Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis summarize the significant factors affecting our operating results, financial condition, liquidity, and cash flows for the periods presented below, which should be read in conjunction with the unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). The forward-looking statements contained herein are based on management's judgment, assumptions made by management and information currently available to it. Actual results could differ materially from those discussed or implied in the forward-looking statements as a result of various factors, including those described elsewhere in this Quarterly Report and the Annual Report, particularly in "Part I, Item 1A. Risk Factors" of the Annual Report and the section entitled "Cautionary Note Regarding Forward-Looking Statements" herein.

Unless the context otherwise requires, any reference in this section of this Quarterly Report to the "Company," "SBC," "we," "us" or "our" refers to Legacy SBC (defined below) and its consolidated subsidiaries and variable interest entity ("VIE"), prior to the consummation of the Business Combination and to SBC Medical Group Holdings Incorporated and its consolidated subsidiaries and VIE, following the Business Combination.

Overview

SBC Medical Group, Inc. (formerly known as SBC Medical Group Holdings Incorporated), a Delaware corporation and subsidiary of the Company ("Legacy SBC") is a management company headquartered in Irvine, California and Tokyo, Japan, that provides management services to cosmetic treatment centers mainly in Japan.

On September 17, 2024, Legacy SBC consummated its going-public business combination with Pono Capital Two, Inc. ("Business Combination"). In connection with the closing of the Business Combination, Pono Capital Two, Inc. changed its name to SBC Medical Group Holdings Incorporated and the Company's common stock began trading on Nasdaq under the ticker symbol "SBC".

The Company and its subsidiaries are primarily focused on providing comprehensive management services to franchisee clinics, including but not limited to advertising and marketing needs across various platforms (such as social media networks), staff management (such as recruitment and training), booking reservations for franchisee clinic customers, assistance with franchisee employee housing rentals and facility rentals, construction and design of franchisee clinics, medical equipment and medical consumables procurement (resale), the provision of cosmetic products to franchisee clinics for resale to clinic customers, licensure of the use of patent-pending and non-patented medical technologies, trademark and brand use, IT software solutions (including but not limited to remote medical consultations), management of the franchisee clinic's customer rewards program (customer loyalty point program), and payment tools for the franchisee clinics.

Our wholly owned subsidiary, SBC Medical Group Co., Ltd., a Japan corporation ("SBC Medical Sub", or "SBC Japan") is designated as a "medical service corporation" in Japan. In Japan, a medical service corporation is a legal entity that provides management service to "medical corporations". The management services are conducted through franchisor-franchisee contracts and/or service contracts between SBC Medical Sub and the medical corporations that own all 252 of the treatment centers in Japan as of June 30, 2025. These clinics provide include but are not limited to breast augmentation, liposuction, rejuvenation treatments (including treatment of wrinkles, acne, scars, cellulite, excess fat, discoloration, and signs of aging), laser skin toning and spot removal, eyes double fold surgery, rhinoplasty, treatment of osmidrosis and hyperhidrosis, hair transplants, gynecological formation treatments, laser hair removal, face line surgeries, cosmetical dental procedures, tattoo removal, lasik eye surgery, lateral canthoplasty, brow lift procedures, androgenetic alopecia treatment, and cheek sagging prevention methods. In addition, similar management services are provided to five independently operated clinics.

The Company's subsidiaries have entered into franchisor-franchisee contracts and service contracts with six medical corporations, consisting of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, Medical Corporation Jukeikai and Medical Corporation Ritz Cosmetic Surgery. In addition, the Company has entered into service contracts since September 2023 with two additional medical corporations, Medical Corporation Association Furinkai and Medical Corporation Association Junikai (collectively with the six franchisee medical corporations, the "Medical Corporations" or "MCs"). All of the Medical Corporations are deemed to be related parties of the Company since relatives of the CEO of the Company are the members* of general meetings of members** of the Medical Corporations. The CEO of the Company was previously a member* of the six franchisee Medical Corporations until he ceased being a member* in July 2023. The Company, through SBC Medical Sub, owns equity interests*** of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai). Although the Company, through SBC Medical Sub, has an equity 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 Japanese Medical Care Act and in the articles of incorporation (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai), the Company or SBC Medical Sub does not have voting control over the corporate actions at general meetings of members** of the Medical Corporations per the requirements of the Japanese Medical Care Act.

* "Members (or shain) of general meeting of members (or shain)" means one of the organs of a Japanese Medical Corporation, and element of general meeting of members (as explained below) of the Medical Corporation. Each member (or shain) of general meeting of members (or shain) has one voting right.

** "General meeting of members (or shain)" means one of the organs of a Japanese Medical Corporation, and the highest decision-making body of the Medical Corporation, of which the main duties include the election and dismissal of directors (or riji) and corporate auditors (or kanji) of the Medical Corporation, and the approval of financial statements and statutory business reports of the Medical Corporation.

*** "Equity interest (or mochibun)" means the right to receive distribution of the residual assets of a Japanese Medical Corporation in proportion to the amount of contribution (Article 10.3.3.2 brackets of the Supplementary Provision of the Japanese Medical Care Act.). However, the procedures for an equity interest (or mochibun) holder to exercise and realize the right to receive distribution of the residual assets of the Medical Corporation is more complicated than that of a stock corporation due to the restrictions under the Medical Care Act.

Financial Overview

For the three months ended June 30, 2025 and 2024, we generated revenues of $43,358,847 and $53,102,080, respectively, we reported net income attributable to SBC Medical Group Holdings Incorporated of $2,458,240 and $18,484,408, respectively. For the six months ended June 30, 2025 and 2024, we generated revenues of $90,687,548 and $107,910,122, respectively, we reported net income attributable to SBC Medical Group Holdings Incorporated of $23,960,686 and $37,242,160, respectively, and cash flows provided by (used in) operating activities of $(6,411,168) and $22,874,760, respectively. As of June 30, 2025, we had retained earnings of $213,423,693.

Our primary mission is to provide quality comprehensive management services to the Medical Corporations and expand our "Shonan Beauty Clinic" brand. We plan to achieve the mission by maintaining and strengthening our market position and brand in the cosmetic medical treatment management market in Japan, Vietnam and Singapore, and by growing our presence globally.

Further information regarding our business is provided in "Description of Business" of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 28, 2025.

Results of Operations

Comparison of Results of Operations for the Three Months Ended June 30, 2025 and 2024

The following table summarizes our operating income as reflected in our unaudited consolidated statements of operations and comprehensive income for the three months ended June 30, 2025 and 2024, and presents information regarding amounts and percentage changes during those periods.

		For the Three Months Ended June 30,
		2025								2024								Variance
		Amount				% of revenue				Amount				% of revenue				Amount				%
Revenues, net (including net revenues provided to related parties)		$	43,358,847				100.00	%		$	53,102,080				100.00	%		$	(9,743,233	)			(18.35	)%
Cost of revenues (including cost of revenues from related parties)			13,348,270				30.79	%			13,682,405				25.77	%			(334,135	)			(2.44	)%
Gross profit			30,010,577				69.21	%			39,419,675				74.23	%			(9,409,098	)			(23.87	)%
Operating expenses (including selling, general and administrative expenses from related parties)			15,456,385				35.65	%			12,129,115				22.84	%			3,327,270				27.43	%
Income from operations			14,554,192				33.56	%			27,290,560				51.39	%			(12,736,368	)			(46.67	)%
Other income			(1,013,831	)			(2.34	)%			(204,125	)			(0.38	)%			(809,706	)			396.67	%
Income before income taxes			13,540,361				31.22	%			27,086,435				51.01	%			(13,546,074	)			(50.01	)%
Income tax expense			11,100,509				25.60	%			8,529,110				16.05	%			2,571,399				30.15	%
Net income			2,439,852				5.63	%			18,557,325				34.95	%			(16,117,473	)			(86.85	)%
Less: net income (loss) attributable to non-controlling interests			(18,388	)			(0.04	)%			72,917				0.14	%			(91,305	)			(125.22	)%
Net income attributable to SBC Medical Group Holdings Incorporated		$	2,458,240				5.67	%		$	18,484,408				34.81	%		$	(16,026,168	)			(86.70	)%

Revenues, Net

Revenues, net generated from different revenue streams consist of the following:

		For the Three Months Ended June 30,								Variance
		2025				2024				Amount				%
Franchising revenue		$	10,007,581			$	14,626,256			$	(4,618,675	)			(31.58	)%
Procurement revenue			15,756,519				13,536,608				2,219,911				16.40	%
Management services revenue			5,138,578				16,705,597				(11,567,019	)			(69.24	)%
Rental services revenue			6,851,176				3,453,173				3,398,003				98.40	%
Others			5,604,993				4,780,446				824,547				17.25	%
Total		$	43,358,847			$	53,102,080			$	(9,743,233	)			(18.35	)%

Revenues, net, decreased by 18.35% from $53,102,080 for the three months ended June 30, 2024 to $43,358,847 for the three months ended June 30, 2025.

Japanese Yen ("JPY") against the U.S. dollar appreciated during the three months ended June 30, 2025, compared to the three months June 30, 2024. The spot rate against the dollar was 144.1650 yen on June 30, 2025 compared to 160.8680 yen on June 30, 2024 and the average rate against the dollar was 144.0297 yen for the three months ended June 30, 2025 compared to 156.0476 yen for the same period in 2024. For the three months ended June 30, 2025 and 2024, we generated net revenues of $43,358,847 (JPY6,245 million) and $53,102,080 (JPY8,286 million), respectively, we reported net income of $2,439,852 (JPY310 million) and $18,557,325 (JPY2,894 million), respectively. Overall, the favorable impacts of the period-to-period foreign exchange rate changes on net revenues and net income were $1,058,367 and $59,556, respectively, for the three months ended June 30, 2025.

The main reasons for the variance of $9,743,233 in revenues, net per revenue stream are as follows:

Franchising Revenue

Franchising revenue for the three months ended June 30, 2025, decreased to $10,007,581 by $4,618,675, or 31.58%, from $14,626,256 for the same period in 2024. This decrease was mainly due to the revision of the fee structure for determining service fees for each clinic of MCs based on the size, scale and performance of each clinic effective as of April 1, 2025, partially offset by the appreciation of JPY.

Procurement Revenue

The procurement revenue for the three months ended June 30, 2025 increased to $15,756,519 by $2,219,911, or 16.40%, from $13,536,608 for the same period in 2024. This increase was mainly due to the orders from MCs for the new types of medical materials, as well as the appreciation of JPY.

Management Services Revenue

The management services revenue for the three months ended June 30, 2025 decreased to $5,138,578 by $11,567,019, or 69.24%, from $16,705,597 for the same period in 2024. This decrease was mainly due to (i) the discontinuation of clinic operation staff supporting services that had been provided by Shobikai Sub to MCs since the third quarter of 2024, because the Company completed the merger of Shobikai Sub with and into Lange Sub and the related business license, held by Shobikai Sub, became invalid upon the merger in January 2025, (ii) the decrease in the revenue in connection with customer rewards program offered to customers of the franchisee clinics and (iii) the revision of the fee structure for determining service fees for each clinic of MCs based on the size, scale and performance of each clinic effective as of April 1, 2025, partially offset by the appreciation of JPY.

Rental Services Revenue

The rental services revenue for the three months ended June 30, 2025 increased to $6,851,176 by $3,398,003, or 98.40%, from $3,453,173 for the same period in 2024. This increase was mainly due to the opening of new clinics resulting in the increased demand for medical equipment from new clinics and replacing laser hair removal equipment from existing clinics as well as the appreciation of JPY.

Others

The other revenues for the three months ended June 30, 2025 increased to $5,604,993 by $824,547, or 17.25%, from $4,780,446 for the same period in 2024. This increase was mainly due to revenues from Aesthetic Healthcare Holdings Pte. Ltd. and its subsidiaries, which were acquired in November 2024, offset by the disposal of its subsidiaries, Kijimadairakanko Inc. and Skynet Academy Co., Ltd. in December 2024.

Cost of Revenues

Cost of revenues for the three months ended June 30, 2025 was $13,348,270 compared to $13,682,405 for the same period in 2024. The decrease was mainly due to the Company's effort of the cost reduction, as well as the discontinuation of clinic operation supporting services provided by Shobikai Sub to MCs since the third quarter of 2024, and the Company then terminated the employment of the related staff. The decrease was partially offset by higher purchase costs resulting from replacing laser hair removal equipment from MCs.

Gross Profit

Gross profit for the three months ended June 30, 2025 was $30,010,577 compared to $39,419,675 for the same period in 2024. The decrease in gross profit by $9,409,098 or 23.87% was mainly due to the decrease in franchising revenue and management services revenue with relatively high gross margin as a result of the factors described above.

Operating Expenses

Operating expenses for the three months ended June 30, 2025 and 2024 were as follows:

		For the Three Months Ended June 30,								Variance
		2025				2024				Amount				%
Salaries and welfare		$	6,765,517			$	7,872,447			$	(1,106,930	)			(14.06	)%
Depreciation and amortization expense			471,763				258,654				213,109				82.39	%
Consulting and professional service fees			3,878,036				2,578,115				1,299,921				50.42	%
Advertising expense			973,933				223,094				750,839				336.56	%
Taxes and dues			591,817				149,278				442,539				296.45	%
Recruiting expense			142,247				491,067				(348,820	)			(71.03	)%
Lease expense			558,738				549,160				9,578				1.74	%
Office, utility and other expenses			2,074,334				7,300				2,067,034				28,315.53	%
Total		$	15,456,385			$	12,129,115			$	3,327,270				27.43	%

The operating expenses increased to $15,456,385 for the three months ended June 30, 2025 by $3,327,270, or 27.43%, from $12,129,115 for the same period in 2024. The increase was mainly due to the increase in office, utility and other expenses, and consulting and professional service fees, partially offset by the decrease in salaries and welfare.

Office, utility and other expenses increased by $2,067,034, or 28,315.53%, to $2,074,334 for the three months ended June 30, 2025 from $7,300 for the same period in 2024, mainly due to the large-scale replacement of office supplies during the quarter.

Consulting and professional service fees increased by $1,299,921, or 50.42%, to $3,878,036 for the three months ended June 30, 2025 from $2,578,115 for the same period in 2024, mainly due to the increase in legal, tax, and market research expenses associated with the Company's listing.

Salaries and welfare decreased by $1,106,930, or 14.06%, to $6,765,517 for the three months ended June 30, 2025 from $7,872,447 for the same period in 2024, mainly due to the disposal a subsidiary, Kijimadairakanko Inc. in December 2024 and the decrease for the compensation to the director and CEO of the Company.

Other Income (Expenses)

Other income (expenses) for the three months ended June 30, 2025 and 2024, were as follows:

		For the Three Months Ended June 30,								Variance
		2025				2024				Amount				%
Interest income		$	22,882			$	11,644			$	11,238				96.51	%
Interest expense			(49,651	)			(7,424	)			(42,227	)			568.79	%
Other income			33,771				306,291				(272,520	)			(88.97	)%
Other expenses			(1,132,465	)			(514,636	)			(617,829	)			120.05	%
Change in fair value of cryptocurrencies			111,632				-				111,632				100.00	%
Total		$	(1,013,831	)		$	(204,125	)		$	(809,706	)			396.67	%

In particular, the other income was $33,771 for the three months ended June 30, 2025, as compared to $306,291 for the three months ended June 30, 2024, mainly due to the decrease in the foreign exchange gain. The other expense was $1,132,465 for the three months ended June 30, 2025, as compared to $514,636 for the three months ended June 30, 2024, mainly due to the increase in the foreign exchange losses arising from intercompany loan balances between the Company and its subsidiary. Change in fair value of cryptocurrencies was $111,632 for the three months ended June 30, 2025, as compared to nil for the three months ended June 30, 2024, due to the Company purchased cryptocurrencies in the three months ended June 30, 2025 resulting in the fair value change of the cryptocurrencies during the current period.

Income Tax Expense

Income tax expense for the three months ended June 30, 2025 was $11,100,509 compared to $8,529,110 for the same period in 2024. The increase in income tax expense by $2,571,399 or 30.15% was mainly due to the increase of deferred tax expenses recognized and the appreciation of JPY.

The effective tax rate was 81.98% and 31.49% for the three months ended June 30, 2025 and 2024, respectively. The increase of 50.49 percentage points was mainly due to the deemed contribution in connection with the price modification on disposal of an aircraft to General Incorporated Association SBC, an entity controlled by the CEO of the Company, who is also the controlling shareholder of the Company, which was treated as a taxable gain under the Japanese tax law for the three months ended June 30, 2025.

Net Income

As a result of the foregoing, we reported a net income of $2,439,852 for the three months ended June 30, 2025, representing a decrease of $16,117,473 or 86.85% from $18,557,325 for the three months ended June 30, 2024.

Net Loss Attributable to Non-controlling Interests

Net loss attributable to non-controlling interests was $18,388 for the three months ended June 30, 2025, as compared to net income attributable to non-controlling interests of $72,917 for the three months ended June 30, 2024.

Comparison of Results of Operations for the Six Months Ended June 30, 2025 and 2024

The following table summarizes our operating income as reflected in our unaudited consolidated statements of operations and comprehensive income for the six months ended June 30, 2025 and 2024, and presents information regarding amounts and percentage changes during those periods.

		For the Six Months Ended June 30,
		2025								2024								Variance
		Amount				% of revenue				Amount				% of revenue				Amount				%
Revenues, net (including net revenues provided to related parties)		$	90,687,548				100.00	%		$	107,910,122				100.00	%		$	(17,222,574	)			(15.96	)%
Cost of revenues (including cost of revenues from related parties)			22,943,887				25.30	%			28,971,072				26.85	%			(6,027,185	)			(20.80	)%
Gross profit			67,743,661				74.70	%			78,939,050				73.15	%			(11,195,389	)			(14.18	)%
Operating expenses (including selling, general and administrative expenses from related parties)			28,987,395				31.96	%			27,187,605				25.19	%			1,799,790				6.62	%
Income from operations			38,756,266				42.74	%			51,751,445				47.96	%			(12,995,179	)			(25.11	)%
Other income			6,235,502				6.88	%			2,537,190				2.35	%			3,698,312				145.76	%
Income before income taxes			44,991,768				49.62	%			54,288,635				50.31	%			(9,296,867	)			(17.12	)%
Income tax expense			21,059,966				23.22	%			16,981,094				15.73	%			4,078,872				24.02	%
Net income			23,931,802				26.39	%			37,307,541				34.58	%			(13,375,739	)			(35.85	)%
Less: net income (loss) attributable to non-controlling interests			(28,884	)			(0.03	)%			65,381				0.06	%			(94,265	)			(144.18	)%
Net income attributable to SBC Medical Group Holdings Incorporated		$	23,960,686				26.42	%		$	37,242,160				34.51	%		$	(13,281,474	)			(35.66	)%

Revenues, Net

Revenues, net generated from different revenue streams consist of the following:

		For the Six Months Ended June 30,								Variance
		2025				2024				Amount				%
Franchising revenue		$	25,726,863			$	29,736,524			$	(4,009,661	)			(13.48	)%
Procurement revenue			30,089,302				26,732,592				3,356,710				12.56	%
Management services revenue			13,866,681				32,360,267				(18,493,586	)			(57.15	)%
Rental services revenue			12,491,690				7,071,114				5,420,576				76.66	%
Others			8,513,012				12,009,625				(3,496,613	)			(29.12	)%
Total		$	90,687,548			$	107,910,122			$	(17,222,574	)			(15.96	)%

Revenues, net, decreased by 15.96% from $107,910,122 for the six months ended June 30, 2024 to $90,687,548 for the six months ended June 30, 2025.

Japanese Yen ("JPY") against the U.S. dollar appreciated during the six months ended June 30, 2025, compared to the six months June 30, 2024. The spot rate against the dollar was 144.1650 yen on June 30, 2025 compared to 160.8680 yen on June 30, 2024 and the average rate against the dollar was 148.4720 yen for the six months ended June 30, 2025 compared to 152.1868 yen for the same period in 2024. For the six months ended June 30, 2025 and 2024, we generated net revenues of $90,687,548 (JPY13,465 million) and $107,910,122 (JPY16,422 million), respectively, we reported net income of $23,931,802 (JPY3,562 million) and $37,307,541 (JPY5,678 million), respectively. Overall, the favorable impacts of the period-to-period foreign exchange rate changes on net revenues and net income were $2,213,636 and $526,004, respectively, for the six months ended June 30, 2025.

The main reasons for the variance of $17,222,574 in revenues, net per revenue stream are as follows:

Franchising Revenue

Franchising revenue for the six months ended June 30, 2025 decreased to $25,726,863 by $4,009,661, or 13.48%, from $29,736,524 for the same period in 2024. This decrease was mainly due to the revision of the fee structure for determining service fees for each clinic of MCs based on the size, scale and performance of each clinic effective as of April 1, 2025, partially offset by the appreciation of JPY.

Procurement Revenue

The procurement revenue for the six months ended June 30, 2025 increased to $30,089,302 by $3,356,710, or 12.56%, from $26,732,592 for the same period in 2024. This increase was mainly due to the orders from MCs for the new types of medical materials, as well as the appreciation of JPY.

Management Services Revenue

The management services revenue for the six months ended June 30, 2025 decreased to $13,866,681 by $18,493,586, or 57.15%, from $32,360,267 for the same period in 2024. This decrease was mainly due to (i) the discontinuation of clinic operation staff supporting services that had been provided by Shobikai Sub to MCs since the third quarter of 2024, because the Company completed the merger of Shobikai Sub with and into Lange Sub and the related business license that was held by Shobikai Sub became invalid upon the completion of the merger in January 2025, (ii) the decrease in the revenue in connection with customer rewards program offered to customers of the franchisee clinics and (iii) the revision of the fee structure for determining service fees for each clinic of MCs based on the size, scale and performance of each clinic effective as of April 1, 2025, partially offset by the appreciation of JPY.

Rental Services Revenue

The rental services revenue for the six months ended June 30, 2025 increased to $12,491,690 by $5,420,576, or 76.66%, from $7,071,114 for the same period in 2024. This increase was mainly due to opening of new clinics resulting in the increased demand for medical equipment from new clinics and replacing laser hair removal equipment from existing clinicsas well as the appreciation of JPY.

Others

The other revenues for the six months ended June 30, 2025 decreased to $8,513,012 by $3,496,613, or 29.12%, from $12,009,625 for the same period in 2024. This decrease was mainly due to the disposal of its subsidiaries, Kijimadairakanko Inc. and Skynet Academy Co., Ltd., in December 2024, offset by revenues from Aesthetic Healthcare Holdings Pte. Ltd. and its subsidiaries, which were acquired in November 2024.

Cost of Revenues

Cost of revenues for the six months ended June 30, 2025 was $22,943,887 compared to $28,971,072 for the same period in 2024. The decrease was mainly due to the Company's effort of the cost reduction, as well as the discontinuation of clinic operation supporting services provided by Shobikai Sub to MCs since the third quarter of 2024, and the Company then terminated the employment of the related staff. As a result, cost of revenues decreased overall, despite a partial offset from higher purchase costs resulting from replacing laser hair removal equipment from MCs.

Gross Profit

Gross profit for the six months ended June 30, 2025 was $67,743,661 compared to $78,939,050 for the same period in 2024. The decrease in gross profit by $11,195,389 or 14.18% was mainly due to the decrease in franchising revenue and management services revenue with relatively high gross margin as a result of the factors described above.

Operating Expenses

Operating expenses for the six months ended June 30, 2025 and 2024 were as follows:

		For the Six Months Ended June 30,								Variance
		2025				2024				Amount				%
Salaries and welfare		$	13,207,259			$	14,386,288			$	(1,179,029	)			(8.20	)%
Depreciation and amortization expense			933,168				1,227,358				(294,190	)			(23.97	)%
Consulting and professional service fees			7,176,118				5,208,876				1,967,242				37.77	%
Advertising expense			1,656,099				934,724				721,375				77.18	%
Taxes and dues			837,279				249,334				587,945				235.81	%
Recruiting expense			386,624				1,248,122				(861,498	)			(69.02	)%
Lease expense			1,199,327				1,233,930				(34,603	)			(2.80	)%
Office, utility and other expenses			3,591,521				2,698,973				892,548				33.07	%
Total		$	28,987,395			$	27,187,605			$	1,799,790				6.62	%

The operating expenses increased to $28,987,395 for the six months ended June 30, 2025 by $1,799,790, or 6.62%, from $27,187,605 for the same period in 2024. The increase was mainly due to the increase in office, utility and other expenses, and consulting and professional service fees, partially offset by the decrease in salaries and welfare.

Consulting and professional service fees increased by $1,967,242, or 37.77%, to $7,176,118 for the six months ended June 30, 2025 from $5,208,876 for the same period in 2024, mainly due to the increase in legal, tax, and market research expenses associated with the Company's listing.

Office, utility and other expenses increased by $892,548, or 33.07%, to $3,591,521 for the six months ended June 30, 2025 from $2,698,973 for the same period in 2024, mainly due to the large-scale replacement of office supplies during the quarter.

Salaries and welfare decreased by $1,179,029, or 8.20%, to $13,207,259 for the six months ended June 30, 2025 from $14,386,288 for the same period in 2024, mainly due to the disposal a subsidiary, Kijimadairakanko Inc. in December 2024 and the decrease for the compensation to the director and CEO of the Company.

Other Income (Expenses)

Other income (expenses) for the six months ended June 30, 2025 and 2024, were as follows:

		For the Six Months Ended June 30,								Variance
		2025				2024				Amount				%
Interest income		$	78,215			$	29,333			$	48,882				166.65	%
Interest expense			(55,858	)			(10,432	)			(45,426	)			435.45	%
Other income			185,099				655,972				(470,873	)			(71.78	)%
Other expenses			(2,829,724	)			(1,951,292	)			(878,432	)			45.02	%
Gain on redemption of life insurance policies			8,746,138				-				8,746,138				100.00	%
Change in fair value of cryptocurrencies			111,632				-				111,632				100.00	%
Gain on disposal of subsidiary			-				3,813,609				(3,813,609	)			(100.00	)%
Total		$	6,235,502			$	2,537,190			$	3,698,312				145.76	%

Other income (expenses), net was $6,235,502 for the six months ended June 30, 2025 compared to $2,537,190 for the same period in 2024. The increase in other income (expense) by $3,698,312 or 145.76% was mainly due to a gain on redemption of life insurance policies of $8,746,138 in 2025, and the absence in 2025 of a gain on disposal of subsidiary of $3,813,609 recognized in 2024. In addition, the other income was $185,099 for the six months ended June 30, 2025, as compared to $655,972 for the six months ended June 30, 2024, mainly due to the decrease in the foreign exchange gains. The other expense was $2,829,724 for the six months ended June 30, 2025, as compared to $1,951,292 for the six months ended June 30, 2024, mainly due to the increase in the foreign exchange losses arising from intercompany loan balances between the Company and its subsidiary. Change in fair value of cryptocurrencies was $111,632 for the six months ended June 30, 2025, as compared to nil for the six months ended June 30, 2024, due to the Company purchased cryptocurrencies in the six months ended June 30, 2025, which resulted in the fair value change of the cryptocurrencies during the current period.

Income Tax Expense

Income tax expense for the six months ended June 30, 2025 was $21,059,966 compared to $16,981,094 for the same period in 2024. The increase in income tax expense by $4,078,872 or 24.02% was mainly due to the increase of deferred tax expenses recognized and the appreciation of JPY.

The effective tax rate was 46.81% and 31.28% for the six months ended June 30, 2025 and 2024, respectively. The increase of 15.53 percentage points was mainly due to the deemed contribution in connection with the price modification on disposal of an aircraft to General Incorporated Association SBC, an entity controlled by the CEO of the Company, who is also the controlling shareholder of the Company, which was treated as a taxable gain under the Japanese tax law for the six months ended June 30, 2025.

Net Income

As a result of the foregoing, we reported a net income of $23,931,802 for the six months ended June 30, 2025, representing a decrease of $13,375,739 or 35.85% from $37,307,541 for the six months ended June 30, 2024.

Net Income (Loss) Attributable to Non-controlling Interests

Net loss attributable to non-controlling interests was $28,884 for the six months ended June 30, 2025, as compared to net income attributable to non-controlling interests of $65,381 for the six months ended June 30, 2024.

Liquidity and Capital Resources

As of June 30, 2025, the Company had $152,740,882 in cash and cash equivalents compared to $125,044,092 as of December 31, 2024. In addition, the Company had $51,271,211 in accounts receivable as of June 30, 2025 compared to $30,260,113 as of December 31, 2024. The Company's accounts receivable includes balances due from customers for the services and goods provided by the Company and accepted by customers.

As of June 30, 2025, the Company's working capital balance was $180,660,427. In assessing liquidity, management monitors and analyzes the Company's cash and cash equivalents, ability to generate sufficient future earnings, and operating and capital investment commitments. The Company believes that its current cash and cash equivalents from operations and borrowings from banks will be sufficient to meet its working capital needs for the next 12 months from the date of issuance of the unaudited financial statements included in this Quarterly Report.

To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of indebtedness, equity financings or a combination of these potential sources of funds. While we face uncertainties regarding the size and timing of our fundraising, which will be affected by general economic, financial, and other factors that may be beyond our control, we believe that we will be able to continue to meet our current business needs through the use of cash flows generated from operations and stockholder working capital, as needed.

The Company evaluates its capital allocation practices with the objective of enhancing shareholder value, while considering performance, the business environment, macroeconomic conditions and other relevant factors. The Company expects to deploy capital for investment opportunities that align with its growth strategy, selectively pursuing prospects in the expanding global medical aesthetics market.

Cash Flows for the six months ended June 30, 2025 and 2024

The following table provides a summary of our cash flows for the periods indicated.

		For the Six Months Ended June 30,								Variance
		2025				2024				Amount				%
Net cash provided by (used in) operating activities		$	(6,411,168	)		$	22,874,760			$	(29,285,928	)			(128.03	)%
Net cash provided by (used in) investing activities			15,397,998				(9,405,716	)			24,803,714				(263.71	)%
Net cash provided by (used in) financing activities			6,901,719				(109,341	)			7,011,060				(6,412.11	)%
Effect of exchange rate changes			11,808,241				(12,679,865	)			24,488,106				(193.13	)%
Net change in cash and cash equivalents			27,696,790				679,838				27,016,952				3,974.03	%
Cash and cash equivalents as of the beginning of the period			125,044,092				103,022,932				22,021,160				21.38	%
Cash and cash equivalents as of the end of the period		$	152,740,882			$	103,702,770			$	49,038,112				47.29	%

Operating Activities

Net cash used in operating activities was $6,411,168 for the six months ended June 30, 2025, mainly derived from net income of $23,931,802 for the period, reconciled by a gain on redemption of life insurance policies of $8,746,138 and deferred income tax expense of $7,452,983, and net changes in operating assets and liabilities, which mainly included an increase in accounts receivable - related parties of $17,039,113, an increase in finance lease receivables - related parties of $6,482,967, a decrease in customer loans receivable of $8,081,703, an increase accounts payable to related parties - current of $2,455,865, a decrease in notes and other payables - related parties of $5,031,570, a decrease in advances from customers - related parties of $2,363,891, a decrease in income tax payable of $6,030,526, and a decrease in accrued liabilities and other current liabilities of $2,508,035.

Net cash provided by operating activities was $22,874,760 for the six months ended June 30, 2024, mainly derived from net income of $37,307,541 for the period, reconciled by a gain on disposal of subsidiary of $3,813,609, deferred income taxes of $3,322,728, and net changes in operating assets and liabilities, which mainly included a decrease in accounts receivable - related parties of $5,843,499, a decrease in customer loans receivable of $7,521,267, a decrease in accounts payable of $8,960,556, a decrease in notes and other payables - related parties of $5,101,368, a decrease in advance from customers - related parties of $4,663,233, a decrease in accrued liabilities and other current liabilities of $4,444,172 and an increase in income tax payable of $5,462,133.

Investing Activities

During the six months ended June 30, 2025, net cash provided by investing activities of $15,397,998 was mainly the result of proceeds from redemption of life insurance policies of $17.7 million, offset by the payments made on behalf of related parties of $1.8 million.

During the six months ended June 30, 2024, net cash used in investing activities of $9,405,716 was mainly the result of payments made on behalf of a related parties of $5.2 million, purchase of convertible note of $1.7 million, purchase of property and equipment of $1.6 million, and disposal of subsidiary, net of cash disposed of $0.8 million.

Financing Activities

During the six months ended June 30, 2025, net cash provided by financing activities of $6,901,719 was mainly due to the deemed contribution in connection with the price modification on disposal of property and equipment of $9.7 million, offset by repurchase of common stock of $2.4 million.

During the six months ended June 30, 2024, net cash used in financing activities of $109,341 was mainly due to the repayments of long-term loans of $0.06 million.

Recent Developments

One Big Beautiful Bill Act

On July 4, 2025, President Trump signed into law the legislation commonly referred to as the One Big Beautiful Bill Act ("OBBBA"). The OBBBA includes various provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The OBBBA has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We are currently assessing its impact on our consolidated financial statements and will recognize the income tax effects in the consolidated financial statements beginning in the period in which the OBBBA was signed into law.

Share Repurchase Program

See PART II - OTHER INFORMATION, ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS for information regarding the Company's share repurchase program.

Contractual Obligations

Lease Agreements

The Company holds a significant number of leases classified as operating leases for offices and sublease purposes, and finance leases for certain medical equipment.

As of June 30, 2025, the future maturity of lease liabilities is as follows:

Years ending December 31,		Finance Lease				Operating Lease
Remaining of 2025		$	83,804			$	2,424,090
2026			134,201				1,644,921
2027			77,234				471,460
2028			43,778				141,390
2029			7,095				132,086
Thereafter			-				59,765
Total undiscounted lease payments			346,112				4,873,712
Less: imputed interest			(20,051	)			(41,325	)
Total lease liabilities		$	326,061			$	4,832,387

Bank and Other Borrowings

The Company borrowed loans from various banks and a financial institution for working capital purpose.

As of June 30, 2025, future minimum borrowing payments are as follows:

Years ending December 31,		Principal Repayment
Remaining of 2025		$	31,818
2026			69,420
2027			6,999,688
2028 and thereafter			-
Total		$	7,100,926

Off-Balance Sheet Arrangements (Off-Balance Sheet Transactions)

There are no off-balance sheet arrangements as of June 30, 2025 and December 31, 2024.

Foreign Exchange Rate Risk

We are exposed to foreign currency exchange rate fluctuations because our business is primarily conducted in Japan and most of our revenues and costs are denominated in Japanese yen, whereas our reporting currency is U.S. dollar. The weakening of the Japanese yen against the U.S. dollar would have a negative impact on our financial results and vice versa.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

We believe that there have been no material changes to our critical accounting policies and estimates from those disclosed in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 28, 2025.

Emerging Growth Company

We are an "emerging growth company," as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we will take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

Smaller Reporting Company

Additionally, we are a "smaller reporting company," as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250 million as of the last business day of our second fiscal quarter, or (ii) our annual revenue exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our second fiscal quarter. If we continue to be a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from these certain reduced disclosure requirements that are available to smaller reporting companies.