The following discussion and analysis summarize the significant factors affecting our operating results, financial condition, liquidity, and cash flows for the periods presented below. The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes included elsewhere in 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 II, Item 1A. Risk Factors” of this Quarterly Report, “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, together with its consolidated subsidiaries and its VIE (prior to its deconsolidation), 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. These services include advertising and marketing across various platforms (such as social media networks), staff management (such as recruitment and training), booking and reservation services for franchisee clinic customers. We also support franchisee clinics through assistance with employee housing rentals and facility rentals, leasehold improvement services and design of clinics, medical equipment and medical consumables procurement (resale), the provision of cosmetic products to 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 customer rewards program (customer loyalty point program), and payment tools.
Our wholly owned subsidiary, SBC Medical Group Co., Ltd., a Japanese corporation (“SBC Medical Sub”, or “SBC Japan”), is designated as a “medical service corporation”. In Japan, a medical service corporation is a legal entity that provides management services to “medical corporations”. The management services are conducted through franchisor-franchisee contracts and/or service contracts between SBC Medical Sub and the medical corporations (and, where applicable, other entities) that own domestic franchisee treatment centers in Japan. These treatment centers provide services including 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, cosmetic dental procedures, tattoo removal, lasik eye surgery, lateral canthoplasty, brow lift procedures, androgenetic alopecia treatment, and cheek sagging prevention methods. Separately, we also enter into franchise arrangements with certain independently operated clinics in Japan pursuant to our Partner Doctor Independence Support Program Agreements, which differ in certain respects from our arrangements with the medical corporations and/or general incorporated associations.
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The Company’s subsidiaries have entered into franchisor-franchisee contracts and service contracts (including business consignment agreements of the same nature) with seven medical corporations, consisting of Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai, Medical Corporation Jukeikai, Medical Corporation Ritz Cosmetic Surgery and, effective as of June 2025, Medical Corporation Association Furinkai. In addition, the Company has entered into service contracts since September 2023 with Medical Corporation Association Furinkai and Medical Corporation Association Junikai; and in July 2025 with Medical Corporation Misakikai and General Incorporated Association Miotokai, following the acquisition of MB career lounge Co., Ltd. (collectively with the seven franchisee medical corporations, the “Medical Corporations and/or General Incorporated Associations” or “MCs”). All of the Medical Corporations and General Incorporated Associations 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 or General Incorporated Associations. 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 six franchisee medical corporations. 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, Medical Corporation Association Junikai, Medical Corporation Misakikai and General Incorporated Association Miotokai), the Company or SBC Medical Sub does not have voting control over the corporate actions at general meetings of members** of the Medical Corporations or General Incorporated Associations 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, 2026 and 2025, we generated revenues of $49,188,068 and $43,358,847, respectively, and we reported net income attributable to SBC Medical Group Holdings Incorporated of $10,692,822 and $2,458,240, respectively. For the six months ended June 30, 2026 and 2025, we generated revenues of $92,248,630 and $90,687,548, respectively, and we reported net income attributable to SBC Medical Group Holdings Incorporated of $22,000,893 and $23,960,686, respectively, and cash flows provided by (used in) operating activities of $31,741,248 and $(6,411,168), respectively. As of June 30, 2026, we had retained earnings of $262,449,513.
Our primary mission is to provide high-quality comprehensive management services to the MCs and expand our “Shonan Beauty Clinic” brand. We plan to achieve the mission by maintaining and strengthening our market position and brand in the cosmetic medical treatment management market in Japan, Vietnam and Singapore, and by growing our presence globally.
Further information regarding our business is provided in “Part I, Item 1. Business” of our Annual Report.
Results of Operations
Comparison of Results of Operations for the Three Months Ended June 30, 2026 and 2025
Because we acquired control of Waqoo, Inc. (“Waqoo”) on December 19, 2025 and consolidated the financial information of Waqoo and its subsidiary on a three-month reporting lag, our consolidated results for the three months ended June 30, 2026 include Waqoo’s results of operations for the period from January 1, 2026 to March 31, 2026. For comparative purposes, the 2025 segment amounts presented in the tables below relate entirely to the SBC Core Segment, as Waqoo was not consolidated during those periods.
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The following table summarizes our results of operations as reflected in our unaudited consolidated statements of operations and comprehensive income for the three months ended June 30, 2026 and 2025, and presents information regarding amounts and percentage changes during those periods.
For the Three Months Ended June 30,
2026 2025 Variance
Amount % of revenue Amount % of revenue Amount %
Revenues, net (including net revenues provided to related parties) $ 49,188,068 100.00 % $ 43,358,847 100.00 % $ 5,829,221 13.44 %
Cost of revenues (including cost of revenues from related parties) 13,210,752 26.86 % 13,348,270 30.79 % (137,518 ) (1.03 )%
Gross profit 35,977,316 73.14 % 30,010,577 69.21 % 5,966,739 19.88 %
Operating expenses (including selling, general and administrative expenses from related parties) 17,016,766 34.60 % 15,456,385 35.65 % 1,560,381 10.10 %
Income from operations 18,960,550 38.55 % 14,554,192 33.57 % 4,406,358 30.28 %
Other income (expenses) 594,136 1.21 % (1,013,831 ) (2.34 )% 1,607,967 (158.60 )%
Income before income taxes and equity in losses of equity method investees 19,554,686 39.75 % 13,540,361 31.23 % 6,014,325 44.42 %
Income tax expense 7,823,743 15.91 % 11,100,509 25.60 % (3,276,766 ) (29.52 )%
Equity in losses of equity method investees, net of tax (568,652 ) (1.16 )% — 0.00 % (568,652 ) NM
Net income 11,162,291 22.69 % 2,439,852 5.63 % 8,722,439 357.50 %
Less: net income (loss) attributable to non-controlling interests 469,469 0.95 % (18,388 ) (0.04 )% 487,857 (2,653.13 )%
Net income attributable to SBC Medical Group Holdings Incorporated $ 10,692,822 21.74 % $ 2,458,240 5.67 % $ 8,234,582 334.98 %
Note: Percentages are calculated as a percentage of total revenue and may not sum due to rounding.
Revenues, Net
Revenues, net generated from different revenue streams consist of the following:
For the Three Months Ended June 30, Variance
2026 2025 Amount %
SBC Core Segment
Franchising revenue $ 9,515,061 $ 10,007,581 $ (492,520 ) (4.92 )%
Procurement revenue 13,401,040 15,756,519 (2,355,479 ) (14.95 )%
Management services revenue 12,849,245 5,138,578 7,710,667 150.05 %
Rental services revenue 3,875,860 6,851,176 (2,975,316 ) (43.43 )%
Others 5,032,354 5,604,993 (572,639 ) (10.22 )%
Subtotal 44,673,560 43,358,847 1,314,713 3.03 %
Waqoo Segment 4,514,508 — 4,514,508 NM
Total $ 49,188,068 $ 43,358,847 $ 5,829,221 13.44 %
Revenues, net, increased by 13.44% from $43,358,847 for the three months ended June 30, 2025 to $49,188,068 for the three months ended June 30, 2026.
Japanese Yen (“JPY”) depreciated against the U.S. dollar during the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The average rate against the dollar for the SBC Core Segment was 159.3346 yen for the three months ended June 30, 2026 compared to 144.0297 yen for the same period in 2025. Financial results for the Waqoo Segment are consolidated on a three-month lag basis, and the average rate applied for its reporting period was 156.9101 yen. For the three months ended June 30, 2026 and 2025, we generated net revenues of $49,188,068 (JPY 7,826 million) and $43,358,847 (JPY 6,245 million), respectively, and we reported net income of $11,162,291 (JPY 1,781 million) and $2,439,852 (JPY 310 million), respectively. Overall, the unfavorable impacts of the period-to-period foreign exchange rate changes on net revenues and net income were $4,747,098 and $1,322,609, respectively, for the three months ended June 30, 2026.
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The main reasons for the variance of $5,829,221 in revenues, net per revenue stream are as follows:
SBC Core Segment
Franchising Revenue
Franchising revenue for the three months ended June 30, 2026 decreased to $9,515,061 by $492,520, or 4.92%, from $10,007,581 for the same period in 2025. This decrease was mainly due to the depreciation of JPY.
Procurement Revenue
The procurement revenue for the three months ended June 30, 2026 decreased to $13,401,040 by $2,355,479, or 14.95%, from $15,756,519 for the same period in 2025. This decrease was mainly due to a decline in orders from MCs for medical materials, reflecting a temporary increase in procurement activities associated with the business expansion of MCs in the same period of the prior year as well as the depreciation of JPY.
Management Services Revenue
The management services revenue for the three months ended June 30, 2026 increased to $12,849,245 by $7,710,667, or 150.05%, from $5,138,578 for the same period in 2025. This increase was mainly due to lower point redemptions, which were accounted for as a reduction of loyalty program management revenue, resulting from the revision of program policy effective in June 2025, partially offset by the depreciation of JPY.
Rental Services Revenue
The rental services revenue for the three months ended June 30, 2026 decreased to $3,875,860 by $2,975,316, or 43.43%, from $6,851,176 for the same period in 2025. This decrease was mainly due to a decline in revenue from rentals of laser hair removal equipment to existing clinics, as the prior-year period included a higher level of such rentals primarily associated with clinic openings and equipment upgrades at existing clinics, as well as the depreciation of JPY.
Others
The other revenues for the three months ended June 30, 2026 decreased to $5,032,354 by $572,639, or 10.22%, from $5,604,993 for the same period in 2025. This decrease was mainly due to the depreciation of JPY, partially offset by higher revenue from leasehold improvement services.
Waqoo Segment
Waqoo Segment revenue for the three months ended June 30, 2026 was $4,514,508. There was no comparable revenue for the same period in 2025 because Waqoo and its subsidiary, Cell Pro Japan Co., Ltd. (“Cell Pro”), were not consolidated subsidiaries during that period. This revenue was primarily derived from medical support services and direct-to-consumer product sales.
Cost of Revenues
Cost of revenues for the three months ended June 30, 2026 was $13,210,752 compared to $13,348,270 for the same period in 2025. The decrease was mainly due to lower costs in the SBC Core Segment associated with the decline in revenue from rentals of laser hair removal equipment to existing clinics as well as the depreciation of JPY. This decrease was partially offset by the inclusion of costs attributable to Waqoo and Cell Pro, whose operating results were consolidated beginning in the current-year period.
Gross Profit
Gross profit for the three months ended June 30, 2026 was $35,977,316 compared to $30,010,577 for the same period in 2025. The increase in gross profit by $5,966,739 or 19.88% was mainly due to the inclusion of gross profit from the Waqoo Segment and an increase in management services revenue, partially offset by a decrease in procurement revenue, which has a relatively high gross margin.
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Operating Expenses
Operating expenses for the three months ended June 30, 2026 and 2025 were as follows:
For the Three Months Ended June 30, Variance
2026 2025 Amount %
Salaries and welfare $ 7,790,908 $ 6,765,517 $ 1,025,391 15.16 %
Depreciation and amortization expense 346,539 471,763 (125,224 ) (26.54 )%
Consulting and professional service fees 5,125,152 3,878,036 1,247,116 32.16 %
Advertising expense 467,606 973,933 (506,327 ) (51.99 )%
Taxes and dues 482,733 591,817 (109,084 ) (18.43 )%
Recruiting expense 200,596 142,247 58,349 41.02 %
Lease expense 677,512 558,738 118,774 21.26 %
Office, utility and other expenses 1,925,720 2,074,334 (148,614 ) (7.16 )%
Total $ 17,016,766 $ 15,456,385 $ 1,560,381 10.10 %
Operating expenses increased to $17,016,766 for the three months ended June 30, 2026 by $1,560,381, or 10.10%, from $15,456,385 for the same period in 2025. The increase was mainly due to the increase in consulting and professional service fees and salaries and welfare, partially offset by the decrease in advertising expense.
Consulting and professional service fees increased by $1,247,116, or 32.16%, to $5,125,152 for the three months ended June 30, 2026 from $3,878,036 for the same period in 2025, mainly due to $1.4 million transaction costs incurred by the Company in connection with the secondary public offering of common stock sold by the Company’s CEO, which was completed in April 2026.
Salaries and welfare increased by $1,025,391, or 15.16%, to $7,790,908 for the three months ended June 30, 2026 from $6,765,517 for the same period in 2025, mainly due to the inclusion of personnel costs attributable to Waqoo and Cell Pro, which were consolidated beginning in the current-year period, and higher social insurance premiums driven by an increase in headcount at a Japanese subsidiary.
Advertising expense decreased by $506,327, or 51.99%, to $467,606 for the three months ended June 30, 2026 from $973,933 for the same period in 2025, mainly due to higher promotional point redemptions in the prior-year period.
Income From Operations
Income from operations for the three months ended June 30, 2026 and 2025 were as follows:
For the Three Months Ended June 30, Variance
2026 2025 Amount %
SBC Core Segment $ 15,244,134 $ 14,554,192 $ 689,942 4.74 %
Waqoo Segment 3,756,172 — 3,756,172 NM
Intersegment Eliminations (39,756 ) — (39,756 ) NM
Total $ 18,960,550 $ 14,554,192 $ 4,406,358 30.28 %
Income from operations for the three months ended June 30, 2026 was $18,960,550 compared to $14,554,192 for the same period in 2025. The increase in income from operations of $4,406,358, or 30.28%, was mainly due to the inclusion of income from operations from the Waqoo Segment and an increase in management services revenue, partially offset by a decrease in procurement revenue, which has a relatively high gross margin, as a result of the factors described above.
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Other Income (Expenses)
Other income (expenses) for the three months ended June 30, 2026 and 2025, were as follows:
For the Three Months Ended June 30, Variance
2026 2025 Amount %
Interest income $ 8,520 $ 22,882 $ (14,362 ) (62.77 )%
Interest expense (128,629 ) (49,651 ) (78,978 ) 159.07 %
Foreign currency exchange gain (loss), net 1,032,259 (769,720 ) 1,801,979 (234.11 )%
Other income 137,056 145,403 (8,347 ) (5.74 )%
Other expenses (455,070 ) (362,745 ) (92,325 ) 25.45 %
Total $ 594,136 $ (1,013,831 ) $ 1,607,967 (158.60 )%
Other income (expenses), net was $594,136 for the three months ended June 30, 2026 compared to $(1,013,831) for the same period in 2025. The increase in other income (expense) of $1,607,967, or 158.60%, was mainly due to foreign currency exchange gain resulting from the depreciation of the Japanese Yen.
Income Tax Expense
Income tax expense for the three months ended June 30, 2026 was $7,823,743 compared to $11,100,509 for the same period in 2025. The decrease in income tax expense of $3,276,766, or 29.52%, was mainly due to the absence of a significant tax expense recognized in the three months ended June 30, 2025, which was associated with a deemed contribution treated as a taxable gain under Japanese tax law.
The effective tax rate was 40.01% and 81.98% for the three months ended June 30, 2026 and 2025, respectively. The decrease of 41.97 percentage points was mainly due to the absence of the specific event that occurred in the same period in 2025; specifically, 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, was treated as a taxable gain under Japanese tax law and increased the effective tax rate for the three months ended June 30, 2025.
Net Income
As a result of the foregoing, we reported net income of $11,162,291 for the three months ended June 30, 2026, representing an increase of $8,722,439, or 357.50%, from $2,439,852 for the three months ended June 30, 2025.
Net Income (Loss) Attributable to Non-controlling Interests
Net income attributable to non-controlling interests was $469,469 for the three months ended June 30, 2026, as compared to net loss attributable to non-controlling interests of $18,388 for the three months ended June 30, 2025.
Comparison of Results of Operations for the Six Months Ended June 30, 2026 and 2025
Because we acquired control of Waqoo on December 19, 2025 and consolidated the financial information of Waqoo and its subsidiary on a three-month reporting lag, our consolidated results for the six months ended June 30, 2026 include Waqoo’s results of operations for the period from January 1, 2026 to March 31, 2026. For comparative purposes, all 2025 amounts in the tables below are attributable to the SBC Core Segment, as Waqoo was not consolidated during those periods.
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The following table summarizes our results of operations as reflected in our unaudited consolidated statements of operations and comprehensive income for the six months ended June 30, 2026 and 2025, and presents information regarding amounts and percentage changes during those periods.
For the Six Months Ended June 30,
2026 2025 Variance
Amount % of revenue Amount % of revenue Amount %
Revenues, net (including net revenues provided to related parties) $ 92,248,630 100.00 % $ 90,687,548 100.00 % $ 1,561,082 1.72 %
Cost of revenues (including cost of revenues from related parties) 25,924,580 28.10 % 22,943,887 25.30 % 2,980,693 12.99 %
Gross profit 66,324,050 71.90 % 67,743,661 74.70 % (1,419,611 ) (2.10 )%
Operating expenses (including selling, general and administrative expenses from related parties) 29,643,485 32.13 % 28,987,395 31.96 % 656,090 2.26 %
Income from operations 36,680,565 39.76 % 38,756,266 42.74 % (2,075,701 ) (5.36 )%
Other income 1,730,732 1.88 % 6,235,502 6.88 % (4,504,770 ) (72.24 )%
Income before income taxes and equity in losses of equity method investees 38,411,297 41.64 % 44,991,768 49.61 % (6,580,471 ) (14.63 )%
Income tax expense 15,351,334 16.64 % 21,059,966 23.22 % (5,708,632 ) (27.11 )%
Equity in losses of equity method investees, net of tax (568,652 ) (0.62 )% — — % (568,652 ) NM
Net income 22,491,311 24.38 % 23,931,802 26.39 % (1,440,491 ) (6.02 )%
Less: net income (loss) attributable to non-controlling interests 490,418 0.53 % (28,884 ) (0.03 )% 519,302 (1,797.89 )%
Net income attributable to SBC Medical Group Holdings Incorporated $ 22,000,893 23.85 % $ 23,960,686 26.42 % $ (1,959,793 ) (8.18 )%
Note: Percentages are calculated as a percentage of total revenue and may not sum due to rounding.
Revenues, Net
Revenues, net generated from different revenue streams consist of the following:
For the Six Months Ended June 30, Variance
2026 2025 Amount %
SBC Core Segment
Franchising revenue $ 18,606,801 $ 25,726,863 $ (7,120,062 ) (27.68 )%
Procurement revenue 25,745,406 30,089,302 (4,343,896 ) (14.44 )%
Management services revenue 24,779,036 13,866,681 10,912,355 78.69 %
Rental services revenue 7,311,782 12,491,690 (5,179,908 ) (41.47 )%
Others 11,291,097 8,513,012 2,778,085 32.63 %
Subtotal 87,734,122 90,687,548 (2,953,426 ) (3.26 )%
Waqoo Segment 4,514,508 — 4,514,508 NM
Total $ 92,248,630 $ 90,687,548 $ 1,561,082 1.72 %
Revenues, net, increased by 1.72% from $90,687,548 for the six months ended June 30, 2025 to $92,248,630 for the six months ended June 30, 2026.
Japanese Yen (“JPY”) depreciated against the U.S. dollar during the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The average rate against the dollar for the SBC Core Segment was 158.1446 yen for the six months ended June 30, 2026 compared to 148.4720 yen for the same period in 2025. Financial results for the Waqoo Segment are consolidated on a three-month lag basis, and the average rate applied for its reporting period was 156.9101 yen. For the six months ended June 30, 2026 and 2025, we generated net revenues of $92,248,630 (JPY 14,583 million) and $90,687,548 (JPY 13,465 million), respectively, and we reported net income of $22,491,311 (JPY 3,559 million) and $23,931,802 (JPY 3,562 million), respectively. Overall, the unfavorable impacts of the period-to-period foreign exchange rate changes on net revenues and net income were $5,715,671 and $1,552,740, respectively, for the six months ended June 30, 2026.
The main reasons for the variance of $1,561,082 in revenues, net per revenue stream are as follows:
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SBC Core Segment
Franchising Revenue
Franchising revenue for the six months ended June 30, 2026 decreased to $18,606,801 by $7,120,062, or 27.68%, from $25,726,863 for the same period in 2025. 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 as well as the depreciation of JPY.
Procurement Revenue
The procurement revenue for the six months ended June 30, 2026 decreased to $25,745,406 by $4,343,896, or 14.44%, from $30,089,302 for the same period in 2025. This decrease was mainly due to a decline in orders from MCs for medical materials, reflecting a temporary increase in procurement activities associated with the business expansion of MCs in the same period of the prior year as well as the depreciation of JPY.
Management Services Revenue
The management services revenue for the six months ended June 30, 2026 increased to $24,779,036 by $10,912,355, or 78.69%, from $13,866,681 for the same period in 2025. This increase was mainly due to lower point redemptions, which were accounted for as a reduction of loyalty program management revenue, resulting from the revision of program policy effective in June 2025, partially offset by the depreciation of JPY.
Rental Services Revenue
The rental services revenue for the six months ended June 30, 2026 decreased to $7,311,782 by $5,179,908, or 41.47%, from $12,491,690 for the same period in 2025. This decrease was mainly due to a decline in revenue from rentals of laser hair removal equipment to existing clinics, as the prior-year period included a higher level of such rentals primarily associated with clinic openings and equipment upgrades at existing clinics, as well as the depreciation of JPY.
Others
The other revenues for the six months ended June 30, 2026 increased to $11,291,097 by $2,778,085, or 32.63%, from $8,513,012 for the same period in 2025. This increase was mainly due to higher leasehold improvement services revenue as well as higher revenues from Aesthetic Healthcare Holdings Pte. Ltd. and its subsidiaries, which were acquired in November 2024 and consolidated in the Company’s financial statements with a three-month reporting lag, as the current-year period reflected six months of their results compared with only four months in the prior-year period, partially offset by the depreciation of JPY.
Waqoo Segment
Waqoo Segment revenue for the six months ended June 30, 2026 was $4,514,508. There was no comparable revenue for the same period in 2025 because Waqoo and its subsidiary, Cell Pro, were not consolidated subsidiaries during that period. This revenue was primarily derived from medical support services and direct-to-consumer product sales.
Cost of Revenues
Cost of revenues for the six months ended June 30, 2026 was $25,924,580 compared to $22,943,887 for the same period in 2025. The increase was mainly due to the inclusion of costs attributable to Waqoo and Cell Pro, which were consolidated beginning in the current-year period, as well as higher costs related to leasehold improvement services, the inclusion of six months of costs from Aesthetic Healthcare Holdings Pte. Ltd. and its subsidiaries in the current-year period under the Company’s three-month reporting lag, compared with only four months in the prior-year period, and higher personnel costs resulting from an increase in headcount to support newly established departments since April 2025. This increase was partially offset by lower costs associated with the decline in revenue from rentals of laser hair removal equipment to existing clinics.
Gross Profit
Gross profit for the six months ended June 30, 2026 was $66,324,050 compared to $67,743,661 for the same period in 2025. The decrease in gross profit of $1,419,611, or 2.10%, was mainly due to the decrease in franchising revenue and procurement revenue, with relatively high gross margin, as a result of the factors described above. This decrease was partially offset by the inclusion of gross profit from the Waqoo Segment.
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Operating Expenses
Operating expenses for the six months ended June 30, 2026 and 2025 were as follows:
For the Six Months Ended June 30, Variance
2026 2025 Amount %
Salaries and welfare $ 13,988,659 $ 13,207,259 $ 781,400 5.92 %
Depreciation and amortization expense 657,075 933,168 (276,093 ) (29.59 )%
Consulting and professional service fees 8,599,741 7,176,118 1,423,623 19.84 %
Advertising expense 1,034,952 1,656,099 (621,147 ) (37.51 )%
Taxes and dues 565,098 837,279 (272,181 ) (32.51 )%
Recruiting expense 448,480 386,624 61,856 16.00 %
Lease expense 1,279,758 1,199,327 80,431 6.71 %
Office, utility and other expenses 3,069,722 3,591,521 (521,799 ) (14.53 )%
Total $ 29,643,485 $ 28,987,395 $ 656,090 2.26 %
Operating expenses increased to $29,643,485 for the six months ended June 30, 2026 by $656,090, or 2.26%, from $28,987,395 for the same period in 2025. The increase was mainly due to the increase in consulting and professional service fees and salaries and welfare, partially offset by the decrease in advertising expense.
Consulting and professional service fees increased by $1,423,623, or 19.84%, to $8,599,741 for the six months ended June 30, 2026 from $7,176,118 for the same period in 2025, mainly due to $1.4 million transaction costs incurred by the Company in connection with the secondary public offering of common stock sold by the Company’s CEO, which was completed in April 2026.
Salaries and welfare increased by $781,400, or 5.92%, to $13,988,659 for the six months ended June 30, 2026 from $13,207,259 for the same period in 2025, mainly due to the inclusion of personnel costs attributable to Waqoo and Cell Pro, which were consolidated beginning in the current-year period, and higher social insurance premiums driven by an increase in headcount at a Japanese subsidiary.
Advertising expense decreased by $621,147, or 37.51%, to $1,034,952 for the six months ended June 30, 2026 from $1,656,099 for the same period in 2025, mainly due to higher promotional point redemptions in the prior-year period.
Income From Operations
Income from operations for the six months ended June 30, 2026 and 2025 were as follows:
For the Six Months Ended June 30, Variance
2026 2025 Amount %
SBC Core Segment $ 32,964,149 $ 38,756,266 $ (5,792,117 ) (14.94 )%
Waqoo Segment 3,756,172 — 3,756,172 NM
Intersegment Eliminations (39,756 ) — (39,756 ) NM
Total $ 36,680,565 $ 38,756,266 $ (2,075,701 ) (5.36 )%
Income from operations for the six months ended June 30, 2026 was $36,680,565 compared to $38,756,266 for the same period in 2025. The decrease in income from operations of $2,075,701, or 5.36%, was mainly due to the decrease in franchising revenue and procurement revenue, with relatively high gross margin, as a result of the factors described above, partially offset by the inclusion of income from operations from the Waqoo Segment.
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Other Income (Expenses)
Other income (expenses) for the six months ended June 30, 2026 and 2025, were as follows:
For the Six Months Ended June 30, Variance
2026 2025 Amount %
Interest income $ 129,889 $ 78,215 $ 51,674 66.07 %
Interest expense (243,435 ) (55,858 ) (187,577 ) 335.81 %
Foreign currency exchange gain (loss), net 1,893,937 (1,828,246 ) 3,722,183 (203.59 )%
Other income 628,620 296,731 331,889 111.85 %
Other expenses (678,279 ) (1,001,478 ) 323,199 (32.27 )%
Gain on redemption of life insurance policies — 8,746,138 (8,746,138 ) (100.00 )%
Total $ 1,730,732 $ 6,235,502 $ (4,504,770 ) (72.24 )%
Other income (expenses), net was $1,730,732 for the six months ended June 30, 2026 compared to $6,235,502 for the same period in 2025. The decrease in other income (expense) of $4,504,770, or 72.24%, was mainly due to a gain on redemption of life insurance policies of $8,746,138 in 2025, partially offset by foreign currency exchange gain resulting from the depreciation of the Japanese Yen.
Income Tax Expense
Income tax expense for the six months ended June 30, 2026 was $15,351,334 compared to $21,059,966 for the same period in 2025. The decrease in income tax expense of $5,708,632, or 27.11%, was mainly due to the absence of a significant tax expense recognized in the three months ended June 30, 2025, which was associated with a deemed contribution treated as a taxable gain under Japanese tax law.
The effective tax rate was 39.97% and 46.81% for the six months ended June 30, 2026 and 2025, respectively. The decrease of 6.84 percentage points was mainly due to the absence of the specific event that occurred in the same period in 2025; specifically, 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, was treated as a taxable gain under Japanese tax law and increased the effective tax rate for the six months ended June 30, 2025.
Net Income
As a result of the foregoing, we reported net income of $22,491,311 for the six months ended June 30, 2026, representing a decrease of $1,440,491, or 6.02%, from $23,931,802 for the six months ended June 30, 2025.
Net Income (Loss) Attributable to Non-controlling Interests
Net income attributable to non-controlling interests was $490,418 for the six months ended June 30, 2026, as compared to net loss attributable to non-controlling interests of $28,884 for the six months ended June 30, 2025.
Liquidity and Capital Resources
As of June 30, 2026, the Company had $184,311,213 in cash and cash equivalents compared to $163,773,838 as of December 31, 2025. In addition, the Company had $43,237,261 in accounts receivable as of June 30, 2026 compared to $29,899,751 as of December 31, 2025. 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, 2026, the Company’s working capital balance was $180,927,568. 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 consolidated 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.
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The Company evaluates its capital allocation practices with the objective of enhancing stockholder 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. Additionally, the Company continues to evaluate alternative methods for deployment of capital, including in the form of dividends to stockholders and repurchases of shares of common stock. On December 29, 2025, the Company’s board of directors authorized a share repurchase program of up to $20.0 million, pursuant to which the Company may repurchase shares of its common stock from time to time. The program terminates on December 31, 2026. The actual timing, manner and value of any such options will depend on several factors, including the market price of our stock, general market and economic conditions, our liquidity requirements, applicable legal requirements and other business considerations.
Cash Flows for the Six Months Ended June 30, 2026 and 2025
The following table provides a summary of our cash flows for the periods indicated.
For the Six Months Ended June 30, Variance
2026 2025 Amount %
Net cash provided by (used in) operating activities $ 31,741,248 $ (6,411,168 ) $ 38,152,416 (595.09 )%
Net cash provided by investing activities 37,206 15,397,998 (15,360,792 ) (99.76 )%
Net cash provided by (used in) financing activities (3,803,472 ) 6,901,719 (10,705,191 ) (155.11 )%
Effect of exchange rate changes (7,437,607 ) 11,808,241 (19,245,848 ) (162.99 )%
Net change in cash and cash equivalents 20,537,375 27,696,790 (7,159,415 ) (25.85 )%
Cash and cash equivalents as of the beginning of the period 163,773,838 125,044,092 38,729,746 30.97 %
Cash and cash equivalents as of the end of the period $ 184,311,213 $ 152,740,882 $ 31,570,331 20.67 %
Operating Activities
Net cash provided by operating activities was $31,741,248 for the six months ended June 30, 2026, mainly derived from net income of $22,491,311 for the period, reconciled by a non-cash lease expense of $2,861,022 and deferred income tax benefit of $4,545,948, and net changes in operating assets and liabilities, which mainly included an increase in accounts receivable - related parties of $14,570,601, an increase in accounts payable of $6,593,276, an increase in income tax payable of $11,194,897, a decrease in customer loans receivable of $5,357,608, a decrease in prepaid expenses and other current assets of $4,173,911 and a decrease in operating lease liabilities of $2,876,789.
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 in accounts payable to related parties of $2,455,865, a decrease in notes 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.
Investing Activities
During the six months ended June 30, 2026, net cash provided by investing activities of $37,206 mainly reflected the $1.0 million of net proceeds received from deconsolidation of VIE, $0.8 million of prepayments for property and equipment and $0.2 million of purchases of property and equipment.
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.
Financing Activities
During the six months ended June 30, 2026, net cash used in financing activities of $3,803,472 was mainly due to the repayments of bank and other borrowings of $3.7 million.
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.
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Recent Developments
Completion of Secondary Public Offering
In April 2026, the Company completed a secondary public offering of 3,565,000 shares of common stock, at a price of $3.25 per share, including 465,000 shares pursuant to the underwriters’ option to purchase additional shares. All of the shares were sold by the Company’s CEO (the “Seller”). The Company did not sell any shares or receive any proceeds from the offering, nor did it repurchase any shares from the Seller. In connection with the offering, the Company incurred transaction costs of $1.4 million in aggregate, which were included in selling, general and administrative expenses in the unaudited consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2026.
Revisions to Management Service Agreements and Fees with Certain Medical Corporations
Effective June 1, 2026, the Company entered into renewed business consignment agreements with Medical Corporation Association Furinkai and Medical Corporation Association Junikai. The renewed agreements restructured the fee framework to better reflect actual service volumes, clinic sizes and the addition of new service offerings, including AI implementation support and financial analysis. The revised pricing is intended to align with the expanded operational support provided to these medical corporations.
Separately, effective July 1, 2026, the Company revised the fees for call-center services provided to Medical Corporation Shobikai, Medical Corporation Kowakai, Medical Corporation Nasukai, Medical Corporation Aikeikai and Medical Corporation Jukeikai.
Collectively, these revisions are expected to increase the Company’s management service revenue by approximately $15 million on an annualized basis, based on the average exchange rate of 158.1 yen per U.S. dollar. The actual impact on future revenue may vary depending on service volumes, clinic performance, foreign exchange rates and other factors.
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 and office equipment.
As of June 30, 2026, the future maturity of lease liabilities is as follows:
Years ending December 31, Finance Lease Operating Lease
Remainder of 2026 $ 56,110 $ 2,781,068
2027 76,703 4,513,169
2028 43,782 2,805,266
2029 7,335 263,360
2030 — 53,061
Thereafter — 12,317
Total undiscounted lease payments 183,930 10,428,241
Less: imputed interest (7,223 ) (126,686 )
Total lease liabilities $ 176,707 $ 10,301,555
Bank and Other Borrowings
The Company borrowed funds from various banks and other financial institutions for working capital, securities investments, and mergers and acquisitions purposes.
As of June 30, 2026, future minimum borrowing payments are as follows:
Years ending December 31, Principal Repayment
Remainder of 2026 $ 8,257,452
2027 10,395,723
2028 7,189,992
2029 6,667,664
2030 5,243,985
Thereafter —
Total $ 37,754,816
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Off-Balance Sheet Arrangements (Off-Balance Sheet Transactions)
There are no material off-balance sheet arrangements as of June 30, 2026 and December 31, 2025.
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 the 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.
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 unless, as of an applicable annual determination date, (i) the market value of our common stock held by non-affiliates is $250 million or more and (ii) either our annual revenues are $100 million or more or the market value of our common stock held by non-affiliates is $700 million or more. 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.
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