SBC Medical Group Holdings Inc

NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS

Business Overview

SBC Medical Group Holdings Incorporated was originally incorporated under the laws of the state of Delaware on March 11, 2022 as a special purpose acquisition corporation under the name Pono Capital Two, Inc. (“Pono”) for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

SBC Medical Group, Inc. (formerly known as SBC Medical Group Holdings Incorporated, “Legacy SBC”), through its consolidated subsidiaries and, prior to its deconsolidation in June 2026, its variable interest entity (“VIE”), is principally engaged in the medical industry and provides comprehensive management services to the medical corporations and their clinics, including but not limited to licensure of the use of the trademark and brand name of “Shonan Beauty Clinic”, sales of medical equipment, medical consumables procurement services, and management of customer loyalty program, etc.

Reverse Recapitalization

On September 17, 2024, Pono consummated the merger transaction pursuant to the agreement by and among Pono, Pono Two Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of Pono, and Legacy SBC (the “Merger Agreement”), whereby Merger Sub merged with and into Legacy SBC, the separate corporate existence of Merger Sub ceased and Legacy SBC survived the merger as a wholly owned subsidiary of Pono (the “Merger”). The Merger and the other transactions contemplated by the Merger Agreement are collectively referred to as the “Business Combination.” In connection with the closing of the Business Combination, Pono changed its name to “SBC Medical Group Holdings Incorporated” and Legacy SBC changed its name to “SBC Medical Group, Inc.” and the existing equity holders of Legacy SBC exchanged their equity interests of Legacy SBC for equity interests of Pono.

On September 17, 2024, in connection with the closing of the Business Combination, the Company received net cash of $11,707,417. The Company also assumed $416,799 in prepaid expenses and other current assets, $1,108 in accounts payable, $14,431 in income tax payable, $2,700,000 in convertible note payable, which was subsequently converted to 270,000 shares upon the closing of the Business Combination, $1,000,789 in accrued liabilities and other current liabilities, common stock of $508 and additional paid-in capital of $8,407,380.

The total net cash proceeds from the Business Combination of $11,707,417 were available to repay certain indebtedness, transaction costs and for general corporate purposes, which primarily consisted of investment banking, legal, accounting, and other professional fees as follows:

The Business Combination was accounted for as a reverse recapitalization under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). Legacy SBC was determined to be the accounting acquirer and Pono was treated as the acquired company for financial reporting purposes. Accordingly, the financial statements of the combined company represent a continuation of the financial statements of Legacy SBC.

Unless the context indicates otherwise, any references herein to the “Company”, “we”, “us” and “our” refer to 1) Legacy SBC and its consolidated subsidiaries and VIE, prior to the consummation of the Business Combination, and to 2) SBC Medical Group Holdings Incorporated (formerly Pono Capital Two, Inc.) and its consolidated subsidiaries and VIE, following the Business Combination. Reference herein to “Pono” refers to Pono Capital Two, Inc. prior to the consummation of the Business Combination.

Reorganization

In June 2020 and April 2022, SBC Inc., a company incorporated in Japan in June 2007, and Advice Innovation Co., Ltd., a company incorporated in Japan in December 2018, were merged with and into SBC Medical Group Co., Ltd. (“SBC Japan”), respectively, with SBC Japan being the surviving entity in such mergers. SBC Japan is a company incorporated in Japan in September 2017 and previously known as Aikawa Medical Management Co., Ltd.

In April 2023, SBC Japan acquired 100% equity interest of L’Ange Cosmetique Co., Ltd. (“L’Ange Sub”), a company incorporated in Japan in June 2003, and Shobikai Co., Ltd. (“Shobikai Sub”), a company incorporated in Japan in June 2014, through share exchange. As a result, L’Ange Sub and Shobikai Sub became wholly owned subsidiaries of SBC Japan.

NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS(cont.)

In August 2023, SBC Japan and L’Ange Sub disposed of their entire equity interest in Ai Inc. and Lange Inc., respectively, both incorporated in the Federated States of Micronesia in January 2022, for cash. As a result, Ai Inc. and Lange Inc. ceased to be subsidiaries of the Company, with the related investment in capital being treated as a deemed distribution and the disposal proceeds treated as a deemed contribution.

In September 2023, Legacy SBC acquired 100% equity interest of SBC Japan through share exchange with one share of its common stock. As a result, SBC Japan became a wholly owned subsidiary of Legacy SBC.

The above reorganization has been accounted for as a recapitalization among entities under common control since the same controlling shareholder controlled these entities before and after the reorganization. The consolidation of the Company has been accounted for at historical cost and prepared on the basis as if the transactions had become effective as of the beginning of the earliest period presented in the accompanying unaudited consolidated financial statements.

Corporate Structure

As of June 30, 2026, the Company’s major subsidiaries are as follows:

*In January 2025, the Company effected a merger in which SBC Japan and Shobikai Sub merged with and into 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. Following the merger, L’Ange Sub changed its name to SBC Medical Group Co., Ltd., which is herein referred to as “SBC Japan.” In January 2026, the Company effected a merger in which SBC Marketing Co., Ltd. merged with and into SBC Japan. As a result, the separate corporate existence of SBC Marketing Co., Ltd. ceased, with SBC Japan continuing as the surviving company.

**Subsidiaries of Aesthetic Healthcare Holdings Pte. Ltd. (“AHH”)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

The unaudited consolidated financial statements do not include all of the information and disclosure required by U.S. GAAP for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2025.

The unaudited consolidated financial statements include the financial statements of the Company, its subsidiaries and, for the periods prior to its deconsolidation, its consolidated VIE for which the Company was the primary beneficiary. The results of the subsidiaries and VIE are consolidated from the date on which the Company obtains control or becomes the primary beneficiary, and continue to be consolidated until the date that such control ceases or the VIE is deconsolidated. All significant transactions and balances among the Company, its subsidiaries, and the VIE (prior to its deconsolidation), have been eliminated upon consolidation.

Reporting Lag

The Company reports AHH and its subsidiaries, which were acquired in November 2024, and Waqoo, Inc. and its subsidiary, Cell Pro Japan Co., Ltd., which were acquired in December 2025, on a three-month calendar lag allowing for the timely preparation of financial statements.

The Company recognizes its portion of the earnings or losses for its equity method investment in OT Midco Holdings, LLC (“OT Midco”) on a three-month calendar lag to ensure consistency and timely filing of the Company’s financial statements. See Note 4 for further information with respect to the investment in OT Midco.

This three-month reporting lag is applied except for significant transactions or events that occur during the intervening period, if any.

Variable Interest Entities

In accordance with ASC Topic 810, “Consolidation”, the Company identifies its variable interests and analyzes to determine if the entity in which the Company has a variable interest is a VIE. Determining whether a variable interest is a VIE involves both quantitative and qualitative considerations. For those entities determined to be VIEs within the scope of the VIE model, a further quantitative and qualitative analysis is performed to determine if the Company is deemed the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant.

The Company would consolidate those entities in which it is determined to be the primary beneficiary. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and the relevant development, operating management and financial agreements.

The Company evaluates its relationship with its VIE on an ongoing basis to determine whether it continues to be the primary beneficiary of its consolidated VIE, or whether it has become the primary beneficiary of the VIE it does not consolidate.

Voting Model

If a legal entity fails to meet any of the three characteristics of a VIE, we then evaluate such entity under the voting model. Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting rights and that other equity holders do not have substantive participating rights.

Assessment of Medical Corporations in Japan

SBC Japan is designated as a medical service corporation (the “MSC”) to provide services to the Medical Corporations (the “MCs”) in Japan. To maintain and strengthen the business relationship, the Company has acquired equity interests in the following MCs throughout the years.

As non-profit organizations, MCs are required to comply with the medical-related laws and regulations of the Japanese Medical Care Act (the “Act”, “Medical Care Act”). In accordance with the Act, the highest authority of each MC is its general meeting of members (the “Members”), with each Member having one voting right. The Company, through the MSC, has no right to elect the Members, no decision-making ability and no right to receive dividends or any profit distributions, but has the right to receive distribution of the residual assets of the MCs.

Since the not-for-profit entities scope exception to the variable interest model is applicable to the MCs, the Company evaluates its business relationship, franchisor-franchisee agreements and/or services agreements with the MCs in Japan under the voting model. The Company has concluded that consolidation of the MCs is not appropriate for the periods presented as it does not have a majority voting interest in the Members of the MCs nor does it have a controlling financial interest in the MCs. The equity interests in the MCs held by the Company are recorded as long-term investments in MCs — related parties on the unaudited consolidated balance sheets. The transactions between the MCs and the Company are disclosed in Note 17 — Related Party Transactions.

(b) Foreign Currency

The Company maintains its books and records in its local currency, mainly Japanese YEN (“JPY” or “¥”), which is the functional currency, as it is the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited statements of operations.

The reporting currency of the Company is the U.S. dollar (“US$” or “$”), and the accompanying financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translations of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive loss within the unaudited statements of changes in stockholders’ equity.

Translation of amounts from local currency of the Company into US$1 has been made at the following exchange rates:

(c) Non-controlling Interests

Non-controlling interests in the unaudited consolidated balance sheets represent the portion of the equity in the subsidiaries not attributable, directly or indirectly, to the Company. The portion of the income or loss applicable to the non-controlling interests in subsidiaries is also separately reflected in the unaudited statements of operations.

(d) Use of Estimates

In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the unaudited consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, useful lives and impairment of long-lived assets, impairment of goodwill, impairment of long-term investments in MCs — related parties, valuation allowance of deferred tax assets, uncertain income tax positions, the recognition and measurement of impairment of investments in securities, allowance for credit losses, implicit interest rate of operating and finance leases, and liability associated with unredeemed loyalty points. Management bases its estimates on historical experience and other assumptions it believes to be reason able under the circumstances and evaluates these estimates on an on-going basis. Actual results could differ from those estimates.

(e) Reclassification

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings or financial position.

(f) Customer Loans Receivable

In February 2023, the Company started to provide loan services to certain customers of the related-party MCs (“End Customers”). Once a loan was granted to finance an End Customer’s purchase, the End Customer was required to repay the Company in monthly installments. The loans provided to the End Customers were unsecured, interest-bearing, and due in three months to five years, depending on the End Customers’ choice of the loan service term.

The Company records the customer loans receivables at gross loan receivables less unamortized costs of issuance fees or discounts, which are amortized over the life of the loan to interest income. The Company generated interest income of$210,735 and$305,227 for the three months ended June 30, 2026 and 2025, respectively, and generated interest income of$459,858 and$588,643 for the six months ended June 30, 2026 and 2025, respectively, from the loan services, which were included in revenues.

Management periodically evaluates individual End Customers’ financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Customer loans receivable is charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. During the three months ended June 30, 2026 and 2025, the Company recorded a reversal of allowance for doubtful accounts of$13,400 and provision for doubtful accounts of$258,650, respectively, for customer loans receivable. During the six months ended June 30, 2026 and 2025, the Company recorded a reversal of allowance for doubtful accounts of$44,753 and provision for doubtful accounts of$353,752, respectively, for customer loans receivable.

When a loan was granted to an End Customer, the Company paid the transaction amount directly in cash to the MC on behalf of the End Customer in the month following the purchase.

The loan services were suspended in November 2025, no new loans have been originated since then, and all related payables to MCs were settled by December 31, 2025.

(g) Intangible Assets, Net

Intangible assets with an indefinite life are not amortized and are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired.

Intangible assets with finite lives are initially recorded at cost and amortized on a straight-line basis over the estimated economic useful lives of the respective assets. Acquired intangible assets from business combinations and asset acquisitions are recognized and measured at fair value at the time of acquisition. Those assets represent assets with finite lives are further amortized on a straight-line basis over the estimated useful lives of the respective assets.

The estimated useful lives of intangible assets are as follows:

(h) Goodwill, Net

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired in the business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test.

The Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit.

When performing the annual impairment test, the Company has the option of performing a qualitative or quantitative assessment to determine if an impairment has occurred. If a qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would be required to perform a quantitative impairment analysis for goodwill. The quantitative analysis requires a comparison of the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The fair value is generally determined using the income approach with the discounted cash flow valuation method, which requires management to make significant estimates and assumptions related to forecasted revenues and cash flows and the discount rates.

(i) Impairment of Long-lived Assets Other Than Goodwill

Long-lived assets with finite lives, primarily property and equipment, intangible assets, operating lease right-of-use assets and finance lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.

(j) Investments in Securities

Available-for-sale debt securities

The Company’s short-term investments consist of debt securities classified as available-for-sale, which are measured at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) and realized gains and losses included in other income (expenses).

Investments in equity securities with readily determinable fair values

The Company holds long-term investments in equity securities of publicly listed companies, for which the Company does not have significant influence. Investments in equity securities with readily determinable fair values are measured at fair value and any changes in fair value are recognized in other income (expenses).

Investments in privately held companies and organizations that do not report Net Asset Value (the “NAV”) per share

The Company’s long-term investments in privately held entities that do not report NAV per share are accounted for using a measurement alternative, under which these investments are measured at cost, adjusted for observable price changes and impairments, with changes recognized in other income (expenses).

The Company recognizes both realized and unrealized gains and losses in its unaudited consolidated statements of operations and comprehensive income, classified with other income (expenses). Unrealized gains and losses represent observable price changes for investments in privately held entities that do not report NAV per share. Realized gains and losses represent the difference between proceeds received upon disposition of investments and their historical or adjusted cost. Impairments are realized losses, which result in an adjusted cost, and represent charges to reduce the carrying values of investments in privately held entities that do not report NAV per share, if impairments are deemed other than temporary, to their estimated fair values.

(k) Equity Method Investments

Investments in LLC

The Company uses the equity method to account for investments in limited liability companies (“LLC”) that maintain a specific ownership account for each investor, in which we do not have a controlling financial interest but have the ability to influence the operating and financial policies of the investees.

Under the equity method of accounting, the Company initially recognizes the investments at cost and subsequently adjusts the carrying amount of the investments for its share of earnings or losses reported by the investees, distributions received, and other-than-temporary impairments.

(l) Long-term Investments in MCs — Related Parties

Long-term investments in MCs — related parties represent the payments to obtain equity interests of the MCs in Japan, made by the Company through SBC Japan, a company designated as an MSC in Japan. In accordance with the Act and articles of incorporation of the MCs, which are non-profit organizations, the equity interest holders of MCs are prohibited from receiving any profit distribution from MCs but have the right to receive distribution of the residual assets of the MCs in proportion to the amount of their contribution. As of the balance sheet dates, the investments represent probable future economic benefit to be realized at the time of dissolution of MCs or the equity interests being sold.

The investments in MCs — related parties are accounted for using a measurement alternative, under which these investments are measured at cost, less impairment, and adjusted for observable price changes. The Company reviews the investments in MCs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The payments made for such investments are classified as investing activities in the unaudited consolidated statements of cash flows. The MCs are considered related parties as the relatives of the Chief Executive Officer (“CEO”) of the Company being the Members of the MCs. Also see Note 2(a) for further details.

(m) Leases

The Company determines if an arrangement is or contains a lease at inception or modification of the arrangement. An arrangement is or contains a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period in exchange for consideration. Control over the use of the identified assets means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

The Company classifies its leases as either finance leases or operating leases if it is the lessee, or sales-type, direct financing, or operating leases if it is the lessor. The following criteria are used to determine if a lease is a finance lease (as a lessee) or sales-type or direct financing lease (as a lessor):

(i)

ownership is transferred from lessor to lessee by the end of the lease term;

(ii)

an option to purchase is reasonably certain to be exercised;

(iii)

the lease term is for the major part of the underlying asset’s remaining economic life;

(iv)

the present value of lease payments equals or exceeds substantially all of the fair value of the underlying assets; or

(v)

the underlying asset is specialized and is expected to have no alternative use at the end of the lease term.

If any of the above criteria is met, the Company accounts for the lease as a finance, a sales-type, or a direct financing lease. If none of the criteria is met, the Company accounts for the lease as an operating lease.

Lessee accounting

The Company recognizes right-of-use assets and lease liabilities for all leases other than those with a term of twelve months or less as the Company has elected to apply the short-term lease recognition exemption. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term. Lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are classified and recognized at the commencement date of a lease. Lease liabilities are measured based on the present value of fixed lease payments over the lease term. Right-of-use assets consist of (i) initial measurement of the lease liability; (ii) lease payments made to the lessor at or before the commencement date less any lease incentives received; and (iii) initial direct costs incurred by the Company.

As the rates implicit on the Company’s leases for which it is the lessee are not readily determinable, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. When determining the incremental borrowing rate, the Company assesses multiple variables such as lease term, collateral, economic conditions, and its creditworthiness.

From time to time, we may enter into sublease agreements with third parties. Our subleases generally do not relieve us of our primary obligations under the corresponding head lease. As a result, we account for the head lease based on the original assessment at lease inception. We determine if the sublease arrangement is either a sales-type, direct financing, or operating lease at inception of the sublease. If the total remaining lease cost on the head lease for the term of the sublease is greater than the anticipated sublease income, the right-of-use asset is assessed for impairment. Our subleases are generally operating leases and we recognize sublease income on a straight-line basis over the sublease term.

Lessor accounting — operating leases

The Company accounts for the revenue from its lease contracts by utilizing the single component accounting policy. This policy requires the Company to account for, by class of underlying asset, the lease component and nonlease component(s) associated with each lease as a single component if two criteria are met.

(i)

the timing and pattern of transfer of the lease component and the nonlease component(s) are the same; and

(ii)

the lease component would be classified as an operating lease if it were accounted for separately.

Lease components consist primarily of fixed rental payments, which represent scheduled rental amounts due under our leases. Nonlease components consist primarily of tenant recoveries representing reimbursements of rental operating expenses, including recoveries for utilities, repairs and maintenance and common area expenses.

If the lease component is the predominant component, we account for all revenues under such lease as a single component in accordance with the lease accounting standard. Conversely, if the nonlease component is the predominant component, all revenues under such lease are accounted for in accordance with the revenue recognition accounting standard. Our operating leases qualify for the single component accounting, and the lease component in each of our leases is predominant. Therefore, we account for all revenues from our operating leases under the lease accounting standard and classify these revenues as rental income.

The Company commences recognition of rental income related to the operating leases at the date the property is ready for its intended use by the tenant and the tenant takes possession or controls the physical use of the leased asset. Income from rentals related to fixed rental payments under operating leases is recognized on a straight-line basis over the respective operating lease terms. Any amounts received that will be recognized as revenue in future periods are classified as advances from customers in the Company’s unaudited consolidated balance sheets.

Lessor accounting — sales-type leases

The Company purchases medical equipment from vendors and leases them to its customers, who are required to pay installments throughout the term of the leases. The lease agreements include fixed lease payments and do not contain residual value guarantees or variable lease payments. The lease terms are based on the non-cancellable term of the lease and the buyer may have options to terminate the lease in advance when certain conditions are met. The customers obtain control of the medical equipment when they physically possess the equipment.

The Company recognizes sales from sales-type leases equal to the present value of the minimum lease payments discounted using the implicit interest rate in the lease and cost of sales equal to the carrying amount of the asset being leased and any initial direct costs incurred, less the present value of the unguaranteed residual. Interest income from the leases is recognized over the lease terms and included in revenues, net.

The Company excludes from the measurement of its lease revenues any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer.

(n) Revenue Recognition

The Company recognizes revenue from franchising services, procurement services, management services, Waqoo Segment revenues and other services or product sales under ASC Topic 606, “Revenue from Contracts with Customers”.

To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue represents the invoiced value, net of consumption tax and applicable local government levies, if any. The consumption tax on sales is calculated at 10% of gross sales. The Company does not have significant remaining unfulfilled performance obligations or contract balances.

The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction. The determination of whether the Company acts as a principal or an agent in a transaction is based on the evaluation of whether (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.

The Company recognizes revenue from rental services under ASC Topic 842, “Leases”.

The Company currently generates its revenue from the following main sources:

The Company generates franchising revenue by licensing its intellectual properties, including but not limited to the Company’s brand name (“Shonan Beauty Clinic”), trade name, patents, and trademarks, and by providing consulting services to enhance the value of the “Shonan Beauty Clinic” brand, as a franchisor pursuant to franchise agreements with the medical corporations (the “MCs”) in Japan. Prior to April 2025, revenue was based on a fixed amount to each MC and a fixed amount to each clinic of the MCs; starting from April 2025, the clinic-level monthly fee is determined based on the facility type, operational tenure, and operational performance of each clinic of the MCs, rather than a uniform flat fee for all clinics. The revenue is recognized over time as services are rendered.

The Company generates procurement services revenue by purchasing primarily advertising services and medical materials from qualified vendors on behalf of MCs to maintain brand quality consistency. Procurement services revenue is recognized at the point in time upon the delivery of products or over time as services are performed. Occasionally, the Company receives vendor discounts on certain large purchases. It recognizes revenue based on actual payments. Prior to June 2025, any over-collection resulting from such discounts was returned to MCs; since June 2025, it is retained for future transactions.

The Company provides loyalty program management services, labor supporting services, function supporting services, and management consulting services to MCs.

Loyalty program management services

The Company awards loyalty points on behalf of MCs to MCs’ customers, who earn loyalty points from each qualified purchase made at the loyalty program participating clinics of MCs, in exchange for a handling fee. The revenue is based on a percentage of the related payment amount made by MCs’ customers and is recognized when the loyalty points are awarded.

At the time loyalty points are awarded, an MC pays the Company cash in an amount equivalent to the awarded loyalty points, which is recorded as advances from customers. When an MC’s customers redeem the loyalty points, the Company returns the cash back to the MC in an amount equivalent to the redeemed loyalty points. The awarded loyalty points expire if an MC’s customer does not make any additional qualified purchase at a participating clinic within a year. The Company accumulates and tracks the points on behalf of MCs until the loyalty points expire at which time the Company recognizes an amount equivalent to the expired loyalty points as revenue.

The Company also awards certain points to MCs’ customers on behalf of MCs for free in order to increase the volume of MC’s sales, from which the Company earns other types of revenues, such as procurement revenue. When an MC’s customers redeem such points, the Company reimburses the MC in an amount equivalent to the used free points. The redemption of such points is recorded as a reduction of the revenue recognized.

The Company is an agent in the management of loyalty programs, and as a result, revenues are recognized net of the cost of redemptions.

Labor supporting services

The Company generates revenue by dispatching staff to MCs to provide a range of services, primarily including IT and administrative services. The Company recognizes the revenue over time as services are rendered. Starting from April 2025, the monthly fee for each clinic is determined using the same key criteria described above under “Franchising Revenue.”

Function supporting services

The revenue is derived from providing functional supporting services to MCs, such as accounting and human resources services. The Company recognizes revenue based on a monthly service fee over time as services are rendered. Starting from April 2025, the monthly fee for each clinic is determined using the same key criteria described above under “Franchising Revenue.”

Management consulting services

The Company generates revenue by providing consulting services to MCs in relation to business operations of cosmetic dermatology. The Company recognizes the revenue over time as services are rendered.

The Company generates rental income from operating leases and sales-type leases, which is accounted for under ASC Topic 842. Operating lease revenue is generally recognized on a straight-line basis over the terms of the lease agreements and sales-type lease revenue is generally recognized on the lease commitment date. Also see Note 2(m).

Other Revenues

The Company generates other miscellaneous revenues such as beauty and health services revenue, leasehold improvement services revenue, real estate brokerage services revenue, interest income, etc. These revenues are recognized when the Company satisfies performance obligations.

Waqoo Segment Revenues

The Waqoo segment consists of Waqoo, Inc. and its subsidiary, through which the Company generates revenues primarily from medical support services and direct-to-consumer product sales.

Medical support services revenue, consisting primarily of contract processing services for blood-derived materials used in regenerative medicine, raw material sales, and other services, is generally recognized at a point in time when the processing is completed, typically within one month, or when the related performance obligation is satisfied.

Direct-to-consumer product sales revenue, consisting of cosmetics and other beauty products sold directly to consumers through e-commerce channels, is generally recognized at a point in time when control of the product is transferred to the customer.

(o) Advertising Expenses

Advertising expenses consist primarily of costs of promotion and marketing for the Company’s image and services and are included in selling, general and administrative expenses. The Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance with ASC 720-35, “Advertising Costs”. The advertising expenses were$467,606 and$973,933 for the three months ended June 30, 2026 and 2025, respectively, and$1,034,952 and$1,656,099 for the six months ended June 30, 2026 and 2025, respectively.

(p) Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable, finance lease receivables and customer loans receivable. The Company places its cash and cash equivalents with financial institutions. The Company does not require collateral or other security to support financial instruments subject to credit risk. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.

For the six months ended June 30, 2026, customer A, B and C represented 25%,21% and 19% of the Company’s total revenues, respectively. For the six months ended June 30, 2025, customer A, B and C represented 25%,25% and 22% of the Company’s total revenues, respectively.

As of June 30, 2026, customer A, B and C accounted for 24%,26% and 26% of the Company’s total outstanding accounts receivable, respectively. As of December 31, 2025, customer A, B and C accounted for 22%,24% and 23% of the Company’s total outstanding accounts receivable, respectively.

For the six months ended June 30, 2026 and 2025, no vendor represented more than 10% of the Company’s total purchases.

As of June 30, 2026, vendor C represented 13% of the Company’s total outstanding accounts payable. As of December 31, 2025, vendor A, B and C represented 14%,22% and 14% of the Company’s total outstanding accounts payable, respectively.

(q) Segment Reporting

ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions, assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

Beginning in the second quarter of 2026, management has determined that the Company’s operations constitute two reportable segments: SBC core segment and Waqoo segment.

(r) Related Parties and Transactions

The Company identifies related parties and accounts for and discloses related-party transactions in accordance with ASC Topic 850, “Related Party Disclosures,” and other relevant ASC standards.

Parties, which can be entities or individuals, are considered to be related if they have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence.

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

(s) Fair Value Measurements

The Company performs fair value measurements in accordance with ASC Topic 820. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:

•

Level 1: quoted prices in active markets for identical assets or liabilities;

•

Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or

•

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

(s) Fair Value Measurements(cont.)

As of June 30, 2026 and December 31, 2025, the carrying values of current assets and current liabilities approximated their fair values reported in the unaudited consolidated balance sheets due to the short-term maturities of these instruments. Debt that bears variable interest rates indexed to the prime rate also approximates fair value as it reprices when market interest rates change.

Assets measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025 are summarized below.

(t) Stock-Based Compensation

The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation — Stock Compensation”, under which the Company determines whether stock-based compensation awards should be classified and accounted for as an equity award. There were no liability awards granted during any of the periods stated herein. For all grants of stock-based compensation classified as equity awards, the cost of services received from employees and non-employees in exchange for awards is recognized in the unaudited consolidated statements of operations and comprehensive income based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures and cancellations as they occur.

(u) Recent Accounting Pronouncements

In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments in ASU 2025-05 provide entities with a practical expedient to simplify the estimation of expected credit losses on current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606 by allowing the assumption that current conditions as of the balance sheet date will not change during the remaining life of the asset. ASU 2025-05 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those fiscal years, with early adoption permitted. The Company adopted this standard on January 1, 2026. The adoption of this standard and the practical expedient did not have a material impact on its unaudited consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disaggregation of certain costs in a separate note to the financial statements, such as the amounts of employee compensation, depreciation and intangible asset amortization, included in each relevant expense caption in annual and interim consolidated financial statements. In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which clarified the effective date of ASU 2024-03. ASU 2024-03, as clarified by ASU 2025-01, is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027, on a retrospective or prospective basis, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which provides clarifications intended to improve the consistency and usability of interim disclosure requirements, including a comprehensive listing of required interim disclosures and a new disclosure principle for reporting material events occurring after the most recent annual period. ASU 2025-11 is effective for public business entities for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.

NOTE 3 — VARIABLE INTEREST ENTITY

A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE.

The Company followed ASC Topic 810, “Consolidation”, utilizing a qualitative approach, and determined that it was the primary beneficiary of its VIE, Aikawa Medical Management, Inc. (“AMM”), and consolidated the results of operations, financial position, and cash flows of AMM until the date of its deconsolidation on June 10, 2026.

The amounts and balances of AMM included in the Company’s unaudited consolidated financial statements as of December 31, 2025 and for the three and six months ended June 30, 2026 and 2025 are presented in the tables below.

NOTE 3 — VARIABLE INTEREST ENTITY(cont.)

Deconsolidation of AMM

On June 10, 2026, pursuant to a subrogation agreement, the Company’s CEO, who is also the controlling shareholder of the Company and the sole shareholder of AMM, repaid the net amount of $5,195,128 owed by AMM to the Company’s subsidiary on AMM’s behalf, thereby settling the intercompany balances. Following the deconsolidation, the Company has no continuing involvement with, explicit or implicit obligations to provide financial support to, or exposure to loss related to AMM. AMM remains wholly owned by the Company’s CEO and controlling shareholder and, accordingly, is considered a related party of the Company.

At the deconsolidation date, AMM had net assets of $1,546,703. The $3,648,425 excess of the repayment amount over AMM’s net assets was recorded as a deemed contribution from the controlling shareholder in the Company’s unaudited consolidated statements of changes in stockholders’ equity.

NOTE 4 — EQUITY METHOD INVESTMENTS

On December 29, 2025, the Company acquired 10,732,089 common units of OT Midco Holdings, LLC (“OT Midco”), representing approximately 18.2% of the voting interest in OT Midco, for a total consideration of $20.3 million, including transaction costs of approximately $0.3 million. The CEO of the Company was designated by the Company as a director of the investee.

OT Midco is an intermediate holding company of Orange Twist, LLC and its subsidiaries (collectively, “OrangeTwist”). Through this investment, the Company holds an indirect minority interest in OrangeTwist.

The Company recognizes its portion of the earnings or losses for its equity method investment in OT Midco on a three-month lag. For the three and six months ended June 30, 2026, the Company recorded equity in losses of equity method investee, net of tax of $0.6 million. As of June 30, 2026 and December 31,2025, the carrying value of the investment in OT Midco was $19.7 million and $20.3 million, respectively.

NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of June 30, 2026 and December 31, 2025, prepaid expenses and other current assets consist of the following:

• Represent reimbursement receivables from a business partner and other miscellaneous receivables.

NOTE 6 — FINANCE LEASE RECEIVABLES

As of June 30, 2026 and December 31, 2025, finance lease receivables consist of the following:

As of June 30, 2026, maturities of the Company’s gross finance lease receivables are as follows:

NOTE 7 — PROPERTY AND EQUIPMENT, NET

As of June 30, 2026 and December 31, 2025, property and equipment, net consist of the following:

Depreciation expense was$441,392 and$564,158 for thethree months ended June 30, 2026 and 2025, respectively, and$829,973 and$1,169,040 for the six months ended June 30, 2026 and 2025, respectively.

The Company recognized a loss on disposal of property and equipment of $9,397 and $1,571 for the three months ended June 30, 2026 and 2025, respectively, and a loss and a gain on disposal of property and equipment of $9,397 and $10,804, respectively, for the six months ended June 30, 2026 and 2025.

NOTE 8 — INTANGIBLE ASSETS, NET

As of June 30, 2026 and December 31, 2025, intangible assets, net consist of the following:

Amortization expense was$662,637 and$41,073 for the three months ended June 30, 2026 and 2025, respectively, and$912,638 and$54,445 for the six months ended June 30, 2026 and 2025, respectively.

Estimated future amortization expense related to intangible assets as of June 30, 2026 is as follows:

NOTE 9 — LONG-TERM INVESTMENTS, NET

As of June 30, 2026 and December 31, 2025, long-term investments, net consist of the following:

The Company recognized an unrealized gain on long-term investment in a public entity with readily determinable fair value of $115,206 and an unrealized loss of$63,320 for the three months ended June 30, 2026 and 2025, respectively, and an unrealized gain of $34,905 and an unrealized loss of$43,955 for thesix months ended June 30, 2026 and 2025, respectively.

The Company recognized an unrealized loss of$180,622 and$340,568 on its long-term investment in Waqoo, Inc. (“Waqoo”), a public entity with readily determinable fair value, for the three months and six months ended June 30, 2025, respectively. Prior to the Company’s acquisition of Waqoo on December 19, 2025, Waqoo was a related party because the Company’s CEO was its principal shareholder.

NOTE 10 — OTHER ASSETS

As of June 30, 2026 and December 31, 2025, other assets consist of the following:

NOTE 11 — ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES

As of June 30, 2026 and December 31, 2025, accrued liabilities and other current liabilities consist of the following:

NOTE 12 — BANK AND OTHER BORROWINGS

As of June 30, 2026 and December 31, 2025, the Company’s borrowings from banks and other financial institutions consist of the following:

*Pertained to information for loans outstanding as of June 30, 2026.

The Company borrowed funds from various banks and financial institutions for working capital, securities investments, and mergers and acquisitions (“M&A”) purposes.

Interest expense related to the borrowings presented above was$126,108 and$46,674 for the three months ended June 30, 2026 and 2025, respectively, and$237,968 and$50,635 for the six months ended June 30, 2026 and 2025, respectively.

NOTE 12 — BANK AND OTHER BORROWINGS(cont.)

As of June 30, 2026 and December 31, 2025, the Company had borrowings under revolving lines of credit as follows:

*These revolving lines of credit automatically renew annually unless canceled in writing.

**Borrowings typically have three-month to one-year terms.

The guarantee information of the Company’s outstanding loans as of June 30, 2026 and December 31, 2025 consists of the following:

As of June 30, 2026, future minimum payments for bank and other borrowings are as follows:

NOTE 13 — LEASES — AS A LESSEE

The Company has entered into operating leases for offices and sublease purposes, with terms ranging from two to seven years, and finance leases for certain medical and office equipment, with terms of four to five years. The estimated effect of lease renewal and termination options, as applicable, that are reasonably certain to be exercised in the determination of the lease term and initial measurement of right-of-use assets and lease liabilities was included in the unaudited consolidated financial statements.

During the six months ended June 30, 2026 and 2025, certain operating leases were guaranteed by related parties of the Company.

Operating lease expenses for lease payments are recognized on a straight-line basis over the lease term. Finance lease costs include amortization, which is recognized on a straight-line basis over the expected life of the leased assets, and interest expenses, which are recognized following an effective interest rate method. Leases with an initial term of twelve months or less are not recorded in the unaudited consolidated balance sheets.

The components of lease costs are as follows:

NOTE 13 — LEASES — AS A LESSEE(cont.)

The following table presents supplemental information related to the Company’s leases:

As of June 30, 2026, the future maturity of operating and finance lease liabilities is as follows:

NOTE 14 — INCOME TAXES

United States

SBC Medical Group Holdings Incorporated, SBC Medical Group, Inc., SBC Healthcare Inc., SBC Irvine, LLC, and Aikawa Medical Management, Inc. are incorporated in the United States and subject to federal income tax rate at 21% and California state income tax rate at 6.98%.

On July 4, 2025, President Trump signed into law the legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA includes various provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The impacts of OBBBA were reflected in our results for the six months ended June 30, 2026, and there was no material impact on our unaudited consolidated financial statements.

NOTE 14 — INCOME TAXES(cont.)

Japan

The Company conducts its major businesses in Japan and is subject to tax in this jurisdiction. During the six months ended June 30, 2026 and 2025, substantially all the taxable income of the Company was generated in Japan. As a result of its business activities, the Company files tax returns that are subject to examination by the local tax authority. Income taxes in Japan applicable to the Company are imposed by the national, prefectural, and municipal governments, and in the aggregate resulted in an effective statutory rate of approximately 34.69% for the six months ended June 30, 2026 and 2025.

Vietnam

Shoubikai Medical Vietnam Co., Ltd. is incorporated in Vietnam and subject to income tax rate at 20% statutory tax rate with respect to the assessable income generated from Vietnam.

Singapore

Aesthetic Healthcare Holdings Pte. Ltd. and its subsidiaries, and SBC MEDICAL APAC PTE. LTD. are incorporated in Singapore and subject to income tax rate at 17% statutory tax rate with respect to the assessable profits generated from Singapore.

For thethree and six months ended June 30, 2026 and 2025, the Company’s income tax expenses are as follows:

The effective tax rate was 40.01% and 81.98% for the three months ended June 30, 2026 and 2025, respectively, and 39.97% and 46.81% for the six months ended June 30, 2026 and 2025, respectively.

NOTE 15 — SHAREHOLDERS’ EQUITY

The Company is authorized to issue 400,000,000 shares of common stock, par value of $0.0001 per share (“Common Stock”), and 20,000,000 shares of undesignated preferred stock, par value of $0.0001 per share.

As of June 30, 2026 and December 31, 2025, the Company had 103,881,251 shares issued and 102,576,943 shares outstanding on each date, withno preferred stock issued or outstanding.

Warrants

The following table summarizes the stock option/warrant activities and related information for thesix months ended June 30, 2026 and 2025:

NOTE 15 — SHAREHOLDERS’ EQUITY(cont.)

Each warrant entitles the registered holder to purchase one share of common stock at $11.50 per share.

Waqoo Equity Transactions

In December 2025, the Company acquired Waqoo, which had outstanding stock acquisition rights (“SARs”) previously granted to Waqoo’s directors and employees (collectively the “Holders”). At the acquisition date, the aggregate intrinsic value of these SARs was approximately $210,000.

During the three months ended June 30, 2026, certain SARs vested, and the Company recognized stock-based compensation expense of $7,854. During the same period, certain Holders exercised SARs for an aggregate exercise price of $31,866, resulting in a decrease in the Company’s ownership interest in Waqoo from 54.30% to 54.14% as of June 30, 2026. The decrease in ownership was recorded as an equity transaction, with the difference between the exercise price received and the carrying amount of the non-controlling interests recognized as an adjustment to additional paid-in capital.

NOTE 16 — DISAGGREGATION OF REVENUES

Revenues generated from different revenue streams consist of the following:

During the six months ended June 30, 2026 and 2025, the Company recognized revenue of$1,413,371 and$843,755 from the opening balance of advances from customers, respectively; and recognized revenue of$2,036,931 andnil from the opening balance of advances from customers — related parties, respectively.

As of June 30, 2026 and December 31, 2025, and for the six months ended June 30, 2026 and 2025, substantially all of our long-lived assets and revenues generated were attributed to the Company’s operations in Japan. The remaining long-lived assets and revenues were primarily attributable to, or located in, Singapore.

NOTE 17 — RELATED PARTY TRANSACTIONS

The related parties that had material transactions for the six months ended June 30, 2026 and 2025 consist of the following:

During thethree and six months ended June 30, 2026 and 2025, the transactions with related parties are as follows:

As of June 30, 2026 and December 31, 2025, the balances with related parties are as follows:

In December 2025, the Company purchased unsecured convertible bonds issued by MEDIROM with a principal amount of JPY 50,000,000, which are recorded as short-term investments - related parties. In June 2026, MEDIROM exercised its option to extend the maturity date of these bonds from June 30, 2026 to December 25, 2026, in accordance with the original terms. Consequently, the period for exercising the conversion rights was also extended to December 7, 2026.

The balances of due to and due from related parties represent outstanding loans from and to related parties, respectively, as of June 30, 2026 and December 31, 2025. These loans are unsecured, interest-free and due on demand.

The Company paid officer compensation of approximately JPY20 million per month to Yoshiko Aikawa, the mother of the Company’s CEO, which was recorded in selling, general and administrative expenses. Such compensation amounted to $376,414 and $414,898 for thethree months ended June 30, 2026 and 2025, respectively, and $758,799 and $808,233 for thesix months ended June 30, 2026 and 2025, respectively. Ms. Aikawa served as the Representative Director of the Company’s principal operating subsidiary, SBC Medical Group Co., Ltd. (SBC Japan), until March 25, 2026. On that date, she resigned from her position as Representative Director and continues to serve as a director of the subsidiary.

Also see Note 2(a), 3, 9, 12, 13, 16 and 19 for more transactions with related parties.

NOTE 18 — SEGMENT REPORTING

The Company’s chief operating decision maker (“CODM”), its Chief Executive Officer, reviews financial information to make operating decisions, assess performance and allocate resources by segment. Beginning in the second quarter of 2026, following the inclusion of Waqoo’s results of operations, the Company reports its operations intwo reportable segments: SBC Core Segment and Waqoo Segment. Prior to this change, the Company viewed its operations and managed its business as a single reportable segment. The SBC Core Segment primarily derives revenues from providing comprehensive management services to MCs and their clinics. The Waqoo Segment comprises Waqoo and its subsidiary, Cell Pro Japan Co., Ltd., and primarily derives revenues from medical support services and direct-to-consumer product sales.

The accounting policies for the reportable segments are the same as those described in Note 2. The CODM monitors segment actual results against budget and updated forecasts throughout the year. These results are used to assess segment performance. Intersegment transactions are generally accounted for on a cost-plus basis and are eliminated in consolidation, and therefore do not affect consolidated results.

The significant segment expenses regularly reviewed by the CODM and included in the measure of segment income from operations are cost of revenues and selling, general and administrative expenses. Segment asset information is not regularly reviewed by the CODM.

NOTE 18 — SEGMENT REPORTING(cont.)

The revenues and operating results by the Company’s reportable segments were as follows:

*Other income (expe nses), net consists of interest income, interest expense, net foreign currency exchange gain (loss), other income, other expenses, and gain on redemption of life insurance policies, as applicable.

NOTE 19 — COMMITMENTS AND CONTINGENCIES

Guarantees

As of June 30, 2026 and December 31, 2025, a subsidiary of the Company provided a guarantee on the debt of its CEO in the amounts of$203,512 and$228,210, respectively. As of June 30, 2026 and December 31, 2025, the Company did not record a liability in the unaudited consolidated balance sheets for the guarantee because, based on management’s assessment, it was not probable that the Company would be required to make payments under the guarantee.

Investment Commitment (OT Midco)

In addition to the $20 million investment in OT Midco discussed in Note 4, the Company has committed to make an additional $5 million investment in cash, payable in December 2026 or such other month as may be mutually agreed upon by the Company and the investee. The Company will recognize the additional investment when the additional cash investment is made.

NOTE 19 — COMMITMENTS AND CONTINGENCIES (cont.)

Litigation

From time to time, the Company is involved in legal proceedings, claims and other matters arising in the ordinary course of business. The Company assesses the likelihood of an adverse outcome and, where appropriate, establishes accruals for loss contingencies in accordance with applicable accounting guidance. If a loss is reasonably possible, the Company discloses the nature of the contingency and an estimate of the possible loss or range of loss, or states that such an estimate cannot be made.

On February 11, 2026, a purported stockholder class action complaint was filed against the Company and its directors in the Court of Chancery of the State of Delaware, alleging violations under Delaware General Corporation Law Section 141(k) and Delaware common law, due to the Company’s certificate of incorporation improperly restricting the removal of directors to “only for cause.” The complaint seeks an unspecified amount of declaratory and injunctive relief, class certification, and an award of attorneys’ fees and costs, among other relief as the court may deem just and proper.

At the Company’s 2026 annual meeting of stockholders held on July 8, 2026, the stockholders approved amendments to the Company’s certificate of incorporation, including an amendment to remove the provision stating that directors may be removed only for cause, which is the subject of the complaint. The Company cannot reasonably estimate a range of loss for this action as of the date the unaudited consolidated financial statements are issued.