20-F: Park Ha Biological Reports $24.36M Loss, Nasdaq Delisting Risk

Park Ha Biological Technology Co., Ltd. reported a significant net loss of $24.36 million for fiscal year 2025, driven by a surge in share-based compensation, alongside a reverse stock split to address Nasdaq's minimum bid price requirement.

Summary

• Reported a net loss of $24,364,753 for the fiscal year ended October 31, 2025, a substantial decrease from a net income of $478,561 in FY2024.
• Total revenue increased by 6% to $2,524,843 in FY2025 from $2,381,851 in FY2024, primarily due to growth in product sales.
• Product sales revenue increased by 43% to $1,014,034 in FY2025, while franchise fees revenue decreased by 10% to $1,510,809.
• Selling and marketing expenses increased by 73% to $625,289 in FY2025, mainly due to increased payroll, store rental, renovation costs, and promotion expenses.
• General and administrative expenses surged by 3,027% to $25,483,541 in FY2025, primarily due to a $24,070,200 increase in share-based payment expense.
• Research and development expenses increased by 549% to $238,184 in FY2025, driven by investments in Cell Therapies research and raw materials.
• The number of franchisees decreased from 45 in FY2024 to 22 in FY2025, with 28 contracts expiring and 5 new ones signed.
• Net cash provided by operating activities significantly decreased to $85,852 in FY2025 from $960,470 in FY2024.
• Completed a 1-for-50 reverse stock split effective February 20, 2026, to regain compliance with Nasdaq's minimum bid price requirement.
• Management concluded that internal control over financial reporting was not effective as of October 31, 2025, due to insufficient in-house accounting personnel with U.S. GAAP and SEC reporting knowledge.
• Raised gross proceeds of $2.45 million from a follow-on public offering in January 2026, intended for expansion of directly operated stores in China.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing with significant caution. While revenue growth in product sales and a recent capital raise offer some positive signals, the substantial net loss, sharp decline in operating cash flow, reduction in franchisees, and critical internal control deficiencies present major concerns. The reverse stock split to maintain Nasdaq listing further underscores underlying challenges.

Positives

• Total revenue increased by 6% year-over-year to $2,524,843 in FY2025.
• Product sales revenue from non-franchisees increased by 51% to $535,760 in FY2025, partly due to the opening of two new directly-operated stores.
• Product sales revenue from franchisees increased by 36% to $478,274 in FY2025, attributed to effective customer relationship maintenance and marketing activities.
• Gross profit margin for non-franchisee product sales remained high at 96% in FY2025.
• Successfully completed a follow-on public offering in January 2026, raising $2.45 million in gross proceeds for future expansion.

Negatives

• Reported a significant net loss of $24,364,753 for FY2025, a sharp decline from net income in previous years.
• Franchise fees revenue decreased by 10% to $1,510,809 in FY2025, primarily due to a decrease in the number of franchisees from 45 to 22.
• General and administrative expenses increased by 3,027% to $25,483,541 in FY2025, largely due to a $24,070,200 share-based payment expense.
• Net cash provided by operating activities decreased significantly from $960,470 in FY2024 to $85,852 in FY2025.
• Received a Nasdaq notice on September 2, 2025, for non-compliance with the minimum bid price requirement ($1 per share), necessitating a 1-for-50 reverse stock split.
• Management concluded that internal control over financial reporting was not effective as of October 31, 2025, citing insufficient in-house accounting personnel with U.S. GAAP and SEC reporting knowledge.
• Allowance for loans receivables from franchisees increased from $55,520 in FY2024 to $232,876 in FY2025, primarily due to financial difficulties of franchisees and an increase in past-due loans.
• One of the newly established Variable Interest Entities (VIEs), Huishan District Xuanyayue Beauty Salon, closed down on October 10, 2025.

Risks

• Legal and operational risks associated with being based in the PRC, including potential government intervention and regulatory changes, could materially impact operations and security value.
• Uncertainty regarding the interpretation and implementation of PRC cybersecurity review measures, particularly for companies with over one million users seeking foreign listings, could adversely affect business.
• Future overseas securities offerings are subject to CSRC filing requirements, and failure to comply could lead to sanctions, fines, and restrictions on operations or dividend payments.
• Trading in securities on U.S. markets may be prohibited under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB is unable to inspect the auditor for two consecutive years, leading to potential delisting.
• Restrictions and limitations by the PRC government on the transfer of cash or assets from PRC or Hong Kong entities could hinder funding for operations outside these regions or dividend payments.
• Uncertainties in the evolving PRC legal system, including enforcement of laws and rapid regulatory changes, could limit legal protections and impact business operations.
• Reliance on dividends from PRC subsidiaries for cash and financing requirements, with limitations on their ability to make payments due to PRC regulations, could materially affect business conduct.
• Difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against the company or its management based on foreign laws.
• Fluctuations in currency exchange rates, particularly RMB against USD, could materially and adversely affect investment value and financial position.
• Governmental regulations on currency conversion may limit the ability to effectively utilize revenues and affect investment value.
• Changes in PRC political, economic, and governmental policies, including international trade disputes, could adversely impact business.
• Failure to comply with PRC laws and regulations related to labor and employee benefits may result in penalties or additional costs.
• PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies may delay or prevent the use of financing proceeds for PRC subsidiaries.
• Certain PRC regulations, such as M&A rules and anti-monopoly laws, may make it more difficult to pursue growth through acquisitions.
• Potential classification as a PRC resident enterprise for tax purposes could result in unfavorable tax consequences for the company and its shareholders.
• PRC regulations relating to offshore investment activities by PRC residents may limit PRC subsidiaries' ability to change registered capital or distribute profits, or expose beneficial owners to liability.
• Limited operating history and dynamic industry mean historical results may not be indicative of future performance, with risks in predicting trends, introducing new products, and protecting brand recognition.
• High competition in the beauty industry from domestic and international players could lead to loss of market share.
• Dependence on the continued popularity of products and ability to anticipate and respond to changes in industry trends and consumer preferences.
• Business depends on the quality, effectiveness, and safety of products; any loss of consumer confidence could tarnish brand image and lead to recalls or liability claims.
• Inability to successfully implement growth strategy, including expanding store networks and R&D, could materially affect business and financial results.
• Rapid business growth may strain management, financial and information systems, supply chain, and distribution capacity.
• Failure to provide superior customer experiences, including product quality, timely delivery, and responsive after-sales service, could adversely affect business and reputation.
• Inability to conduct sales and marketing efforts in a cost-effective and efficient manner could materially and adversely affect results of operations.
• Subject to complex and evolving product safety laws, regulations, and standards; non-compliance or product defects could lead to recalls, penalties, and product liability claims.
• Operating results could be materially harmed by inability to accurately forecast consumer demand or adequately manage inventory, leading to obsolescence or shortages.
• Reliance on third-party service providers for logistics services; failure to provide reliable services could adversely affect business and reputation.
• Delivery, return, and exchange policies may adversely affect results of operations if misused or if return rates increase significantly.
• Failure to successfully lease suitable warehouse facilities or any interruption in warehouse operations could negatively affect business.
• Business expansion requires substantial investment and commitment of resources, subject to risks and uncertainties, particularly for brick-and-mortar store expansion.
• An economic downturn may adversely affect consumer discretionary spending and demand for products and services.
• Collection, storage, processing, and use of customer data subject to privacy, information security, and data protection laws; failure to comply could harm business.
• Data breaches or security incidents could lead to leaks, unauthorized access, and damage to reputation, disrupting operations and affecting financial condition.
• User misconduct or misuse of online consumer communities may adversely impact brand and reputation and subject the company to liabilities.
• Content produced and distributed through online platforms, if deemed to violate PRC laws, could materially and adversely affect business.
• Insufficient cash from operations to meet current or future needs could force reduction or delay of expansion plans.
• Subject to infringement claims of intellectual property rights or other rights of third parties, which may be expensive to defend and disrupt business.
• Inability to protect intellectual property could diminish brand value and adversely affect business.
• Employees or business partners may engage in misconduct or improper activities, disrupting business and harming reputation.
• Failure to obtain and maintain requisite licenses, permits, registrations, and filings, or to obtain additional ones due to new regulations or business expansion, could materially and adversely affect business.
• Risks relating to leased properties, including unregistered leases, could lead to fines or forced relocation.
• Financial and operating performance may be adversely affected by epidemics, adverse weather conditions, natural disasters, and other catastrophes.
• Loss of senior management and key employees could harm business due to intense competition for talent.
• Exposure to litigation, legal disputes, claims, or administrative proceedings could materially and adversely affect the company.
• Lack of insurance to cover assets, operations, and business interruptions exposes the company to potential losses.
• Reliance on a limited number of suppliers for raw materials and ingredients, with risks of unavailability, price fluctuations, and quality issues.
• Deriving a significant portion of revenue from a few major customers, with risks of decreased demand or loss of these customers.
• Risk of non-payments or delayed payments by customers, affecting financial condition and results of operations.
• Significant risks associated with contracting with third-party contractors for supply, packaging, logistics, and formulation of products, including meeting increased demand and quality control.

Future Outlook

The company plans to continue strengthening the development of its own products by expanding partnerships with scientific research institutions and investing in R&D, focusing on small molecule peptide hydration penetration technology. It also intends to intensify training practices by opening vocational training schools and an internal training institute. Marketing efforts will be enhanced through social media platforms, and supply chain capacity will be improved by partnering with additional third-party manufacturers and distribution centers. The company will also evaluate strategic alliances, investments, and acquisition opportunities to lower production costs and increase profit margins.

Management Comments

• Management believes that the cash generated from operations will be sufficient to meet normal working capital needs and debt obligations for at least the next 12 months, despite the recent net loss.
• Management acknowledges that internal control over financial reporting was not effective as of October 31, 2025, due to insufficient in-house accounting personnel with U.S. GAAP and SEC reporting knowledge.

Industry Context

StockSavvy.ai notes that the beauty industry in China is highly competitive and rapidly evolving, driven by fashion trends and social/digital media. Park Ha's focus on a franchise model and O2O strategy aims to leverage local engagement and digital marketing, which aligns with broader industry trends of omnichannel retail and personalized customer experiences. However, the significant decline in franchisee numbers suggests challenges in this model, while increased R&D investment in areas like small molecule peptides indicates a push towards innovation to differentiate in a crowded market. The company's reliance on third-party manufacturers and the associated risks are common in the cosmetics sector, but the lack of formula ownership presents a unique competitive vulnerability.

Comparison to Industry Standards

• Park Ha's gross profit margins for product sales (96% for non-franchisees, 78% for franchisees in FY2025) appear robust, potentially indicating strong pricing power or efficient cost of goods sold, which could be competitive against peers like Fanwenhua, DR PLANT, and Beauty Farm, who also operate with franchise models.
• The significant net loss in FY2025, primarily due to a large share-based compensation expense, deviates sharply from the profitability seen in many established beauty companies and even its own prior years, suggesting a one-off event or a major shift in compensation strategy rather than operational underperformance in core sales.
• The decrease in the number of franchisees from 45 to 22 in FY2025 is a concerning trend, contrasting with the growth strategies often pursued by competitors in expanding their retail footprint.
• The ineffectiveness of internal controls over financial reporting is a serious governance issue that would typically be viewed negatively compared to global benchmarks for publicly traded companies, potentially impacting investor confidence and regulatory standing.

Management Changes

Corporate Governance

Legal Proceedings

• Not currently a party to any actions, claims, suits, or other legal proceedings that management believes would individually or in the aggregate have a material adverse effect on the business, financial condition, and results of operations.

Related Party Transactions

• Advances from Ms. Xiaoqiu Zhang (CEO, Chairperson, controlling shareholder) for working capital: $35 as of October 31, 2025 (down from $14,339 in FY2024).
• Advances to Mr. Hengquan Zhang (Supervisor of Park Ha Jiangsu, parent of Xiaoqiu Zhang) for working capital: $nil as of October 31, 2025 (down from $10,964 in FY2023).
• Advances to Mr. Fujun Yu (Legal representative and executive director of Park Ha Jiangsu, supervisor of Park Ha Shanghai) for working capital: $nil as of October 31, 2025 (down from $6,277 in FY2023).
• Advances from Ms. Guozhen Liu (Limited partner of Changxin International Limited Partnership, executive director and legal representative of Park Ha Shanghai, supervisor of Xinzhan, parent of Xiaoqiu Zhang) as working capital: $nil as of October 31, 2025 (down from $6,565 in FY2023).
• Advances from Ms. Xiaoqiu Zhang as working capital: $nil as of October 31, 2025 (down from $61,596 in FY2023).
• Payment for rent on behalf of the Company by Ms. Li Wang (Supervisor of Park Ha Investment, director): $7,026 as of October 31, 2025.
• All amounts due from/to related parties are non-interest bearing, without maturity, and due on demand.

Stakeholder Impact

• Shareholders: Experience significant dilution from recent share issuances and the reverse stock split. The net loss and internal control issues could negatively impact share price and investor confidence. The dual-class share structure concentrates voting power with the CEO, limiting minority shareholder influence.
• Employees: Increased payroll and welfare expenses, including annual bonuses and listing bonuses, suggest positive compensation for some. However, the rapid growth and operational challenges could create pressure.
• Customers: Continued focus on product innovation, social marketing, and O2O model aims to enhance customer experience and loyalty. However, a decrease in franchisees might reduce physical access points for some customers.
• Franchisees: The decrease in the number of franchisees and the increase in allowance for expected credit losses on franchisee loans indicate financial difficulties and potential instability within the franchise network. Incentives like cash subsidies are offered, but their effectiveness in retention is questionable given the decline.
• Suppliers: Reliance on a limited number of suppliers for raw materials and ingredients poses concentration risk, potentially affecting product availability and costs.

Next Steps

• Expand partnerships with scientific research institutions to develop new skincare raw materials and products.
• Continue to improve and expand product and service offerings through R&D and technology innovations, focusing on small molecule peptide hydration penetration technology.
• Open vocational training schools in inland and western provinces of China to provide professional training to franchisee staff.
• Set up an internal training institute on beauty treatment to advance existing talents at the headquarters.
• Establish a complete on-the-job training system, partnering with vocational and technical colleges.
• Continue to improve brand awareness by using social media platforms (Douyin, RED, WeChat video) to attract potential customers and franchisees.
• Establish partnerships with additional third-party manufacturers to increase production and shorten wait times.
• Plan to establish partnerships with third-party warehouse and distribution centers to support businesses.
• Evaluate and selectively seek strategic alliances, investment, and acquisition opportunities in the beauty industry across China.
• Implement a 1-for-50 reverse stock split effective February 20, 2026, to regain compliance with Nasdaq's minimum bid price requirement.

Key Dates

Recommendation

The company's financial performance for FY2025 is severely concerning, marked by a substantial net loss of over $24 million, primarily due to a massive share-based compensation expense. While revenue saw a modest increase, the significant decline in operating cash flow and the reduction in the number of franchisees point to underlying operational weaknesses. The acknowledged ineffectiveness of internal controls over financial reporting is a critical red flag, indicating potential risks to financial integrity and compliance. Furthermore, the necessity of a 1-for-50 reverse stock split to maintain Nasdaq listing signals severe stock underperformance and raises questions about long-term viability and investor confidence. Despite a recent capital raise, the overall picture suggests significant instability and high risk, making a 'sell' recommendation appropriate for seasoned investors.

Keywords

Skincare, Beauty Products, Franchise Model, China Market, SEC Filing, Nasdaq Listing, Reverse Stock Split, Financial Performance, Net Loss, Share-based Compensation, Internal Controls, PRC Regulations, Cybersecurity, Data Privacy, Supply Chain, R&D, Cosmetics, O2O Model, Retail, E-commerce