{"url_path":"/sec/byah/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS**","topic":"sec","document":{"doc_type":"20-F/A","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1986247/0001213900-26-057152-index.html","accession_number":"0001213900-26-057152","cik":"0001986247","ticker":"BYAH","issuer_name":"Park Ha Biological Technology Co., Ltd.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1986247/0001213900-26-057152-index.html","primary_entity_key":"0001986247","primary_entity_name":"Park Ha Biological Technology Co., Ltd."},"word_count":10260,"has_tables":true,"body_markdown":"**ITEM\n5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**\n\n \n\n*The\nfollowing discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated\nfinancial statements and related notes that appear in this annual report. In addition to historical consolidated financial information,\nthe following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results\ncould differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these\ndifferences include those discussed below and elsewhere in this annual report, particularly in “Risk Factors.” All amounts\nincluded herein with respect to the fiscal years ended October 31, 2025, 2024 and 2023 are derived from our audited consolidated\nfinancial statements included elsewhere in this annual report. Our financial statements have been prepared in accordance with U.S. Generally\nAccepted Accounting Principles, or U.S. GAAP.*\n\n \n\n**A.\nOperating Results**\n\n \n\n**Key\nFactors Affecting Our Results of Operations**\n\n \n\nOur\nOperating Subsidiaries currently derive a majority of their revenues from the sale of products and receipt of franchise fees. Park Ha\nintends to continually enhance its services and cross-sell new services to existing customers and acquire new customers by increasing\nmarket penetration with a deeper market coverage and broader geographical reach. Maintaining and enhancing the recognition, image and\nacceptance of our brand are important to Park Ha’s ability to differentiate our products from and to compete effectively with our\npeers. Our brand image, however, could be jeopardized if we fail to maintain high product quality, pioneer and keep pace with evolving\ntechnology trends, or timely fulfill the orders for our products. If we fail to promote our brand or to maintain or enhance our brand\nrecognition and awareness among our customers, or if we are subject to events or negative allegations affecting our brand image or the\npublicly perceived position of our brand, our business, results of operations and financial condition could be adversely affected.\n\n \n\nOur\nbusiness is in the beauty industry, which is now experiencing rapid technological and model changes. Failure to anticipate technology\ninnovations or adapt to such innovations in a timely manner, or at all, may result in our products and services becoming obsolete or\nsuffering unpredictable intervals.\n\n \n\nWe\nmonitor a number of financial and non-financial key business metrics to evaluate on a regular basis business, growth trends and company\nbudgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. We believe that some of the\nmost important measures include gross profit margin, operating margin, net income (loss) as well as the non-financial key metrics discussed\nbelow which may differ from other similarly titled metrics used by other companies, securities analysts or investors.\n\n \n\n*Number\nof contracts for our franchisees*\n\n \n\nWe\nmonitor the number of contracts with customers for our franchisees. The number of contracts will directly impact our results of operations,\nincluding revenues and gross profit margins for the foreseeable future. As of October 31, 2025, 2024 and 2023, we had 22, 45 and 38 franchisees\nin China, of which 22, 43 and 36 franchisees operate under the store name “Park Ha”. As of October 31, 2025, 2024 and 2023,\nwe had 0, 2 and 2 franchisees operate under a different brand name. The business relationships between us and our independent franchisees\nare built on our standards and policies that is of fundamental importance to the overall performance and protection of the “Park\nHa” brand.\n\n \n\n89\n\n \n\n \n\n*Expansion\nof our geographic coverage*\n\n \n\nWe\nbelieve there is a substantial opportunity to further grow our customer base by continuing to make significant investments in sales,\nmarketing and brand building. Our ability to attract new customers will depend on a number of factors, including competitive dynamics\nin our targeted new geographical markets in China. We intend to expand our marketing and sales team with a focus on increasing sales\nin targeted geographies and customer segments. This will play a pivotal role in driving the company’s growth in terms of sales\nrevenue and franchise fee revenue.\n\n \n\n**RESULTS\nOF OPERATIONS**\n\n \n\n**For\nthe years ended October 31, 2025, 2024 and 2023**\n\n \n\nThe\nfollowing table presents a summary of the Company’s comprehensive operating performance for the fiscal years ended October 31,\n2025, 2024 and 2023. The historical performance listed below does not necessarily indicate expected performance for any future period.\n\n \n\n  \nFor\nthe years ended\n\nOctober 31, \n\n  \n2025  \n2024  \n2023 \n\nRevenues, net \n 2,524,843  \n 2,381,851  \n 2,459,102 \n\nCost of revenues \n 142,526  \n 195,336  \n 310,989 \n\nGross profit \n 2,382,317  \n 2,186,515  \n 2,148,113 \n\nSelling and marketing expenses \n 625,289  \n 361,327  \n 299,615 \n\nGeneral and administrative\nexpenses \n 25,483,541  \n 814,857  \n 484,955 \n\nResearch and development expenses \n 238,184  \n 36,714  \n 30,881 \n\nAllowance for expected credit losses \n 184,204  \n 179,903  \n 152,108 \n\nOperating (loss) income \n (24,148,901) \n 793,714  \n 1,180,554 \n\nInterest income \n 6,097  \n 783  \n 1,590 \n\nInterest expense \n (41) \n —  \n — \n\nOther income (expenses) \n 58,738  \n (1,076) \n (575)\n\nTotal other income (expenses) \n 64,794  \n (293) \n 1,015 \n\n(Loss) income before tax \n (24,084,107) \n 793,421  \n 1,181,569 \n\nIncome tax expense (benefits) \n 280,646  \n 314,860  \n 329,527 \n\nNet (loss) income \n (24,364,753) \n 478,561  \n 852,042 \n\n** **\n\n**Revenue**\n\n** **\n\nThe\nsales revenue consists of the following:\n\n \n\n  \nFor\nthe years ended \n\n  \nOctober 31,  \nOctober 31,  \nOctober 31, \n\n  \n2025  \n2024  \n2023 \n\nProducts sales – Non-franchisees \n 535,760  \n 21% \n 355,832  \n 15% \n 302,505  \n 12%\n\nProduct sales – Franchisees \n 478,274  \n 19% \n 351,399  \n 15% \n 346,240  \n 14%\n\nFranchise fees \n 1,510,809  \n 60% \n 1,674,620  \n 70% \n 1,810,357  \n 74%\n\nAmount \n 2,524,843  \n 100% \n 2,381,851  \n 100% \n 2,459,102  \n 100%\n\n \n\n90\n\n \n\n \n\nDirect\ncosts consist of the following:\n\n \n\n  \nFor\nthe years ended \n\n  \n**October 31,\n2025**  \nOctober 31,\n\n2024  \nOctober 31,\n\n2023 \n\nProducts\nsales – Non-franchisees \n 21,982  \n 15% \n 21,390  \n 11% \n 45,770  \n 15%\n\nProduct\nsales – Franchisees \n 107,344  \n 75% \n 67,593  \n 35% \n 96,015  \n 31%\n\nFranchise\nfees \n 13,200  \n 10% \n 106,353  \n 54% \n 169,204  \n 54%\n\nAmount \n 142,526  \n 100% \n 195,336  \n 100% \n 310,989  \n 100%\n\n \n\nThe\ngross profit consists of the following:\n\n \n\n  \nFor\nthe years ended \n\n  \n**October 31,\n2025**  \n**October 31,\n2024**  \n**October 31,\n2023** \n\nProductssales – Non-franchisees \n 513,778  \n 22% \n 334,422  \n 15% \n 256,735  \n 12%\n\nProduct\nsales – Franchisees \n 370,930  \n 16% \n 283,806  \n 13% \n 250,225  \n 12%\n\nFranchise\nfees \n 1,497,609  \n 62% \n 1,568,267  \n 72% \n 1,641,153  \n 76%\n\nAmount \n 2,382,317  \n 100% \n 2,186,515  \n 100% \n 2,148,113  \n 100%\n\n \n\nThe\ngross profit margin consists of the following:\n\n \n\n  \nFor\nthe years ended \n\n  \n**October 31,\n2025**  \nOctober 31,\n\n2024  \nOctober 31,\n\n2023 \n\nProducts\nsales – Non-franchisees \n 96% \n 94% \n 85%\n\nProduct\nsales – Franchisees \n 78% \n 81% \n 72%\n\nFranchise\nfees \n 99% \n 94% \n 91%\n\nAmount \n 94% \n 92% \n 87%\n\n \n\nFor\nthe fiscal year ended October 31, 2025, our total revenue was $2,524,843, while for the fiscal year ended October 31, 2024, our total\nrevenue was $2,381,851, representing a increase of $142,992, or 6%, which was primarily attributable to the growth in sales revenue.\n\n \n\nOur\nproducts sales revenue increased by $306,803, or 43%, from $707,231 for the year ended October 31, 2024 to $1,014,034 for the year ended\nOctober 31, 2025, which is mainly because with the improvement of the company’s brand awareness, the sales business is in the trend\nof increasing year by year.\n\n \n\nOur\nFranchise fees revenue decreased by $163,811, or 10%, from $1,674,620 for the year ended October 31, 2024 to $1,510,809 for the year\nended October 31, 2025, which is mainly because the decrease of franchisees.\n\n \n\nFor\nthe fiscal year ended October 31, 2024, our total revenue was $2,381,851, while for the fiscal year ended October 31, 2023, our total\nrevenue was $2,459,102, representing a decrease of $77,251, or 3%, which was primarily attributable to the decrease in franchise fees.\n\n \n\nOur\nproducts sales revenue increased by $58,486, or 9%, from $648,745 for the year ended October 31, 2023 to $707,231 for the year ended\nOctober 31, 2024, which is mainly because with the improvement of the company’s brand awareness, the sales business is in the trend\nof increasing year by year.\n\n \n\n91\n\n \n\n \n\nOur\nFranchise fees revenue decreased by $135,737, or 7%, from $1,810,357 for the year ended October 31, 2023 to $1,674,620 for the year ended\nOctober 31, 2024.The primary reason is that two Class A franchisees changed to Class C franchisees on May 2, 2023, and June 10, 2023,\nrespectively, resulting in a decrease in revenue of $226,749 in fiscal year 2024 compared to fiscal year 2023. In fiscal year 2023, three\nClass A franchisees changed to Class C franchisees on April 29, 2023, May 21, 2023 and May 23, 2023, respectively, resulting in a decrease\nin revenue of $85,607 in fiscal year 2024 compared to the same period. Revenue recognized by terminated franchisees in FY2023 was $160,660;\nRevenue from newly signed franchisees increased by $403,200 in FY2024.\n\n \n\nProducts\nsales — Non-franchisees\n\n \n\nProduct\nsales revenue from non-franchisees increased by $179,928, or 51%, from $355,832 for the fiscal year ended October 31, 2024 to $535,760\nfor the fiscal year ended October 31, 2025. Sales revenue from non-franchisees accounted for 21% and 15% of the total revenue, respectively\nfor the fiscal years ended October 31, 2025 and 2024. The above increase of revenue was mainly due to the increase of two new directly-operated\nstores.\n\n \n\nProduct\nsales revenue from non-franchisees increased by $53,327, or 18%, from $302,505 for the fiscal year ended October 31, 2023 to $355,832\nfor the fiscal year ended October 31, 2024. Sales revenue from non-franchisees accounted for 15% and 12% of the total revenue, respectively,\nfor the fiscal years ended October 31, 2024 and 2023. Product sales revenue from non-franchisees for the fiscal years ended\nOctober 31, 2024 and 2023 remained a relatively stable growth trend.\n\n \n\nThe\ncost of products sales to non-franchise for the fiscal year ended October 31, 2025 was $21,982, which represents a increased of\n$592 or 3% compared to $21,390 for the fiscal year ended October 31, 2024. For the fiscal years ended October 31, 2025 and\n2024, cost of products sales to non-franchisees accounted for 15% and 11% of the total cost of revenue, respectively. The cost of products\nsales to non-franchise for the fiscal year ended October 31, 2025 and 2024 remained relatively stable.\n\n \n\nThe\ncost of products sales to non-franchise for the fiscal year ended October 31, 2024 was $21,390, which represents a decreased of\n$24,380 or 53% compared to $45,770 for the fiscal year ended October 31, 2023. For the fiscal years ended October 31, 2024\nand 2023, cost of products sales to non-franchisees accounted for 11% and 15% of the total cost of revenue, respectively. The above decrease\nin cost of revenue was mainly due to: (i) the sales of some old products have decreased; (ii) some old products have been optimized in\nthe company’s product composition structure, removing unnecessary packaging. These factors resulted in a decrease in cost of revenue\ncompared to the previous period.\n\n \n\nFor\nthe fiscal years ended October 31, 2025 and 2024, gross profit of products sales to non-franchisees accounted for 22% and 15% of\nthe total gross profit, respectively. The gross profit and gross profit margin for the fiscal year ended October 31, 2025 were $513,778\nand 96%, respectively. The gross profit and gross profit margin for the fiscal year ended October 31, 2024 were $334,422 and 94%,\nrespectively. The gross profit margin of products sales to non-franchisees for the fiscal years ended October 31, 2025 and\n2024 remained relatively stable.\n\n \n\nFor\nthe fiscal years ended October 31, 2024 and 2023, gross profit of products sales to non-franchisees accounted for 15% and 12% of\nthe total gross profit, respectively. The gross profit and gross profit margin for the fiscal year ended October 31, 2024 were $334,442\nand 94%, respectively. The gross profit and gross profit margin for the fiscal year ended October 31, 2023 were $256,735 and 85%,\nrespectively. The increase of gross profit margin of products sales to non-franchisees for the fiscal years ended October 31, 2024 is\nthe result of the decrease of cost of products sales to non-franchise as the company optimized the composition of the products and saved\nrelated costs.\n\n \n\n92\n\n \n\n \n\nProduct\nsales — Franchisees\n\n \n\nProduct\nsales revenue from franchisees increased by $126,875, or 36%, from $351,399 for the fiscal year ended October 31, 2024 to $478,274 for\nthe fiscal year ended October 31, 2025. Sales revenue from franchisees accounted for 19% and 15% of the total revenue, respectively,\nfor the fiscal years ended October 31, 2025 and 2024. The above increase revenue was mainly due to the company’s effective\nmaintenance of customer relationships with franchisees, as well as regular supervision of their inventory replenishment and implementation\nof marketing activities.\n\n \n\nProduct\nsales revenue from franchisees increased by $5,159, or 1%, from $346,240 for the fiscal year ended October 31, 2023 to $351,399\nfor the fiscal year ended October 31, 2024. Sales revenue from franchisees accounted for 15% and 14% of the total revenue, respectively,\nfor the fiscal years ended October 31, 2024 and 2023. Product sales revenue from franchisees for the fiscal years ended October\n31, 2024 and 2023 remained relatively stable.\n\n \n\nThe\ncost of products sales to franchisees for the fiscal year ended October 31, 2025 was $107,344, representing an increase of $39,751,\nor 59%, compared to $67,593 for the fiscal year ended October 31, 2024. For the fiscal years ended October 31, 2025 and 2024,\nthe cost of products sales to franchisees accounted for 77% and 35% of the total cost of revenue, respectively. The above increase is\nthe result of an increase in product sales revenue from franchisees.\n\n \n\nThe\ncost of products sales to franchisees for the fiscal year ended October 31, 2024 was $67,593, representing a decrease of $28,422,\nor 30%, compared to $96,015 for the fiscal year ended October 31, 2023. For the fiscal years ended October 31, 2024 and 2023,\nthe cost of products sales to franchisees accounted for 35% and 31% of the total cost of revenue, respectively. The above decrease in\ncost of revenue was mainly due to: (i) the sales of some old products have decreased; (ii) some old products have been optimized in the\ncompany’s product composition structure, removing unnecessary packaging. These factors resulted in a decrease in cost of revenue\ncompared to the previous period.\n\n \n\nFor\nthe fiscal years ended October 31, 2025 and 2024, gross profit of products sales to franchisees accounted for 16% and 13% of the\ntotal gross profit, respectively. For the fiscal year ended October 31, 2025, gross profit and gross profit margin were $370,930\nand 78%, respectively, while for the fiscal year ended October 31, 2024, gross profit and gross profit margin were $283,806 and\n81%, respectively. The gross profit margin of products sales to franchisees decreased by 3% in FY2025 compared to FY2024, the main reason\nis that the increase of procurement cost.\n\n \n\nFor the fiscal years\nended October 31, 2024 and 2023, gross profit of products sales to franchisees accounted for 13% and 12% of the total gross profit, respectively.\nFor the fiscal year ended October 31, 2024, gross profit and gross profit margin were $283,806 and 81%, respectively, while for the\nfiscal year ended October 31, 2023, gross profit and gross profit margin were $250,225 and 72%, respectively. The gross profit margin\nof products sales to franchisees increased by 9% in FY2024 compared to FY2023, the main reason is that the company optimized the composition\nof the products and saved related costs, which increased the gross profit margin of the new products by 84% compared with the gross profit\nmargin of the old products by 72% in the previous period, thus improving the overall gross profit margin.\n\n \n\nDuring the fiscal year\nended October 31, 2025, the Company generated $535,760 by selling products to non-franchisees that cost the Company only $21,982, representing\na 2,400% mark-up. This reflects the Company’s actual profit margins on product sales. The Company’s product sales are divided into\ntwo categories: sales to franchisees and sales to non-franchisees. The Company generated $ 478,274 by selling products to franchisees\nthat cost the Company $107,344, representing a 346 % mark-up and a gross margin of 78%. The gross margin on sales to non-franchisees\nwas 96%, and the Company’s overall gross margin on product sales was 87%.\n\n \n\nDuring the fiscal year\nended October 31, 2025, the Company generated $478,274 by selling products to franchisees, which is significantly higher than the Company’s\ncost of product sales totaling $129,326. This indicates that the cost at which franchisees purchase products from the Company is substantially\nhigher than the Company’s own cost of selling those products. Furthermore, the difference between the prices at which franchisees sell\nthe Company’s products to end customers and the prices at which the Company sells products to non-franchisees is maintained within a\ncertain range. Additionally, franchisees are also required to bear brand management fees as part of their own operating expenses. Consequently,\nthe profit margins that franchisees earn from selling the Company’s products are lower than the Company’s profit margins on product sales.\nTherefore, the 2,400% mark-up on the Company’s sales to non-franchisees does not represent the profit margins that franchisees earn on\nselling the Company’s products.\n\n \n\nAs of October 31, 2025,\nthe decrease in the number of franchise contracts was primarily attributable to the Company’s adjustment and upgrade of its franchise\nbusiness model. The Company has implemented enhanced franchisee admission criteria and more rigorous ongoing performance evaluation standards,\nfocusing on improving the operational quality of existing franchisees rather than expanding the number of franchisees. In particular,\nthe Company discontinued or did not renew relationships with those franchisees which have failed to meet its updated stringent criteria.\nThese factors have also contributed to an increase in past due franchisee loans during the fiscal year ended October 31, 2025.\n\n \n\n93\n\n \n\n \n\nFranchise\nfees\n\n \n\nFor\nthe fiscal year ended October 31, 2025, the total revenue from franchise fees was $1,510,809, with a cost of franchise fees of $13,200,\ncompared to $1,674,620 and $106,353 for the fiscal year ended October 31, 2024. Gross profit of franchise fees decreased by $70,658 for\nthe same years. For the fiscal years ended October 31, 2025 and 2024, the total revenue from franchise fees accounted for 60% and 70%\nof the total revenue, respectively. For the fiscal year ended October 31, 2025 and 2024, the cost of franchise fees accounted for 10%\nand 54% of the total cost of revenue, respectively. For the fiscal years ended October 31, 2025 and 2024, the gross profit of franchise\nfees accounted for 62% and 72% of the total gross profit. The main reason is that:\n\n \n\nRoll-forward\nof franchisees\n\n \n\nThe following table provides\na roll-forward of our franchise contracts during the years ended October 31, 2025, 2024 and 2023:\n\n \n\n  \nNumber of\nFranchise\n\nContracts\nat the\nBeginning of\nPeriod  \nNumber of\n\nNewly\n\nJoined\n\nFranchisees  \nNumber of\n\nTerminated\n\ncaused by\n\nCompany\n\nChange in\n\nBusiness\n\nModel  \nNumber of\n\nTerminated\n\ncaused by\n\nFranchisee\n\nSelected not\n\nto Renew\n\nContracts  \nNumber of\nTerminated\n\nFranchisees  \nNumber of\nFranchise\n\nContracts\nat the\nEnd of\nPeriod \n\nFor the fiscal year ended October 31, 2023 \n      49  \n        6  \n      13  \n         4  \n      17  \n        38 \n\nFor the fiscal year ended October 31, 2024 \n 38  \n 8  \n 0  \n 1  \n 1  \n 45 \n\nFor the fiscal year ended October 31, 2025 \n 45  \n 5  \n 18  \n 10  \n 28  \n 22 \n\n \n\nAs of October 31, 2025,\nthe decrease in the number of franchise contracts was primarily attributable to the Company’s adjustment and upgrade of its franchise\nbusiness model. The Company has implemented enhanced franchisee admission criteria and more rigorous ongoing performance evaluation standards,\nfocusing on improving the operational quality of existing franchisees rather than expanding the number of franchisees. In particular,\nthe Company discontinued or did not renew relationships with franchisees that did not meet its updated criteria. During the fiscal year\nended October 31, 2025, certain franchisees did not renew their franchise contracts. In addition, changes in franchise structure and\nin franchisees’ repayment patterns also contributed to an increase in past due franchisee loans.\n\n \n\nDuring the fiscal year\nended October 31, 2025, as a result of the aforementioned changes to the business model, the Company proactively terminated franchise\ncontracts with 18 franchisees. In addition, 10 franchisees voluntarily terminated their contracts by electing not to renew.\n\n \n\nDuring the fiscal year\nended October 31,2024, one franchisee voluntarily terminated its contract by electing not to renew.\n\n \n\nDuring the fiscal year\nended October 31, 2023, the Company proactively terminated franchise contracts with 13 franchisees, and an additional four franchisees\nvoluntarily terminated their contracts by electing not to renew.\n\n \n\n**Operational Quality\nIssues Leading to Changes in Franchise Admission and Performance Evaluation Standards:**\n\n \n\nFollowing its listing,\nthe Company initiated adjustments to the commercial terms applicable to its franchisees. These adjustments were primarily driven by various\noperational quality deficiencies identified at franchisee locations as detailed below:\n\n \n\nLack of Standardized\nBrand Operations: Certain franchisee locations failed to strictly adhere to the Company’s brand standardization and operational guidelines,\nresulting in inconsistencies in service procedures, brand image presentation, and store management. This adversely affected the overall\nbrand reputation and customer experience.\n\n \n\nCompliance and Brand\nRisks: A small number of franchisees engaged in non-compliant practices, including unauthorized pricing adjustments and the introduction\nof non-approved products, exposing the Company to compliance risks and potential brand reputation damage.\n\n \n\nLoose Admission Criteria\nand Ineffective Performance Evaluation: The Company’s original franchisee admission criteria were relatively lenient, and the performance\nevaluation system lacked rigid enforcement mechanisms. As a result, underperforming stores could not be timely identified or eliminated,\nplacing sustained pressure on the overall channel quality and profitability structure.\n\n \n\nIn response to these\nsubstantive issues relating to operational standardization, store-level profitability, compliance risk management, and channel quality,\nthe Company tightened its franchisee admission criteria and restructured its performance evaluation system. The Company proactively terminated\nrelationships with those franchisees which have failed to meet the updated stringent standards, thereby transitioning from a previous\nstrategy of extensive scale expansion to a strategic focus on quality control and channel structure optimization.\n\n \n\n94\n\n \n\n \n\n**The primary business\nreasons for discontinuing cash subsidies to franchisees are as follows:**\n\n \n\nCreation of Subsidy Dependency:\nThe previous universal cash subsidy policy created a dependency among certain franchisees, and the subsidy payments were not effectively\ndeployed toward service improvements or customer acquisition efforts.\n\n \n\nReallocation of Resources\nto Corporate-Owned Stores and Brand Investment: The Company retained the budget originally designated for cash subsidies and redirected\nit to its corporate-owned stores, as well as to investments in brand marketing and product research and development.\n\n \n\nReturn to Market-Oriented\nBusiness Logic: By eliminating guaranteed cash subsidies, the Company intends to return to market-oriented operating principles. This\napproach helps screen for high-quality franchisees who genuinely identify with the Company’s brand philosophy and possess independent\noperational capabilities.\n\n \n\n**In the short term,\nthe elimination of cash subsidies may lead to**certain small and medium-sized prospective franchisees that previously relied on such\nsubsidies, as well as certain existing underperforming franchisees, deciding not to renew or to forego entering into franchise agreements.\nThis may result in a modest, temporary downward pressure on the total number of franchisees.\n\n \n\n**However, in the medium\nto long term, the Company does not expect any negative impact;** rather, the decision is expected to have a positive optimizing effect.\nSpecifically: The Company has replaced direct cash subsidies with support mechanisms including brand equity, supply chain advantages,\nstandardized operational empowerment, and flagship store assistance. This approach enables the Company to more precisely select high-quality,\nlong-term partners while filtering out speculative franchisees that seek only short-term financial incentives. The Company’s strategic\nfocus has shifted from merely pursuing franchise count expansion to enhancing store-level quality, profitability, and brand value. Leveraging\nits mature operational system and the demonstrative effect of flagship stores, the Company expects to achieve steady, high-quality growth\nin its franchise network in the future. Accordingly, the discontinuation of cash subsidies will not impair the Company’s long-term ability\nto maintain or optimize the scale of its franchise operations.\n\n \n\nThe\nrevenue for the fiscal year ended October 31, 2025 comprised the revenue from (i) Renewed Franchisees of US$601,012, Terminated franchisees\nof 736,734 (ii) newly contracted franchisees of US$173,063.\n\n \n\nAs\nof October 31, 2024, we had 45 franchisees (“2024 Franchisees”). As of October 31, 2024, we had 45 franchisees\nas a result of (i) 37 franchisees renewed their contracts and 1 expired. (“Renewed Franchisees”); (ii) 8 newly\ncontracted franchisees.\n\n \n\nThe\nrevenue for the fiscal year ended October 31, 2024 comprised the revenue from (i) Renewed Franchisees of US$1,271,420, and\n(ii) newly contracted franchisees of US$403,200.\n\n \n\nAs\nof October 31, 2023, we had 38 franchisees as a result of (i) renewal of the contracts with 32 franchisees (“Renewed Franchisees”)\nupon their expiry; (ii) termination of the contracts with 17 franchisees upon their expiry; and (iv) 6 newly contracted franchisees.\n\n \n\nThe\nrevenue for the fiscal year ended October 31, 2023 comprised the revenue from (i) 2022 Franchisees of US$1,200,789.82, (ii) Renewed Franchisees\nof US$419,134.72, and (iii) newly contracted franchisees of US$190,296.\n\n \n\n95\n\n \n\n  \n\nOur\nfranchise fees are recognized over the franchise term as the performance obligation is satisfied, typically spanning one year. For details,\nsee “Note 2 — Summary of Significant Accounting Policies — *Revenue Recognition*.” The revenue for the fiscal\nyear ended October 31, 2025 decreased by appropriately 10% as compared to the fiscal year ended October 31, 2024.The primary\nreason is that the decline in the number of franchisees has led to a decrease in franchise fee revenue.\n\n \n\nCost\nof franchise fees mainly includes the training service cost provided for franchisees. Due to the need for the Company to have a comprehensive\nunderstanding of the franchisees and relevant course planning in the early stages of training, investing more resources, leading to the\ncost of franchising is relatively high. The investment for the future years will be smaller, so the training costs related to franchise\nfees for this period will be reduced. This leads to a reduction in franchise costs. The gross profit was mainly due to the combined effect\nof the above-mentioned changes in revenue and cost of franchise fees.\n\n \n\n**Selling\nand marketing expenses**\n\n \n\nFor\nthe fiscal year ended October 31, 2025, our selling and marketing expenses were $625,289, while for the fiscal year ended October 31,\n2024, our selling and marketing expenses were $361,327, representing an increase of $263,962, or 73%. The main reason for the increase\nis (i)the increase of $100,120 in payroll and welfare expenses based on the increased directly-operated store and increased sales staff\nand increased annual bonuses; (ii)the increase in Store Rental expenses and Renovation costs of $127,781 from $31,192 in FY2024 to $158,973in\nFY2025 because the increased directly-operated store ; and (iii) the increase in promotion expenses of $27,662 from $10,829 for FY2024\nto $38,491 for FY2025 as a result of continuously optimization of marketing approaches.\n\n \n\nFor\nthe fiscal year ended October 31, 2024, our selling and marketing expenses were $361,327, while for the fiscal year ended October 31,\n2023, our selling and marketing expenses were $299,615, representing a increase of $61,712, or 21%. The main reason for the increase\nis (i)the increase of $73,886 in payroll and welfare expenses based on the increased directly-operated store and increased sales staff\nand increased annual bonuses; (ii)the decrease in store rental expenses and renovation costs of $18,240 from $49,432in FY2023 to $ 31,192\nin FY2024 because lower lease fees due to lower rents for re-contracted contracts; and (iii) the increase in promotion expenses of $6,269\nfrom $4,560 for FY2023 to $10,829 for FY2024 as a result of continuously optimization of marketing approaches.\n\n \n\n**General\nand administrative expenses** \n\n \n\nFor the fiscal year ended\nOctober 31, 2025, our general and administrative expenses were $25,483,541, while for the fiscal year ended October 31, 2024, our general\nand administrative expenses were $814,857, representing a increase of $24,668,684 or 3,027%. The increase was primarily attributable\nto the following reasons: (i) the increase in Share-based Payment Expense of $24,070,200 from $nil for FY2024 to $24,070,200 for FY2025\nas the payment of the Share-based payment expenses (ii) the increase in professional expenses of $424,404 from $411,750 for FY2024 to\n$ 836,154 for FY2025 as the payment for Investor Relations Website Press Release, financial services of ONE SUPREME HOLDINGS LIMITED\nand NASDAQ; and (iii) the increase in Payroll and welfare expenses of $ 136,758 as the distribution of listing bonuses.\n\n \n\nThe Company implemented\nequity incentive plans on March 5, 2025 and July 14, 2025, granting immediately exercisable shares to eight consultants and one employee\n(**Non-Director and Non-CEO\\COO\\CFO\\CTO)**, representing an aggregate of 7,500,000 shares of common stock. Based on the fair\nvalue on the grant dates, the total share-based compensation recognized was approximately $24 million. The Company currently does not\nexpect that it will have share-based compensation expense of a similar magnitude in future periods, as these grants were primarily non-recurring\nin nature;\n\n \n\nThese equity incentives\ngranted in 2025 do not correspond to routine, recurring administrative activities. Rather, they are primarily attributable to the execution\nof specific duties by the employee and the delivery of strategic advisory services by the consultants. **The consultants have no business\nor family relationships with the Company’s employees or principal shareholders.**\n\n \n\n96\n\n \n\n \n\n**The Company implemented\nthese equity incentives in exchange for the following services:**\n\n \n\nThe employee’s services\nare ongoing in nature, primarily consisting of full-time, brand building, national and regional market planning, franchise system development,\nday-to-day franchise operations and recruitment support, and internal management system implementation. **Specific services include:\n(i)**Assisting in the execution of strategic decisions and ensuring communication of high-level directives to relevant departments;\n(ii) Coordinating internal and external resources and facilitating project progress tracking; and (iii) Maintaining relationships with\nChinese government authorities and supporting corporate compliance, and building brand image.\n\n \n\nAll eight consultants\nwere engaged under specific service agreements. Their services are not routine or administrative in nature. Instead, they primarily consist\nof assisting the Company in franchise business development, conducting customer relationship development and maintenance activities,\nperiodically organizing salon development meetings, collecting and analyzing product usage feedback, and providing recommendations for\nproduct iteration and improvement. **Specific services include:** (i) Market expansion strategy development - defining market positioning\nand target customer segments for nationwide expansion; (ii) Market research reports: collecting primary data on user personas, competitor\nlandscape, and distribution channels across multiple provinces; (iii) Quarterly strategic alignment meetings - ensuring regional strategies\nalign with corporate nationwide expansion goals; (iv) Lead generation through outbound calls - identifying and screening high-intent\nseed customer leads; (v) Targeted female consumer surveys and product trial invitations - conducting precise user outreach and real-world\nproduct validation; (vi) Collection and analysis of product trial feedback - summarizing core user pain points and recommending product\nimprovements; and (vii) Entrepreneurship salons for screened prospects - establishing initial word-of-mouth nodes in regional markets.\n\n \n\n**Substantive Accomplishments**\n\n \n\nDespite the overall 2025 declines in profit,\noperating cash flow, and number of active franchises, through the efforts of the foregoing equity incentive grantees, the Company achieved\nthe following non-financial, structural accomplishments that form the foundation for future recovery:\n\n \n\nMarket Expansion: (i)\nCompleted market research and expansion planning in five key cities/provinces, including Shanghai, Fujian, Jiangsu, Anhui, and Heilongjiang;\n(ii) Established clearly defined core cultivation regions and potential expansion regions; and (iii) Developed a replicable regional\nmarket operation model.\n\n \n\nBrand Development &\nConsumer Awareness: (i) Conducted outbound calls and product experience campaigns to enhance brand visibility and consumer recognition;\nand (iiT argeted female consumer segments through surveys and product trials, generating authentic product usage scenarios.\n\n \n\nFranchise System Development\n– Concrete Prospective Franchisee Leads: Organized entrepreneurship salons that generated three prospective franchisee leads,\nincluding one prospective franchisee at Huirong Commercial Plaza (Huishan, Wuxi), one prospective franchisee at Wuxi Huishan Wanda Plaza,\nand one prospective franchisee at Minhang Baolong Plaza (Shanghai). These leads progressed to interviews and headquarters visits –\na prerequisite for formal franchise agreements.\n\n \n\nProduct & Formulation\nImprovements: (i) Collected and synthesized user trial feedback into a formal Product Improvement Proposal; (ii) Resulted in a formula\nupgrade for the Company’s brightening essence product; (iii) Complete a full reformulation of the revitalizing mask based on market suggestions.\n\n \n\nFor the fiscal year ended\nOctober 31, 2024, our general and administrative expenses were $814,857, while for the fiscal year ended October 31, 2023,\nour general and administrative expenses were $484,955, representing a increase of $329,902 or 68%. The increase was primarily attributable\nto the following reasons: (i) the increase in professional expenses of $278,698 from $133,052 for FY2023 to $411,750 for FY2024 as the\nPayment of the completed audit service and miscellaneous IPO services in 2024; and (ii) the increase in annual meeting training\nexpenses of $ 48,709 from nil for FY2023 to $ 48,709 for FY2024.\n\n \n\n97\n\n \n\n  \n\n**Research\nand development expenses** \n\n \n\nFor\nthe fiscal year ended October 31, 2025, our R&D expenses were $238,184, while for the fiscal year ended October 31, 2024, our R&D\nexpenses were $36,714, representing an increase of $201,470 or 549%. The increase was primarily attributable to the following reasons:\n(i) the increase in research and development expenses of Cell Therapies of $194,032 from $nil for FY2024 to $194,032 for FY2025;\n(ii) the increase in raw materials of $ 4,851 from $nil for FY2024 to $ 4,851 for FY2025.; and (iii) the increase in patent expenses\nof $ 3,929 from 395 for FY2024 to $4,324 for FY2025.\n\n \n\nFor\nthe fiscal year ended October 31, 2024, our R&D expenses were $36,714, while for the fiscal year ended October 31, 2023,\nour R&D expenses were $30,881, representing an increase of $5,833 or 19%. R&D expenses for the fiscal years ended October\n31, 2024 and 2023 remained relatively stable. \n\n \n\n**Allowance\nfor expected credit losses**\n\n** **\n\nAllowance\nfor expected credit losses derives from allowances on accounts receivable and loan receivable from franchisees, based on past collection\nexperience, current economic conditions, future economic conditions and changes in the Company’s customer collection trends. Allowance\nfor expected credit losses of accounts receivables and franchisee loan and other receivables were $184,204 for the fiscal year ended\nOctober 31, 2025 representing an increase of $4,301 or 2% from $179,903 for the fiscal year ended October 31, 2024.\n\n \n\nAllowance\nfor accounts receivables decreased by $86,992 from $231,851 as of October 31, 2024 to $144,859 as of October 31, 2025, primarily due\nto the decreased balance of accounts receivables from $562,743 as of October 31, 2024 to $400,703 as of October 31, 2025.\n\n \n\nAllowance\nfor franchisee loan increased by $177,356 from $55,520 as of October 31, 2024 to $232,876 as of October 31, 2025, primarily due to the\nincrease of past-due loans.\n\n \n\nAllowance\nfor other receivables decreased by $40,011 from $51,013 as of October 31, 2024 to $11,002 as of October 31, 2025, primarily due to the\nderegistration of a franchisee, a provision of USD 38,613 for bad debts was written off.\n\n \n\nAllowance\nfor expected credit losses derives from allowances on accounts receivable and loan receivable from franchisees, based on past collection\nexperience, current economic conditions, future economic conditions and changes in the Company’s customer collection trends. Allowance\nfor expected credit losses of accounts receivables and franchisee loan and other receivables were $179,903 for the fiscal year ended\nOctober 31, 2024, representing an increase of $27,795 or 18% from $152,108 for the fiscal year ended October 31, 2023. \n\n \n\nAllowance\nfor accounts receivables increased by $ 141,347 from $90,504 as of October 31, 2023 to $231,851as of October 31, 2024, primarily\ndue to (i) the increased balance of accounts receivables from $452,239 as of October 31, 2023 to $562,743 as of October 31,\n2024 in connection with our business expansion; and (ii) the change in the aging structure of accounts receivables, specifically,\nthe accounts receivables that are aging over one year of $68,778 as of October 31, 2023, as compared to the accounts receivables\nthat are aging over one year of $185,942 as of October 31, 2024. \n\n \n\nAllowance\nfor franchisee loan decreased by $ 7,082 from $62,602 as of October 31, 2023 to $55,520 as of October 31, 2024, primarily due\nto the proportion of bad debt losses measured by the migration rate fell from a year earlier. \n\n \n\nAllowance\nfor other receivables increased by $51,013 from $nil as of October 31, 2023 to $51,013 as of October 31, 2024, primarily due\nto the delayed payment of $49,331 due from two franchisees due to their financial difficulties, of which are not collected as of the\ndate of this annual report. No allowance for loan receivable from franchisees was made as of October 31, 2023 since the management\nconsidered that the aging of loans receivables from franchisees were within three months, which was relatively short and there were\nno default indicators. \n\n \n\n98\n\n \n\n  \n\n**Interest\nincome (expense)**\n\n \n\nInterest\nincome and bank income mainly come from the bank transfer fees and deposit interest. Net of Interest income for the fiscal years ended\nOctober 31, 2025 and 2024 was approximately $6,056 and $783, respectively.\n\n \n\nInterest\nincome and bank income mainly come from the bank transfer fees and deposit interest. Net of Interest income for the fiscal years ended\nOctober 31, 2024 and 2023 was approximately $783 and $1,590, respectively.\n\n \n\n**Income\ntax expense (benefit)**\n\n** **\n\nThe\nCompany in general is subject to profits tax rate at 25% for income generated for its operation in China and net operating losses can\nbe carried forward for no longer than five years starting from the year subsequent to the year in which the loss was incurred.\n\n \n\nIn\naccordance with the implementation rules of EIT Laws, a qualified “High and New Technology Enterprise” (“HNTE”)\nis eligible for a preferential tax rate of 15%. The HNTE certificate is effective for a period of three years. An entity could re-apply\nfor the HNTE certificate when the prior certificate expires. “Park Ha Jiangsu” obtained its HNTE certificate on November\n6, 2024. Therefore, “Park Ha Jiangsu” is eligible to enjoy a preferential tax rate of 15% from 2024 to 2026 to the extent\nit has taxable income under the EIT Law.\n\n \n\nAnnouncement\nNo. 12 2023 of the Ministry of Finance and the State Taxation Administration stipulates that the preferential corporate income tax\n(CIT) policy for small and low-profit enterprises (SLPEs) — reducing taxable income by 25% and applying a 20% tax rate —\nshall be extended until December 31, 2027.Wuxi Muchen and Wuxi Mufeng and ParkHa Investment, with annual taxable income not exceeding\nRMB 1 million for the year ended October 31, 2025, qualify as SLPEs. As such, 25% of their taxable income is subject to CIT at the reduced\nrate of 20%.\n\n \n\nAi\nMeihui obtained the “Review Approval Notification for Application and Adjustment of Fixed Amount for Periodic Fixed-Amount Taxpayers”\nissued by the State Taxation Administration, Jiangsu Wuxi Economic Development Zone Tax Bureau on August 30, 2025, indicating that the\napplication for “Periodic Fixed-Amount Taxpayer Application and Adjustment of Fixed Amount” submitted by Ai Meihui on August\n22, 2025, has been approved. Upon review, Ai Meihui’s account shall implement a monthly taxable amount of 0 yuan from August 1,\n2025, to December 31, 2025.\n\n \n\nXinyuexuan\nobtained the “Review Approval Notification for Application and Adjustment of Fixed Amount for Periodic Fixed-Amount Taxpayers”\nissued by the State Taxation Administration, Jiangsu Wuxi Economic Development Zone Tax Bureau on August 19, 2025, indicating that the\napplication for “Periodic Fixed-Amount Taxpayer Application and Adjustment of Fixed Amount” submitted by Xinyuexuan on August\n11, 2025, has been approved. Upon review, Xinyuexuan’s account shall implement a monthly taxable amount of 0 yuan from July 1,\n2025, to December 31, 2025.\n\n \n\nThe\nincome tax expense for the fiscal years ended October 31, 2025 and 2024 were approximately $280,646and $314,860, respectively.\n\n \n\nThe\nincome tax expense for the fiscal year ended October 31, 2025 was adjusted by (i)the increase in the income tax expense by $6,209,492,\nof which $34,827 because Park Ha Jiangsu enjoyed a preferential rate of 15%, of which $6,202,101 because Park Ha Cayman is not subject\nto tax, of which $(4,404) because Wuxi Muchen,Wuxi Mufeng and ParkHa Investment enjoyed a preferential rate of 5% for small and Low-Profit\nEnterprises, of which $(23,032)because Aimei Hui and Xinyuexuan enjoyed Deemed Provision Tax Assessment; (ii)the decrease in the income\ntax expense of $45,429 due to the effect of super deduction of R&D expenses of $199,378; and (iii)the increase in the income tax\nexpense by 134,531 because Park Ha Jiangsu and Park Ha Shanghai recorded net loss for the fiscal year ended October 31, 2025;and\n(iv)the increase in the income tax expense of $3,078 due to the effect of entertainment expenses of $19,956.\n\n \n\nThe\nincome tax expense for the fiscal year ended October 31, 2024 was adjusted by (i)the increase in the income tax expense by $112,241,\nof which $14,259 because Park Ha Jiangsu enjoyed a preferential rate of 15%, of which $93,472 because Park Ha Cayman is not subject to\ntax, of which $4,510 because Park Ha Jiangsu enjoyed a preferential rate of 15% in 2024 and 20% in 2023; (ii)the decrease in the income\ntax expense of $5,507due to the effect of super deduction of R&D expenses of $36,714; and (iii)the increase in the income tax expense\nby 7,260, of which $(3,827) as a result of offsetting previous years’ tax losses of $25,512 of Park Ha Jiangsu, of which $11,087\nbecause Park Ha Shanghai recorded net loss for the fiscal year ended October 31, 2024;and (iv) the increase in the income tax expense\nof $2,510 due to the effect of non-deductible expenses of $15,962\n\n \n\n99\n\n \n\n  \n\nThe\nincome tax expense for the fiscal year ended October 31, 2023 was adjusted by (i) the decrease in the income tax expense of\n$13,767 as a result of offsetting previous years’ tax losses of $50,630; (ii) the decrease in the income tax expense\nof $4,632 due to the effect of super deduction of R&D expenses of $23,160; (iii) the increase in the income tax expense of $48,158\ndue to the effect of non-deductible expenses of $193,168; and (iv) the increase in the income tax expense of $4,375 because Park\nHa Jiangsu enjoyed a preferential rate of 20% and Park Ha Shanghai recorded net loss for the fiscal year ended October 31, 2023.\n\n \n\n**Net\nLoss/income** \n\n \n\nAs\na result of the foregoing, for the fiscal year ended October 31, 2025, our loss was $24,364,753, compared to n**et income** $478,561\nfor the fiscal year ended October 31, 2024, representing an decrease of $24,843,314 or 5,191%.\n\n \n\nAs\na result of the foregoing, for the fiscal year ended October 31, 2024, our net income was $478,561, compared to $852,042 for the fiscal\nyear ended October 31, 2023, representing a decrease of $373,481 or 44%.\n\n \n\n**Working\ncapital and capital resources**\n\n \n\nAs\nof October 31, 2025, we had $3,787,678 in cash as compared to $547,498 as of October 31, 2024. The Company’s working capital and\nother capital needs mainly come from shareholders’ equity contributions and operating cash flows. Cash is needed to pay for inventory,\nwages, sales expenses, rent, income tax, and other operating expenses.\n\n \n\nAlthough\nthe Company’s management believes that the cash generated from operations will be sufficient to meet the Company’s normal\nworking capital needs, its ability to service its current debts will depend on its future realization of its current assets for at least\nthe next 12 months. The management has considered historical experience, economic conditions, trends in the beauty industry, the collectability\nof accounts receivable as of October 31, 2025, and the realization of inventory. Based on these considerations, the management believes\nthat the Company has sufficient funds to meet its working capital needs and debt obligations, as they will be due at least 12 months\nfrom the date of financial reporting. However, there is no guarantee that the management’s plan will be succeed. There are many\nfactors that may occur and cause the Company’s plan to fall short, such as economic conditions, competitive pricing in the industry\nand the continuous support of our suppliers. If future operating cash flows and other capital resources are insufficient to meet its\nliquidity needs, the Company may be forced to reduce or postpone its anticipated expansion plans, sell assets, acquire additional debt\nor equity capital, or refinance all or part of its debt.\n\n \n\n100\n\n \n\n  \n\nThe\nfollowing table summarizes the Company’s cash flow data for the fiscal years ended October 31, 2025, 2024 and 2023: \n\n \n\n  \nFor\nthe years ended\nOctober 31, \n\n  \n2025  \n2024  \n **2023**\n  \n\nNet cash provided by operating\nactivities \n$85,852  \n$960,470  \n$126,537 \n\nNet cash  (used in)provided by\ninvesting activities \n (572,927) \n (508,143) \n 1,023,419 \n\nNet cash provided by(used in) financing\nactivities \n 3,735,677  \n (957,389) \n (676,925)\n\nNet increase of cash \n 3,248,602  \n (505,062) \n 473,031 \n\nEffect of foreign\ncurrency translation \n (8,422) \n 18,926  \n (14,108)\n\nCash and cash equivalents–\nbeginning of period \n 547,498  \n 1,033,634  \n 574,711 \n\nCash and cash equivalents–\nend of period \n$3,787,678  \n$547,498  \n$1,033,634 \n\n \n\n**Net\ncash provided by operating activities** \n\n \n\nFor\nthe fiscal year ended October 31, 2025, the net cash provided by operating activities was $85,852, as compared to the net cash provided\nby operating activities of $960,470 for the fiscal year ended October 31, 2024. The decrease in net cash provided by operating activities\nwas mainly due to the(i) decrease in fluctuations of contractual liabilities of $198,149, (ii) decrease in fluctuations of other receivables\nand other current assets of $287,456, (iii) increase in fluctuations of accounts receivable of $170,718, and(iv) increase in fluctuations\nof accounts payable of $164,236 for the year ended October 31, 2025.\n\n  \n\nFor\nthe fiscal year ended October 31, 2024, the net cash provided by operating activities was $960,470, as compared to the net cash provided\nby operating activities of $126,537 for the fiscal year ended October 31, 2023. The increase in net cash provided by operating activities\nwas mainly due to the (i) increase in fluctuations of contractual liabilities of $1,057,807, (ii) decrease in fluctuations of accounts\npayable of $245,557, (iii) increase in fluctuations of accounts receivable of $239,005, (iv) increase in fluctuations of other receivables\nand other current assets of $228,893, and (v)decrease in fluctuations of other non-current assets of $168,396 for the year ended October\n31, 2024.\n\n  \n\n101\n\n \n\n \n\n**Net\ncash (used in)provided by investing activities**\n\n** **\n\nFor\nthe fiscal year ended October 31, 2025, the net cash used in investment activities was $572,927, as compared to the net cash used in\ninvestment activities of $508,143 for the fiscal year ended October 31, 2024. The increase in net cash used in investment activities\nis mainly due to the decrease of loans repayment from franchisees.\n\n \n\nFor\nthe fiscal year ended October 31, 2024, the net cash used in investment activities was $508,143, as compared to the net cash provided\nby investment activities of $1,023,419 for the fiscal year ended October 31, 2023. The decrease in net cash provided by investment activities\nis mainly due to the payment of franchisee loans granted to franchisees.\n\n  \n\n**Net\ncash provided by(used in) financing activities** \n\n \n\nFor\nthe fiscal year ended October 31, 2025, the net cash provided by financing activities was $3,735,677, as compared to the net cash used\nin financing activities of $957,389 for the fiscal year ended October 31, 2024. The net cash provided by financing activities for the\nfiscal year ended October 31, 2025 was mainly due to the proceeds from issuance of shares\n\n \n\nFor\nthe fiscal year ended October 31, 2024, the net cash used in financing activities was $957,389, as compared to the net cash provided\nby financing activities of $676,925 for the fiscal year ended October 31, 2023. The net cash used in financing activities for the fiscal\nyear ended October 31, 2024 was mainly due to the payments to deferred IPO Cost.\n\n \n\nNon-cash\nlease expenses \n\n \n\nFor\nthe fiscal year ended October 31, 2025, our Company has operating leases for nine operating leases for its five self-operated stores,\ntwo employee dormitories, one warehouse and one office.\n\n \n\nThe\nright to use assets and liabilities of operating leases are recognized on the lease commencement date based on the present value of lease\npayments during the lease term. The discount rate used to calculate present value is the incremental borrowing rate, or (if any) the\ninterest rate implied in the lease. The company mainly determines the incremental loan interest rate for each lease based on its lease\nterm in China, with approximately 3.25%, 3.75% and 3.73% for the fiscal years ended October 31, 2025, 2024 and 2023, respectively.\n\n \n\nFor\nthe fiscal years ended October 31, 2025, 2024 and 2023, the operating lease charges were $37,386, $30,425 and $45,869, respectively.\n\n \n\n  \nFor\nthe years ended\nOctober 31, \n\n  \n2025  \n2024  \n **2023**\n  \n\nLease Cost \n    \n    \n   \n\nOperating lease cost \n$37,386  \n$30,425  \n$45,869 \n\n  \n    \n    \n   \n\nOther Information \n    \n    \n   \n\nCash paid for amounts included in the measurement\nof lease liabilities \n$37,043  \n$30,435  \n$44,654 \n\n \n\n102\n\n \n\n \n\nThe\ncomponents of the lease fee and the supplementary cash flow related to the lease are as follows:\n\n \n\nAs\nof October 31, 2025, 2024 and 2023, the weighted average lease term and discount rate are as follows:\n\n \n\n  \nFor\nthe years ended\n\nOctober 31, \n\n  \n2025  \n2024  \n2023 \n\nWeighted average remaining lease\nterm – operating leases (in years) \n 2.47  \n 4.64  \n 1.54 \n\nAverage discount rate – operating lease \n 3.25% \n 3.75% \n 3.73%\n\n \n\nThe\nsupplementary balance sheet information related to leasing is as follows:\n\n \n\n  \nAs\nof October 31, \n\n  \n2025  \n2024 \n\nOperating leases \n    \n   \n\nRight-of-use\nassets \n$180,243  \n$70,739 \n\n  \n    \n   \n\nOperating lease liabilities, current \n$104,254  \n$17,573 \n\nOperating lease liabilities,\nnon-current \n$75,915  \n$52,745 \n\nTotal operating lease\nliabilities \n$180,169  \n$70,318 \n\n \n\nThe\nundiscounted minimum future lease payment schedule is as follows:\n\n \n\nFor the years ending October 31, \n  \n\n2026 \n 39,090 \n\n2027 \n 75,201 \n\n2028 \n 48,071 \n\n2029 \n 23,606 \n\n2030 \n — \n\nTotal undiscounted lease payments \n 185,968 \n\nLess imputed interest \n (5,799)\n\nTotal lease liabilities \n 180,169 \n\n \n\nConcentration\nof credit risk\n\n \n\nCash\ndeposits with banks are held in financial institutions in China, which deposits are not federally insured. Accordingly, the Company has\na concentration of credit risk related to the uninsured part of bank deposits. The Company has not experienced any losses in such accounts\nand believes it is not exposed to significant credit risk.\n\n \n\nConcentration\nof customers and suppliers\n\n \n\nThe\nCompany has a concentration risk related to suppliers and customers. Failure to maintain existing relationships with the suppliers or\ncustomers to establish new relationships in the future could negatively affect the Company’s ability to obtain goods sold to customers\nin a price advantage and timely manner. If the Company is unable to obtain ample supply of goods from existing suppliers or alternative\nsources of supply, the Company may be unable to satisfy the orders from its customers, which could materially and adversely affect revenues.\n\n \n\n103\n\n \n\n \n\nThe\ncustomers accounting for 10% or more of the Company’s revenue include the following:\n\n \n\n  \nFor\nthe years ended\nOctober 31, \n\n  \n2025  \n2024  \n **2023**\n  \n\nPercentage of Company revenue \n   \n   \n  \n\nCustomer G \n 6% \n 10% \n 10%\n\nCustomer F \n 6% \n 10% \n 10%\n\n \n\nThe\ncustomers that accounted for 10% or more of the Company’s accounts receivable comprised of the following:\n\n \n\n  \nFor\nthe years ended\nOctober 31, \n\n  \n2025  \n2024  \n **2023**\n  \n\nPercentage of the Company’s accounts receivable \n   \n   \n  \n\nCustomer A \n —% \n 17% \n 16%\n\nCustomer B \n —% \n 7% \n 9%\n\nCustomer C \n —% \n 1% \n 11%\n\nCustomer D \n 4% \n 3% \n 4%\n\nCustomer E \n —% \n 8% \n 3%\n\nCustomer F \n —% \n 15% \n 18%\n\nCustomer G \n —% \n 4% \n 17%\n\nCustomer J \n 28% \n —% \n —%\n\nCustomer L \n 11% \n —% \n —%\n\nCustomer K \n 15% \n —% \n —%\n\n \n\nThe\nsuppliers that accounted for 10% or more of the Company’s purchases comprised of the following: \n\n \n\n  \nFor\nthe years ended\nOctober 31, \n\n  \n2025  \n2024  \n **2023**\n  \n\nPercentage of the Company’s purchases \n   \n   \n  \n\nSupplier A \n 8% \n 15% \n 9%\n\nSupplier B \n 9% \n 11% \n 7%\n\nSupplier C \n 5% \n 10% \n —%\n\nSupplier D \n 26% \n —% \n —%\n\nSupplier E \n 11% \n 5% \n 1%\n\nSupplier F \n 1% \n 11% \n 58%\n\n \n\nThe\nsuppliers that accounted for 10% or more of the Company’s accounts payable comprised of the following: \n\n \n\n  \nFor\nthe years ended\nOctober 31, \n\n  \n2025  \n2024  \n **2023**\n  \n\nPercentage of the Company’s accounts payable \n   \n   \n  \n\nSupplier F \n —% \n 36% \n 63%\n\nSupplier G \n 81% \n 55% \n 7%\n\nSupplier H \n 19% \n 9% \n 4%\n\n \n\n104\n\n \n\n \n\nContract\nliability\n\n \n\nThe\ncontract liabilities consist of advances from customers, which relate to unsatisfied performance obligations at the end of each reporting\nperiod and consists of cash payments received in advance from customers in sales of beauty products and devices and unearned franchise\nfee. As of October 31, 2025 and October 31, 2024, the Company’s advances from customer deposit and unearned franchise\nfee amounted to $194,753 and $325,924 respectively. \n\n \n\n**Trend\nInformation**\n\n \n\nExcept\nas disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that may\nreasonably be likely to have a significant impact on our net income, income from continuing operations, profitability, working capital\nor capital resources, or that would cause reported may not necessarily to be indicative of future operating results or financial condition.\n\n \n\n**Off-Balance\nSheet Arrangements**\n\n \n\nExcept\nas disclosed elsewhere in this annual report, we have not entered into any financial guarantees or other commitments to ensure the payment\nobligations of any third party. We have not entered into any derivative contracts that are indexed to its shares and classified as shareholders’\nequity or that are not reflected in its consolidated financial statements. In addition, we do not have any retained or contingent interests\nin the assets transferred to unconsolidated entities that services as credit, liquidity, or market risk support to such entities. We\ndo not have any variable interests in any unconsolidated entity that provides us with financing, liquidity, market risk or credit support,\nor that engages in leasing, hedging or research and development services.\n\n \n\n**Critical\nAccounting Policies and Estimates**\n\n \n\nOur\ndiscussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These\nfinancial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect\nthe reported amounts of our assets and liabilities and revenue and expenses, to disclose contingent assets and liabilities on the date\nof the consolidated financial statements, and to disclose the reported amounts of revenue and expenses incurred during the financial\nreporting period. The most significant estimates and assumptions include the assessment of the expected credit losses for receivables.\nWe continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations\nas the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.\nSince the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.\nSome of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies\nas disclosed in this annual report reflect the more significant judgments and estimates used in preparation of our consolidated financial\nstatements.\n\n \n\nThe\nfollowing critical accounting policies rely upon assumptions and estimates and were used in the preparation of our consolidated financial\nstatements:\n\n \n\nCredit\nLosses\n\n \n\nOn\nJanuary 1, 2023, we adopted Accounting Standards Update (“ASU”) 2016-13 “Financial Instruments — Credit\nLosses (Topic 326), Measurement of Credit Losses on Financial Instruments,” by using a modified retrospective transition method,\nwhich replaces the incurred loss impairment methodology with an expected loss methodology that is referred to as the current expected\ncredit loss methodology. The expected credit loss impairment model requires the entity to recognize its estimate of expected credit losses\nfor affected financial assets using an allowance for credit losses and requires consideration of a broader range of reasonable and supportable\ninformation to inform credit loss estimates. The adoption of ASU 2016-13 did not have a material impact on our financial statements.\n\n \n\nOur\naccount receivables, loans receivable from franchisees, due from related parties and other receivables which is included in other receivables\nand other current assets line item in the balance sheet are within the scope of ASC Topic 326. We use the roll-rate method to measure\nexpected credit losses of loans receivable from franchisees, on a collective basis when similar risk characteristics exist. The roll-rate\nmethod stratifies the receivables balance by delinquency stages and projected forward in one-year increments using historical roll rate.\nIn each year of the simulation, losses on the receivables are captured, and the ending delinquency stratification serves as the beginning\npoint of the next iteration. This process is repeated on a yearly rolling basis. The loss rate calculated for each delinquency stage\nis then applied to respective receivables balance. The management adjusts the allowance that is determined by the roll-rate method for\nboth current conditions and forecasts of economic conditions. For account receivables, due from related parties and other receivables,\nwe use the loss-rate method to evaluate the expected credit losses on an individual basis. When establishing the loss rate, we make the\nassessment on various factors, including historical experience, credit-worthiness of debtors, current economic conditions, reasonable\nand supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from the debtors. We\nalso provide specific provisions for allowance when facts and circumstances indicate that the receivable is unlikely to be collected.\n\n \n\n105\n\n \n\n \n\nExpected\ncredit losses are included in the consolidated statements of operations and comprehensive income. After all attempts to collect a receivable\nhave failed, the receivable is written off against the allowance. Account receivables, loans receivable from franchisees, due from related\nparties and other receivables are recognized and carried at original amount less an allowance for credit losses, as necessary. As of\nOctober 31, 2025 and 2024, allowance for credit losses for accounts receivable amounted to $144,859 and $231,851, respectively,\nallowance for credit losses for loan to franchisees amounted to $232,876, and $55,520, respectively, and allowance for credit losses\nfor other receivables amounted to $11,002 and $51,013, respectively. \n\n \n\nDuring the fiscal year ended October 31, 2025,\nthe Company proactively adjusted and optimized its commercial terms, which led to a significant number of franchisees not renewing their\ncontracts. For those terminated franchisees, the majority of outstanding franchisee loans were not repaid when due. Consequently, the\nCompany’s past-due franchisee loan ratio increased from 7% as of October 31, 2024 to 75% as of October 31, 2025.\n\n \n\nAs of October 31, 2024, the Company had 45\nactive franchisees, of which 16 had the loans receivable from active franchisees totaling $755,149，and an additional 1 had the\nloans receivable from terminated franchisees totaling $46,363. As of October 31, 2025, the Company had 22 active franchisees, of which\n10 had the loans receivable from active franchisees $359,707, and an additional 13 had the loans receivable from terminated franchisees\ntotaling $894,350. The loans receivable from active franchisees decreased by 52%, while loans receivable from terminated franchisees\nincreased by 1,829%, as loans were not repaid upon contract termination. As a result, although the number of franchisees decreased from\n45 as of October 31, 2024 to 22 as of October 31, 2025, representing a decrease of 50%, the loans receivable from franchisees increased\nfrom $801,512 as of October 31, 2024 to $1,254,057 as of October 31, 2025, representing an increase of 57%.\n\n \n\nAs of October 31, 2025, the portion of the $1,254,057 loans receivable\nfrom franchisees that was over one year amounted to $281,724, representing 22% of the total loans receivable from franchisees, all of\nwhich related to terminated franchisees.\n\n \n\nThe Company has historical experience collecting material amounts\nfrom terminated franchisees. Subsequent from October 31, 2025 to March 2, 2026 (the date of the Company’s initial filing of its fiscal\nyear ended October 31, 2025 Form 20-F with the SEC), the Company collected approximately $0.27million of loans receivable from franchisees,\nof which approximately $0.16million was collected from terminated franchisees.\n\n \n\nBased on historical collection patterns and the subsequent collection\nfrom franchisees performance, management determined that there is no objective evidence indicating that these terminated franchisees,\nas a group, lack the intent and ability to repay the amounts owed. The Company determined that no further special adjustment to its expected\ncredit loss methodology was necessary for terminated franchisees. Accordingly, the Company continued to apply its consistent approach,\ntreating all franchisee loans as a single risk pool and calculating expected credit loss using the roll-rate method under ASU 2016-13,\nFinancial Instruments - Credit Losses (Topic 326), incorporating historical loss rates, current aging data, and a forward-looking adjustment\nreflecting expected economic conditions and franchisee factors.\n\n \n\nAs of October 31, 2025 and 2024, allowance for credit losses for\nloans to franchisees amounted to $232,876, and $55,520 respectively, representing a 319% increase. This increase reflects the Company’s\nprudent recognition of increased credit risk**.**Based on available information and the Company’s historical collection experience,\nthe Company believes that the recorded allowance is fairly stated and reasonable.\n\n \n\nAs of October 31, 2025,\nloans due from terminated franchisees totaled approximately $0.9 million.\n\n \n\nAs of April 20, 2026, approximately\n$0.4 million of Loan receivables from franchisees balance has been subsequently collected in cash.\n\n \n\nQuantitative\nand qualitative disclosure of market risk\n\n \n\nThe\ndeterioration of the overall economic conditions in the United States and globally, including the impact of long-term deflation\non our customers and suppliers, may harm our business and operational results.\n\n \n\nOur\nbusiness and operating results may be adversely affected by changes in national or global economic conditions. These situations include\nbut are not limited to inflation and/or deflation, changes in interest rates, availability of capital markets, availability and cost\nof energy (including fuel surcharges), negative impacts caused by military conflicts between Russia and Ukraine, and the impact of government\nmeasures to manage economic conditions. The impact of such situations may be transmitted to our business in the form of a decrease in\ncustomer base and/or our customer expenses, as industry wide expenses may decrease and/or our suppliers may face economic pressure to\nshift costs.\n\n \n\nRisks\nrelated to conducting business in China\n\n \n\nThe\nrecent intervention of the state government in the commercial activities of Chinese companies listed in the United States may have\na negative impact on our operations.\n\n \n\n106\n\n \n\n \n\nRecently,\nthe Chinese government announced that it will strengthen regulation of Chinese companies listed overseas. According to the new measures,\nChina will strengthen the supervision of cross-border data flow and security, crack down on illegal activities in the securities market,\npunish fraudulent securities issuance, market manipulation, and insider trading. China will also inspect the sources of funds for securities\ninvestment and control leverage. The Cyberspace Administration also conducted cybersecurity investigations on several technology giants\nlisted in the United States, with a focus on antitrust, fintech regulation, and recently, with the passage of the Data Security\nLaw, how companies collect, store, process, and transfer data. Our operations and commercial interests are in Chinese Mainland. If the\nintervention of the Chinese government is expanded and through agency, our commercial interests will be affected, and our operations\nmay be negatively affected, although there is currently no obvious direct impact."}