerning cosmetic services could have a material adverse impact on our business
28. 28If our franchisee clinics or our clinics in Vietnam or Singapore fail to comply with environmental and work safety laws and regulations, the Company and the franchisee clinics could become subject to fines or penalties or incur costs that could harm our business
29. 29If our business partners, independent contractors, suppliers, or franchisee clinics fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity beyond our own control
30. 30Failure to safeguard personal information could subject us to penalties, damage our reputation and brand, and harm our business and results of operations
31. 31As laws and regulations in Japan on the protection of privacy and data are constantly evolving, complying with new laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business
32. 32Failure by the MCs to comply with the Medical Care Act in Japan could subject us to penalties, damage our reputation and brand, and harm our business and results of operations
33. 33We are subject to risks associated with strategic alliances or acquisitions. If we cannot manage the growth of our business or execute our strategies effectively, our business and prospects may be materially and adversely affected
34. 34Our business could be adversely affected by trade tariffs or other trade barriers
35. 35We and our subsidiaries have limited insurance coverage, which could subject us to significant costs and business disruption
36. 36We are involved in litigation from time to time and, as a result, we could incur substantial judgments, fines, legal fees or other costs
37. 37Any financial or economic crisis or perceived threat of such a crisis may materially and adversely affect our business, financial condition and results of operations
38. 38We face risks related to natural disasters and health epidemics, which could significantly disrupt our operations
39. 39If the landlords of our and our subsidiaries’ leased properties fail to properly maintain and renovate such premises, buildings or facilities in a timely manner or at all, the operation of our offices could be materially and adversely affected
40. 40The MCs may fail to pay us in accordance with the terms of their franchise and management services agreements, at times necessitating action by us to attempt to compel payment
41. 41Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their systems of internal control over financial reporting
42. 42Our system of internal controls failed to detect this misappropriation of funds due to the following material weaknesses of SBC Medical Group Co., Ltd

Risks Related to Employee Matters

1. 43If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success and our business may be harmed
2. 44Our success depends on the continuing efforts of our key employees, including our senior management members and other key personnel. If we fail to hire, retain and motivate our key employees, we could lose the innovation, collaboration and focus that contribute to our business
3. 45The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy

Risks Related to Intellectual Property

1. 46We and our subsidiaries may need to defend ourselves against claims of intellectual property infringement, which may be time-consuming and costly
2. 47Our or our subsidiaries’ intellectual property rights may not protect us effectively
3. 48We cannot assure you that our or our subsidiaries’ pending patent applications will be granted. Even if our or our subsidiaries’ applications are successful, patents may be contested, circumvented or invalidated in the future
4. 49The Company may not be able to protect its intellectual property rights throughout the world
5. 50If we fail to protect, or incur significant costs in defending or enforcing our intellectual property and other proprietary rights, our business, financial condition and results of operations could be materially harmed

Risks Related to Government Regulation

1. 51Failure to comply with laws and regulations could harm our business

General Risks

1. 52Weakened global economic conditions may harm our industry, business and results of operations
2. 53We are exposed to fluctuations in currency exchange rates
3. 54Our actual operating results may differ significantly from our guidance and projections

Risk Relating to Ownership of Our Securities

1. 55An active market for our securities may not develop, which would adversely affect the liquidity and price of our securities
2. 56Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject the Company to additional trading restrictions
3. 57The market price of our common stock may decline
4. 58The market price of our common stock may be volatile, and you could lose all or part of your investment
5. 59Because there are no current plans to pay cash dividends on the Company’s common stock for the foreseeable future, you may not receive any return on investment unless you sell your shares of the Company’s common stock at a price greater than what you paid for it
6. 60The Company’s stockholders may experience dilution in the future
7. 61If securities or industry analysts do not publish research or reports about the Company’s business, if they change their recommendations regarding the Company’s common stock or if the Company’s operating results do not meet their expectations, the Company’s common stock price and trading volume could decline
8. 62Future sales, or the perception of future sales, by the Company or its stockholders in the public market following the Business Combination could cause the market price for the Company’s common stock to decline
9. 63The Company may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous for the Company’s warrant holders
10. 64Our securities holders may face significant restrictions on the resale of our securities due to state “Blue Sky” laws
11. 65Substantial future sales of shares of our common stock could cause the market price of our common stock to decline
12. 66If we fail to maintain effective internal control over financial reporting, the price of our securities may be adversely affected
13. 67As an emerging growth company, our auditor is not required to attest to the effectiveness of our internal controls
14. 68We believe we will be considered a smaller reporting company and will be exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors
15. 69We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives
16. 70Delaware law and the Company certificate of incorporation and bylaws contains certain provisions, including anti-takeover provisions, that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable
17. 71These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the Company’s board of directors or management
18. 72Anti-takeover effects of certain provisions of Delaware state law could hinder a potential takeover of the Company
19. 73Provisions in the Amended Charter and Delaware law may have the effect of discouraging lawsuits against the Company and its directors and officers
20. 74If the voting power of our capital stock continues to be highly concentrated, it may prevent you and other minority shareholders from influencing significant corporate decisions and may result in conflicts of interest
21. 75In the event that our common stock price does not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement Warrants are exercisable, the Private Placement Warrants may not have any value
22. 76There must be a current registration statement in order for you to exercise the Private Placement Warrants
23. 77Holders of our Private Placement Warrants will have no rights as a common stockholder until they acquire our common stock