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Item 2. Management’s Discussion and Analysis

2025-08-13 compared with 2025-05-15 · 352 added, 221 removed, 127 unchanged (82% of the section changed)

1 unchanged sentence

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”).

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.

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.

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

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”

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.

Medical Group, Inc.

3 unchanged sentences

September 17, 2024, Legacy SBC consummated its going-public business combination with Pono Capital Two, Inc.

Combination”).

(“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

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.

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.

changed its name to SBC Medical Group Holdings Incorporated

and the Company’s common stock began trading on Nasdaq under the ticker symbol “SBC”.

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.

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 251 of

the treatment centers in Japan as of March 31, 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.

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 (or shain ) 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 “deposit” interests (or mochibun )

of the Medical Corporations (except Medical Corporation Association Furinkai and Medical Corporation Association Junikai).

Company, through SBC Medical Sub, 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 Medical

Corporations (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 (or shain ) of the Medical Corporations

per the requirements of the Japanese Medical Care Act.

the three months ended March 31, 2025 and 2024, we generated revenues of $47,328,701 and $54,808,042, respectively, we reported net income

attributable to SBC Medical Group Holdings Incorporated of $21,502,446 and $18,757,752, respectively, and cash flows provided by operating

activities of $1,928,621 and $3,682,175, respectively.

As of March 31, 2025, we had retained earnings of $210,965,453.

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

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

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.

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.

primary mission is to provide quality comprehensive management services to the Medical Corporations and expand our “Shonan Beauty

1 unchanged sentence

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 growing our presence globally.

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.

of Operations

of Results of Operations for the Three Months Ended March 31, 2025 and 2024

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

following table summarizes our operating income as reflected in our unaudited consolidated statements of operations and comprehensive

income for the three months ended March 31, 2025 and 2024, and presents information regarding amounts and percentage changes during those

income for the three months ended June 30, 2025 and 2024, and presents information regarding amounts and percentage changes during those

For the Three Months Ended

2 unchanged sentences

Cost of revenues (including cost of revenues from related parties)

Operating expenses

Operating expenses (including selling, general and administrative expenses from related parties)

Income from operations

(12,736,368 )

Income before income taxes

(13,546,074 )

Income tax expense

net loss attributable to non-controlling interests

(16,117,473 )

net income (loss) attributable to non-controlling interests

Net income attributable to SBC Medical Group Holdings Incorporated

$ (16,026,168 )

net generated from different revenue streams consist of the following:

1 unchanged sentence

Franchising revenue

$ (4,618,675 )

Procurement revenue

Management services revenue

(11,567,019 )

Rental services revenue

$ (9,743,233 )

net, decreased by 13.65% from $54,808,042 for the three months ended March 31, 2024 to $47,328,701 for the three months ended March 31,

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,

Yen (“JPY”) against the U.S.

dollar slightly depreciated during the three months ended March 31, 2025, compared to the three

months March 31, 2024.

The spot rate against the dollar was 149.4840 yen on Marh 31, 2025 compared to 151.3380 yen on March 31, 2024

and the average rate against the dollar was 152.5417 yen for the three months ended March 31, 2025 compared to 148.4462 yen for the same

period in 2024.

For the three months ended March 31, 2025 and 2024, we generated net revenues of $47,328,701 (JPY7,220 million) and $54,808,042

(JPY8,136 million), respectively, we reported net income of $21,491,950 (JPY3,252 million) and $18,750,216 (JPY2,783 million), respectively.

Overall, the unfavorable impacts of the period-to-period foreign exchange rate changes on net revenues and net income were $1,305,757 and

$412,787, respectively, for the three months ended March 31, 2025.

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.

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.

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

revenue for the three months ended March 31, 2025 increased to $15,719,282 by $609,014, or 4.03%, from $15,110,268 for the same period

This increase was mainly due to the business expansion of the MCs, partially offset by the depreciation of JPY.

procurement revenue for the three months ended March 31, 2025 increased to $14,332,783 by $1,136,799, or 8.61%, from $13,195,984 for

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

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 increased demand on medical materials due to the business expansion of MCs,

partially offset by the depreciation of JPY.

This increase was mainly due to the orders from MCs for the new types of medical materials, as well as the appreciation

Services Revenue

management services revenue for the three months ended March 31, 2025 decreased to $8,728,103 by $6,926,567, or 44.25%, from

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.

Services Revenue

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.

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.

and its subsidiaries, which were acquired in November 2024 ,

offset by the disposal of its subsidiaries, Kijimadairakanko

and Skynet Academy Co., Ltd.

in December 2024.

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.

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.

Th e decrease was partially offset by higher

purchase costs resulting from replacing laser hair removal

equipment from MCs .

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.

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

For the Three Months Ended

Salaries and welfare

$ (1,106,930 )

Depreciation and amortization expense

Consulting and professional service fees

Advertising expense

Taxes and dues

Recruiting expense

Lease expense

Office, utility and other expenses

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.

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.

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

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.

Income (Expenses)

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

For the Three Months Ended

Interest income

Interest expense

Other expenses

Change in fair value of cryptocurrencies

$ (1,013,831 )

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.

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

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.

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.

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.

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.

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.

Loss Attributable to Non-controlling Interests

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.

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

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

For the Six Months Ended

Revenues, net (including net revenues provided to related parties)

$ 107,910,122

$ (17,222,574 )

Cost of revenues (including cost of revenues from related parties)

(11,195,389 )

Operating expenses (including selling, general and administrative expenses from related parties)

Income from operations

(12,995,179 )

Income before income taxes

Income tax expense

(13,375,739 )

net income (loss) attributable to non-controlling interests

Net income attributable to SBC Medical Group Holdings Incorporated

$ (13,281,474 )

net generated from different revenue streams consist of the following:

For the Six Months Ended

Franchising revenue

$ (4,009,661 )

Procurement revenue

Management services revenue

(18,493,586 )

Rental services revenue

$ 107,910,122

$ (17,222,574 )

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.

Yen (“JPY”) against the U.S.

dollar appreciated during the six months ended June 30, 2025, compared to the six months June

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.

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.

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

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

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.

Services Revenue

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, held by Shobikai Sub, became invalid upon the

merger in January 2025 and (ii) the depreciation of JPY, partially offset by (i) the business expansion of MCs and (ii) the increase

in the number of the clinics of MCs.

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.

Services Revenue

rental services revenue for the three months ended March 31, 2025 increased to $5,640,514 by $2,022,573, or 55.90%, from $3,617,941

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 the increased demand for medical equipment from MCs due to the business

expansion of MCs, partially offset by the depreciation of JPY.

other revenues for the three months ended March 31, 2025 decreased to $2,908,019 by $4,321,160, or 59.77%, from $7,229,179 for the same

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 clinics as well as the appreciation of JPY.

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.

2 unchanged sentences

in December 2024, offset by revenues from Aesthetic Healthcare Holdings Pte.

and its subsidiaries,

which were acquired in November 2024.

of revenues for the three months ended March 31, 2025 was $9,595,617 compared to $15,288,667 for the same period in 2024.

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

As a result, labor cost significantly decreased.

profit for the three months ended March 31, 2025 was $37,733,084 compared to $39,519,375 for the same period in 2024.

in gross profit by $1,786,291 or 4.52% was mainly due to the decrease in management services revenue and other revenues with

relatively high gross margin as a result of the factors described above.

expenses for the three months ended March 31, 2025 and 2024 were as follows:

For the Three Months Ended

and its subsidiaries, which were acquired in November

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.

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.

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.

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

For the Six Months Ended

Salaries and welfare

$ (1,179,029 )

Depreciation and amortization expense

5 unchanged sentences

Office, utility and other expenses

$ (1,527,480 )

operating expenses decreased to $13,531,010 for the three months ended March 31, 2025 by $1,527,480, or 10.14%, from $15,058,490 for

the same period in 2024.

The decrease was mainly due to the decrease in recruiting expense, depreciation and amortization

expense, and office, utility and other expenses partially offset by the increase in consulting and professional service fee.

expense decreased by $512,678, or 67.72%, to $244,377 for the three months ended March 31, 2025 from $757,055 for the same period in

2024, mainly due to the one-time recruiting advertisement expenses incurred in the same period of the prior year.

and amortization expense decreased by $507,299, or 52.37%, to $461,405 for the three months ended March 31, 2025 from $968,704 for the

same period in 2024, mainly due to the disposal of two subsidiaries, Kijimadairakanko Inc.

and Skynet Academy Co., Ltd., in December 2024.

utility and other expenses decreased by $1,174,486, or 43.63%, to $1,517,187 for the three months ended March 31, 2025 from $2,691,673

for the same period in 2024, mainly due to the insourcing of debt collection activities for customer loans receivable since January 2025 and the disposal of two subsidiaries in December 2024.

and professional service fees increased by $667,321, or 25.37%, to $3,298,082 for the three months ended March 31, 2025 from

$2,630,761 for the same period in 2024, mainly due to the increase in legal, tax, and market research expenses associated with the

Company’s listing.

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.

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

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.

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.

Income (Expenses)

income (expenses) for the three months ended March 31, 2025 and 2024, were as follows:

For the Three Months Ended

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

For the Six Months Ended

Interest income

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Gain on redemption of life insurance policies

Change in fair value of cryptocurrencies

Gain on disposal of subsidiary

particular, a gain on the redemption of life insurance policies was recorded due to the maturity of

four corporate-owned life insurance policies.

A gain on disposal of subsidiary in the prior year was recorded due to the disposal of

Cell Pro Japan Co., Ltd.

(“Cellpro”), a former subsidiary of the Company, on January 1, 2024.

tax expense for the three months ended March 31, 2025 was $9,959,457 compared to $8,451,984 for the same period in 2024.

in income tax expense by $1,507,473 or 17.84% was mainly due to the higher income before tax.

effective tax rate was 31.67% and 31.07% for the three months ended March 31, 2025 and 2024, respectively.

a result of the foregoing, we reported a net income of $21,491,950 for the three months ended March 31, 2025, representing an increase

of $2,741,734 or 14.62% from $18,750,216 for the three months ended March 31, 2024.

Net Loss Attributable to Non-controlling Interests

loss attributable to non-controlling interests was $10,496 for the three months ended March 31, 2025, as compared to $7,536 for the three months ended March 31, 2024.

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.

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.

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.

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

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.

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.

Income (Loss) Attributable to Non-controlling Interests

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.

and Capital Resources

of March 31, 2025, the Company had $132,055,823 in cash and cash equivalents compared to $125,044,092 as of December 31, 2024.

the Company had $32,191,368 in accounts receivable as of March 31, 2025 compared to $30,260,113 as of December 31, 2024.

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.

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.

of March 31, 2025, the Company’s working capital balance was $166,630,721.

of June 30, 2025, the Company’s working capital balance was $180,660,427.

In assessing liquidity, management monitors and analyzes

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that align with its growth strategy, selectively pursuing prospects in the expanding global medical aesthetics market.

Flows for the three months ended March 31, 2025 and 2024

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

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

For the Three Months Ended

Net cash provided by operating activities

For the Six Months Ended

Net cash provided by (used in) operating activities

$ (6,411,168 )

Net cash used in investing activities

Net cash used in financing activities

$ (29,285,928 )

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes

(12,679,865 )

Net change in cash and cash equivalents

2 unchanged sentences

$ 152,740,882

cash provided by operating activities was $1,928,621 for the three months ended March 31, 2025, mainly derived from net income of

$21,491,950 for the period, reconciled by a gain on redemption of life insurance policies of $8,746,138 and deferred income tax

expense of $7,016,227, and net changes in operating assets and liabilities, which mainly included an increase in finance lease

receivables – related parties of $2,779,253, a decrease in customer loans receivable of $4,501,760, an increase in prepaid

expenses and other current assets of $3,150,243, an increase in accounts payable of $3,235,017, a decrease in advances from

customers – related parties of $2,114,829, and a decrease in income tax payable of $17,635,239.

cash provided by operating activities was $3,682,175 for the three months ended March 31, 2024, mainly derived from net income of

$18,750,216 for the period, reconciled by a gain on disposal of subsidiary of $3,813,609, and net changes in operating assets and

liabilities, which mainly included a decrease in accounts receivable – related parties of $4,775,935, a decrease in accounts

payable of $8,937,435, and a decrease in income tax payable of $6,552,783.

the three months ended March 31, 2025, net cash used in investing activities of $978,807 was mainly the result of purchase of long-term

investments of $0.6 million, and prepayments for property and equipment of $0.5 million, offset by proceeds from disposal of property

and equipment of $0.3 million.

During the three months ended March 31, 2024, net cash used in investing activities of $3,394,122 was

mainly the result of purchase of convertible note of $1.7 million, disposal of subsidiary, net of cash disposed of $0.8 million, and

purchase of property and equipment of $0.7 million.

the three months ended March 31, 2025, net cash used in financing activities of $280,380 was mainly due to the repayments of finance

lease liabilities of $0.2 million.

During the three months ended March 31, 2024, net cash used in financing activities of $40,227 was

mainly due to the repayments of long-term loans of $0.03 million.

January 2025, the Company effected a merger in which SBC Medical Group Co., Ltd.

(“SBC Japan”) and Shobikai Co., Ltd.

(“Shobikai Sub”) merged with and into L’Ange Cosmetique Co., Ltd.

(“L’Ange Sub”).

As a result, the

separate corporate existence of SBC Japan and Shobikai Sub ceased, with L’Ange Sub continuing as the surviving company.

the merger, L’Ange Sub changed its name to SBC Medical Group Co., Ltd., which is herein referred to as “ SBC

Medical Sub,” or “SBC Japan.”

Changes to Service Fee Structure

as of April 1, 2025, the Company revised the fee structure to pursue a long-term growth strategy aimed at expanding and stabilizing the

business foundation by creating an environment that can better facilitate the establishment of new clinics by MCs.

This updated fee structure

introduces a more tailored, performance-based approach to determining service fees for each clinic, based on several key criteria:

service category (facility type):

The type of medical services provided by the clinic (for example, cosmetic medicine, dermatology,

hair restoration (AGA) treatment, fertility treatment, insured medical care, or other specialized fields).

The length of time since the clinic’s opening (with newly established clinics in their first year of operation recognized

in a dedicated category).

The clinic’s revenue for the given month.

The number of patients the clinic has served over the past year.

factors collectively determine each clinic’s tier classification (e.g., as a small, medium, or large clinic), as defined in the

updated service agreement’s appendix.

Under this system, each clinic is assigned to an appropriate tier based on its profile, and

a corresponding fixed monthly fee is applied according to the schedule set forth in the contract.

Notably, clinics offering cosmetic

medical services are categorized using a more granular tier system reflecting their scale, with tiers ranging from newly opened clinics

in their first year up to “super-large” clinics.

In contrast, clinics focusing on other types of medical services (such as

dermatology, AGA hair restoration, fertility treatments, or dental and orthopedic care) are classified into the standard small, medium,

or large clinic tiers.

This tiered approach ensures that service fees are aligned with each clinic’s size and performance, supporting

newer and smaller clinics as they grow while accommodating the higher capacities of larger established clinics.

the revised fee structure had been applied starting in April 2024, it is estimated that total revenues for fiscal year 2024 would have

decreased by approximately 10%.

However, the Company expects the impact on total revenues and income from operations for fiscal year

2025 to be offset by the absence of one-time losses that were recorded in fiscal year 2024, mainly included impairment loss on intangible

asset and stock-based compensation.

Nevertheless, the ultimate financial impact remains uncertain and will depend on a number of factors,

many of which are beyond the Company’s control.

Share Repurchase Program

On May 12, 2025, the Company’s board of directors

approved a share repurchase program with an aggregate purchase limit of up to USD 5 million.

The repurchase period will begin on May

20, 2025 and continue through May 20, 2026, unless extended or terminated earlier depending on the progress.

The program will be funded

by surplus cash and future free cash flow.

The Company believes its current share price undervalues its business performance, the

growth potential of the aesthetic-medical market, and its position as an industry leader.

The repurchase program is intended to return

capital to shareholders and signal confidence in the Company’s valuation.

It also aims to reduce shares outstanding and enhance

capital efficiency.

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

of March 31, 2025, the future maturity of lease liabilities is as follows:

$ 103,702,770

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.

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.

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.

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.

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.

One Big Beautiful Bill Act

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.

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.

Company holds a significant number of leases classified as operating leases for offices and sublease purposes, and finance leases for

certain medical equipment.

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

Years ending December 31,

7 unchanged sentences

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

of March 31, 2025, future minimum borrowing payments are as follows:

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

Years ending December 31,

2 unchanged sentences

Sheet Arrangements (Off-Balance Sheet Transactions)

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

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

Exchange Rate Risk

10 unchanged sentences

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.

believe that there have been no material changes to our critical accounting policies and estimates from those disclosed in “Part

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.

Growth Company

7 unchanged sentences

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 Exchange Act) are required to comply with the new or revised financial accounting

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

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.

Reporting Company

11 unchanged sentences

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule

12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise

required under this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis