MEDIROM Healthcare Technologies Inc. Reports Financial Results for the Six Months Ended

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MEDIROM Healthcare Technologies Inc.

Reports Financial Results for the Six Months Ended June 30, 2025 and Provides Corporate Update

New York - October 21, 2025 - MEDIROM Healthcare Technologies Inc. (NasdaqCM: MRM) ("MEDIROM" or the "Company"), a leading holistic health services provider in Japan, today announced its interim financial results for the six months ended June 30, 2025. Provided below is a discussion and analysis of the Company's financial condition and results of operations, along with the related unaudited condensed consolidated interim financial statements of the Company, for the six months ended June 30, 2025.

About MEDIROM Healthcare Technologies Inc.

MEDIROM operates 304 (as of June 30, 2025) relaxation salons primarily under the "Re.Ra.Ku " brand nationwide. Since 2015, we have expanded into HealthTech, offering on-demand training apps like Lav for specific health guidance and lifestyle improvement programs. In 2020, we started manufacturing the battery-free smart tracker "MOTHER Bracelet ," which is now used in REMONY, our remote monitoring system for various industries including caregiving, transportation, construction, and manufacturing.

URL https://medirom.co.jp/en

Investor Relations Team

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this interim report of the Company for the six months ended June 30, 2025, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning our possible or assumed future results of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment, and potential growth opportunities. In some cases, you can identify forward-looking statements by terms such as "may", "will", "should", "believe", "expect", "could", "intend", "plan", "anticipate", "estimate", "continue", "predict", "project", "potential", "target," "goal" or other words that convey the uncertainty of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans or intentions. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not yet occurred, they are inherently subject to significant business, competitive, economic, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including, among others, those discussed in this interim report under the heading "Risk Factors" may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements in this interim report. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements in this interim report include:

Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this interim report. The forward-looking statements contained in this interim report are not guarantees of future performance and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this interim report, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this interim report speaks only as of the date of this interim report. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this interim report, whether as a result of new information, future events or otherwise, after the date of this interim report.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated interim financial statements and related notes thereto, included elsewhere in this interim report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our current plans, expectations, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this interim report, particularly in the section entitled "Cautionary Note Regarding Forward-Looking Statements."

As used this interim report, the terms "the Company", "Medirom", "we", "our" or "us" may, depending upon the context, refer solely to the Company, to one or more of the Company's consolidated subsidiaries or to all of them taken as a whole.

Our functional currency and reporting currency is the Japanese yen (which we refer to as "JPY" or " "). The terms "dollar," "USD," "US$" or "$" refer to U.S. dollars, the legal currency of the United States. Convenience translations included in this interim report of Japanese yen into U.S. dollars have been made at the exchange rate of 144.170 = US$1.00, which was the foreign exchange rate on June 30, 2025 as reported by the Board of Governors of the Federal Reserve System (which we refer to as the "U.S. Federal Reserve") in weekly release. Historical and current exchange rate information may be found at www.federalreserve.gov/releases/h10/.

We are one of the leading holistic health services providers in Japan. Medirom is a franchiser and operator of healthcare salons across Japan and is a preferred platform partner for large consumer brands, healthcare service providers, and government entities to affect positive health outcomes. Through our well-known retail salon brands, including primarily Re.Ra.Ku , nascent tech platforms, and targeted health consulting and marketing, we have formed a "healthtech" segment.

We are a joint-stock corporation incorporated in Japan under the Companies Act. Our Company was originally incorporated in Japan in 2000. In 2018, we established three wholly-owned subsidiaries, Bell Epoc Wellness Inc. ("BEW"), JOYHANDS WELLNESS Inc., and Medirom Human Resources Inc. ("MHR"), and acquired our fourth wholly-owned subsidiary, Decollte Wellness Corporation ("DW"). In December 2020, ADSs representing our common shares were listed on The Nasdaq Capital Market. In May 2021, we acquired our fifth wholly-owned subsidiary, SAWAN Co. Ltd ("SAWAN"). In July 2021, in order to speed up the decision-making process, improve business efficiency, and maximize business value, we reorganized and re-designated certain of our then wholly-owned subsidiaries by business functions. As part of the reorganization, DW merged with and into BEW with BEW being the surviving entity. As a result of the merger between DW and BEW, BEW (currently known as Wing Inc.) now operates the salons previously owned by DW. Since July 1, 2021, Wing Inc. has been managing the business operations of the majority of our relaxation salons, excluding those located in spa facilities or under "Ruam Ruam" brand. In addition, we established Bell Epoc Power Partners Inc. ("BJP"), which succeeded to the rights and obligations relating to the salon management entrusted division previously operated by BEW. In October 2021, we acquired 60% of the ownership interest in ZACC Kabushiki Kaisha ("ZACC"), a high-end hair salon company, and acquired the remaining 40% of the ownership interest in ZACC in January 2022.

On May 31, 2023, our board of directors approved a second reorganization (the "Second Reorganization"), which consists of (i) an Incorporation-type Company Split Plan, pursuant to which our Company spun off the Digital Preventative Healthcare business and transfer and assign it to MEDIROM MOTHER Labs Inc., a newly established wholly-owned subsidiary, which is expected to solely conduct the Digital Preventative Healthcare business going forward; and (ii) an Absorption-type Company Split Agreement, pursuant to which our Company spun off the existing salon development department (which is responsible for sourcing and setting up store spaces) and general corporate department (which includes accounting, legal, general affairs, human resources, IT and any other corporate functions) and had Bell & Joy Power Partners Inc., an existing wholly-owned subsidiary, assume such operations going forward (on the same day, Bell & Joy Power Partners Inc. was renamed into MEDIROM Shared Services Inc.). The Second Reorganization became effective on July 3, 2023.

The Company implemented an organizational restructuring through a business combination of its wholly-owned subsidiaries, effective January 1, 2025. Wing Inc. succeeded in all rights and obligations of Medirom Human Resources Inc. through an absorption-type merger. It succeeded in all rights and obligations held by JOYHANDS WELLNESS Inc. regarding its hot spring spa business operations through an absorption-type demerger. Furthermore, effective on the same date, it changed its name from Wing Inc. to MEDIROM Wellness Co. This organizational restructuring is a transaction under common control and has no impact on the condensed consolidated financial statements.

Separately, on January 1, 2025, the Company entered into a share transfer agreement with a third party and sold all of its shares of its wholly owned subsidiary, JOYHANDS WELLNESS Inc. As a result of the share transfer, the Company deconsolidated JOYHANDS WELLNESS Inc. as of January 1, 2025.

As of December 31, 2023, the Company had entered into six share transfer agreements, pursuant to which we have agreed to sell and transfer an aggregate of 1,781 shares in MML, or approximately 3.56% of its total shares outstanding, to certain third-party investors. The purpose of our 2023 reorganization and the transfer of MML shares was to make quicker decisions and seek external equity financing of MML as a spun-off startup to accelerate its growth. Since then, MML began to finance from its own equity financing. However, we intend to maintain our status as the controlling shareholder of MML.

On June 30, 2024, we signed an agreement to acquire 70% of the issued and outstanding equity of Japan Gene Medicine Corporation and make it a subsidiary of the Company. See "-Planned Acquisition of Japan Gene Medicine Corporation."

As of June 30, 2025, we had the following subsidiaries: MEDIROM Wellness Co., MEDIROM Shared Services Inc., SAWAN CO., LTD, ZACC Kabushiki Kaisha, MEDIROM MOTHER Labs Inc., and MEDIROM Rehab Solutions Inc. The chart below illustrates our corporate structure as of June 30, 2025.

Our principal operating subsidiaries as of June 30, 2025 are as follows:

Our principal business is to own, develop, operate, manage, and support relaxation salons through the franchising and direct ownership of such salons throughout Japan. We seek to be the leading provider of relaxation and bodywork services in the markets we serve and to become the most recognized brand in our industry through the steady and focused expansion of relaxation salons in key markets throughout Japan and potentially abroad.

We operate three synergistic lines of businesses: (1) Relaxation Salon Segment (retail); (2) Luxury Beauty Segment (retail); and (3) Digital Preventative Healthcare Segment (healthtech). By combining brand strength and core retail competencies, including a broad physical footprint in population dense areas across the country, with proprietary technologies and partnerships, our business provides unique, value-added healthcare services to our customers with scale, customization, and cross-network effects that we believe few other companies in the industry can emulate.

As of June 30, 2025, the Relaxation Salon Segment had 304 locations across Japan, located within the country's major cities. The Relaxation Salon Segment is our core business and accounted for 2,902,972 thousand (US$20,136 thousand), or 89.5% of our total revenue for the six months ended June 30, 2025, and 3,138,956 thousand (US$21,773thousand), or 90.3% for the same period of 2024.

The Luxury Beauty Segment operates high brand beauty salons in the central areas of Tokyo. The Luxury Beauty Segment accounted for 268,445 thousand (US$1,862 thousand), or 8.3% of our total revenue for the six months ended June 30, 2025, and 292,631thousand (US$2,030 thousand), or 8.4% of our total revenue for the same period of 2024.

The Digital Preventative Healthcare Segment accounted for 71,954 thousand (US$499 thousand), or 2.2% of our total revenue for the six months ended June 30, 2025, and 43,694 thousand (US$303 thousand), or 1.3% for the same period of 2024.

Key Financial Definitions and Non-U.S. GAAP Measures

Revenue. Revenue consists of the following items: revenue from directly-operated salons, franchise revenue, and other revenues.

Cost of Revenue. The total cost of delivering services to customers consists of the following items: cost of goods sold, subcontract expenses, cost of franchise royalty and affiliation revenue, salon operating cost, salaries for therapists, legal and welfare expenses, provision for paid annual leave, travelling expenses, salon rent, depreciation and amortization, gain/loss from asset retirement obligation, interest expenses for asset retirement obligation, business consignment expenses, and others.

Selling, General and Administrative Expenses. Selling, general and administrative expenses, or SG&A, includes the costs to sell and deliver services and the costs to manage the company as follows: directors' compensations, salaries and allowances, bonuses, legal welfare expenses, provision for paid annual leave, recruiting expenses, travel expenses, advertising expenses, rent, taxes and duties, commission fees, compensations, depreciation and amortization, provision for doubtful accounts, and others.

Impairment Loss on Long-lived Assets. Long-lived assets include property and equipment, right-of-use lease assets, internal use software, and definite-lived intangible assets. The Company reviews the carrying value of long-lived assets for impairment whenever events or circumstances occur that indicate that the carrying value of the assets may not be recoverable. If the assets are not deemed to be recoverable, an impairment is recorded if the fair value of the asset grouping is less than the carrying value.

Non-U.S. GAAP Measures

Adjusted EBITDA. We define Adjusted EBITDA as net income (loss), adjusted to exclude: (i) dividend and interest income, (ii) interest expense, (iii) gain from bargain purchases, (iv) other, net, (v) income tax expense, (vi) depreciation and amortization, (vii) losses on sales of directly-owned salons to franchisees, (viii) gains (losses) on disposal of property and equipment, and other intangible assets, (ix) impairment loss on long-lived assets and (x) stock-based compensation expense. Management considers Adjusted EBITDA to be a measurement of performance which provides useful information to both management and investors. Adjusted EBITDA should not be considered an alternative to net income or other measurements under GAAP. Adjusted EBITDA is not calculated identically by all companies and, therefore, our measurements of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

We use Adjusted EBITDA to enhance our understanding of our operating performance, which represents our views concerning our performance in the ordinary, ongoing and customary course of our operations. We historically have found it helpful, and believe that investors have found it helpful, to consider an operating measure that excludes certain expenses relating to transactions not reflective of our core operations. Stock-based compensation expense represents non-cash charges related to equity awards granted by us. Prior to 2021, we did not recognize any stock-based compensation expense. Our management believes the measurement of these amounts can vary considerably from period to period and depend substantially on factors that are not direct consequences of the performance of our Company and are not within our management's control. Therefore, our management believes that excluding these expenses facilitates comparisons of our operational results and financial performances in different periods, as well as comparisons against similarly determined non-GAAP financial measures of comparable companies.

The information about our operating performance provided by this financial measure is used by our management for a variety of purposes. We regularly communicate Adjusted EBITDA results to our board of directors, and we discuss with the board our interpretation of such results. We also compare our Adjusted EBITDA performance against internal targets as a key factor in evaluating our periodic operating performance at each salon level, segment level, and consolidated level, largely because we believe that this measure is indicative of how the fundamental business is performing and is being managed.

Adjusted EBITDA Margin. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA for a period by total revenue for the same period.

Half-year Progress of Key Performance Indicators

In assessing the performance of our relaxation business, we consider several key performance indicators used by management. We receive monthly performance reports from our system and our relaxation salons which include key performance indicators per salon including sales, number of customers, number of newly-acquired customers, number of repeat customers, sales per customer, and operation ratio. We believe these indicators provide us with useful data with which to measure our performance and to measure the performance of our own and our franchisees' relaxation salons.

These key indicators include:

The following table sets forth the above key performance indicators from January 2023 to June 2025:

Factors Impacting our Operating Results

We expect that our results of operations will be affected by a number of factors and will primarily depend on the global economy, general market conditions, customer preference, and the competitive environment.

Our revenues, operating results and financial performance are impacted by a multitude of factors, including, but not limited to:

Business Environment. According to the 2022 Yano Report, which is still the latest edition of the report, the relaxation market continues to see industry consolidation and notable category entrants from athletic and personal training services, and body stretching. We believe that market share will be further transferred to the category leaders in the industry, as smaller, private operators sell their businesses for retirement and/or market competition reasons, which industry trends, as we believe, may benefit us if realized.

Cost of Services. The cost of service of relaxation business has been increasing. In our relaxation business, a substantial majority of our personnel are paid wages at or close to the statutory minimum wage. For the past decade, such minimum wage has been continuously increasing throughout Japan. In 2012, the minimum wage in Tokyo was JPY850 (US$5.90), but had risen to JPY1,072 (US$7.44) as of December 31, 2022, according to the Ministry of Health, Labor and Welfare. The trend continued in 2023 and in 2024. The minimum wage in Tokyo increased annually by 3.8% to JPY1,113 (US$7.72) as of December 31, 2023, and by 4.5% to JPY1,163 (US$8.07) as of December 31, 2024. From October 2025, the minimum wage in Tokyo was raised by 5.4% to JPY1,226 (US$8.50). We believe this trend will continue and may affect our operating results significantly.

In addition, we are facing inflationary trends in general prices, including utility costs, due to factors such as geo-political developments and the recovery of the Japanese economy. We updated our service prices in May 2023 as part of a renewal of our primary service lines in order to deal with such increased costs, as well as to adjust to the long-term trend of minimum wage increases. We may also consider further updates to our service prices to reflect such increases in our costs in the future.

Update of Business Model. Since the fourth quarter of 2021, we have sought to become more asset-light by selling our owned salons to third-party investors and continuing to operate these sold salons on behalf of the investors. We believe this model will maximize the return on capital investment in our relaxation salon segment and allow us to accelerate salon openings by reinvesting the proceeds from the sales of salons, improve operational efficiency by focusing on salon operations, and generate additional income from the salons that were sold to investors and are under our management. In the first six months of 2025, we sold 11 salons, resulting in 56 salons owned by investors and under our management as of June 30, 2025.

Specific Health Guidance Program. In our Digital Preventative Healthcare Segment, we have been continuously involved in the Specific Health Guidance Program, promoted by the Ministry of Health, Labor and Welfare of Japan, which utilizes our upgraded Lav application. We had active subscription orders from 101 corporate insurance associations as of June 30, 2025, an increase from 97 as of December 31, 2024. The number of users under the Specific Health Guidance Program was 1,835 for the six months ended June 30, 2025, a significant increase from 946 in the same period in 2024. In addition, during the six months ended June 30, 2025, we focused more on providing similar services to young employees at large corporations who are not eligible for the Specific Health Guidance Program. The number of younger generation users, which we define as users below the age of forty, who participated in the program for younger generations was 555 in the six months period ended June 30, 2025, as compared to 311 in the same period in 2024.

Planned Acquisition of JGMC

On June 30, 2024, we entered into a share transfer agreement for the purpose of acquiring 70% of the issued and outstanding common shares of Japan Gene Medicine Corporation ("JGMC") for 2,000,000 thousand (the "Initial Acquisition Purchase Price") and making JGMC our subsidiary (the "Initial Acquisition"). In addition, we concurrently entered into a binding memorandum of understanding (the "MOU") under which we were granted an option to purchase the remaining 30% of the issued and outstanding shares of JGMC that we will not acquire as part of the Initial Acquisition (the "Remaining Shares"). As of the date of this interim financial report, we are in negotiations with multiple banks and financial institutions to finance our planned acquisition of 70% of the equity of JGMC. However, as of the date of this annual report, we have not determined how much cash on hand, if any, will be used for this purpose. In addition, the amount and terms of the financing are subject to change, and we may seek additional acquisition financing arrangements going forward. We expect the incurrence of this additional indebtedness to significantly increase our interest costs in future periods.

We expect to record a significant amount of goodwill in connection with the Initial Acquisition, reflecting the sum by which the aggregate fair value of consideration for the Initial Acquisition exceeds the estimated fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date. Such goodwill will be subject to impairment testing. If circumstances arise indicating that goodwill recorded in connection with the acquisition may be impaired, such as if we are unable to successfully realize the expected benefits of the acquisition, we may be required to record an impairment loss up to the full value of such goodwill on our consolidated balance sheet.

We also expect to record a certain amount of intangible assets and other assets of JGMC in connection with the Initial Acquisition, which we plan to reflect on our balance sheet after completion of the purchase price allocation, which shall be subject to the same impairment testing as the aforementioned goodwill.

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

Consolidated Statement of Income Information:

Reconsiliation of non-GAAP measures:

Revenues derived from our Relaxation Salon Segment were JPY2,902,972 thousand (US$20,136 thousand) in the six months ended June 30, 2025 and JPY3,138,956 thousand (US$21,773 thousand) in the six months ended June 30, 2024.

The revenue from our Relaxation Salon Segment consists of revenue from directly-operated salons, revenue from franchising, and other revenues. In the six months ended June 30, 2025, our revenue from directly-operated salons increased to JPY2,459,319 thousand (US$17,058 thousand) from JPY2,053,537 thousand (US$14,244 thousand) in the same period in 2024. Our revenue from franchising decreased to JPY322,580 thousand (US$2,237 thousand) from JPY415,724 thousand (US$2,884 thousand) in the same period in 2024.

The primary factor for the decrease in revenues from directly-operated salons between the first six months in 2024 and 2025 was decreased sales of salons under the sale-and-outsource business model, which generated JPY669,695 thousand (US$4,645 thousand) in the six months ended June 30, 2024, compared to JPY121,073 thousand (US$840 thousand) in the same period in 2025. On the other hand, store operation outsourcing revenue subsequent to the sales of salons also increased from JPY598,297 thousand (US$4,150 thousand) in the six months ended June 30, 2024 to JPY772,913 thousand (US$5,361 thousand) in 2025.

The primary reason for the decrease in revenues from franchising was a decrease in the number of franchised salons. As of June 30, 2025, the number of franchised salons decreased to 81 compared to 93 salons as of June 30, 2024, due to our acquisitions of franchised salons and franchisees' withdrawal from the business.

Our initial franchise fees and expected renewal franchise fees are recognized as revenue ratably over the expected average franchising contract life (seven to 10 years) on the opening date of the new franchised salons. In addition, our revenue from franchise royalties includes revenues from recurring royalty income, rental income from subleased salon properties, construction of franchised salons, uniforms and training sales.

Revenue from our Digital Preventative Healthcare Segment increased from JPY43,694 thousand (US$303 thousand) in the six months ended June 30, 2024 to JPY71,954 thousand (US$499 thousand) in the same period in 2025. This increase was primarily due to an increase in the number of participants in the Health Guidance Program and other Lav app services.

Revenue from our Luxury Beauty Segment was JPY268,445 thousand (US$1,862 thousand) in the six months ended June 30, 2025, a decrease from JPY292,631 thousand (US$2,030 thousand) in the same period in 2024. The primary reason for the decrease was the sale of one of ZACC's salons in December 2024, which was repurchased in April 2025, and thus contributed only two months of revenues.

As a result of the foregoing, our total revenues were JPY3,243,371 thousand (US$22,497 thousand) in the six months ended June 30, 2025 as compared to JPY3,475,281 thousand (US$24,105 thousand) in the six months ended June 30, 2024.

For the six months ended June 30, 2025 and 2024, the cost of revenues was JPY2,891,963 thousand (US$20,060 thousand) and JPY2,898,717 thousand (US$20,106 thousand), respectively. The slight decrease was primarily due to an decrease in sales of salons, a decrease in costs related to revenues from franchising due to decreased number of franchised salons, offset by an increase in payroll and outsourcing fees for our employed or contracted therapists, and cost recognition of rehabilitation business which was acquired and began to be consolidated in October 2024. The cost of revenues as a percentage of total revenues was 89.2% during the six months ended June 30, 2025 compared with 83.4% during same period in 2024.

Selling, General and Administrative Expenses

For the six months ended June 30, 2025 and 2024, the selling, general and administrative expenses were JPY1,189,604 thousand (US$8,251 thousand) and JPY1,213,238 thousand (US$8,415 thousand), respectively. Selling, general and administrative expenses as a percentage of total revenues in the six months ended June 30, 2025 and 2024 were 36.7% and 34.9%, respectively. The decrease in selling, general and administrative expenses in the first six months in 2025 compared to the same period in 2024 was primarily due to a decrease in training expenses, reversal of allowance for doubtful accounts, decrease in the professional fees for acquisition activities, partially offset with an increase in directors' salaries, and increase in amortization of store operating rights for the increased number of reacquired salons from investors.

Impairment Loss on Long-lived Assets

We recognized an impairment loss on long-lived assets of JPY 84,589 thousand (US$587 thousand) for the six months ended June 30, 2025, while we did not recognize impairment loss on long-lived assets for the six months ended June 30, 2024.

Interest expense increased from JPY20,631 thousand (US$143 thousand) in the six months ended June 30, 2024 to JPY26,011 thousand (US$180 thousand) in the six months ended June 30, 2025, primarily due to an increase in the amount of borrowings.

Gain from Sales of Salons

We recognized gain from sales of salons of JPY155,365 thousand (US$1,078 thousand) in the six months ended June 30, 2025, for the sales of salons to the investors from whom we also purchased back previously sold salons and settled the sales and purchase-back transactions without cash payments, compared to JPY31,793 thousand (US$221 thousand) for the same type of transactions in the six months ended June 30, 2024.

Total other income increased by JPY61,803 thousand (US$429 thousand) to JPY102,541 thousand (US$711 thousand) in the six months ended June 30, 2025 from JPY40,738 thousand (US$283 thousand) in the six months ended June 30, 2024. The increase was primarily due to an increase in the subsidies we received.

Income tax expense for the six months ended June 30, 2025 was JPY130 thousand (US$1 thousand), compared to JPY3,605 thousand (US$25 thousand) in the six months ended June 30, 2024.

Net Loss and Adjusted EBITDA

Our consolidated net loss for the six months ended June 30, 2025 was JPY (690,471) thousand (US$(4,789) thousand), or (21.3) % of our consolidated revenue, while our consolidated net loss for the six months ended June 30, 2024 was JPY (582,181) thousand (US$(4,038) thousand), or (16.8) % of our consolidated revenue, as a result of the key factors described above. Our Adjusted EBITDA decreased to JPY(430,939) thousand (US$(2,989) thousand) in the six months ended June 30, 2025 from JPY (404,112) thousand (US$(2,803) thousand) in the six months ended June 30, 2024, resulting in a decline in Adjusted EBITDA margin to (13.3) % for the six months ended June 30, 2025 from (11.6) % for the six months ended June 30, 2024.

B.Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements. As of June 30, 2025, we had cash and cash equivalents of JPY32,663 thousand (US$227 thousand). We have generally funded our operations with cash flow from operations and sales of relaxation salons, and, when needed, with borrowings from Japanese financial institutions and other debt or equity financings. Our principal uses for liquidity have been to fund development of new salons, acquisitions of salons or relaxation businesses from franchisees or third parties, our daily operations, and general working capital purposes.

The Company had a working capital deficit as of June 30, 2025 and for the last three years and an accumulated deficit as of June 30, 2025. Despite having a positive shareholders' equity of 298,011 thousand (US$2,067 thousand) as of June 30, 2025, the Company had net loss position and negative cash flows from operations for the six months ended June 30, 2025. We expect that our cash and cash equivalents as of June 30, 2025 of 32,663 thousand (US$227 thousand) may not be sufficient to fund our operating expenses, capital expenditure requirements, and debt service obligations for the 12 months following the date of the condensed consolidated financial statements. These conditions, among others, raise substantial doubt about the ability of the Company to continue as a going concern. The continuation as a going concern is dependent upon the Company's ability to meet its financial requirements, raise additional capital, and the success of its future operations.

Management plans to alleviate the conditions that raise substantial doubt by raising additional capital through the issuance of common stock, other equity or debt financings, or refinancing of existing debt obligations. In addition, the Company has implemented plans to reduce the operating, and overhead and administrative expenses, including but not limited to cutting discretionary spending, renegotiating contracts to lower service costs, and switching to less expensive suppliers. However, the Company's ability to issue equity securities or obtain debt financing on acceptable terms, or at all, will depend on, among other things, its financial performance,

general economic factors, including inflation and then-current interest rates, the condition of the credit and capital markets and other events, some of which may be beyond the Company's control.

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

Operating Activities

Net cash flows used in operating activities improved from a usage of JPY785,720 thousand (US$5,450 thousand) in the six months ended June 30, 2024 to a usage of JPY351,912 thousand (US$2,441 thousand) during the six months ended June 30, 2025, primarily due to an increased depreciation and amortization expenses in the six months ended June 30, 2025, compared with the one in the same period in 2024, along with a decrease in balance of accounts receivable-other, an increase in balance of accounts payable, and increase in balance of other current liabilities from those as of December 31, 2024, partially offset with a decrease in gain from sales of directly-owned salons in the six months ended June 30, 2025, compared with the one in the same period in 2024, and an increase in balance of prepaid expenses and other current assets, and a decrease in accounts payable from those as of December 31 2024.

Investing Activities

Net cash flows generated from (used in) investing activities declined from positive JPY763,232 thousand (US$5,294 thousand) in the six months ended June 30, 2024 to negative JPY38,180 thousand (US$265 thousand) in the six months ended June 30, 2025, primarily because proceeds from sales of salons decreased from JPY917,941 thousand (US$6,367 thousand) in the six months ended June 30, 2024 to JPY205,980 thousand (US$1,429 thousand) in the same period of 2025, while the acquisition of intangible assets increased from JPY158,032 thousand (US$1,096 thousand) in the six months ended June 30, 2024 to JPY227,676 (US$1,579 thousand) in the same period of 2025.

Financing Activities

Net cash flows generated from financing activities increased from JPY60,789 thousand (US$422 thousand) in the six months ended June 30, 2024 to JPY93,356 thousand (US$648 thousand) in the six months ended June 30, 2025, due to an increase in borrowings.

As of June 30, 2025, we have 13 business loans outstanding from four Japanese financial institutions. The balance on the outstanding loans as of June 30, 2025 was JPY1,110,365 thousand (US$7,702 thousand) with interest rates ranging from 0.20% to 2.00%, and a weighted average interest rate of 1.20%. The loans mature at various dates through 2035. Our Chief Executive Officer and a director, Kouji Eguchi, is a guarantor with respect to eight of our 13 outstanding loans for a total amount of JPY199,500 thousand (US$1,384 thousand). Mr. Kazuyoshi Takahashi ("Mr. Takahashi"), the representative director of ZACC, is also the guarantor for four bank loans on behalf of ZACC, which were borrowed by ZACC from two banks prior to our acquisition of ZACC, but continues to be the guarantor following the acquisition. As of June 30, 2025, the outstanding amount of the loans guaranteed by Mr. Takahashi was JPY28,611 thousand (US$198 thousand).

As of June 30, 2025, we also have a borrowing of JPY30,000 thousand (US$208 thousand) from our supplier for MOTHER Bracelets , which is guaranteed by Mr. Yoshio Uekusa, the Chief Executive Officer of MML.

As of June 30, 2025, we had JPY800,000 thousand (US$5,549 thousand) aggregate principal amount of convertible bonds outstanding, consisting of convertible bonds that we issued to Kufu Company Inc., a Japanese company, in December 2022 and to Triple One Investment Limited Partnership, a Japanese limited liability investment partnership, in October 2024.