SBC Medical Group Holdings Inc

Previous wording

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 on Form 10-Q (this “Quarterly Report”). The forward-looking statements contained herein are based on management’s judgment, assumptions made by management and information currently available to it. Actual results could differ materially from those discussed or implied in the forward-looking statements as a result of various factors, including those described elsewhere in this Quarterly Report and the Annual Report, particularly in “Part I, Item 1A. Risk Factors” of the Annual Report and the section entitled “Cautionary Note Regarding Forward-Looking Statements” herein.

Current wording

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.

Previous wording

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 VIE, following the Business Combination.

Current wording

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.

Previous wording

The Company’s subsidiaries have entered into franchisor-franchisee contracts and service contracts 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.

Current wording

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.

Previous wording

For the three months ended March 31, 2026 and 2025, we generated revenues of $43,060,562 and $47,328,701, respectively, we reported net income attributable to SBC Medical Group Holdings Incorporated of $11,308,071 and $21,502,446, respectively, and cash flows provided by operating activities of $9,231,938 and $1,928,621, respectively. As of March 31, 2026, we had retained earnings of $251,756,691.

Current wording

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.

Previous wording

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, Waqoo’s results of operations did not materially impact our consolidated results for the three months ended March 31, 2026.

Current wording

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.

Previous wording

The 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, 2026 and 2025, and presents information regarding amounts and percentage changes during those periods.

Current wording

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.

Previous wording

Japanese Yen (“JPY”) depreciated against the U.S. dollar during the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The average rate against the dollar was 156.9101 yen for the three months ended March 31, 2026 compared to 152.5417 yen for the same period in 2025. For the three months ended March 31, 2026 and 2025, we generated net revenues of $43,060,562 (JPY 6,757 million) and $47,328,701 (JPY 7,220 million), respectively, we reported net income of $11,329,020 (JPY 1,778 million) and $21,491,950 (JPY 3,252 million), respectively. Overall, the unfavorable impacts of the period-to-period foreign exchange rate changes on net revenues and net income were $1,233,130 and $324,425, respectively, for the three months ended March 31, 2026.

Current wording

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.

Previous wording

The main reasons for the variance of $4,268,139 in revenues, net per revenue stream are as follows:

Current wording

The main reasons for the variance of $5,829,221 in revenues, net per revenue stream are as follows:

Previous wording

The procurement revenue for the three months ended March 31, 2026 decreased to $12,344,366 by $1,988,417, or 13.87%, from $14,332,783 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.

Current wording

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.

Previous wording

The management services revenue for the three months ended March 31, 2026 increased to $11,929,791 by $3,201,688, or 36.68%, from $8,728,103 for the same period in 2025. This increase was mainly due to the lower point redemption, which was accounted as a reduction of loyalty program management revenue, resulting from the revision of program policy effective in June 2025, partially offset by the decrease resulting from 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.

Current wording

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.

Previous wording

The rental services revenue for the three months ended March 31, 2026 decreased to $3,435,922 by $2,204,592, or 39.08%, from $5,640,514 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.

Current wording

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.

Previous wording

As a result of the foregoing, we reported net income of $11,329,020 for the three months ended March 31, 2026, representing a decrease of $10,162,930 or 47.29% from $21,491,950 for the three months ended March 31, 2025.

Current wording

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.

Previous wording

Net income attributable to non-controlling interests was $20,949 for the three months ended March 31, 2026, as compared to net loss attributable to non-controlling interests of $10,496 for the three months ended March 31, 2025.

Current wording

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.

Previous wording

Franchising revenue for the three months ended March 31, 2026 decreased to $9,091,740 by $6,627,542, or 42.16%, from $15,719,282 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.

Current wording

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.

Previous wording

The other revenues for the three months ended March 31, 2026 increased to $6,258,743 by $3,350,724, or 115.22%, from $2,908,019 for the same period in 2025. This increase was mainly due to higher revenue related to 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 three-month reporting lag, as the current-year period reflected three months of their results compared with only one month in the prior-year period.

Current wording

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.

Previous wording

Cost of revenues for the three months ended March 31, 2026 was $12,713,828 compared to $9,595,617 for the same period in 2025. The increase was mainly due to higher costs related to leasehold improvement services, the inclusion of three 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 one month in the prior-year period, and higher personnel costs resulting from an increase in headcount to support newly established departments since April 2025, partially offset by lower costs associated with the decline in revenue from rentals of laser hair removal equipment to existing clinics.

Current wording

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.

Previous wording

Gross profit for the three months ended March 31, 2026 was $30,346,734 compared to $37,733,084 for the same period in 2025. The decrease in gross profit by $7,386,350 or 19.58% was mainly due to the decrease in franchising revenue with relatively high gross margin as a result of the factors described above.

Current wording

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.

Previous wording

Other income (expenses), net was $1,136,596 for the three months ended March 31, 2026 compared to $7,249,333 for the same period in 2025. The decrease in other income (expense) by $6,112,737 or 84.32% 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.

Current wording

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.

Previous wording

As of March 31, 2026, the Company had $167,305,095 in cash and cash equivalents compared to $163,773,838 as of December 31, 2025. In addition, the Company had $36,764,725 in accounts receivable as of March 31, 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.

Current wording

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.

Previous wording

As of March 31, 2026, the Company’s working capital balance was $176,212,567. 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.

Current wording

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.

Previous wording

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. 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.

Current wording

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.

Previous wording

Net cash provided by operating activities was $9,231,938 for the three months ended March 31, 2026, mainly derived from net income of $11,329,020 for the period, reconciled by a non-cash lease expense of $1,420,824 and deferred income tax benefit of $1,086,473, and net changes in operating assets and liabilities, which mainly included an increase in accounts receivable - related parties of $6,821,339, an increase in accounts payable of $2,484,437, a decrease in customer loans receivable of $3,270,347, and a decrease in operating lease liabilities of $1,424,716.

Current wording

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.

Previous wording

Net 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.

Current wording

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.

Previous wording

During the three months ended March 31, 2026, net cash used in investing activities of $528,025 was mainly the result of prepayments for property and equipment of $0.4 million and purchase of property and equipment of $0.1 million.

Current wording

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.

Previous wording

During the three months ended March 31, 2026, net cash used in financing activities of $1,842,414 was mainly due to the repayments of bank and other borrowings of $1.8 million.

Current wording

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.

Previous wording

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 approximately $1.4 million in transaction costs.

Current wording

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.

Previous wording

There are no off-balance sheet arrangements as of March 31, 2026 and December 31, 2025.

Current wording

There are no material off-balance sheet arrangements as of June 30, 2026 and December 31, 2025.

Previous wording

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

Current wording

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.