{"url_path":"/sec/febo/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","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1957001/0001493152-26-023280-index.html","accession_number":"0001493152-26-023280","cik":"0001957001","ticker":"FEBO","issuer_name":"Fenbo Holdings Ltd","edgar_url":"https://www.sec.gov/Archives/edgar/data/1957001/0001493152-26-023280-index.html","primary_entity_key":"0001957001","primary_entity_name":"Fenbo Holdings Ltd"},"word_count":6167,"has_tables":true,"body_markdown":"****\n\n**Item 5. Operating and Financial Review and Prospects**\n\n****\n\n \n\n*The\nfollowing discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited\nconsolidated financial statements for the years ended December 31, 2024, and 2025, and our unaudited interim condensed consolidated financial statements for the six months ended June 30, 2025 and 2024,\nand the related notes included elsewhere in this prospectus. This discussion and analysis and other parts of this prospectus contain forward-looking statements based upon current beliefs,\nplans and expectations that involve risks, uncertainties, and assumptions. Our actual results and the timing of selected events could\ndiffer materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth\nunder “Risk Factors” and elsewhere in this prospectus. You should carefully read the “Risk Factors” section\nof this prospectus to gain an understanding of the important factors that could cause actual results to differ materially from our\nforward-looking statements.*\n\n \n\n**Overview**\n\n \n\nFenbo\nHoldings Limited is a holding company incorporated on September 30, 2022 under the laws of the Cayman Islands. The Company, through FIL,\nAIL and FPPF, has served as an OEM for Spectrum Brands, a global home essentials company and its sole customer, producing electrical\nhair styling products under the “Remington” brand, which Spectrum Brands has the right to use, which are currently sold in\nEurope, the United States and Latin America. The Company’s headquarters is located in Hong Kong, China.\n\n \n\nOur\nbusiness is significantly influenced by global trade volumes and macroeconomic factors, particularly trade policies between the United\nStates and China, as a substantial portion of our revenue is derived from export shipments to the United States. Changes in tariff policies,\ncustomer ordering behavior and logistics costs have had a material impact on our operating results during the periods presented.\n\n \n\nThe\nyear ended December 31, 2025 marked a challenging period for our business operationally, due to revenue drop. Revenue decreased to approximately\nHK$85.0 million (US$10.0 million) compared to HK$132.9 million in 2024, reflecting decrease due to primarily attributable to continued\ntariff pressures on goods imported into the United States from China, which led customers to reduce procurement volumes and shipment\nfrequency in 2025, with revenue declining by approximately 36.0% to HK$47.9 million (US$6.1 million) The resulting revenue pressure contributed\nto a significant reduction in gross profit and an operating loss, with the Company recording an operating loss of approximately HK$8.6\nmillion (US$1.1 million) for the year ended December 31, 2025.\n\n \n\n54\n\n \n\n \n\n**Operating\nResults**\n\n \n\nThe\nfollowing table sets forth a summary of our consolidated results of operations for the years ended December 31, 2023, 2024 and 2025.\nThis information should be read together with our consolidated financial statements and related notes included elsewhere in this document.\n\n \n\n  \nFor the years ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \nHK$’000  \n\n**% of**\n\n**Revenue**\n  \nHK$’000  \n\n**% of**\n\n**Revenue**\n  \nHK$’000  \nUSD’000  \n\n**% of**\n\n**Revenue**\n \n\nRevenues \n 119,110  \n 100.0% \n 132,907  \n 100.0% \n 85,023  \n 10,900  \n 100.0%\n\nCost of sales \n (97,004) \n 81.4% \n (108,084) \n 81.3% \n (74,086) \n (9,498) \n 87.1%\n\nGross profit \n 22,106  \n 18.6% \n 24,823  \n 18.7% \n 10,937  \n 1,402  \n 12.9%\n\n  \n    \n    \n    \n    \n    \n    \n   \n\nSelling and marketing expense \n (1,961) \n 1.7% \n (2,195) \n 1.7% \n (1,441) \n (185) \n 1.7%\n\nGeneral and administrative expense \n (20,535) \n 17.2% \n (36,391) \n 27.4% \n (20,369) \n (2,611) \n 24.0%\n\n  \n    \n    \n    \n    \n    \n    \n   \n\nLoss from operations \n (390) \n 0.3% \n (13,763) \n 10.4% \n (10,873) \n (1,394) \n 12.8%\n\n  \n    \n    \n    \n    \n    \n    \n   \n\nOther income (expense), net \n 767  \n 0.6% \n 574  \n 0.4% \n 505  \n 65  \n 0.6%\n\nInterest expense \n (1,708) \n 1.4% \n (552) \n 0.4% \n (275) \n (36) \n 0.3%\n\nLoss before tax expense \n (1,331) \n 1.1% \n (13,741) \n 10.4% \n (10,643) \n (1,365) \n 12.5%\n\n  \n    \n    \n    \n    \n    \n    \n   \n\nIncome tax expense \n (131) \n 0.1% \n (1,741) \n 1.3% \n -  \n -  \n 0.0%\n\nNet loss \n (1,462) \n 1.2% \n (15,482) \n 11.7% \n (10,643) \n (1,365) \n 12.5%\n\n  \n    \n    \n    \n    \n    \n    \n   \n\nOther comprehensive income \n    \n    \n    \n    \n    \n    \n   \n\nForeign currency translation (loss) gain, net \n (809) \n 0.7% \n (854) \n 0.6% \n 755  \n 97  \n 0.9%\n\n  \n    \n    \n    \n    \n    \n    \n   \n\nTotal comprehensive loss \n (2,271) \n 1.9% \n (16,336) \n 12.3% \n (9,888) \n (1,268) \n 11.6%\n\n \n\n55\n\n \n\n** **\n\n**Key\nFactors that Affect Results of Operations**\n\n \n\nFor the financial years ended December 31, 2023, 2024 and 2025, our revenue\namounted to approximately HK$119.1 million, HK$132.9 million and HK$85.0 million (US$10.9 million), respectively. Our net loss amounted\nto approximately HK$1.5 million, HK$15.5 million and HK$10.6 million (US$1.4 million) for the financial years ended December 31, 2023,\n2024 and 2025, respectively.\n\n \n\nThe\nCompany believes the key factors affecting its financial condition and results of operations include the following:\n\n \n\n**Macroeconomic\nfactors**\n\n \n\nDuring the first half of financial year 2025, the Group continued to face macroeconomic uncertainties such as political\nrisks resulting from the US presidential election and the new session of the US Government, as the Group is primarily engaged in export\nsales. New policies imposed or measures taken by Mainland China may affect the Group financially as the Group may be subject to additional\nexpenditures and other financial impacts. In view of the challenging general outlook of the industry and the business environment, the\nGroup has been facing pressure from its customers for a price reduction in its products. The Group will closely communicate with customers\nto address and accommodate their situation and provide different solutions with a view to overcoming the challenges faced by the Group.\n\n** **\n\n**Demand\nfrom our one key customer group**\n\n \n\nWe\nrely on one key customer and if we fail to retain this customer or attract new customers, our business, financial condition, results\nof operations and growth prospects will be harmed. Our aggregate sales generated from this one customer contributed all of our revenue\nfor the financial years ended December 31, 2024 and 2025. Accordingly, our sales are significantly affected by the demands of our key\ncustomer group, as well as certain inherent risks, such as changes and developments in local political, regulatory and business conditions\nthat may affect their purchases from us, many of which are beyond our control. These uncertainties could have a material adverse effect\non our business, results of operations and financial condition, and could affect our ability to remain profitable and to achieve business\ngrowth.\n\n \n\n**Fluctuations\nin the cost of our materials**\n\n \n\nRaw\nmaterials, such as electrical components, packaging materials, metal materials, plastic particles and painting materials, are the largest\ncomponent of our cost of sales. As our contract price is fixed once our customer confirms an order for a product, it is difficult for\nus to manage the pricing of the product to pass on any increase in costs to our customer. Any fluctuations in the cost of raw materials\nwould affect our profitability.\n\n \n\nThe\nprices at which we purchase such raw materials are determined principally by market forces, such as the relevant supply of and demand\nfor such raw materials, as well as our bargaining power with our suppliers. During the financial years ended December 31, 2023, 2024\nand 2025, the majority of our raw materials were commonly available from the market and their prices were affected by market forces.\nWe monitor supply and cost trends of these raw materials and take appropriate actions to obtain the materials we need for production.\nWe expect fluctuations in the cost of key materials to continue to affect our margins.\n\n \n\n**Results\nof Operations**\n\n \n\nThe\nfollowing table sets forth a summary of the consolidated results of operations of the Company for the years indicated, both in absolute\namount and as a percentage of its total revenues.\n\n \n\n56\n\n \n\n \n\nFor\nthe fiscal years ended December 31, 2023, 2024 and 2025, the Company generated its revenues by sales of electrical hair styling products\nthrough the Company’s wholly-owned operating subsidiaries. The following table presented the Company’s revenues by product\ntypes for the fiscal years ended December 31, 2023, 2024 and 2025:\n\n \n\n \n \n**For\nthe years ended December 31,**\n \n\n \n \n**2023**\n \n \n**2024**\n \n \n**2025**\n \n \n**2025**\n \n \n**Change***\n \n \n**Change***\n \n\n**Revenues**\n \n**HK$’000**\n \n \n**HK$’000**\n \n \n**HK$’000**\n \n \n**US$’000**\n \n \n**HK$’000**\n \n \n**%**\n \n\nCurling\nWands and Irons\n \n \n32,753\n \n \n \n31,401\n \n \n \n14,392\n \n \n \n1,845\n \n \n \n(17,009\n)\n \n \n(54.2\n)\n\nFlat\nIrons and Hair Straighteners\n \n \n82,817\n \n \n \n100,026\n \n \n \n70,265\n \n \n \n9,008\n \n \n \n(29,761)\n  \n \n \n(29.8)\n \n\nOthers\n \n \n3,540\n \n \n \n1,480\n \n \n \n366\n \n \n \n47\n \n \n \n(1,114\n)\n \n \n(75.3\n)\n\nTotal\nrevenues\n \n \n119,110\n \n \n \n132,907\n \n \n \n85,023\n \n \n \n10,900\n \n \n \n(47,884\n) \n \n \n(36.0)\n \n\n \n\n*Represents\npercentage of change from the fiscal year ended December 31, 2024 to 2025\n\n \n\nThe\nfollowing table presents the Company’s revenues by geographic areas based on the location of our sole customer for the fiscal years\nended December 31, 2023, 2024 and 2025.\n\n \n\n \n \n**For\nthe years ended December 31,**\n \n\n \n \n**2023**\n \n \n**2024**\n \n \n**2025**\n \n \n**2025**\n \n \n**Change***\n \n \n**Change***\n \n\n**Revenues**\n \n**HK$’000**\n \n \n**HK$’000**\n \n \n**HK$’000**\n \n \n**US$’000**\n \n \n**HK$’000**\n \n \n**(%)**\n \n\nEurope\n \n \n65,419\n \n \n \n68,528\n \n \n \n45,775\n \n \n \n5,868\n \n \n \n(22,753\n) \n \n \n(33.2\n) \n\nNorth\nAmerica\n \n \n48,381\n \n \n \n57,633\n \n \n \n33,937\n \n \n \n4,351\n \n \n \n(23,696\n) \n \n \n(41.1\n) \n\nAsia\nand others\n \n \n5,310\n \n \n \n6,746\n \n \n \n5,311\n \n \n \n681\n \n \n \n(1,435\n) \n \n \n(21.3\n) \n\nTotal\nrevenues\n \n \n119,110\n \n \n \n132,907\n \n \n \n85,023\n \n \n \n10,900\n \n \n \n(47,884\n) \n \n \n(36.0\n) \n\n \n\n*Represents\npercentage of change from the fiscal year ended December 31, 2024 to 2025\n\n \n\n**Fiscal\nYear End December 31, 2025 compared to Fiscal Year End December 31, 2024**\n\n** **\n\n**Revenues**\n\n \n\nRevenue\ndecreased by HK$47.9 million (US$6.1 million), or 36.0%, to HK$85.0 million (US$17.1 million) for the fiscal year ended December 31,\n2025 compared to HK$132.9 million (US$17.1 million) for the same period in 2024 primarily because of due to primarily attributable to\ncontinued tariff pressures on goods imported into the United States from China, which led customers to reduce procurement volumes and\nshipment frequency in 2025, with revenue declining by approximately 36.0% to HK$47.9 million (US$6.1 million).\n\n  \n\n**Cost\nof sales**\n\n \n\nCost\nof sales includes the cost of raw materials (such as costs of electrical components, packaging materials, metal materials, plastic particles\nand painting materials), direct labor (including wages and social security contributions), manufacturing overhead (such as consumables,\ndepreciation, direct rental expense and utilities) and taxes. We currently do not hedge our raw materials position, and we monitor raw\nmaterial price trends closely to manage our production needs.\n\n \n\n57\n\n \n\n \n\nFor\nthe fiscal year ended December 31, 2025, cost of sales decreased to HK$74.1 million (US$9.5 million), representing a decrease of HK$34\nmillion (US$4.4 million) from HK$108.1 million (US$13.9 million) in the same period in 2024. The fluctuation in cost of sales was in\nline with the decrease in our revenue during the same period. For the fiscal year ended December 31, 2024, cost of sales increased to\nHK$108.1 million (US$13.9 million), representing an increase of HK$11.1 million (US$1.4 million) from HK$97.0 million (US$12.4 million)\nin the same period in 2023. The fluctuation in cost of sales was in line with the increase in our revenue during the same period.\n\n \n\n**Gross\nprofit**\n\n \n\nAs\na result of the foregoing, gross profit for the fiscal year ended December 31, 2025, was HK$10.9 million (US$1.4 million), a decrease\nof HK$13.9 million (US$1.8 million) from HK$24.8 million (US$3.2 million) for the same period in 2024. Gross profit for the fiscal year\nended December 31, 2024, was HK$24.8 million (US$3.2 million), an increase of HK$2.7 million (US$0.3 million) from HK$22.1 million (US$2.8\nmillion) for the same period in 2023.\n\n \n\nDuring our fiscal year ended December 31, 2025, the Group continued to face macroeconomic uncertainties such as political\nrisks resulting from the US presidential election and the new session of the US Government, as the Group is primarily engaged in export\nsales. New policies imposed or measures taken by Mainland China may affect the Group financially as the Group may be subject to additional\nexpenditures and other financial impacts. In view of the challenging general outlook of the industry and the business environment, the\nGroup has been facing pressure from its customers for a price reduction in its products. The Group will closely communicate with customers\nto address and accommodate their situation and provide different solutions with a view to overcoming the challenges faced by the Group.\n\n \n\nAs\na result of the above, the Group’s gross profit margin for the fiscal year ended December 31, 2025 decreased to 14.9% as compared\nto a gross profit margin of 18.7% for the fiscal year ended December 31, 2024. The Group’s gross profit margin for the fiscal year\nended December 31, 2024 rose to 18.7% as compared to a gross profit margin of 18.6% for the fiscal year ended December 31, 2023.\n\n \n\nOur\nGroup continues to closely monitor the global geopolitical situation and other factors affecting our performance, and will assess their\nrespective potential impacts on our supply chain. We believe that we can enhance our gross margin during 2025 as we optimize our product\nmix and quality of products, or, within our capital constraints, increase our raw material inventories.\n\n \n\n**Selling\nand marketing expenses**\n\n \n\nMajor\ncomponents of selling and marketing expenses are packaging expenses, transportation costs and customs declarations. For the year ended\nDecember 31, 2025, selling and marketing expenses was HK$1.4 million (US$0.2 million), which decreased by HK$0.8 million (US$0.1 million)\nfrom HK$2.2 million (US$0.3 million) in the same period in 2024. For the year ended December 31, 2024, selling and marketing expenses\nwas HK$2.2 million (US$0.3 million), which decreased by HK$0.2 million from HK$2.0 million (US$0.2 million) in the same period in 2023.\nThe decrease during the fiscal year ended December 31, 2025 from the same period in 2043 was due mainly to the decrease of revenues.\nThe increase during the fiscal year ended December 31, 2024 from the same period in 2023 was an increase in our overall level of shipping\nof products.\n\n \n\n**General\nand administrative expenses**\n\n \n\nGeneral\nand administrative expenses consist primarily of staff costs for our accounting and administrative support personnel and executives,\ndepreciation, office and insurance expenses, motor vehicles and travelling expenses, stamp duty and other taxes, utility expenses, office\nrental and management fee, legal and professional fee and auditor’s remuneration.\n\n \n\n58\n\n \n\n \n\nThe\nCompany’s major general and administrative expenses were comprised of the following items during the years indicated:\n\n \n\n  \nFor the years ended December 31, \n\n  \n2023  \n2024  \n2025  \n2025  \nChange  \nChange \n\n  \nHK$’000  \nHK$’000  \nHKD’000  \nUS$’000  \nHK$’000  \n(%) \n\nStaff costs, including directors’ remuneration \n 10,252  \n 13,814  \n 10,596  \n 1,359  \n (3,218) \n (30.37)\n\nDepreciation \n 189  \n 188  \n 99  \n 13  \n (89) \n (47.34)\n\nOperating leases expenses \n 1,981  \n 2,398  \n 2,745  \n \n352\n  \n \n347\n  \n \n14.47\n \n\nOffice and insurance expenses \n 1,569  \n 2,265  \n 1,537  \n 197  \n (728) \n (47.36)\n\nMotor vehicles and travelling expenses \n 861  \n 1,319  \n 743  \n 95  \n (576) \n (43.67)\n\nStamp duty and other taxes \n 419  \n 242  \n 296  \n 38  \n 54  \n 18.24\n\nUtility expenses \n 476  \n 489  \n 383  \n 49  \n (106) \n (27.68)\n\nLegal and professional fees and auditor’s remuneration \n 2,870  \n 12,955  \n 1,456  \n 186  \n (11,499) \n (88.76)\n\nOthers \n 1,918  \n 2,721  \n 2,514  \n 322  \n (207) \n (7.61)\n\nTotal \n 20,535  \n 36,391  \n 20,369  \n 2,611  \n (16,022) \n (44.03)\n\n \n\nGeneral\nand administrative expenses decreased by HK$16.0 million (US$2.1 million) from HK$36.4 million (US$4.7 million) for the fiscal year ended\nDecember 31, 2024 to HK$20.4 million (US$2.5 million) for the fiscal year ended December 31, 2025. This decrease was due mainly to the\ndecrease in legal and professional fee (including the marketing consultancy fee paid) and staff costs as a result of the expansion in\nthe Group’s business during the fiscal year ended December 31, 2025.\n\n \n\nGeneral\nand administrative expenses increased by HK$15.9 million (US$2.0 million) from HK$20.5 million (US$2.6 million) for the fiscal year ended\nDecember 31, 2023 to HK$36.4 million (US$4.7 million) for the fiscal year ended December 31, 2024. This increase was due mainly to the\nincrease in legal and professional fee (including the marketing consultancy fee paid) and staff costs as a result of the expansion in\nthe Group’s business during the fiscal year ended December 31, 2024.\n\n \n\n**Loss from operations**\n\n \n\nThe\nloss from operations decreased by HK$2.9 million (US$0.4 million) from the loss from operations of HK$13.8 million (US$1.8 million) for\nthe fiscal year ended December 31, 2024 to the loss from operation of HK$10.9 million (US$1.4 million) for the fiscal year ended December\n31, 2025. The decline of the financial performance from operations was primarily due to the decrease of general and administrative expenses\nof HK$16.0 million (US$2.1 million) during the fiscal year ended December 31, 2025.\n\n \n\nThe\nloss from operations increased by HK$13.4 million (US$1.7 million) from the loss from operations of HK$0.4 million (US$0.05 million)\nfor the fiscal year ended December 31, 2023 to the loss from operation of HK$13.8 million (US$1.8 million) for the fiscal year ended\nDecember 31, 2024. The decline of the financial performance from operations was primarily due to the increase of general and administrative\nexpenses of HK$15.9 million (US$2.0 million), partially offset by the increase of gross profit of HK$2.7 million (US$0.3 million) during\nthe fiscal year ended December 31, 2024.\n\n \n\n**Other\nincome (expense), net**\n\n \n\nMajor\ncomponents of other income (expense) are exchange gain and loss, gain on disposal of property, plant and equipment, sundry income, government\ngrant and bank interest income. For the fiscal year ended December 31, 2025, other income was HK$0.5 million (US$0.1 million), which\nwas stable compared in the same period in 2024.\n\n \n\nFor\nthe fiscal year ended December 31, 2024, other income was HK$0.6 million (US$0.1 million), which decreased by HK$0.2 million (US$0.2\nmillion) from HK$0.8 million (US$0.1 million) in the same period in 2023. The decrease was due mainly to the decrease in gain on disposal\nof property, plant and equipment recognized during the fiscal year ended December 31, 2024.\n\n \n\n59\n\n \n\n \n\n**Interest\nexpense**\n\n** **\n\nFor the fiscal year ended December 31, 2025, interest expense was HK$0.3\nmillion (US$0.03 million), which decreased by HK$0.3 million (US$0.03. million) from HK$0.6 million (US$0.08 million) in the same period\nin 2024. The increase was due mainly to the decrease in average interest for the Group’s debt during the fiscal year.\n\n \n\nFor\nthe fiscal year ended December 31, 2024, interest expense was HK$0.6 million (US$0.1 million), which decreased by HK$1.1 million (US$0.1\nmillion) from HK$1.7 million (US$0.2 million) in the same period in 2023. The decrease was due mainly to the decrease in average interest\nfor the Group’s debt during the fiscal year.\n\n \n\n**Loss before tax expense**\n\n \n\nAs\na result of the above, the Company recorded a loss before tax expense of HK$10.6 million (US$1.4 million) for the fiscal year ended December\n31, 2025, a decrease in loss of HK$3.1 million (US$0.4 million) from HK$13.7 million (US$1.8 million) for the fiscal year ended December\n31, 2024. The decrease in loss was mainly due to the decrease in general and administrative expense recognized during the fiscal year\nended December 31, 2025. The Company recorded a loss before tax expense of HK$13.7 million (US$1.8 million) for the fiscal year ended\nDecember 31, 2024, an increase in loss of HK$12.4 million (US$1.6 million) from HK$1.3 million (US$0.2 million) for the fiscal year ended\nDecember 31, 2023. The increase in loss was mainly due to the increase in general and administrative expense recognized during the fiscal\nyear ended December 31, 2024.\n\n \n\n**Income\ntax expense**\n\n \n\nFor the fiscal year ended December 31, 2025, income tax expense was nil\n(US$nil), which decreased by HK$1.7 million (US$0.2 million) from HK$1.7 million (US$0.2 million) for the year ended December 31, 2024.\nThe decrease was mainly due to the each of the group entities were incurring loss during the fiscal year ended December 31, 2025.\n\n \n\nFor\nthe fiscal year ended December 31, 2024, income tax expense was HK$1.7 million (US$0.2 million), which increased by HK$1.6 million (US$0.2\nmillion) from HK$0.1 million (US$17,000) for the year ended December 31, 2023. The increase was mainly due to an increase in taxable\nincome generated from operations during the fiscal year ended December 31, 2024.\n\n \n\n**Net loss**\n\n \n\nThe\nnet loss decreased by HK$4.8 million (US$0.6 million) from a net loss of HK$15.5 million (US$2.0 million) for the year ended December\n31, 2024 to a net loss of HK$10.6 million (US$1.4 million) for the fiscal year ended December 31, 2025. The decrease in the net loss during\nthe year ended December 31, 2025 was mainly attributable to the cumulative effect of the reasons set out above.\n\n \n\nThe\nnet loss increased by HK$14.0 million (US$1.8 million) from a net loss of HK$1.5 million (US$0.2 million) for the year ended December\n31, 2023 to a net loss of HK$15.5 million (US$2.0 million) for the fiscal year ended December 31, 2024. The increase in the net loss\nduring the year ended December 31, 2024 was mainly attributable to the cumulative effect of the reasons set out above.\n\n \n\nThe\nfollowing table sets forth a summary of its cash flows for the periods indicated:\n\n \n\n \n \n**For\nthe years ended December 31,**\n \n\n \n \n**2023**\n \n \n**2024**\n \n \n**2025**\n \n \n**2025**\n \n\n \n \n**HK$’000**\n \n \n**HK$’000**\n \n \n**HK$’000**\n \n \n**US$’000**\n \n\nNet\ncash provided by (used in) operating activities\n \n \n9,728\n \n \n \n(21,347)\n \n \n \n1,591\n \n \n \n204\n \n\nNet\ncash used in investing activities\n \n \n(284\n)\n \n \n(405\n)\n \n \n41\n\n \n \n5\n\nNet\ncash provided by financing activities\n \n \n23,299\n \n \n \n2,719\n \n \n \n(10,445\n) \n \n \n(1,339\n) \n\n \n\n60\n\n \n\n \n\n**Cash\nprovided by (used in) operating activities**\n\n \n\nFor the fiscal year ended December 31, 2025, net cash provided by operating\nactivities of HK$1.6 million (US$0.2 million) was primarily the result of the net loss of HK$10.6 million (US$1.4 million) as adjusted\nfor non-cash items and change in operating assets and liabilities. Adjustments for non-cash items consisted of depreciation of property\nand equipment of HK$0.4 million (US$59,000), The net cash inflow from changes in operating assets and liabilities mainly included a decrease\nin accounts receivable of HK$10.6 million (US$1.4 million), a decrease of inventories of HK$1.7 million (US$0.2 million) and decrease\nin accounts payable of HK$1.2 million (US$0.2 million), an increase in other payables and accrued liabilities of HK$0.5 million (US$70,000),\n\n \n\nFor\nthe fiscal year ended December 31, 2024, net cash used in operating activities of HK$21.3 million (US$2.7 million) was primarily the\nresult of the net loss of HK$15.5 million (US$2.0 million) as adjusted for non-cash items and change in operating assets and liabilities.\nAdjustments for non-cash items consisted of depreciation of property and equipment of HK$0.5 million (US$65,000), amortization of right\nof use assets of HK$6.8 million (US$0.9 million) and interest on lease liabilities of HK$0.4 million (US$47,000). The net cash outflow\nfrom changes in operating assets and liabilities mainly included an increase in accounts receivable of HK$5.9 million (US$0.8 million),\na decrease in accounts payable of HK$4.1 million (US$0.5 million), a decrease in other payables and accrued liabilities of HK$0.9 million,\nand payments on leases of HK$6.9 million (US$0.9 million), partially offset by a decrease in inventories of HK$2.0 million and a decrease\nin prepaid expenses and other current assets of HK$2.2 million.\n\n \n\nFor\nthe fiscal year ended December 31, 2023, net cash provided by operating activities of HK$9.7 million was primarily the result of the\nnet loss of HK$1.5 million as adjusted for non-cash items and change in operating assets and liabilities. Adjustments for non-cash items\nconsisted of depreciation of property and equipment of HK$0.5 million, amortization of right of use assets of HK$5.4 million and interest\non lease liabilities of HK$0.3 million. The net cash inflow from changes in operating assets and liabilities mainly included an increase\nin accounts payable of HK$5.1 million, an increase in other payables and accrued liabilities of HK$1.4 million, a decrease in inventories\nof HK$1.5 million and a decrease in prepaid expenses and other current assets of HK$2.5 million, partially offset by an increase in accounts\nreceivable of HK$0.8 million and payments on leases of HK$6.3 million.\n\n \n\n**Cash\nused in investing activities:**\n\n \n\nFor the fiscal year ended December 31, 2025, net cash provided by investing\nactivities was HK$41,000 (US$5,000), consist of proceeds from disposal of purchase of property, plant and equipment and HK$59,000 (US$8,000)\nfor the purchase of property, plant and equipment.\n\n \n\nFor\nthe fiscal year ended December 31, 2024, net cash used in investing activities was HK$0.4 million (US$52,000) for the purchase of property,\nplant and equipment.\n\n \n\nFor\nthe fiscal year ended December 31, 2023, net cash used in investing activities was HK$0.3 million (US$36,000) for the purchase of property,\nplant and equipment.\n\n \n\n**Cash\nprovided by (used in) financing activities:**\n\n \n\nFor the fiscal year ended December 31, 2025, net cash used financing activities\nof HK$10.4 million (US$1.3 million) was mainly due to the repayment to related parties of HK$2.4 million (US$0.3 million) and bank loan\nof HK$8.0 million (US$1.0 million).\n\n \n\nFor\nthe fiscal year ended December 31, 2024, net cash from financing activities of HK$2.7 million (US$0.4 million) was mainly due to the\nproceeds from issuance of ordinary shares of HK$2.1 million (US$0.3 million) and the advances from related parties of HK$0.6 million\n(US$83,000).\n\n \n\nFor\nthe fiscal year ended December 31, 2023, net cash from financing activities of HK$23.3 million was mainly due to the proceeds from our\ninitial public offering of HK$26.0 million and partially offset by the net repayment to related parties of HK$2.7 million.\n\n \n\nThe\nfollowing table sets forth a summary of the Company’s working capital as of December 31, 2024 and 2023:\n\n \n\n \n \n**As\nof December 31,**\n \n\n \n \n**2024**\n \n \n**2025**\n \n \n**2025**\n \n\n \n \n**HK$’000**\n \n \n**HK$’000**\n \n \n**US$’000**\n \n\nCurrent\nassets\n \n \n79,999\n \n \n \n59,325\n \n \n \n7,606\n \n\nCurrent\nliabilities\n \n \n41,414\n \n \n \n28,711\n \n \n \n3,681\n \n\nWorking\ncapital\n \n \n38,585\n \n \n \n30,614\n \n \n \n3,925\n \n\n \n\nCurrent\nassets as of December 31, 2025, was HK$59.3 million (US$7.6 million). Out of this balance, the Company had cash of HK$19.0 million (US$2.4\nmillion) of which approximately HK$10 million was denominated in Hong Kong Dollar and approximately HK$3.3 million was denominated in\nRMB. The current asset balance mainly included accounts receivable, net of approximately HK$26.8 million (US$3.4 million), prepaid expenses\nand other current assets of HK$3.7 million (US$0.5 million) and inventories of HK$9.8 million (US$1.3 million).\n\n \n\n61\n\n \n\n \n\nCurrent\nliabilities as of December 31, 2025, was HK$28.7 million (US$3.7 million). This amount was composed of accounts payables of HK$14.0 million\n(US$1.80 million), other payables and accrued liabilities of HK$6.8 million (US$0.9 million), amounts due to related parties of HK$0.6\nmillion (US$0.08 million), current portion of lease liabilities of HK$4.2 million (US$0.5 million) and bank loan of HK$3.0 million (US$0.4\nmillion).\n\n \n\nCurrent\nassets as of December 31, 2024, was HK$80.0 million (US$10.3 million). Out of this balance, the Company had cash of HK$27.5 million (US$3.5\nmillion) of which approximately HK$20.6 million was denominated in Hong Kong Dollar and approximately HK$6.9 million was denominated\nin RMB. The current asset balance mainly included accounts receivable, net of approximately HK$37.3 million (US$4.8 million), prepaid\nexpenses and other current assets of HK$3.7 million (US$0.5 million) and inventories of HK$11.5 million (US$1.5 million).\n\n \n\nCurrent\nliabilities as of December 31, 2024, was HK$41.4 million (US$5.3 million). This amount was composed of accounts payables of HK$15.2 million\n(US$2.0 million), other payables and accrued liabilities of HK$6.3 million (US$0.8 million), amounts due to related parties of HK$3.1\nmillion (US$0.4 million), current portion of lease liabilities of HK$5.8 million (US$0.8 million) and bank loan of HK$11.0 million (US$1.4\nmillion).\n\n \n\n**Principle of consolidation**\n\n \n\nThe\nconsolidated financial statements include the financial statements of the Company and its subsidiaries. All inter- company transactions,\nif any, and balances due to, due from, long-term investment subsidiary, and registered paid in capital have been eliminated upon consolidation.\n\n \n\n**Business\ncombinations and noncontrolling interests**\n\n \n\nThe\nCompany accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification\n(“ASC”) 805 “Business Combinations.” The cost of an acquisition is measured as the aggregate of the acquisition\ndate fair value of the assets transferred to the sellers, liabilities incurred by the Company and equity instruments issued by the Company.\nTransaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets acquired and liabilities assumed\nare measured separately at their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests.\nThe excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously\nheld equity interest in the acquiree over (ii) the acquisition date amounts of the identifiable net assets of the acquiree is recorded\nas goodwill. If the cost of acquisition is less than the acquisition date amounts of the net assets of the subsidiary acquired, the difference\nis recognized directly in the consolidated income statements. During the measurement period, which can be up to one year from the acquisition\ndate, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Subsequent\nto the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever\ncomes first, any further adjustments are recorded in the consolidated income statements.\n\n \n\nFor\nthe Company’s non-wholly owned subsidiaries, a noncontrolling interest is recognized to reflect the portion of equity that is not\nattributable, directly, or indirectly, to the Company.\n\n \n\n**Use\nof Estimates and Assumptions**\n\n \n\nThe\npreparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that\naffect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated\nfinancial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates\nreflected in the Company’s consolidated financial statements include the useful lives of property and equipment, the imputed interest\nrate of leases, impairment of long-lived assets, allowance for doubtful accounts, provision for contingent liabilities, revenue recognition,\ndeferred taxes and uncertain tax position. Actual results could differ from these estimates.\n\n \n\n**Revenue\nRecognition**\n\n \n\nThe\nCompany elected to adopt Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606), effective\nas of October 1, 2019. Accordingly, the consolidated financial statements for the years ended December 31, 2024, and 2023 are presented\nunder ASC 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods\nor services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those\ngoods or services. The Company’s revenues are generated from the production and sales of premium personal care electric appliances\n(principally electrical hair styling products such as straighteners, curlers, trimmers, etc.) and toy products. This performance obligation\nis satisfied at a point of time and recognized in revenue upon the transfer of control of the goods to the customers. Interest income\nfrom banks is recognized when received.\n\n \n\n**Cost\nof Revenues**\n\n \n\nThe\ncost of revenue primarily consists of the cost of raw materials, direct labor costs and factory overhead.\n\n \n\n**Value-Added\nTaxes (“VAT”)**\n\n \n\nThe\nHong Kong operations are not subject to the value-added tax. For the PRC operations, the PRC export revenue is not subject to VAT. VAT\nare charged for purchase of materials at 17% of which 13% is refundable. Revenues are presented net of applicable VAT.\n\n \n\n**Income\nTaxes**\n\n \n\nThe\nCompany accounts for income taxes in accordance with the laws of the relevant tax authorities. The charge for taxation is based on the\nresults for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have\nbeen enacted or substantively enacted by the balance sheet date.\n\n \n\n62\n\n \n\n \n\nDeferred\ntaxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the\ncarrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation\nof assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets\nare recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences\ncan be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized, or the\nliability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged\ndirectly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance\nwhen, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.\nCurrent income taxes are provided for in accordance with the laws of the relevant taxing authorities.\n\n \n\nAn\nuncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained\nin a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that\nis greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test,\nno tax benefit is recorded. No penalties and interest incurred related to underpayment of income tax are classified as income tax expense\nin the period incurred.\n\n \n\n**Recent\nAccounting Pronouncements**\n\n \n\nIn\nNovember 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, “Segment Reporting (Topic\n280): Improvements to Reportable Segment Disclosures”, which amends and enhances the disclosure requirements for reportable segments.\nAll disclosure requirements under this standard will also be required for public entities with a single reportable segment. This new\nstandard became effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after\nDecember 15, 2024. The Company adopted this standard in the fourth quarter of 2024, which did not have a material impact on the consolidated\nfinancial statements and related disclosures.\n\n \n\nIn\nDecember 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”).\nASU 2023-09requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information\non income taxes paid. The ASU is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption\nis permitted. The Company does not expect a material impact from the adoption of this guidance on its consolidated financial statements\nand related disclosures.\n\n \n\nIn\nMarch 2024, the FASB issued ASU No. 2024-02, Codification Improvements-Amendments to Remove References to the Concepts Statements (“ASU\n2024-02”). The amendments in this Update affect a variety of Topics in the Codification. The amendments apply to all reporting\nentities within the scope of the affected accounting guidance. This update contains amendments to the Codification that remove references\nto various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance.\nIn other instances, the references were used in prior statements to provide guidance in certain topical areas. ASU 2024-02 is effective\nfor public business entities for fiscal years beginning after December 15, 2024. For all other entities, the amendments are effective\nfor fiscal years beginning after December 15, 2025. Early adoption is permitted for both interim and annual financial statements that\nhave not yet been issued or made available for issuance. The Company does not expect to adopt this guidance early and does not expect\nthe adoption of this ASU to have a material impact on its future consolidated financial statements.\n\n \n\nIn\nNovember 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (DISE), which requires new disclosures to disaggregate\nprescribed natural expenses underlying any income statement caption. This ASU is effective for annual periods in fiscal years beginning\nafter December 15, 2026, and interim periods thereafter. Early adoption is permitted. The ASU applies on a prospective basis for periods\nbeginning after the effective date. However, retrospective application to any or all prior periods presented is permitted. The Company\nis currently evaluating the impact of adoption of this standard on its consolidated financial statements.\n\n \n\n63\n\n \n\n \n\n**Internal\nControl over Financial Reporting**\n\n \n\nAs\na company with less than US$1.235 billion in revenue for the last fiscal year, we qualify as an “emerging growth company”\npursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are\notherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under\nSection 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial\nreporting.\n\n \n\nAlthough\nwe currently have an audit committee comprised of three independent directors, one of whom management has determined qualifies as a financial\nexpert under the applicable SEC rules, and our financial statements and footnotes are now reviewed by our management and our audit committee,\nwe do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions.\n\n \n\nAs\nsuch, we have identify the following material weaknesses in our internal control over financial reporting: (i) we have limited controls\nover information processing; (ii) we have inadequate segregation of duties; and (iii) we do not have sufficient formal written policies\nand procedures for accounting and financial reporting with respect to the requirements and application of both generally accepted accounting\nprinciples in the United States of America, or GAAP, and SEC guidelines. In addition, we do not have a qualified chief financial officer,\nwith US GAAP accounting knowledge and significant experience working in U.S. listed companies on financial reporting, in place to oversee\nour financial reporting, and we currently rely on external consultants regarding financial reporting functions.\n\n \n\nTo\nremedy our identified material weakness, we plan to improve our internal control over financial reporting through the following measures,\namong others:\n\n \n\n(1)\ndevelop and implement a comprehensive set of processes and internal controls to timely and appropriately (i) identify transactions that\nmay be subject to complex U.S. GAAP accounting treatment, (ii) analyze the transactions in accordance with the relevant U.S. GAAP, and\n(iii) review the accounting technical analysis;\n\n \n\n(2)\nhire additional accounting staff members with U.S. GAAP and SEC reporting experiences to implement the above-mentioned financial reporting\nprocedures and internal controls to ensure the financial statements and related disclosures under U.S. GAAP and SEC reporting requirements\nare prepared appropriately on a timely basis; and\n\n \n\n(3)\nestablish an ongoing training program to provide sufficient and appropriate trainings for accounting and financial reporting personnel,\nincluding trainings related to U.S. GAAP and SEC reporting requirements.\n\n \n\n64"}