MSS 10-Q
Maison Solutions Inc. (MSS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from to
Commission File No.
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
| (Address of Principal Executive Offices, including zip code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ | Large accelerated filer | ☐ | Accelerated filer | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is
a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No
As of March 14, 2025, the number of shares of Class
A common stock, $0.0001 par value, outstanding was
MAISON SOLUTIONS INC.
FORM 10-Q FOR THE QUARTER ENDED JANUARY 31, 2025
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAISON
SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| January 31, 2025 (Unaudited) |
April 30, 2024 |
|||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Accounts receivable - related parties | ||||||||
| Inventories, net | ||||||||
| Prepayments | ||||||||
| Other receivables and other current assets | ||||||||
| Other receivables - related parties | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Restricted cash | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Security deposits | ||||||||
| Investment under cost method | ||||||||
| Investment under cost method - related parties | ||||||||
| Investment under equity method | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Goodwill | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Bank overdraft | $ | $ | ||||||
| Accounts payable | ||||||||
| Accounts payable - related parties | ||||||||
| Accrued expenses and other payables | ||||||||
| Other payables - related parties | ||||||||
| Income tax payable | ||||||||
| Contract liabilities | ||||||||
| Operating lease liabilities, current | ||||||||
| Loan payable, current | ||||||||
| Notes payable, current | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Long-term loan payable | ||||||||
| Security deposit from sub-tenants | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Notes payable, non-current | ||||||||
| Deferred tax liability, net | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitment and contingencies (Note 17) | ||||||||
| STOCKHOLDER’S EQUITY | ||||||||
| Class A Common stock, $ |
||||||||
| Class B Common stock, $ |
||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Maison Solutions, Inc. stockholders’ equity | ||||||||
| Noncontrolling interest | ||||||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
1
MAISON SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended January 31, |
Nine Months Ended January 31, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( |
) | ( |
) | ||||||||||||
| Non-operating income (expenses) | ||||||||||||||||
| Interest expense, net | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Investment loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income, net | ||||||||||||||||
| Non-operating income (expenses), net | ( |
) | ( |
) | ( |
) | ||||||||||
| Income (loss) before income taxes | ( |
) | ( |
) | ||||||||||||
| Income tax expenses | ||||||||||||||||
| Net income (loss) before noncontrolling interest | ( |
) | ( |
) | ||||||||||||
| Less: net income (loss) attributable to noncontrolling interests | ( |
) | ( |
) | ||||||||||||
| Net income (loss) attributable to Maison Solutions, Inc. | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Net income (loss) per share attributable to Maison Solutions, Inc. | ||||||||||||||||
| Basic and diluted | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Weighted
average number of common stock outstanding - basic and diluted |
||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
MAISON SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
NINE AND THREE MONTHS ENDED JANUARY 31, 2025 AND 2024
(UNAUDITED)
| Class A | Class B | Additional | Retained Earnings | Total | ||||||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-in | (Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | Interests | Equity | |||||||||||||||||||||||||
| Balance at April 30, 2024 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Net income (loss) | — | — | ( |
) | ||||||||||||||||||||||||||||
| Balance at July 31, 2024 | ( |
) | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Balance at October 31, 2024 | ( |
) | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ||||||||||||||||||||||||||||
| Balance at January 31, 2025 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Class A | Class B | Additional | Retained Earnings | Total | ||||||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-in | (Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | Interests | Equity | |||||||||||||||||||||||||
| Balance at April 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Net income (loss) | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at July 31, 2023 | ||||||||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Issuance of common stock - IPO | ||||||||||||||||||||||||||||||||
| Balance at October 31, 2023 | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||
| Balance at January 31, 2024 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
MAISON SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended January 31, |
||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) before noncontrolling interest | $ | $ | ( |
) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Inventory impairment (reversal) | ( |
) | ||||||
| Bad debt expense (reversal) | ( |
) | ||||||
| Investment loss | ||||||||
| Changes in deferred taxes | ( |
) | ( |
) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Accounts receivable - related parties | ( |
) | ||||||
| Inventories | ( |
) | ( |
) | ||||
| Prepayments | ||||||||
| Other receivables and other current assets | ||||||||
| Security deposits | ( |
) | ||||||
| Accounts payable | ( |
) | ||||||
| Accounts payable - related parties | ||||||||
| Accrued expenses and other payables | ( |
) | ||||||
| Income tax payable | ||||||||
| Contract liabilities | ( |
) | ( |
) | ||||
| Operating lease liabilities | ||||||||
| Other long-term payables | ||||||||
| Net cash provided by (used in) operating activities | ( |
) | ||||||
| Cash flows from investing activities | ||||||||
| Payments for equipment purchase | ( |
) | ( |
) | ||||
| Payment for leasehold improvement of the supermarket | ( |
) | ||||||
| Payments of intangible assets purchase | ( |
) | ||||||
| Investment into TMA Liquor Inc | ( |
) | ||||||
| Investment into HKGF Market of Arcadia, LLC | ( |
) | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities | ||||||||
| Bank overdraft | ||||||||
| Borrowing from related parties | ||||||||
| Loan to related party | ( |
) | ||||||
| Repayment of loan payables | ( |
) | ( |
) | ||||
| Repayment of notes payable | ( |
) | ||||||
| Repayment of notes payable arising from acquisition of Lee Lee | ( |
) | ||||||
| Net proceeds from issuance of common stock | ||||||||
| Net cash provided by (used in) financing activities | ( |
) | ||||||
| Net changes in cash and restricted cash | ||||||||
| Cash and restricted cash at the beginning of the period | ||||||||
| Cash and restricted cash at the end of the period | $ | $ | ||||||
| Supplemental disclosure of cash and restricted cash | ||||||||
| Cash | $ | |||||||
| Restricted cash | ||||||||
| Total cash and restricted cash | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
MAISON SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2025 (UNAUDITED) AND APRIL 30, 2024
1. Organization
Maison Solutions Inc. (“Maison”, the “Company”, and formerly known as “Maison International Inc.”) was founded on July 24, 2019 as an Illinois corporation with its principal place of business in California. In September 2021, the Company was redomiciled in the State of Delaware as a corporation registered under the laws of the State of Delaware.
Immediately upon formation, the Company acquired three retail Asian supermarkets with two brands (Good Fortune and Hong Kong Supermarkets) in Los Angeles, California and rebranded them as “HK Good Fortune Supermarkets.” Upon completion of these acquisitions, these entities became controlled subsidiaries of the Company (hereafter collectively referred to as “Maison Group”).
| ● | In July 2019, the Company purchased |
| ● | In October 2019, the Company purchased |
| ● | On June 30, 2022, the Company purchased |
On
November 3, 2023, the Company incorporated a wholly-owned subsidiary, AZLL LLC (“AZLL”), in Arizona. On April 8, 2024, AZLL
closed an acquisition transaction and purchased
The Company, through its five subsidiaries, engages in the specialty grocery retailer business. The Company is a fast-growing specialty grocery retailer offering traditional Asian food and merchandise to U.S. consumers, in particular to Asian-American communities.
2. Summary of significant accounting policies
Liquidity
As reflected in the accompanying
consolidated financial statements, for the three and nine months ended January 31, 2025, the Company had a net income of $
The Company believes that its cash on hand and operating cash flows will be sufficient to fund its operations over at least the next 12 months from the date of issuance of these financial statements. However, the Company may need additional cash resources in the future if the Company experiences changed business conditions or other developments and may also need additional cash resources in the future if the Company wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed the Company’s amounts of cash on hand, the Company may seek to issue debt or equity securities or obtain a credit facility.
5
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
The interim consolidated financial information as of January 31, 2025 and for the three and nine months periods ended January 31, 2025 and 2024 have been prepared without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures, which are normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2024, previously filed with the SEC on August 13, 2024.
Principles of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries and, when applicable, entities for which the Company has a controlling financial interest. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
Noncontrolling interests
The Company follows the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCI”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to noncontrolling interests even when such allocation might result in a deficit balance.
The net income attributed to NCI was separately designated in the accompanying statements of operations. Losses attributable to NCI in a subsidiary may exceed a NCI’s interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCIs balance.
6
As
of January 31, 2025 and April 30, 2024, the Company had NCIs of $
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates are used for, but not limited to, useful lives of property and equipment, commitments and contingencies, inventory reserve, allowance for estimated uncollectable accounts receivable and other receivables, impairment of long-lived assets, contract liabilities and valuation of deferred tax assets.
Cash and cash equivalents
Cash
and equivalents include cash on hand, demand deposits and short-term cash investments that are highly liquid in nature and have
original maturities when purchased of three months or less. The Company’s cash is maintained at financial institutions in
the United States of America. Deposits in these financial institutions may, from time to time, exceed the Federal Deposit Insurance
Corporation (“FDIC”)’s federally insured limits. The standard insurance amount is $
Restricted cash
Restricted
cash is an amount of cash deposited with banks in conjunction with borrowings from banks. Restriction on the use of such cash and the
interest earned thereon is imposed by the banks and remains effective throughout the terms of the bank borrowings and notes payable.
Restricted cash is classified as non-current assets on the Company’s consolidated balance sheets, as all the balances are
not expected to be released to cash within the next 12 months. As of January 31, 2025 and April 30, 2024, the Company had restricted
cash of $
Credit losses
On May 1, 2023, the Company adopted Accounting Standards Update 2016-13 “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The adoption of the credit loss accounting standard has no material impact on the Company’s consolidated financial statements as of May 1, 2023.
The Company’s account receivables, prepayments, other receivables and other current assets in the balance sheet are within the scope of ASC Topic 326. As the Company has limited customers and debtors, the Company uses the loss-rate method to evaluates the expected credit losses on an individual basis. When establishing the loss rate, the Company makes the assessment on various factors, including historical experience, creditworthiness of customers and debtors, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from the customers and debtors. The Company also provides specific provisions for allowance when facts and circumstances indicate that the receivable is unlikely to be collected.
Expected credit losses are recorded as allowance for credit losses on the consolidated statements of operations. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amount that is previously reserved for, the Company will reduce the specific allowance for credit losses.
7
Accounts receivable
The Company’s accounts receivable arises from product sales. The Company does not adjust its receivables for the effects of a significant financing component at contract inception if it expects to collect the receivables in one year or less from the time of sale. The Company does not expect to collect receivables greater than one year from the time of sale.
The Company’s policy is
to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable
and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer
payment patterns to evaluate the adequacy of these reserves. As of January 31, 2025 and April 30, 2024, there was
Accounts receivable — related parties
Accounts receivable consist primarily
of receivables from related parties on 30-day credit terms and are presented net of an allowance for estimated uncollectible amounts.
The Company periodically assesses its accounts receivable for collectability on a specific identification basis. If collectability of
an account becomes unlikely, an allowance is recorded for that doubtful account. Once collection efforts have been exhausted, the accounts
receivable is written off against the allowance. As of January 31, 2025 and April 30, 2024, the allowance for credit losses was $
Prepayments
Prepayments
are mainly comprised of cash deposited and advanced to suppliers for future inventory purchases and services to be performed. This amount
is refundable and bears no interest. For any prepayments that management determines will not be in receipts of inventories, services,
or refundable, the Company recognizes an allowance account to reserve such balances. Management reviews its prepayments on a regular
basis to determine if the allowance is adequate and adjusts the allowance when necessary. Delinquent account balances are written-off against
allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of January 31,
2025 and April 30, 2024, the Company had made prepayments to its vendors of $
Other receivables and other current assets
Other receivables and other current assets primarily include non-interest-bearing loans of the other business entities, mainly the Company’s major vendors. Management regularly reviews the aging of receivables and changes in payment trends and records allowances when management believes collection of amounts due are at risk. Management reviews the composition of other receivables and analyzes historical bad debts, and current economic trends to evaluate the adequacy of the reserves. Accounts considered uncollectable are written off against allowances after exhaustive efforts at collection are made. As of January 31, 2025 and April 30, 2024, the Company did not have any bad debt allowance for other receivables.
Inventories, net
Inventories
consisting of finished goods and products available for sale are primarily accounted for using the first-in, first-out method. Merchandise
inventories are valued at the lower of cost or net realizable value. This valuation requires the Company to make judgments, based on
currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product
vendors, liquidations, and expected recoverable values of each disposition category. The Company recorded inventory shrinkage based on
the historical data and management’s estimates and provides a reserve for inventory shrinkage for the three and nine months ended
January 31, 2025 and 2024. The Company provided a reserve (reversal) for inventory shrinkage of $
8
Property and equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the individual assets.
The following table includes the estimated useful lives of certain of our asset classes:
| Furniture & fixtures | ||
| Leasehold improvements | ||
| Equipment | ||
| Automobiles |
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of operations. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Impairment of long-lived assets
Long-lived assets, which include property and equipment, intangible assets with finite lives, and operating lease right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying
amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment
or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against
the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable,
an impairment charge is measured as the amount by which the carrying amount of the asset group asset group exceeds its fair value based
on discounted cash flow analysis or appraisals. There was
Security deposits
Security deposits primarily include deposits made to the Company’s landlord for its supermarkets and office facilities. These deposits are refundable upon expiration of the lease.
Long-term investment
Cost method investment
The
Company accounts for investments with less than
9
In
May 2021, the Company purchased a
In
December 2021, the Company purchased a
Effective
on December 14, 2023, the Company purchased
Equity method investment
During
the year ended April 30, 2024, the Company invested $
Investment in equity securities is evaluated for impairment when facts or circumstances indicate that the fair value of the long-term investments is less than its carrying value. An impairment is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near-term prospects of the investments; and (v) ability to hold the security for a period sufficient to allow for any anticipated recovery in fair value. No event had occurred and indicated that other-than-temporary impairment existed and therefore the Company did not record any impairment charges for its investments for the three and nine months ended January 31, 2025.
Goodwill
Goodwill is the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. In accordance with ASC Topic 350, “Intangibles-Goodwill and Other,” goodwill is not amortized but is tested for impairment, annually or more frequently when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss is measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). The Company did not record any impairment loss during the three and nine months ended January 31, 2025 and 2024.
10
Leases
The Company determines if an arrangement contains a lease at the inception of a contract under ASC Topic 842. At the commencement of each lease, management determines its classification as an operating or finance lease. For leases that qualify as operating leases, right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of any remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU assets include adjustments for accrued lease payments. The ROU assets also include any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.
A short-term lease is defined as a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. When determining whether a lease qualifies as a short-term lease, the Company evaluates the lease term and the purchase option. Hence, the Company does not recognize any operating lease ROU assets and operating lease liabilities for short-term leases.
The Company evaluates the carrying value of ROU assets if there are indicators of impairment and review the recoverability of the related asset group. If the carrying value of the asset group is determined to not be recoverable and is in excess of the estimated fair value, the Company will record an impairment loss in other expenses in the consolidated statements of operations.
The Company also subleases certain mini stores that are within the supermarket to other parties. The Company collects security deposits and rent from these sub-lease tenants. The rent income collected from sub-lease tenants recognized as rental income and deducted occupancy cost. Occupancy cost mainly consists of rents and common area maintenance fees.
Fair value measurements
The Company records its financial assets and liabilities in accordance with the framework for measuring fair value in accordance with U.S. GAAP. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:
| Level 1: | Quoted prices for identical instruments in active markets. |
| Level 2: | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
| Level 3: | Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Fair value measurements of nonfinancial assets and non-financial liabilities are primarily used in the impairment analysis of intangible assets and long-lived assets.
Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.
11
Revenue recognition
The Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), from May 1, 2020, using the modified retrospective transition approach to all contracts that did not have an impact on the beginning retained earnings on May 1, 2020. The Group’s revenue recognition policies effective on the adoption date of ASC Topic 606 are presented as below.
In accordance with ASC Topic 606, the Company’s performance obligation is satisfied upon the transfer of goods to the customer, which occurs at the point of sale. Revenues are recorded net of discounts, sales taxes, and returns and allowances.
The
Company sells Company gift cards to customers. There are no administrative fees on unused gift cards, and the gift cards do not have
an expiration date. Gift card sales are recorded as contract liability when sold and are recognized as revenue when either the gift card
is redeemed or the likelihood of the gift card being redeemed is remote (“gift card breakage”). The Company’s gift
card breakage rate is based upon historical redemption patterns, and it recognizes breakage revenue utilizing the redemption recognition
method. The Company also offers discounts on the gift cards sold to its customers. The discounts are recorded as sales discount when
gift card been redeemed. The Company’s contract liability related to gift cards was $
The following table summarizes disaggregated revenue from contracts with customers by product group: perishable and non-perishable goods. Perishable product categories include meat, seafood, vegetables, and fruit. Non-perishable product categories include grocery, liquor, cigarettes, lottery, newspaper, reusable bag, non-food, and health products.
| Three Months Ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| Perishables | $ | $ | ||||||
| Non-perishables | ||||||||
| Total revenues | $ | $ | ||||||
| Nine Months Ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| Perishables | $ | $ | ||||||
| Non-perishables | ||||||||
| Total revenues | $ | $ | ||||||
Cost of sales
Cost of sales includes the rental expense, depreciation, the direct costs of purchased merchandise, shrinkage costs, store supplies, and inbound shipping costs. The cost of sales is a net of vendor’s rebates and discounts.
The Company subleases certain mini stores that are within the supermarket to other parties. The Company collects security deposits and rents from these sub-lease tenants. The rent income collected from sub-lease tenants are recognized as rental income reduction in rental expense.
Selling expenses
Selling
expenses mainly consist of advertising costs, promotion expenses, and payroll and related expenses for personnel engaged in selling and
marketing activities. Advertising expenses, which consist primarily of online and offline advertisements, are expensed when the services
are performed. The Company’s advertising expenses were $
12
General and administrative expenses
General and administrative expenses mainly consist of payroll and related costs for employees involved in general corporate functions, professional fees and other general corporate expenses, as well as expenses associated with the use by these functions of facilities and equipment, such as rental and depreciation expenses.
Concentrations of risks
(a) Major customers
For the three and nine months ended January 31, 2025 and 2024, the Company did not have any customers that accounted for more than 10% of consolidated total net sales.
(b) Major vendors
The following table sets forth information as to the Company’s suppliers that accounted for 10% or more of the Company’s total purchases for the three months ended January 31, 2025 and 2024.
| Three Months Ended January 31, 2025 | Three Months Ended January 31, 2024 | |||||||||||
| Supplier | Percentage of Total Purchases | Supplier | Percentage of Total Purchases | |||||||||
| A | % | A | % | |||||||||
| C | % | C | % | |||||||||
The following table sets forth information as to the Company’s suppliers that accounted for 10% or more of the Company’s total purchases for the nine months ended January 31, 2025 and 2024.
| Nine Months Ended January 31, 2025 | Nine Months Ended January 31, 2024 | |||||||||||
| Supplier | Percentage of Total Purchases | Supplier | Percentage of Total Purchases | |||||||||
| A | % | A | % | |||||||||
| C | % | C | % | |||||||||
(c) Credit risks
Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. Accounts receivable are typically unsecured and derived from products sold to customers and are thereby exposed to credit risk. However, the Company believes the concentration of credit risk in its accounts receivable is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for credit losses based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Historically, the Company did not have any bad debt on its accounts receivable.
The Company also has loan receivables to its centralized vendors occasionally. The loan receivables are typically unsecured and exposed to credit risk. However, the Company believes that the loan receivables amount to its centralized vendor is managed by its finance department and these centralized vendors are still providing products monthly to the Company. The Company does not generally require collateral from the vendors. The Company also evaluates the need for an allowance for credit losses based on upon factors surrounding the credit risks. Historically, the Company did not have any bad debt on its loan receivables and all loan receivables been collected in subsequent period.
13
Income taxes
Income taxes are accounted for in accordance with the provisions of ASC Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company’s deferred tax assets are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. In determining the need for a valuation allowance, management reviews both positive and negative evidence, including current and historical results of operations, future income projections, and the overall prospects of our business. Realization of the deferred tax assets is principally dependent upon achievement of projected future taxable income offset by deferred tax liabilities. Changes in recognition or measurement are reflected in the period in which the judgment occurs.
The
Company utilizes a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first
step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than
not the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure
the tax benefit as the largest amount which is more than
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law, intended to provide economic relief to those impacted by the COVID-19 pandemic. The CARES Act, among other things, includes provisions addressing the carryback of net operating losses for specific periods, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property (“QIP”). The impacts of the CARES Act are recorded as components within the Company’s deferred income tax liabilities and income tax receivable on the Company’s balance sheets.
Earnings (loss) per share
Basic
earnings (loss) per ordinary share is computed by dividing net earnings (loss) attributable to common stockholders by the weighted-average number
of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common stockholders
by the sum of the weighted average number of common stock outstanding and of potential common stock (e.g., convertible securities, options
and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common stock
that has an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) is excluded from the calculation
of diluted earnings per share. For the three and nine months ended January 31, 2025 and 2024, the Company had
Related Parties
The Company identifies related parties, accounts for, and discloses related party transactions in accordance with ASC Topic 850 “Related Party Disclosures” and other relevant ASC standards. Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all significant related party transactions in Note 12 — “Related party balances and transactions”.
14
Segment Information
The
Company’s chief operating decision-maker has been identified as the chief executive officer, who reviews financial information
presented on a consolidated basis accompanied by disaggregated information about revenues by different product types for purposes of
allocating resources and evaluating financial performance. The Company and its subsidiaries offer grocery products, general merchandise,
health and beauty care products, pharmacy and other items and services in its stores. The Company’s supermarket stores are geographically
based, have similar economic characteristics, and similar expected long-term financial performance. The Company’s operating
segments and reporting units are its four stores, which are reported in one reportable segment. There are no segment managers who are
held accountable for operations, operating results, and plans for levels or components below the consolidated unit level. Based on qualitative
and quantitative criteria established by ASC Topic 280, “Segment Reporting”, the Company considers itself to be operating
within
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This ASU requires additional quantitative and qualitative income tax disclosures to enable financial statements users better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2023-09 will have on its consolidated financial statement presentation or disclosures.
No other new accounting pronouncements issued or effective had, or are expected to have, a material impact on the Company’s consolidated financial statements.
3. Inventories, net
A summary of inventories, net was as follows:
| January 31, 2025 | April 30, 2024 | |||||||
| Perishables | $ | $ | ||||||
| Non-perishables | ||||||||
| Reserve for inventory shrinkage | ( | ) | ( | ) | ||||
| Inventories, net | $ | $ | ||||||
Movements of reserve for inventory shrinkage were as follows:
| Nine Months Ended January 31, 2025 | Nine Months Ended January 31, 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for (reversal of) inventory shrinkage reserve | ( | ) | ||||||
| Ending Balance | $ | $ | ||||||
15
4. Prepayments
Prepayments consisted of the following:
| January 31, 2025 | April 30, 2024 | |||||||
| Prepayment for inventory purchases | $ | $ | ||||||
| Prepaid directors and officers (“D&O”) insurance | ||||||||
| Prepaid income tax | ||||||||
| Prepaid professional service | ||||||||
| Prepaid rent | ||||||||
| Total prepayments | $ | $ | ||||||
As
of January 31, 2025, the prepayment for inventory purchases mainly consisted of $
As
of April 30, 2024, the prepayment for inventory purchases mainly consisted of $
5. Property and equipment, net
Property and equipment consisted of the following:
| January 31, 2025 | April 30, 2024 | |||||||
| Furniture & Fixtures | $ | $ | ||||||
| Equipment | ||||||||
| Leasehold Improvement | ||||||||
| Automobile | ||||||||
| Total property and equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expenses included in the general and administrative expenses for the three months ended January 31, 2025 and 2024 were $
6. Intangible assets
Intangible assets consisted of the following:
| January 31, 2025 | April 30, 2024 | |||||||
| Liquid license | $ | $ | ||||||
| Software systems (a) | ||||||||
| Trademark (b) | ||||||||
| Total intangible assets | ||||||||
| Accumulated amortization | ||||||||
| Intangible assets, net | $ | $ | ||||||
16
| (a) | Software systems |
On
October 30, 2023, the Company entered a System Purchase and Implementation Consulting Agreement with Drem Consulting Pte. Ltd. for purchasing
a merchandise display planning and management system for $
On
November 22, 2023, the Company entered a Supply Chain Management System Purchase Agreement with WSYQR Limited to purchase a supply chain
management system for $
| (b) | Trademark |
Trademark
mainly consisted of 1) a trademark acquired through the acquisition of Maison Monterey Park on June 30, 2022. The fair value of
the trademark from the acquisition of Maison Monterey Park at acquisition date was $
The
amortization expense for the three months ended January 31, 2025 and 2024 was $
7. Equity method investment
As
of October 31, 2024, the Company made an investment of $
The following table shows the unaudited condensed balance sheet of HKGF Arcadia as of January 31, 2025.
| January 31, 2025 (Unaudited) | ||||
| ASSETS | ||||
| Current Assets | ||||
| Cash and equivalents | $ | |||
| Accounts receivable | ||||
| Inventories, net | ||||
| Total Current Assets | ||||
| Property and equipment, net | ||||
| Intangible asset, net | ||||
| Goodwill | ||||
| Security deposits | ||||
| Total Assets | $ | |||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||
| Current Liabilities | ||||
| Accounts payable | $ | |||
| Other payables | ||||
| Contract liabilities | ||||
| Loan from shareholder | ||||
| Bank overdraft | ||||
| Total Current Liabilities | ||||
| Total Liabilities | ||||
| Stockholders’ Equity | ||||
| Paid in Capital | ||||
| Subscription receivable | ( | ) | ||
| Accumulated deficit | ( | ) | ||
| Total Stockholders’ Equity | ||||
| Total Liabilities and Stockholders’ Equity | $ | |||
17
The following table shows the unaudited condensed statement of operations of HKGF Arcadia for the three months ended January 31, 2025 and 2024.
| For the Three Months ended January 31, 2025 (unaudited) |
For the Three Months ended January 31, 2024 (unaudited) |
|||||||
| Net Revenues | ||||||||
| Supermarket | $ | $ | ||||||
| Total Revenues, Net | ||||||||
| Cost of Revenues | ||||||||
| Supermarket | ||||||||
| Total Cost of Revenues | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Total Operating Expenses | ||||||||
| Income (Loss) from Operations | ( |
) | ( |
) | ||||
| Other income | ||||||||
| Income (Loss) Before Income Taxes | ( |
) | ( |
) | ||||
| Income Taxes | ||||||||
| Net Income (Loss) | ( |
) | ( |
) | ||||
| Net Income (Loss) Attributable to Maison Solutions Inc. | $ | ( |
) | $ | ( |
) | ||
The following table shows the unaudited condensed statement of operations of HKGF Arcadia for the nine months ended January 31, 2025, and for the period from July 1, 2023 (business starting date) to January 31, 2024.
| For the Nine Months ended January 31, 2025 (unaudited) |
For the Period from July 1, 2023 to January 31, 2024 (unaudited) |
|||||||
| Net Revenues | ||||||||
| Supermarket | $ | $ | ||||||
| Total Revenues, Net | ||||||||
| Cost of Revenues | ||||||||
| Supermarket | ||||||||
| Total Cost of Revenues | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Total Operating Expenses | ||||||||
| Loss from Operations | ( |
) | ( |
) | ||||
| Other income | ||||||||
| Loss Before Income Taxes | ( |
) | ( |
) | ||||
| Income Taxes | ||||||||
| Net Loss | ( |
) | ( |
) | ||||
| Net Loss Attributable to Maison Solutions Inc. | $ | ( |
) | $ | ( |
) | ||
18
8. Goodwill
Goodwill represented the excess
fair value of the assets under the fair value of the identifiable assets owned at the closing of the acquisition of Maison Monterey Park
and Lee Lee, including an assembled workforce, which cannot be sold or transferred separately from the other assets in the business. See
Note 18 — “Acquisition of subsidiary” for additional information. As of January 31, 2025 and April
30, 2024, the Company had goodwill of $
9. Accrued expenses and other payables
Accrued expenses and other payables consisted of the following:
| January 31, 2025 | April 30, 2024 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued interest expense | ||||||||
| Accrued loss for legal matters (Note 17) | ||||||||
| Other payables | ||||||||
| Due to third parties, non-interest bearing, payable upon demand | ||||||||
| Sales tax payable | ||||||||
| Total accrued expenses and other payables | $ | $ | ||||||
10. Note Payable
On
April 8, 2024, AZLL closed an acquisition transaction and purchased
Under
the Senior Secured Note Agreement, the Secured Note will accrue interest on the outstanding principal amount at an annual interest rate
of five percent (
Upon
an “Event of Default” under the Senior Secured Note Agreement, the holders of the Secured Note will have certain rights,
including the right to (i) declare all of the obligations, as defined in the Senior Secured Note Agreement to be immediately due and
payable, and (ii) resume daily operational control of Lee Lee’s operations until such time as the Obligations, as defined in the
Senior Secured Note Agreement, have been satisfied. Additionally, if an “Event of Default” occurs, the outstanding principal
amount will bear interest at the simple interest rate of 10 percent (
19
On June 10, 2024, Lee Lee filed a Statement of Conversion with the Arizona Corporation Commission (the “ACC”) converting Lee Lee Oriental Supermart, Inc. into Lee Lee Oriental Supermart, LLC, an Arizona limited liability company (the “Conversion”). Following the Conversion, AZLL filed a Statement of Merger with the ACC, pursuant to which Lee Lee merged into AZLL, effective August 28, 2024 (the “Merger”). On September 9, 2024, AZLL filed a Statement of Division with the ACC resulting in the restoration of both Lee Lee and AZLL as separate legal entities (the “Division”). The Conversion, the Merger and the Division are herein referred to collectively as the “Lee Lee Reorganization.”
On October 21, 2024, Lee Lee, AZLL, the Company and the Holders entered into the First Amendment to Senior Secured Note Agreement (the “First Amendment”), which amends that certain Senior Secured Note Agreement, dated as of April 8, 2024. Among other things, the First Amendment amends the Secured Note to (i) reflect the Lee Lee Reorganization, (ii) modify certain cure periods pursuant to an “Event of Default” under the Secured Note, and (iii) include certain covenants and representations with respect to the Lee Lee Reorganization. Additionally, pursuant to the First Amendment, Lee Lee, AZLL and the Company irrevocably waive and forfeit any and all defenses, causes or remedies which may have arisen or may arise as a result of the Lee Lee Reorganization in relation to any action or enforcement of any rights, remedies or provisions of the Secured Note, the Security Agreement and/or otherwise at law taken by the Holders.
On
October 21, 2024, following the execution of the First Amendment, Lee Lee, AZLL and the Holders entered into the Second Amendment to
the Senior Secured Note Agreement (the “Second Amendment”). Among other things, the Second Amendment: (i) increases the annual
interest rate on the outstanding Principal Amount, effective as of October 8, 2024, to ten percent (
On March 12, 2025, the Company
entered into a note modification agreement dated March 12, 2025 (the “Modification Agreement”) with AZLL, Lee Lee, Holders
of the Secured Note, John Xu and Grace Xu (together with the Company, the “Parties”) to modify certain terms of the Note,
Security Agreement and Guarantees. Pursuant to the Modification Agreement, the Parties agreed to revise the payment schedule of the Note
and extend the maturity date of the Note to May 11, 2026 (the “Extended Maturity Date”). The Modification Agreement also provides
for an additional extension fee interest to accrue on the outstanding principal balance of the Note as of January 15, 2025 at an annual
rate of eight percent (8%), which shall become payable and immediately due on the earliest of (i) the Extended Maturity Date or (ii) immediately
upon the occurrence of any “Event of Default” under any of the Loan Documents or the Modification Agreement, as such term
is defined under the applicable Loan Document. Furthermore, the Modification Agreement includes additional “Events of Default”
and remedies under the Loan Documents, and additional covenants of the Company, among other things. The Modification Agreement increases
the annual interest rate on the outstanding Principal Amount, effective as of February 24, 2024, to twelve percent (
During the three months ended
January 31, 2025, the Company repaid $
11. Loan payables
A summary of the Company’s loans was listed as follows:
| Lender | Due date | January 31, 2025 | April 30, 2024 | |||||||
| U.S. Small Business Administration | ||||||||||
| Total loan payables | ||||||||||
| Current portion of loan payables | ( | ) | ( | ) | ||||||
| Non-current loan payables | $ | $ | ||||||||
20
U.S. Small Business Administration (the “SBA”)
| Borrower | Due date | January 31, 2025 | April 30, 2024 | |||||||
| Maison Monrovia | $ | $ | ||||||||
| Maison San Gabriel | ||||||||||
| Maison El Monte | ||||||||||
| Total SBA loan payables | $ | $ | ||||||||
On
June 15, 2020, Maison Monrovia entered into a $
On
June 15, 2020, Maison San Gabriel entered into a $
On
June 15, 2020, Maison El Monte entered into a $
Per
the SBA loan agreement, all interest payments on these three loans were deferred to December 2022. As of January 31, 2025 and April
30, 2024, the Company’s aggregate balance on the three SBA loans was $
As of January 31, 2025, the future minimum principal amount of loan payments to be paid by year were as follows:
| Year Ending January 31, | Amount | ||||
| 2026 | $ | ||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 | |||||
| Thereafter | |||||
| Total | $ | ||||
21
12. Related party balances and transactions
Related party transactions
Sales to related parties
| Name of Related Party | Nature | Relationship | Three Months ended January 31, 2025 | Three Months ended January 31, 2024 | ||||||||
| United Food LLC | $ | $ | ||||||||||
| HKGF Market of Arcadia, LLC | ||||||||||||
| HKGF Market of Alhambra, Inc. | ||||||||||||
| Total | $ | $ | ||||||||||
| Name of Related Party | Nature | Relationship | Nine Months ended January 31, 2025 | Nine Months ended January 31, 2024 | ||||||||
| United Food LLC | $ | $ | ||||||||||
| HKGF Market of Arcadia, LLC | ||||||||||||
| Grantstone, Inc | ||||||||||||
| HKGF Market of Alhambra, Inc. | ||||||||||||
| Total | $ | $ | ||||||||||
22
Purchases from related parties
| Name of Related Party | Nature | Relationship | Three Months Ended January 31, 2025 | Three Months Ended January 31, 2024 | ||||||||
| United Food, LLC | $ | $ | ||||||||||
| HKGF Market of Arcadia, LLC | ||||||||||||
| Dai Cheong Trading Co Inc. | ||||||||||||
| HKGF Market of Alhambra, Inc. | ||||||||||||
| Total | $ | $ | ||||||||||
| Name of Related Party | Nature | Relationship | Nine Months Ended January 31, 2025 | Nine Months Ended January 31, 2024 | ||||||||
| United Food, LLC | $ | $ | ||||||||||
| HKGF Market of Arcadia, LLC | ||||||||||||
| Dai Cheong Trading Co Inc. | ||||||||||||
| HKGF Market of Alhambra, Inc. | ||||||||||||
| Total | $ | $ | ||||||||||
Investment in equity purchased from related parties
| Name of Investment Company | Nature of Operation | Investment percentage | Relationship | As of January 31, 2025 | As of April 30, 2024 | |||||||||||
| Dai Cheong Trading Co Inc. | % | $ | $ | |||||||||||||
| HKGF Market of Alhambra, Inc. | % | |||||||||||||||
| Total | $ | $ | ||||||||||||||
23
In May 2021, the Company
purchased a
In December 2021, the Company
purchased a
Related party balances
Accounts receivable — sales to related parties
| Name of Related Party | Nature | Relationship | January 31, 2025 | April 30, 2024 | ||||||||
| HKGF Market of Arcadia, LLC | $ | $ | ||||||||||
| HKGF Market of Alhambra, Inc. | ||||||||||||
| JC Business Guys, Inc. | ||||||||||||
| Grantstone Inc. | ||||||||||||
| United Food, LLC | ||||||||||||
| Total | $ | $ | ||||||||||
Accounts payable — purchase from related parties
| Name of Related Party | Nature | Relationship | January 31, 2025 | April 30, 2024 | ||||||||
| Hong Kong Supermarket of Monterey Park, Ltd. | $ | $ | ||||||||||
| HKGF Market of Alhambra, Inc. | ||||||||||||
| Dai Cheong Trading Co Inc. | ||||||||||||
| Total | $ | $ | ||||||||||
24
Other receivables — related parties
| Name of Related Party | Nature | Relationship | January 31, 2025 | April 30, 2024 | ||||||||
| Ideal Investment | $ | $ | ||||||||||
| Ideal City Capital | ||||||||||||
| HKGF Market of Arcadia, LLC | ||||||||||||
| Total | $ | $ | ||||||||||
Other payables — related parties
| Name of Related Party | Nature | Relationship | January 31, 2025 | April 30, 2024 | ||||||||
| John Xu | $ | $ | ||||||||||
| Grace Xu | ||||||||||||
| New Victory Foods Inc | ||||||||||||
| Total | $ | $ | ||||||||||
13. Leases
The Company accounted for leases in accordance with ASU No. 2016-02, Leases (Topic 842) for all periods presented. The Company leases certain supermarkets and office facilities from third parties. Some of the Company’s leases include one or more options to renew, which are typically at the Company’s sole discretion. The Company evaluates the renewal options, and when it is reasonably certain of exercise, it will include the renewal period in its lease term. New lease modifications result in re-measurement of the right of use (“ROU”) assets and lease liabilities. Operating ROU assets and lease liabilities are recognized at the lease commencement date, based on the present value of lease payments over the lease term. Since the implicit rate for the Company’s leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments in a similar economic environment and over a similar term.
The Company’s leases mainly consist of store rent and copier rent. The store lease detail information is listed below:
| Store | Lease Term Due | |
| Maison Monrovia * | ||
| Maison San Gabriel | ||
| Maison El Monte | ||
| Maison Monterey Park | ||
| Lee Lee - Peoria store | ||
| Lee Lee - Chandler store | ||
| Lee Lee - Tucson store |
| * |
25
As of January 31, 2025, the average
remaining term of the supermarkets’ store lease was
In June and November 2022, the
Company entered three leases for three copiers with terms of
The copier lease detail information was listed below:
| Store | Lease Term Due | |
| Maison Monrovia | ||
| Maison San Gabriel | ||
| Maison Monterey Park | ||
| Maison El Monte |
The Company’s total lease
expenses under ASC 842 are $
The Company’s operating ROU assets and lease liabilities were as follows:
| January 31, 2025 |
April 30, 2024 |
|||||||
| Operating ROU: | ||||||||
| ROU assets – supermarket leases | $ | $ | ||||||
| ROU assets – copier leases | ||||||||
| Total operating ROU assets | $ | $ | ||||||
| January 31, 2025 |
April 30, 2024 |
|||||||
| Operating lease obligations: | ||||||||
| Current operating lease liabilities | $ | $ | ||||||
| Non-current operating lease liabilities | ||||||||
| Total lease liabilities | $ | $ | ||||||
As of January 31, 2025, the five-year maturity of the Company’s operating lease liabilities was as following:
| Twelve Months Ended January 31, | Operating lease liabilities |
|||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total future undiscounted lease payments | ||||
| Less: interest | ( |
) | ||
| Present value of lease liabilities | $ | |||
26
14. Stockholder’s equity
Common stock
Maison was initially authorized
to issue
Warrants
On October 10, 2023, the Company
issued the Underwriter non-redeemable warrants (the “Underwriter Warrants”) to purchase an amount equal to five (
Following is a summary of the activities of warrants for the nine months ended January 31, 2025:
| Number of Warrants | Exercise Price | Weighted Average Remaining Contractual Term in Years | ||||||||||
| Outstanding as of April 30, 2024 | $ | |||||||||||
| Exercisable as of April 30, 2024 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Expired | ||||||||||||
| Outstanding as of January 31, 2025 | $ | |||||||||||
| Exercisable as of January 31, 2025 | $ | |||||||||||
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15. Income Taxes
Maison is a Delaware holding
company that is subject to the U.S. income tax of
The provision for income taxes provisions consisted of the following components:
| Three Months ended January 31, 2025 |
Three Months ended January 31, 2024 |
|||||||
| Current: | ||||||||
| Federal income tax expense | $ | $ | ||||||
| State income tax expense (benefit) | ( |
) | ||||||
| Deferred: | ||||||||
| Federal income tax benefit | ( |
) | ( |
) | ||||
| State income tax benefit | ( |
) | ( |
) | ||||
| Total | $ | $ | ||||||
| Nine Months ended January 31, 2025 |
Nine Months ended January 31, 2024 |
|||||||
| Current: | ||||||||
| Federal income tax expense | $ | $ | ||||||
| State income tax expense | ||||||||
| Deferred: | ||||||||
| Federal income tax benefit | ( |
) | ( |
) | ||||
| State income tax benefit | ( |
) | ( |
) | ||||
| Total | $ | $ | ||||||
The following is a reconciliation of the difference between the actual (benefit) provision for income taxes and the (benefit) provision computed by applying the federal statutory rate on income (loss) before income taxes:
| Three Months ended January 31, 2025 |
Three Months ended January 31, 2024 |
|||||||
| Federal statutory rate expense | $ | $ | ( |
) | ||||
| State statutory rate, net of effect of state income tax deductible to federal income tax | ( |
) | ||||||
| Permanent difference – penalties, interest, and others | ||||||||
| Utilization of NOL | ||||||||
| Change in valuation allowance | ( |
) | ||||||
| Tax expense per financial statements | $ | $ | ||||||
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| Nine Months ended January 31, 2025 |
Nine Months ended January 31, 2024 |
|||||||
| Federal statutory rate expense | $ | $ | ( |
) | ||||
| State statutory rate, net of effect of state income tax deductible to federal income tax | ( |
) | ||||||
| Permanent difference – penalties, interest, and others | ||||||||
| Utilization of NOL | ( |
) | ||||||
| Change in valuation allowance | ||||||||
| Tax expense per financial statements | $ | $ | ||||||
Deferred tax assets and liabilities
are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their
respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse.
| January 31, 2025 |
April 30, 2024 |
|||||||
| Deferred tax assets: | ||||||||
| Bad debt expense | $ | $ | ||||||
| Inventory impairment loss | ||||||||
| Investment loss | ||||||||
| Lease liabilities, net of ROU | ||||||||
| NOL | ||||||||
| Valuation allowance | ( |
) | ( |
) | ||||
| Deferred tax assets, net | $ | $ | ||||||
| Deferred tax liability: | ||||||||
| Trademark acquired at acquisition of Maison Monterey Park and Lee Lee | $ | $ | ||||||
| Deferred tax liability, net of deferred tax assets | $ | $ | ||||||
As of January 31, 2025 and April
30, 2024, Maison and Maison El Monte had approximately $
29
The Company recorded $
As of January 31, 2024, the Company’s U.S. income tax returns filed for the year ending on December 31, 2021 and thereafter are subject to examination by the relevant taxation authorities.
16. Other income
For the nine months ended January
31, 2024, other income mainly consisted of $
17. Commitments and contingencies
Contingencies
The Company is otherwise periodically involved in various legal proceedings that are incidental to the conduct of its business, including, but not limited to, employment discrimination claims, customer injury claims, and investigations. When the potential liability from a matter can be estimated and the loss is considered probable, the Company records the estimated loss. Due to uncertainties related to the resolution of lawsuits, investigations, and claims, the ultimate outcome may differ from the estimates. Although the Company cannot predict with certainty the ultimate resolution of any lawsuits, investigations, and claims asserted against it, management does not believe any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its financial statements.
On January 2, 2024, the Company and our executive officers and directors, as well as Joseph Stone Capital LLC, and AC Sunshine Securities LLC, the underwriters in the Company’s initial public offering (together, the “Defendants”), were named in a class action complaint filed in the Supreme Court of the State of New York alleging violations of Sections 11 and 15 of the Securities Act of 1933, as amended (Ilsan Kim v. Maison Solutions Inc., et. al, Index No. 150024/2024). As relief, the plaintiffs are seeking, among other things, compensatory damages. On or about April 17, 2024, the parties agreed to stay the action in favor of the Rick Green matter described immediately below.
On January 4, 2024, the Defendants were named in a class action complaint filed in the United States District Court for the Central District of California alleging violations of Sections 11 and 15 of the Securities Act of 1933, as amended, as well as violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (Rick Green and Evgenia Nikitina v. Maison Solutions Inc., et. al., Case No. 2:24-cv-00063). As relief, the plaintiffs are seeking, among other things, compensatory damages.
The Company and Defendants believe the allegations in both complaints are without merit and intend to defend each suit vigorously. It is reasonably possible that a loss may be incurred; however, the possible range of losses is not reasonably estimable given the pending status of the cases.
On April 9, 2024, a shareholder derivative action was brought by Shah Azad derivatively on behalf of the Company against John Xu, Tao Han, Alexandria Lopez, Bin Wang, Mark Willis, and Xiaoxia Zhang, and the Company itself as a nominal defendant. The complaint was filed in the United States District Court for the Central District of California, Case No. 2:24-cv-02897. On April 12, 2024, another derivative complaint was filed by Arnab Baral in the United States District Court Central District of California, Case No. 2:24-cv-03018. The two cases have since been consolidated, with the Azad case taking lead. The lawsuits allege breaches of fiduciary duty, abuse of control, unjust enrichment, gross mismanagement, waste of corporate assets, and contribution under Section 11(f) of the Securities Act and Section 21D of the Exchange Act. The claims arise from the allegations underlying the class action securities lawsuits. On July 19, 2024, the Court ordered the Azad case stayed until a motion to dismiss is heard in the class action securities action. The Company is not able to make a reasonable estimate about the amount of contingent loss of these cases at current stage.
30
On September 8, 2023, a complaint
was filed by former employee against Maison San Gabriel for wrongful termination and labor law violation. Maison San Gabriel filed a general
denial in November 2023. Status conference is scheduled for July 1, 2025, and final status conference is scheduled for February 26, 2026.
Trial is schedule for March 9, 2026. In the complaint, the plaintiff’s counsel asked for a range of $
On September 3, 2024, a claim was filed against Maison El Monte alleging violations of the Unruh Civil Rights Act and the California Disabled Persons Act for building not having adequate access for disabilities. The case Management Conference is scheduled for January 30, 2025. The management is not able to estimate the outcome of the case due to early stage of the case.
On October 17, 2024, a complaint
was filed against HKGF Alhambra, HKGF Arcadia, Maison El Monte, Maison San Gabriel, Maison Monrovia, Maison Monterey Park and Tion Hin
for unpaid invoices of seafood purchase for $
Commitments
On April 19, 2021, JD E-commerce America
Limited (“JD US”) and the Company entered into a Collaboration Agreement (the “Collaboration Agreement”) pursuant
to which JD.com will provide services to Maison focused on updating in store technology through the development of a new mobile app, the
updating of new in-store technology, and revising store layouts to promote efficiency. The Collaboration Agreement provided for a
consultancy and initialization fee of $
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18. Acquisition of subsidiary
On April 4, 2024, AZLL, an Arizona
limited liability company and a wholly-owned subsidiary of Maison, entered into a Stock Purchase Agreement (the “Stock Purchase
Agreement”) with Meng Truong (“Meng Truong”) and Paulina Truong (“Paulina Truong” and, together with Meng
Truong, the “Sellers”), pursuant to which AZLL purchased
Pursuant to the Stock Purchase
Agreement, AZLL agreed to pay to the Sellers an aggregate purchase price of approximately $
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. Goodwill as a result of the acquisition of Lee Lee was calculated as follows:
| Total purchase considerations * | $ | |||
| Fair value of tangible assets acquired: | ||||
| Other receivables | ||||
| Property and equipment | ||||
| Security deposits | ||||
| Inventory | ||||
| Operating lease right-of-use assets, | ||||
| Intangible assets (trademark) acquired | ||||
| Total identifiable assets acquired | ||||
| Fair value of liabilities assumed: | ||||
| Accounts payable | ( |
) | ||
| Contract liabilities | ( |
) | ||
| Accrued liabilities and other payables | ( |
) | ||
| Due to related parties | ( |
) | ||
| Tenant security deposits | ( |
) | ||
| Operating lease liabilities | ( |
) | ||
| Deferred tax liability | ( |
) | ||
| Total liabilities assumed | ( |
) | ||
| Net identifiable assets acquired | ||||
| Goodwill as a result of the acquisition | $ |
| * |
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The following condensed unaudited pro forma consolidated results of operations for the Company for the three and nine months ended January 31, 2024 present the results of operations of the Company and Lee Lee as if the acquisition occurred on May 1, 2023.
The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisitions been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.
| For the Three Months Ended January 31, 2024 |
||||
| (Unaudited) | ||||
| Revenue | $ | |||
| Operating costs and expenses | ||||
| Income from operations | ( |
) | ||
| Other income | ||||
| Income tax expense | ( |
) | ||
| Net income | $ | ( |
) | |
| For the Nine Months Ended January 31, 2024 |
||||
| (Unaudited) | ||||
| Revenue | $ | |||
| Operating costs and expenses | ||||
| Income from operations | ||||
| Other income | ||||
| Income tax expense | ( |
) | ||
| Net income | $ | |||
19. Subsequent Event
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company had the following subsequent events that need to be disclosed.
On March 12, 2025, the Company entered into a securities purchase agreement
(the “Purchase Agreement”) with an institutional investor (the “Investor” or “Holder”), pursuant to
which the Company agreed to issue and sell to the Investor, and the Investor agreed to purchase from the Company, (i) a senior unsecured
convertible promissory note in the aggregate original principal amount of $
The Company at its option
has the right, but not the obligation, to redeem a portion or all amounts outstanding under the Initial Note prior to maturity pursuant
to the terms of the Initial Note. The number of shares of Common Stock issuable upon conversion of the Initial Note will be determined
by dividing (x) the portion of the principal, interest, or other amounts outstanding under the Initial Note to be converted (the “Conversion
Amount”) by (y) the Conversion Price. The Conversion Price of the Initial Note is initially $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with those statements. You should read the following discussion in conjunction with our consolidated financial statements and related notes which are included elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, but not limited to, those described under “Risk Factors,” and included in other portions of this Quarterly Report on Form 10-Q.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties, and assumptions about us that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings. References to “we,” “us,” “our,” “Maison” or the “Company” are to Maison Solutions Inc., except where the context requires otherwise.
Overview
We are a fast-growing, specialty grocery retailer offering traditional Asian food and merchandise to modern U.S. consumers, in particular to members of Asian-American communities. We are committed to providing Asian fresh produce, meat, seafood, and other daily necessities in a manner that caters to traditional Asian-American family values and cultural norms, while also accounting for the new and faster-paced lifestyle of younger generations and the diverse makeup of the communities in which we operate. To achieve this, we are developing a center-satellite stores network.
Since our formation in July 2019, we have acquired equity interests in four (4) traditional Asian supermarkets in Los Angeles, California. Since April 30, 2022, we have been operating these supermarkets as center stores. The center stores target traditional Asian-American, family-oriented customers with a variety of meat, fresh produce and other merchandise, while additionally stocking items which appeal to the broader community. We are operating these traditional Asian-American, family-oriented supermarkets with our management’s deep cultural understanding of our consumers’ unique consumption habits.
In addition to the traditional supermarkets, on December 31, 2021, we acquired a 10% equity interest in a new grocery store located in Alhambra, California, a young and active community (the “Alhambra Store”) from Mrs. Grace Xu, the spouse of Mr. John Xu, our chief executive officer (“CEO”), Chairman and President. Our intention is to acquire the remaining 90% equity interest in the Alhambra Store and operate it as our first satellite store. The investment in the Alhambra Store is considered a related party transaction because Mrs. Xu is the spouse of Mr. Xu, our CEO, Chairman and President. Please refer to “Certain Relationships and Related Party Transactions” for further explanation.
In May 2021, the Company acquired 10% of the equity interests in Dai Cheong, a wholesale business which mainly supplies foods and groceries imported from Asia, which is owned by John Xu, our CEO, Chairman and President. We intend to acquire the controlling ownership of Dai Cheong. By adding Dai Cheong to our portfolio, we will take the first step toward creating a vertically integrated supply-retail structure. Having an importer as a part of our portfolio will allow us the opportunity to offer a wider variety of products and to reap the benefits of preferred wholesale pricing.
34
On June 27, 2023, we invested $1,440,000 for 40% equity interest in HKGF Market of Arcadia, LLC (“HKGF Arcadia”), a supermarket in the city of Arcadia, California, to further expand our footprint to new neighborhood. On December 6, 2023, we invested an additional $360,000 for another 10% equity interest in HKGF Arcadia. On February 1, 2024, the Company and JC Business Guys, Inc., the only other member of HKGF Arcadia (“JC Business Guys”), entered into a third amendment to the operating agreement of HKGF Arcadia to decrease our percentage equity interest in HKGF Arcadia to 49% and increase JC Business Guy’s percentage equity interest to 51%.
On November 3, 2023, we incorporated a wholly-owned subsidiary, AZLL LLC (“AZLL”), in Arizona. On April 8, 2024, AZLL closed an acquisition transaction and purchased 100% of the equity interests in Lee Lee Oriental Supermart, Inc. (“Lee Lee”) for an aggregate purchase price of approximately $22.2 million, consisting of: (i) $7.0 million in cash paid immediately at the closing of the transaction, and (ii) a senior secured promissory note (the “Secured Note”) with an original principal amount of approximately $15.2 million pursuant to a senior secured note agreement dated April 8, 2024 and amended on October 21, 2024 (as amended, the “Senior Secured Note Agreement”). Lee Lee is a three-store supermarket chain operating in Arizona under the name Lee Lee International Supermarkets and specializing in ethnic groceries.
Collaboration with JD.com
On April 19, 2021, JD E-commerce America Limited (“JD US”), the U.S. subsidiary of JD.com, and Maison entered into a Collaboration Agreement (the “Collaboration Agreement”) pursuant to which JD.com will provide services to Maison focused on updating in store technology through the development of a new mobile app, the updating of new in-store technology, and revising store layouts to promote efficiency. The agreement included a consultancy and initialization fee of $220,000, 40% of which was payable within three (3) days of effectiveness and which has been paid, 40% of which is due within three (3) days of the completion and delivery of initialization services as outlined in the Collaboration Agreement, and the remaining 20% is payable within three (3) days of the completion and delivery of the implementation services, as outlined in the Collaboration Agreement. The Collaboration Agreement also included certain additional storage and implementation fees to be determined by the parties and royalty fees, following the commercial launch of the platform developed by JD.com, of 1.2% of gross merchandise value based on information generated by the platform. For each additional store requiring consultancy and initialization service, an additional $50,000 will be charged for preparing the feasibility plan for such additional store. The Collaboration Agreement has an initial term of 10 years and customary termination and indemnification provisions. Simultaneously with the effectiveness of the Collaboration Agreement, JD US and Maison entered into an Intellectual Property License Agreement (the “IP Agreement”) outlining certain trademarks, logos and designs and other intellectual property rights used in connection with the retail supermarket operations outlined in the Collaboration Agreement, which includes an initial term of 10 years and customary termination provisions.
Key Factors that Affect Operating Results
Inflation
The inflation rate for the United States was 3.0% for the nine months ended January 31, 2025, 3.4% for the year ended April 30, 2024 and 4.9% for the year ended April 30, 2023 according to Bureau of Labor Statistics. Inflation increased our purchase costs, occupancy costs, and payroll costs.
Operating Cost Increase After Initial Public Offering
We historically have operated our business as a private company. We completed our initial public offering on October 10, 2023. As a public company, we are subject to increased operating costs related to our listing on Nasdaq, including increased costs related to our compliance with Securities Act and Exchange Act periodic reporting, annual audit expenses, legal service expenses, and related consulting service expenses.
35
Competition
Food retail is a competitive industry. Our competition varies and includes national, regional, and local conventional supermarkets, national superstores, alternative food retailers, natural foods stores, smaller specialty stores, farmers’ markets, supercenters, online retailers, mass or discount retailers and membership warehouse clubs. Our principal competitors include 99 Ranch Market and H-Mart for conventional supermarkets and Weee! for online groceries. Each of these stores competes with us based on product selection, product quality, customer service, price, store format, location, or a combination of these factors. In addition, some competitors are aggressively expanding their number of stores or their product offerings. Some of these competitors may have been in business longer, may have more experience operating multiple store locations, or may have greater financial or marketing resources than us.
As competition in certain areas intensifies or competitors open stores within proximity to our stores, our results of operations may be negatively impacted through a loss of sales, decrease in market share, reduction in margin from competitive price changes, or greater operating costs. In addition, other established food retailers could enter our markets, increasing competition for market share.
Payroll
As of January 31, 2025, we had approximately 376 employees including employees from our newly acquired subsidiary, Lee Lee, which is based in the State of Arizona. Our employees are not unionized nor, to our knowledge, are there any plans for them to unionize. We have never experienced a strike or significant work stoppage. We consider our employee relations to be good. Minimum wage rates in some states have recently increased. For example, in California, the minimum wage was $15.50 per hour in 2023 and increased to $16 per hour starting from January 1, 2024; in Arizona, the minimum wage was $13.85 per hour in 2023, and increased to $14.35 per hour starting from January 1, 2024. Our payroll and payroll tax expenses were $3.5 million and $1.8 million for the three months ended January 31, 2025 and 2024, respectively. Our payroll and payroll tax expenses were $11.5 million and $5.2 million for the nine months ended January 31, 2025 and 2024, respectively.
Vendor and Supply Management
Maison believes that a centralized and efficient vendor and supply management system is the key to profitability. Maison has major vendors, including Lawrence Wholesale, BRC International Inc, ONCO Food Corp., GF Distribution, Inc., and XHJC Holding Inc. For the three months ended January 31, 2025, these five suppliers accounted for 5%, 6%, -%, 7% and 5% of the Company’s total purchases, respectively. For the three months ended January 31, 2024, two suppliers accounted for 25%, and 16% of the Company’s total purchases, respectively. For the nine months ended January 31, 2025, these five suppliers accounted for 9%, 8%, 1%, 4%, and 7% of the Company’s total purchases, respectively. For the nine months ended January 31, 2024, three suppliers accounted for 30%, 18% and 9% of the Company’s total purchases, respectively. Maison believes that its centralized vendor management enhances its negotiating power and improves its ability to manage vendor payables.
Store Maintenance and Renovation
From time to time, Maison conducts maintenance on the fixtures and equipment for its stores. Any maintenance or renovations could interrupt the operation of our stores and result in a decline in customer volume. Significant maintenance or renovation would affect our operations and operating results. Meanwhile, improving the store environment can also attract more customers and lead to an increase in sales. Maison focused on improving and renovating our stores for the three and nine months ended January 31, 2025 and 2024. We spent $0.24 million for the three months ended January 31, 2025 for repairs and maintenance and supermarket renovation, a decrease of $0.11 million compared to $0.35 million for the three months ended January 31, 2024 Lee. We spent $0.69 million (including $0.4 million for Lee Lee) for the nine months ended January 31, 2025 for repairs and maintenance and supermarket renovation, an increase of $0.25 million compared to $0.44 for the nine months ended January 31, 2024 mainly due to the acquisition of our new subsidiary Lee Lee.
Liquidity
As reflected in the accompanying consolidated financial statements, for the three and nine months ended January 31, 2025, the Company had a net income of $1,011,763 and $1,456,662, respectively. However, the Company had an accumulated deficit of approximately $1.36 million and negative working capital of $11.50 million as of January 31, 2025. The Company also need approximately $8.0 million cash to repay Lee Lee's acquisition price, the acquisition was completed on April 8, 2024. The working capital requirements are affected by the efficiency of operations and depend on the Company’s ability to increase its revenue. The Company plans to increase its revenue by strengthening its sales force, providing attractive sales incentive programs, recruiting experienced industry-related managerial personnel, increasing marketing and promotion activities, seeking suppliers with competitive price and good quality products, opening or acquiring additional specialty supermarkets in the locations that have less-competition.
The Company believes that its cash on hand and operating cash flows will be sufficient to fund its operations over at least the next 12 months from the date of issuance of these financial statements. However, the Company may need additional cash resources in the future if the Company experiences changed business conditions or other developments and may also need additional cash resources in the future if the Company wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed the Company’s amounts of cash on hand, the Company may seek to issue debt or equity securities or obtain a credit facility.
36
Critical Accounting Policy
Related Parties
The Company identifies related parties, and accounts for, and discloses related party transactions in accordance with ASC Topic 850 “Related Party Disclosures” and other relevant ASC standards. Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates are used for, but not limited to, useful lives of property and equipment, commitments and contingencies, inventory reserve, allowance for estimated uncollectable accounts receivables and other receivables, impairment of long-lived assets, contract liabilities, and valuation of deferred tax assets. Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates have become more challenging, and actual results could differ materially from these estimates.
Inventories
Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. The Company records inventory shrinkage based on historical data and management’s estimates and provided a reserve for inventory shrinkage for the three and nine months ended January 31, 2025 and 2024. The Company provided a reserve (reversal) for inventory shrinkage of $27,639 and $2,471 for the three months ended January 31, 2025 and 2024, respectively. The Company provided a reserve (reversal) for inventory shrinkage of $342,472 and $(1,088) for the nine months ended January 31, 2025 and 2024, respectively.
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Revenue Recognition
The Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), from May 1, 2020 using the modified retrospective transition approach to all contracts that did not have an impact on the beginning retained earnings on May 1, 2020. The Group’s revenue recognition policies effective on the adoption date of ASC Topic 606 are presented as below.
In accordance with ASC Topic 606, the Company’s performance obligation is satisfied upon the transfer of goods to the customer, which occurs at the point of sale. Revenues are recorded net of discounts, sales taxes, and returns and allowances.
The Company sells Company gift cards to customers. There are no administrative fees on unused gift cards and the gift cards do not have an expiration date. Gift card sales are recorded as contract liability when sold and are recognized as revenue when either the gift card is redeemed, or the likelihood of the gift card being redeemed is remote (“gift card breakage”). The Company’s gift card breakage rate is based upon historical redemption patterns, and it recognizes breakage revenue utilizing the redemption recognition method. The Company also offers discounts on the gift cards sold to its customers. The discounts are recorded as sales discount when gift card been redeemed.
The Company’s contract liability related to gift cards was $769,739 and $965,696 as of January 31, 2025 and April 30, 2024, respectively.
Leases
The Company determines if an arrangement contains a lease at the inception of a contract under ASC Topic 842. At the commencement of each lease, management determines its classification as an operating or finance lease. For leases that qualify as operating leases, ROU assets and liabilities are recognized at the commencement date based on the present value of any remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU assets include adjustments for accrued lease payments.
ROU assets also include any lease payments made prior to commencement and are recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.
A short-term lease is defined as a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. When determining whether a lease qualifies as a short-term lease, the Company evaluates the lease term and the purchase option. Hence, the Company does not recognize any operating lease ROU assets and operating lease liabilities for short-term leases.
The Company evaluates the carrying value of ROU assets if there are indicators of impairment and review the recoverability of the related asset group. If the carrying value of the asset group is determined to not be recoverable and is in excess of the estimated fair value, the Company will record an impairment loss in other expenses in the consolidated statements of operations.
The Company also subleases certain mini stores that are within the supermarket to other parties. The Company collects security deposits and rent from these sub-lease tenants. The rent income collected from sub-lease tenants recognized as rental income and deducted occupancy cost.
Recently Issued Accounting Pronouncements
Please refer to Note 2 — “Summary of significant accounting policies” for details.
How to Assess Our Performance
In assessing performance, management considers a variety of performance and financial measures, including principal growth in net revenue, gross profit and selling, and general and administrative expenses. The key measures that we use to evaluate the performance of our business are set forth below.
Net Revenue
Our net revenues comprise gross revenues net of returns and discounts. We do not record sales taxes as a component of retail revenues as it is considered a pass-through conduit for collecting and remitting sales taxes.
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Gross Profit
We calculate gross profit as net revenues less cost of revenues and occupancy costs. Gross margin represents gross profit as a percentage of net revenues. Occupancy costs include store rental costs. The components of our cost of revenues and occupancy costs may not be identical to those of our competitors. As a result, our gross profit and gross margin may not be comparable to similar data made available by our competitors.
Cost of revenue includes the purchase price of consumer products, inbound and outbound shipping costs, including costs related to our sorting and delivery center, which is the warehouse attached to the El Monte store, and where we are the transportation service provider. Shipping costs to receive products from our suppliers are included in our inventory and recognized in cost of revenues upon sale of products to our customers.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses primarily consist of retail operational expenses, administrative salaries and benefits costs, marketing costs, advertising costs, and corporate overhead.
Selling expenses mainly consist of advertising costs, promotion expenses, and payroll and related expenses for personnel engaged in selling and marketing activities.
General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses; facilities and equipment expenses, such as depreciation and amortization expense and rent; and professional fees and litigation costs.
Results of Operations for the Three Months Ended January 31, 2025 and 2024
| Three Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | Percentage Change | |||||||||||||
| Net revenues | $ | 34,149,223 | $ | 13,598,479 | $ | 20,550,744 | 151.1 | % | ||||||||
| Cost of revenues | 26,607,590 | 10,410,684 | 16,196,906 | 155.6 | % | |||||||||||
| Gross profit | 7,541,633 | 3,187,795 | 4,353,838 | 136.6 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling expenses | 4,852,417 | 2,438,846 | 2,413,571 | 99.0 | % | |||||||||||
| General and administrative expenses | 1,574,752 | 1,056,118 | 518,634 | 49.1 | % | |||||||||||
| Total operating expenses | 6,427,169 | 3,494,964 | 2,932,205 | 83.9 | % | |||||||||||
| Income from operations | 1,114,464 | (307,169 | ) | 1,421,633 | 462.8 | % | ||||||||||
| Other income (expenses), net | 158,176 | (50,306 | ) | 208,482 | 414.43 | % | ||||||||||
| Interest expense, net | (269,059 | ) | (19,425 | ) | (249,634 | ) | 1,285.1 | % | ||||||||
| Income before income taxes | 1,003,581 | (376,900 | ) | 1,380,481 | 366.3 | % | ||||||||||
| Income tax provisions | 8,416 | 158,656 | (150,240 | ) | (94.7 | )% | ||||||||||
| Net income (loss) | 995,165 | (535,556 | ) | 1,530,721 | (285.8 | )% | ||||||||||
| Net income (loss) attributable to noncontrolling interests | (16,598 | ) | 13,398 | (29,996 | ) | (223.9 | )% | |||||||||
| Net income (loss) attributable to Maison Solutions Inc. | $ | 1,011,763 | $ | (548,954 | ) | $ | 1,560,717 | 284.3 | % | |||||||
Revenues
| Three Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | Percentage Change | |||||||||||||
| Perishables | $ | 17,434,918 | $ | 7,243,469 | $ | 10,191,449 | 140.7 | % | ||||||||
| Non-perishables | 16,714,305 | 6,355,010 | 10,359,294 | 163.0 | % | |||||||||||
| Net revenue | $ | 34,149,223 | $ | 13,598,479 | $ | 20,550,743 | 151.1 | % | ||||||||
Our net revenues were approximately $34.1 million for the three months ended January 31, 2025, an increase of approximately $20.6 million or 151.1%, from approximately $13.6 million for the three months ended January 31, 2024. The increase in net revenues was driven by the inclusion of revenues from our newly acquired subsidiary, Lee Lee (acquired in April 2024), of $21.6 million and increased sales of Maison El Monte by $0.2 million, which was partly offset by decreased sales of Maison Monterey Park by $0.5 million, decreased sales of Maison San Gabriel by $0.5 million and decreased sales of Maison Monrovia by $0.3 million, as compared to the three months ended January 31, 2024. Our four California-based supermarkets contributed $12.5 million in revenue during the three months ended January 31, 2025, a decrease of approximately $1.1 million, as compared to the three months ended January 31, 2024. The $1.1 million decrease of our California-based supermarkets was mainly due to increased competition from newly opened Asian supermarkets in nearby area, the effect of certain COVID-19 pandemic-era relief programs ending in fall 2023 such as losing access to foods stamps due to resume of work requirement for food stamps.
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Cost of Revenues
| Three Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | Percentage Change | |||||||||||||
| Total cost of revenues | $ | 26,607,590 | $ | 10,410,684 | $ | 16,196,906 | 155.6 | % | ||||||||
Cost of revenues includes cost of supermarket product sales and occupancy costs, which are store rent expense, depreciation for store property and equipment, inventory shrinkage costs and store supplies. The depreciation expense comes from machinery & equipment, such as refrigerators, water heaters, forklifts, and freezers and furniture & fixtures, such as metal shelves, shopping carts, and LED lights. Shrinkage costs are different for different types of products. For example, fruits and vegetables have a high allowance rate during the receiving and display process. The seafood and meat departments have a low allowance rate because the non-fresh products can freeze and sell for the same price or even higher price after being cut. The cost of revenues increased by $16.2 million, from $10.4 million for the three months ended January 31, 2024, to approximately 26.6 million for the three months ended January 31, 2025. The increase in cost of revenues was mainly from our newly acquired subsidiary, Lee Lee (acquired in April 2024), by $17.0 million, which was partly offset by decreased cost of revenues from our four California-based supermarkets by $0.8 million.
Gross Profit and Gross Margin
| Three Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | Percentage Change | |||||||||||||
| Gross Profit | $ | 7,541,633 | $ | 3,187,795 | $ | 4,353,838 | 136.6 | % | ||||||||
| Gross Margin | 22.1 | % | 23.4 | % | (1.4 | )% | ||||||||||
Gross profit was approximately $7.5 million and $3.2 million for the three months ended January 31, 2025 and 2024, respectively. Gross margin was 22.1% and 23.4% for the three months ended January 31, 2025 and 2024, respectively. Our supermarkets’ sales profit margins decreased by 1.4% for the three months ended January 31, 2025 compared to the three months ended January 31, 2024. The decrease in our gross profit was mainly due to decreased gross profit from Maison Monterey Park resulting from increased competition from newly opened Asian supermarkets in nearby area.
Total Operating Expenses
| Three Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | Percentage Change | |||||||||||||
| Selling Expenses | $ | 4,852,417 | $ | 2,438,846 | $ | 2,413,571 | 99.0 | % | ||||||||
| General and Administrative Expenses | 1,574,752 | 1,056,116 | 518,634 | 49.1 | % | |||||||||||
| Total Operating Expenses | $ | 6,427,169 | $ | 3,494,964 | $ | 2,932,205 | 83.9 | % | ||||||||
| Percentage of revenue | 18.8 | % | 25.7 | % | (6.9 | )% | ||||||||||
Total operating expenses were approximately $6.4 million for the three months ended January 31, 2025, an increase of approximately $2.9 million, compared to approximately $3.5 million for the three months ended January 31, 2024. Total operating expenses as a percentage of revenues were 18.8% and 25.7% for the three months ended January 31, 2025 and 2024, respectively. The increase in operating expenses was primarily attributable to the increase in selling expenses, which included the increase in payroll expense, utility expense, advertising and promotion expense, postage & delivery expense and merchant service charges as result of the acquisition of Lee Lee. Payroll expense increased by $1.8 million in the three months ended January 31, 2025, as compared to the three months ended January 31, 2024 due to the increase of hourly rate and increased number of employees due to the acquisition of Lee Lee. Utility expenses increased by $0.2 million in the three months ended January 31, 2025, as compared to the three months ended January 31, 2024. Bank service charges increased by $0.4 million in the three months ended January 31, 2025, as compared to the three months ended January 31, 2024 due to increased sales describe above.
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The increase in general and administrative expenses during the three months ended January 31, 2025 was primarily due to increased office expense by $384,127, increased amortization expense by $70,958 due to the new trademark acquired through the acquisition of Lee Lee, increased utility expense by $25,459, increased bad debt expense by $62,483, and increased repair and maintenance expense by $194,464, which was partly offset by decreased professional fee by $149,822.
Other Income (Expenses), Net
Other income were $158,176 for the three months ended January 31, 2025 compare to other expense of $50,306 for the three months ended January 31, 2024. For the three months ended January 31, 2025, other expenses mainly consisted of investment loss of $71,023, which was partly offset by other income of $229,199. For the three months ended January 31, 2024, other expenses mainly consisted of investment loss of $51,204 from HKGF Arcadia, which was partially offset by other income of $898.
Interest Income (Expense), Net
Interest expense was $269,059 for the three months ended January 31, 2025, an increase of $249,634 from $19,425 for the three months ended January 31, 2024. For the three months ended January 31, 2025, the interest expense was for the SBA Loans and note payable arising from the acquisition of Lee Lee. For the three months ended January 31, 2024, the interest expense was for the SBA Loans and the loans with American First National Bank (the “AFNB Loans”). The AFNB Loans were repaid in full as of April 30, 2024.
Income Taxes Provisions
Income tax expense was $8,416 for the three months ended January 31, 2025, decrease of $150,240 from income taxes expense of $158,656 for the three months ended January 31, 2024. The decrease was mainly due to the utilization of NOL from the subsidiaries that had NOL since Maison files consolidated income tax return.
Net Income (loss)
Net income attributable to the Company was $1,011,763 for the three months ended January 31, 2025, an increase of $1,560,717, or 284.3%, from a $548,954 net loss attributable to the Company for the three months ended January 31, 2024. This was mainly attributable to the reasons discussed above, which included an increase in gross profit by $4,353,838, which was partly offset by increased investment loss by $19,819, increased interest expenses by $249,634, and increased operating expenses by $2,932,205.
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Results of Operations for the Nine Months Ended January 31, 2025 and 2024
| Nine Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | Percentage Change | |||||||||||||
| Net revenues | $ | 94,818,527 | $ | 41,116,998 | $ | 53,701,529 | 130.6 | % | ||||||||
| Cost of revenues | 70,859,468 | 31,699,886 | 39,159,582 | 123.5 | % | |||||||||||
| Gross profit | 23,959,059 | 9,417,112 | 14,541,947 | 154.4 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling expenses | 15,116,681 | 6,984,543 | 8,132,138 | 116.4 | % | |||||||||||
| General and administrative expenses | 5,421,673 | 2,702,660 | 2,719,013 | 100.6 | % | |||||||||||
| Total operating expenses | 20,538,354 | 9,687,203 | 10,851,151 | 112.0 | % | |||||||||||
| Income from operations | 3,420,705 | (270,091 | ) | 3,690,796 | 1,366.5 | % | ||||||||||
| Other income (expenses), net | (221,243 | ) | 319,967 | (541,210 | ) | (169.2 | )% | |||||||||
| Interest expense, net | (694,826 | ) | (95,956 | ) | (598,870 | ) | 624.1 | % | ||||||||
| Income before income taxes | 2,504,636 | (46,080 | ) | 2,550,716 | 5,535.4 | % | ||||||||||
| Income tax provisions | 1,207,740 | 424,722 | 783,018 | 184.4 | % | |||||||||||
| Net income (loss) | 1,296,896 | (470,802 | ) | 1,767,698 | (375.5 | )% | ||||||||||
| Net income (loss) attributable to noncontrolling interests | (159,766 | ) | 91,626 | (251,392 | ) | (274.4 | )% | |||||||||
| Net income (loss) attributable to Maison Solutions Inc. | $ | 1,456,662 | $ | (562,428 | ) | $ | 2,019,090 | (359.0 | )% | |||||||
Revenues
| Nine Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | Percentage Change | |||||||||||||
| Perishables | $ | 48,637,485 | $ | 22,438,157 | $ | 26,199,328 | 116.8 | % | ||||||||
| Non-perishables | 46,181,042 | 18,678,841 | 27,502,201 | 147.2 | % | |||||||||||
| Net revenue | $ | 94,818,527 | $ | 41,116,998 | $ | 53,701,529 | 130.6 | % | ||||||||
Our net revenues were approximately $94.9 million for the nine months ended January 31, 2025, an increase of approximately $53.7 million or 130.6%, from approximately $41.1 million for the nine months ended January 31, 2024. The increase in net revenues was driven by the inclusion of revenues from our newly acquired subsidiary, Lee Lee (acquired in April 2024), of $59.0 million, which was partly offset by decreased sales of Maison Monterey Park by $1.3 million, decreased sales of Maison San Gabriel by $2.2 million, decreased sales of Maison Monrovia by $1.4 million and decreased sales of Maison El Monte by $0.5 million, as compared to the nine months ended January 31, 2024. Our four California-based supermarkets contributed $35.8 million in revenue during the nine months ended January 31, 2025, a decrease of approximately $5.3 million, as compared to the nine months ended January 31, 2024. The $5.3 million decrease was mainly due to increased competition from newly opened Asian supermarkets in nearby area, the effect of certain COVID-19 pandemic-era relief programs ending in fall 2023 such as losing access to foods stamps due to resume of work requirement for food stamps, as well as the temporary slow-down of the Maison El Monte store due to renovation.
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Cost of Revenues
| Nine Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | Percentage Change | |||||||||||||
| Total cost of revenues | $ | 70,859,468 | $ | 31,699,886 | $ | 39,159,582 | 123.5 | % | ||||||||
Cost of revenues includes cost of supermarket product sales and occupancy costs, which are store rent expense, depreciation for store property and equipment, inventory shrinkage costs and store supplies. The depreciation expense comes from machinery & equipment, such as refrigerators, water heaters, forklifts, and freezers and furniture & fixtures, such as metal shelves, shopping carts, and LED lights. Shrinkage costs are different for different types of products. For example, fruits and vegetables have a high allowance rate during the receiving and display process. The seafood and meat departments have a low allowance rate because the non-fresh products can freeze and sell for the same price or even higher price after being cut. The cost of revenues increased by $39.2 million, from $31.7 million for the nine months ended January 31, 2024, to approximately $70.9 million for the nine months ended January 31, 2025. The increase in cost of revenues was mainly from our newly acquired subsidiary, Lee Lee (acquired in April 2024), by $42.9 million, which was partly offset by decreased cost of revenues from our four California-based supermarkets by $3.7 million.
Gross Profit and Gross Margin
| Nine Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | Percentage Change | |||||||||||||
| Gross Profit | $ | 23,959,059 | $ | 9,417,112 | $ | 14,541,947 | 154.4 | % | ||||||||
| Gross Margin | 25.3 | % | 22.9 | % | 2.4 | % | ||||||||||
Gross profit was approximately $24.0 million and $9.4 million for the nine months ended January 31, 2025 and 2024, respectively. Gross margin was 25.3% and 22.9% for the nine months ended January 31, 2025 and 2024, respectively. Our supermarkets’ sales profit margins increased by 2.4% for the nine months ended January 31, 2025 compared to the nine months ended January 31, 2024. The increase in our gross profit was mainly due to the higher gross profit from our new acquired subsidiary Lee Lee.
Total Operating Expenses
| Nine Months Ended January 31, | ||||||||||||||||
| 2025 | 2024 | Change | Percentage Change | |||||||||||||
| Selling Expenses | $ | 15,116,681 | $ | 6,984,543 | $ | 8,132,138 | 116.4 | % | ||||||||
| General and Administrative Expenses | 5,421,673 | 2,702,660 | 2,719,013 | 100.6 | % | |||||||||||
| Total Operating Expenses | $ | 20,538,354 | $ | 9,687,203 | $ | 10,851,151 | 127.9 | % | ||||||||
| Percentage of revenue | 21.7 | % | 23.6 | % | (1.9 | )% | ||||||||||
Total operating expenses were approximately $20.5 million for the nine months ended January 31, 2025, an increase of approximately $10.9 million, compared to approximately $9.7 million for the nine months ended January 31, 2024. Total operating expenses as a percentage of revenues were 21.7% and 23.6% for the nine months ended January 31, 2025 and 2024, respectively. The increase in operating expenses was primarily attributable to the increase in selling expenses, which included the increase in payroll expense, utility expense, advertising and promotion expense, postage & delivery expense and merchant service charges as result of the acquisition of Lee Lee. Payroll expense increased by $6.4 million in the nine months ended January 31, 2025, as compared to the nine months ended January 31, 2024 due to the increase of hourly rate and increased number of employees due to the acquisition of Lee Lee. Utility expenses increased by $0.8 million in the nine months ended January 31, 2025, as compared to the nine months ended January 31, 2024. Merchant service charges increased by $0.8 million in the nine months ended January 31, 2025, as compared to the nine months ended January 31, 2024 due to increased sales describe above. Other miscellaneous expenses increased by $0.1 million in the nine months ended January 31, 2024, as compared to the nine months ended January 31, 2024.
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The increase in general and administrative expenses during the nine months ended January 31, 2025 was primarily due to increased office expenses of approximately $569,593, increased professional fees by $475,934, increased amortization expense by $343,458 due to the new trademark acquired through the acquisition of Lee Lee, increased insurance expense by $259,519, increased repair and maintenance expense by $550,870, and increased office expenses and supplies by $555,953.
Other Income (Expenses), Net
Other expenses were $221,243 for the nine months ended January 31, 2025 compared to other income of $319,967 for the nine months ended January 31, 2024. For the nine months ended January 31, 2025, other expenses mainly consisted of investment loss of $504,100 ($463,325 investment loss from HKGF Arcadia and $40,775 from Alhambra Store), which was partly offset by other income of $282,857. For the nine months ended January 31, 2024, other income mainly consisted of $0.4 million ERC received, which was partly offset by investment loss from HKGF Arcadia of $63,982. The ERC is a refundable tax credit for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to December 31, 2021.
Interest Income (Expense), Net
Interest expense was $694,826 for the nine months ended January 31, 2025, an increase of $598,870 from $95,956 for the nine months ended January 31, 2024. For the nine months ended January 31, 2025, the interest expense was for the SBA Loans and note payable arising from the acquisition of Lee Lee. For the nine months ended January 31, 2024, the interest expense was for the SBA Loans and the loans with American First National Bank (the “AFNB Loans”). The AFNB Loans were repaid in full as of April 30, 2024.
Income Taxes Provisions
Income tax expense was $1,207,740 for the nine months ended January 31, 2025, an increase of $783,018 from income taxes expense of $424,722 for the nine months ended January 31, 2024. The increase was mainly due to increased taxable income from our stores (mainly from Lee Lee stores) for the nine months ended January 31, 2025 compared to the nine months ended January 31, 2024.
Net Income (Loss)
Net income attributable to the Company was $1,456,662 for the nine months ended January 31, 2025, an increase of $2,019,090, or 359.0%, from a $562,428 net loss attributable to the Company for the nine months ended January 31, 2024. This was mainly attributable to the reasons discussed above, which included an increase in gross profit by $14,541,947, which was partly offset by decreased other income by $101,092, increased investment loss of $440,118, increased interest expenses by $598,870, increased operating expenses by $10,851,151 and increased income tax expense by $783,018.
Liquidity and Capital Resources
Cash Flows for the Nine Months Ended January 31, 2025 Compared to the Nine Months Ended January 31, 2024
As of January 31, 2025, we had cash, cash equivalents of approximately $445,357. We had net income attributable to us of $1,456,662 for the nine months ended January 31, 2025, and had a working capital deficit of approximately $11.5 million as of January 31, 2025. As of January 31, 2025, the Company had outstanding loan facilities of approximately $2.51 million SBA loan and $8.29 million secured senior note payable due to the acquisition of Lee Lee.
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In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources in the future, and its operating and capital expenditure commitments. We have funded our working capital, operations and other capital requirements in the past primarily by equity contributions from shareholders, cash flow from operations, government grants, and bank loans. Cash is required to pay purchase costs for inventory, rental expenses, salaries, income taxes, other operating expenses and to repay debts. Our ability to repay our current expenses and obligations will depend on the future realization of our current assets. Management has considered the historical experience, the economy, trends in the retail grocery industry, the expected collectability of our accounts receivable and the realization of the inventories as of January 31, 2025 and April 30, 2024. Our ability to continue to fund these items may be affected by general economic, competitive, and other factors, many of which are outside of our control.
On October 4, 2023, we entered into an Underwriting Agreement with Joseph Stone Capital, LLC in connection with the Company’s initial public offering (the “IPO”) of 2,500,000 shares of Class A common stock, par value $0.0001, at a price of $4.00 per share, less underwriting discounts and commissions. The IPO closed on October 10, 2023, and the Company received net proceeds of approximately $8.72 million, after deducting underwriting discounts and commissions and estimated IPO offering expenses payable by the Company.
On November 22, 2023, we entered into certain securities purchase agreements (the “Securities Purchase Agreements”) with certain investors (the “PIPE Investors”). Pursuant to the Securities Purchase Agreements, we sold an aggregate of 1,190,476 shares of the Company’s Class A common stock, par value $0.0001 per share, to the PIPE Investors at a per share purchase price of $4.20 (the “PIPE Offering”). The PIPE Offering closed on November 22, 2023. We received net proceeds of approximately $4.60 million, after deducting investment banker’s discounts and commissions and offering expenses payable by the Company.
On March 12, 2025, we entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Investor” or “Holder”), pursuant to which we agreed to issue and sell (i) a senior unsecured convertible promissory note in the aggregate original principal amount of $3,000,000 with an original issue discount of eight and a half percent (8.5%) (the “Initial Note”), convertible into shares (the “Conversion Shares”) of Class A common stock, $0.0001 par value per share of the Company (the “Common Stock”), and (ii) a note purchase warrant (the “Incremental Warrant”), exercisable for one or more senior unsecured convertible promissory notes in the aggregate original principal amount of up to $6,500,000 with an original issue discount of eight and a half percent (8.5%) and substantially in the form of the Initial Note (each an “Additional Note” and collectively, the “Additional Notes” and together with the Initial Note, the “Notes”). On March 12, 2025 (the “Closing Date”), we issued and sold to the Investor the Initial Note for a purchase price of $2,745,000, representing an original issue discount of eight and a half percent (8.5%), which matures on March 12, 2027, and the Incremental Warrant, which expires on March 12, 2028. The Initial Note bears interest at a rate to 5.25% per annum and may increase to a rate of 18.00% per annum upon the occurrence of an Event of Default (as defined in the Initial Note), for so long as such event remains uncured. Accrued interest will be paid on a monthly basis and, at the Company’s option, will either be paid in cash or paid-in-kind in shares of Common Stock, subject to certain terms and conditions as set forth in the Initial Note.
We plan to acquire and open additional supermarkets, satellite stores and warehouses to expand our footprint to both the West Coast and the East Coast. To accomplish such expansion plan, we estimate the total related capital investment and expenditures to be approximately $35 million to $40 million, among which approximately $13 million to $16 million will be required within the next 12 months to support our preparation and opening of new stores and acquiring additional supermarkets on the East Coast and additional regions near California. This is based on the management’s best estimate as of the date of this Report.
We used part of the proceeds from our IPO to support our business expansion described above. We may also seek additional financing, to the extent needed, and there can be no assurance that such financing will be available on favorable terms, or at all. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to our existing shareholders. If it is determined that the cash requirements exceed the Company’s amounts of cash on hand, the Company may also seek to issue additional debt or obtain financial support from shareholders.
All of our business expansion endeavors involve risks and will require significant management, human resources, and capital expenditures. There is no assurance that the investment to be made by us as contemplated under our future expansion plans will be successful and generate the expected return. If we are not able to manage our growth or execute our strategies effectively, or at all, our business, results of operations, and prospects may be materially and adversely affected.
The following table summarizes our cash flow data for the nine months ended January 31, 2025 and 2024.
| Nine Months Ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash provided by operating activities | $ | 6,386,143 | $ | (887,439 | ) | |||
| Net cash used in investing activities | (216,427 | ) | (5,142,083 | ) | ||||
| Net cash used in financing activities | (5,725,460 | ) | 12,866,382 | |||||
| Net change in cash and restricted cash | $ | 444,256 | $ | 6,836,860 | ||||
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Operating Activities
Net cash provided by operating activities was approximately $6.4 million for the nine months ended January 31, 2025, which mainly comprised of net income of $1,296,896, add-back of non-cash adjustments to net income including depreciation and amortization expense of $779,593, inventory impairment of $342,472, bad debt expense of $29,493 and investment loss from 49% equity investee HKGF Arcadia store of $463,325 and investment loss from 10% cost investee HKGF Alhambra store of $40,775. In addition, for the nine months ended January 31, 2025, we had cash inflow from (i) decrease to other receivables and other current assets of $642,097, (ii) decrease to prepayments of $268,713, (iii) increased outstanding accounts payable of $5,243,603 including accounts payable from related parties of $136,494, (iv) increased outstanding income tax payable of $1,220,635, (v) increased operating lease liabilities of $396,548, and (vi) increase of accrued expenses and other payables of $88,366.
However, our net cash provided by operating activities for the nine months ended January 31, 2025 was mainly offset by an increase of inventories of $4,197,132, an increase of accounts receivable from related parties of $61,349, and an increase of payment for contract liabilities of $195,957.
Net cash used by operating activities was approximately $0.9 million for the nine months ended January 31, 2024, which mainly comprised of net loss of $470,802 with non-cash adjustment to net income including depreciation expense of $274,476, bad debt reversal of $105,322, provision for inventory shrinkage reversal of $1,088, investment loss from 50% equity investee HKGF Arcadia store of $63,982, and changes in deferred taxes of $6,135. In addition, for the nine months ended January 31, 2024, we had cash outflow from 1) increased outstanding accounts receivable from related parties of $219,260, 2) increased inventories on hand of $40,147, 3) increased outstanding accounts receivables of $440,985, 4) payment for accounts payable of $1,451,371, and 5) a decrease to contract liabilities of $141,009.
The net cash used by operating activities for the nine months ended January 31, 2024 was mainly offset by increased cash inflow from 1) prepayments of $1,065,243, 2) decrease to outstanding other receivables and other current assets of $124,182, 3) an increase of operating lease liabilities of $227,728, 4) an increase of taxes payables of $108,247, and 5) an increase of accounts payable to related parties of $128,599.
We had a net income before noncontrolling interest of $1,296,896 for the nine months ended January 31, 2025, an increase of $1,767,698 compared with net loss of $470,802 for the nine months ended January 31, 2024. Our cash inflow of $6,386,143 for the nine months ended January 31, 2025 represented an increase of $7,273,582 cash inflow, from $887,439 cash outflow in the nine months ended January 31, 2024. The increased net cash inflow for the nine months ended January 31, 2025 was mainly due to increased cash inflow from net income by $1,767,698 with change of non-cash adjustments by $1,371,457, increased cash inflow from accounts receivable by $465,903, increased cash inflow from other receivables and other current assets by $517,915, increased cash inflow from accounts payable by $6,558,481, increased cash inflow from accounts payable from related party by $7,895, increased cash inflow from accrued expenses and other payables by $97,820, increased cash inflow from operating lease liabilities by $168,820 and increased cash inflow from outstanding income tax payable by $1,112,388, which was partly offset by increased cash outflow from prepayments by $796,530 and increased cash outflow from inventories by $4,156,985.
Investing Activities
Net cash used in investing activities was $216,427 for the nine months ended January 31, 2025, which mainly consisted of store renovation and purchase of equipment of $154,427 and investment into HKGF Market of Arcadia, LLC of $62,000.
Net cash used in investing activities was approximately $5.1 million for the nine months ended January 31, 2024, which mainly consisted of store renovation and purchase of equipment of $317,083, payment of intangible assets of $2.95 million, payment for investment into TMA Liquor Inc of $75,000, and payment for 50% investment into Good Fortune Arcadia supermarket of approximately $1.8 million.
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Financing Activities
Net cash used in financing activities was approximately $5.7 million for the nine months ended January 31, 2025, which mainly consisted of repayment for a note payable arising from the acquisition of Lee Lee of $6,834,057, loan to related party of $65,000 and repayment on SBA loan payable of $48,624, which was partially offset by increase of bank overdraft of $1,200,983 and increase borrowing from related parties $21,238.
Net cash provided by financing activities was approximately $12.9 million for the nine months ended January 31, 2024, which mainly consisted of net proceeds from issuance of common stock of approximately $13.3 million, which was partially offset by repayment on loans payable of approximately $0.3 million, and repayment for a note payable of $150,000.
Debt
U.S. Small Business Administration (the “SBA”)
On June 15, 2020, Maison Monrovia entered into a $150,000 Business Loan Agreement with the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050.
On June 15, 2020, Maison San Gabriel entered into a $150,000 Business Loan Agreement with the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050. On January 12, 2022, Maison San Gabriel received an extra $1,850,000 loan from the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050.
On June 15, 2020, Maison El Monte entered into a $150,000 Business Loan Agreement with the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050. Maison El Monte received an extra $350,000 loan from the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050.
As of January 31, 2025 and April 30, 2024, the Company’s aggregate balance on the three SBA loans was $2,512,675 and $2,561,299, respectively.
Senior Secured Note Payable
On April 8, 2024, AZLL closed an acquisition transaction and purchased 100% of the equity interests in Lee Lee for an aggregate purchase price of approximately $22.2 million, consisting of: (i) $7.0 million in cash paid immediately at the closing of the transaction, and (ii) the Secured Note with an original principal amount of approximately $15.2 million pursuant to the Senior Secured Note Agreement.
Under the Senior Secured Note Agreement, the Secured Note will accrue interest on the outstanding principal amount at an annual interest rate of five percent (5%). The payment schedule of the principal amount of the Secured Note is as follows: (i) $2.5 million due and immediately payable on each of May 8, 2024 and June 8, 2024; (ii) $1.5 million due and immediately payable on each of September 8, 2024, October 8, 2024 and November 8, 2024; (iii) $1.0 million due and immediately payable on December 8, 2024; and (iv) approximately $4.7 million due and immediately payable on February 8, 2025. Additionally, pursuant to the terms and conditions of the Senior Secured Note Agreement, the principal amount may be adjusted to include certain Premium Guarantees (as defined in the Senior Secured Note Agreement) if certain conditions, as set forth in the Senior Secured Note Agreement and the Stock Purchase Agreement, are not met.
Upon an “Event of Default” under the Senior Secured Note Agreement, the holders of the Secured Note will have certain rights, including the right to (i) declare all of the Obligations, as defined in the Senior Secured Note Agreement to be immediately due and payable, and (ii) resume daily operational control of Lee Lee’s operations until such time as the Obligations, as defined in the Senior Secured Note Agreement, have been satisfied. Additionally, if an “Event of Default” occurs, the outstanding principal amount will bear interest at the simple interest rate of 10 percent (10%) per annum, from the date of such Event of Default until all such sum are fully paid.
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On June 10, 2024, Lee Lee filed a Statement of Conversion with the Arizona Corporation Commission (the “ACC”) converting Lee Lee Oriental Supermart, Inc. into Lee Lee Oriental Supermart, LLC, an Arizona limited liability company (the “Conversion”). Following the Conversion, AZLL filed a Statement of Merger with the ACC, pursuant to which Lee Lee merged into AZLL, effective August 28, 2024 (the “Merger”). On September 9, 2024, AZLL filed a Statement of Division with the ACC resulting in the restoration of both Lee Lee and AZLL as separate legal entities (the “Division”). The Conversion, the Merger and the Division are herein referred to collectively as the “Lee Lee Reorganization.”
On October 21, 2024, Lee Lee, AZLL, the Company and the Holders entered into the First Amendment to Senior Secured Note Agreement (the “First Amendment”), which amends that certain Senior Secured Note Agreement, dated as of April 8, 2024.Among other things, the First Amendment amends the Secured Note to (i) reflect the Lee Lee Reorganization, (ii) modify certain cure periods pursuant to an “Event of Default” under the Secured Note, and (iii) include certain covenants and representations with respect to the Lee Lee Reorganization. Additionally, pursuant to the First Amendment, Lee Lee, AZLL and the Company irrevocably waive and forfeit any and all defenses, causes or remedies which may have arisen or may arise as a result of the Lee Lee Reorganization in relation to any action or enforcement of any rights, remedies or provisions of the Secured Note, the Security Agreement and/or otherwise at law taken by the Holders.
On October 21, 2024, following the execution of the First Amendment, Lee Lee, AZLL and the Holders entered into the Second Amendment to the Senior Secured Note Agreement (the “Second Amendment”). Among other things, the Second Amendment: (i) increases the annual interest rate on the outstanding Principal Amount, effective as of October 8, 2024, to ten percent (10%); (ii) amends the payment schedule of the principal and interest amounts to be due every Monday of each week starting on October 14, 2024, as set forth in Exhibit A of the Second Amendment; (iii) amends the definition of “Events of Default”; and (iv) increases the Default Rate to fourteen percent (14%) per annum. Additionally, pursuant to the Second Amendment, upon execution of the Second Amendment, the Company paid a restructuring fee of $40,000 to the Holders.
On March 12, 2025, we entered into a note modification agreement dated March 12, 2025 (the “Modification Agreement”) with AZLL, Lee Lee, Holders of the Secured Note, John Xu and Grace Xu (together with the Company, the “Parties”) to modify certain terms of the Note, Security Agreement and Guarantees. Pursuant to the Modification Agreement, the Parties agreed to revise the payment schedule of the Note and extend the maturity date of the Note to May 11, 2026 (the “Extended Maturity Date”). The Modification Agreement also provides for an additional extension fee interest to accrue on the outstanding principal balance of the Note as of January 15, 2025 at an annual rate of eight percent (8%), which shall become payable and immediately due on the earliest of (i) the Extended Maturity Date or (ii) immediately upon the occurrence of any “Event of Default” under any of the Loan Documents or the Modification Agreement, as such term is defined under the applicable Loan Document. Furthermore, the Modification Agreement includes additional “Events of Default” and remedies under the Loan Documents, and additional covenants of the Company, among other things. The Modification Agreement increases the annual interest rate on the outstanding Principal Amount, effective as of February 24, 2024, to twelve percent (12%). Additionally, the amount of each Guaranty Premium shall be added to the outstanding Principal Amount of the Note as of the date Issuer’s liability for payment of the Guaranty Premium becomes fixed and shall accrue interest at the rate set forth in the Note until paid in full. The Modification stated that no new debt or encumbrances without holders’ approval. Absent Holders’ prior, express written authorization, Issuer shall not: (i) pay or incur any indebtedness outside the ordinary course of business; or (b) grant, permit or suffer the attachment of any liens or security interests in or to any Collateral; or (c) enter into any single or series of contracts, agreements or commitments requiring cumulative payments in excess of $10,000.00. Moreover, pursuant to the Modification Agreement, issuer shall not make any distributions to Parent, Grantor, Guarantors or any other related party, company or entity related to the Parent, Grantor or Guarantors through any direct or indirect ownership or control or any other financial arrangement (together, the “Related Parties”). Upon execution of the Modification Agreement, the Company paid the Holders a $35,000 documentation fee pursuant to the terms of the Modification Agreement.
As of January 31, 2025, the Company had an outstanding note payable of $8,292,008 to the sellers of Lee Lee. The Company is required to repay the full amount before May 11, 2026.
On April 8, 2024, in connection with the execution of the Senior Secured Note Agreement, and pursuant to the Stock Purchase Agreement, AZLL entered into a guarantee (the “AZLL Guarantee”) to and for the benefit of the Sellers, pursuant to which AZLL unconditionally guarantees the payment by Lee Lee of the principal amount of the Secured Note, as adjusted pursuant to the Secured Note and the faithful and prompt performance by Lee Lee of the conditions and covenants of the Secured Note.
Also on April 8, 2024, in connection with the execution of the Senior Secured Note Agreement, and pursuant to the Stock Purchase Agreement, John Jun Xu, Chairman, Chief Executive Officer and controlling stockholder of the Company, and Grace Xu, spouse of John Jun Xu (together with John Jun Xu, the “Xu Guarantors”), entered into a guarantee (the “Xu Guarantee” and, together with the AZLL Guarantee, the “Guarantees”) to and for the benefit of the Sellers, pursuant to which the Xu Guarantors unconditionally guarantee the payment by Lee Lee of the principal amount of the Secured Note, as adjusted pursuant to the Secured Note and the faithful and prompt performance by Lee Lee of the conditions and covenants of the Secured Note.
On October 21, 2024, AZLL entered into a First Amendment to Guarantee of Note (the “AZLL Guarantee Amendment”), which amends the AZLL Guarantee to reflect the Lee Lee Reorganization. Additionally, pursuant to the AZLL Guarantee Amendment, AZLL irrevocably waives any and all defenses, causes or remedies which may have arisen or may arise as a result of the Lee Lee Reorganization in relation to any action or enforcement of any rights, remedies or provisions of the AZLL Guarantee, the Secured Note, the Security Agreement and/or otherwise at law taken by the Holders.
On October 21, 2024, the Xu Guarantors entered into a First Amendment to Guarantee of Note (the “Xu Guarantee Amendment” and, together with the AZLL Guarantee Amendment, the “Guarantee Amendments”), which amends the Xu Guarantee to reflect the Lee Lee Reorganization. Additionally, pursuant to the Xu Guarantee Amendment, the Xu Guarantors irrevocably waive any and all defenses, causes or remedies which may have arisen or may arise as a result of the Lee Lee Reorganization in relation to any action or enforcement of any rights, remedies or provisions of the Xu Guarantee, the Secured Note, the Security Agreement and/or otherwise at law taken by the Holders.
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Commitments and Contractual Obligations
The following table presents the Company’s material contractual obligations as of January 31, 2025:
| Contractual Obligations | Total | Less than 1 year | 1–3 years | 3–5 years | Thereafter | |||||||||||||||
| Senior secured note payable | $ | 8,292,008 | $ | 5,509,630 | $ | 2,782,378 | $ | — | $ | — | ||||||||||
| SBA loan | 2,512,675 | 66,699 | 140,104 | 149,622 | 2,156,250 | |||||||||||||||
| Operating lease obligations and others | 41,508,757 | 4,163,282 | 8,546,492 | 6,016,531 | 22,782,452 | |||||||||||||||
| $ | 52,313,440 | $ | 9,739,611 | $ | 11,468,974 | $ | 6,166,153 | $ | 24,938,702 | |||||||||||
Contingencies
The Company is otherwise periodically involved in various legal proceedings that are incidental to the conduct of its business, including, but not limited to, employment discrimination claims, customer injury claims, and investigations. When the potential liability from a matter can be estimated and the loss is considered probable, the Company records the estimated loss. Due to uncertainties related to the resolution of lawsuits, investigations, and claims, the ultimate outcome may differ from the estimates. Although the Company cannot predict with certainty the ultimate resolution of any lawsuits, investigations, and claims asserted against it, management does not believe any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its financial statements. Additional information regarding our legal proceedings can be found in Note 17 — “Commitments and Contingencies” to the consolidated financial Statements included in this Quarterly Report on Form 10-Q and is incorporated herein by reference.
On January 2, 2024, the Company and our executive officers and directors, as well as Joseph Stone Capital LLC, and AC Sunshine Securities LLC, the underwriters in the Company’s initial public offering (together, the “Defendants”), were named in a class action complaint filed in the Supreme Court of the State of New York alleging violations of Sections 11 and 15 of the Securities Act of 1933, as amended (Ilsan Kim v. Maison Solutions Inc., et. al, Index No. 150024/2024). As relief, the plaintiffs are seeking, among other things, compensatory damages. On or about April 17, 2024, the parties agreed to stay the action in favor of the Rick Green matter described immediately below.
On January 4, 2024, the Defendants were named in a class action complaint filed in the United States District Court for the Central District of California alleging violations of Sections 11 and 15 of the Securities Act of 1933, as amended, as well as violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (Rick Green and Evgenia Nikitina v. Maison Solutions Inc., et. al., Case No. 2:24-cv-00063). As relief, the plaintiffs are seeking, among other things, compensatory damages.
The Company and Defendants believe the allegations in both complaints are without merit and intend to defend each suit vigorously. It is reasonably possible that a loss may be incurred; however, the possible range of losses is not reasonably estimable given the pending status of the cases.
On April 9, 2024, a shareholder derivative action was brought by Shah Azad derivatively on behalf of the Company against John Xu, Tao Han, Alexandria Lopez, Bin Wang, Mark Willis, and Xiaoxia Zhang, and the Company itself as a nominal defendant. The complaint was filed in the United States District Court for the Central District of California, Case No. 2:24-cv-02897. On April 12, 2024, another derivative complaint was filed by Arnab Baral in the United States District Court Central District of California, Case No. 2:24-cv-03018. The two cases have since been consolidated, with the Azad case taking the lead. The lawsuits allege breaches of fiduciary duty, abuse of control, unjust enrichment, gross mismanagement, waste of corporate assets, and contribution under Section 11(f) of the Securities Act and Section 21D of the Exchange Act. The claims arise from the allegations underlying the class action securities lawsuits. On July 19, 2024, the Court ordered the Azad case stayed until a motion to dismiss is heard in the class action securities action. The Company is not able to make a reasonable estimate about the amount of contingent loss of these cases at current stage.
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On September 8, 2023, a complaint was filed by former employee against Maison San Gabriel for wrongful termination and labor law violation. Maison San Gabriel filed a general denial in November 2023. Status conference is scheduled for July 1, 2025, and final status conference is scheduled for February 26, 2026. Trial is schedule for March 9, 2026. In the complaint, the plaintiff’s counsel asked for a range of $300,000 to $3,000,000. It is too premature at this state of litigation to estimate the chance of prevailing.
On September 3, 2024, a claim was filed against Maison El Monte alleging violations of the Unruh Civil Rights Act and the California Disabled Persons Act for building not having adequate access for disabilities. The case Management Conference is scheduled for January 30, 2025. The management is not able to estimate the outcome of the case due to early stage of the case.
On October 17, 2024, a complaint was filed against HKGF Alhambra, HKGF Arcadia, Maison El Monte, Maison San Gabriel, Maison Monrovia, Maison Monterey Park and Tion Hin for unpaid invoices of seafood purchase for $115,388.39. The case management conference is scheduled for March 28, 2025. The management is not able to estimate the outcome of the case due to early stage of the case.
Off-Balance Sheet Arrangements
The Company has guaranteed all of the loans described above, and Mr. John Xu, the Company’s CEO, Chairman and President, has personally guaranteed the loans with the SBA. The Company does not have any other off-balance sheet arrangements that either have, or are reasonably likely to have, a current or future material effect on its financial condition.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered in this Quarterly Report on Form 10-Q. Based on this evaluation and the material weaknesses described below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of January 31, 2025 due to the previously identified material weaknesses described below.
As described in our Annual Report on Form 10-K for the year ended April 30, 2024, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 30, 2024 based on the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the control deficiencies identified during this evaluation and set forth below, our management concluded that we did not maintain effective internal control over financial reporting as of April 30, 2024 due to the existence of previously identified material weaknesses in internal control over financial reporting as described below.
As set forth below, management will continue to take steps to remediate the control deficiencies identified below. Notwithstanding the control deficiencies described below, we have performed additional analyses and other procedures to enable management to conclude that our consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial condition and results of operations as of and for the quarter ended January 31, 2025.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
As previously reported, management has determined that the Company has the following material weaknesses in its internal control over financial reporting, which continue to exist as of January 31, 2025, as related to: (i) insufficient full-time employees with the necessary levels of accounting expertise and knowledge to compile and analyze consolidated financial statements and related disclosures in accordance with U.S. GAAP and address complex accounting issues under U.S. GAAP; (ii) the lack of timely related party transaction monitoring and the failure to keep a related party list and keep records of related party transactions on a regular basis; (iii) the failure to keep an up-to-date perpetual inventory control system or timely perform company-wide inventory count at or near its fiscal year-end date. Specifically, maintaining records for inbound warehouse purchases or have specialized personnel to scan goods into the warehouse on a timely basis; (iv) the lack of adequate policies and procedures in control environment and control activities to ensure that the Company’s policies and procedures have been carried out as planned; (v) information technology general control in the areas of: (1) Risk and Vulnerability Assessment; (2) Selection and Management/Monitoring of Critical Vendors; (3) System Development and Change Management; (4) Backup Management; (5) System Security & Access: Deficiency in the Area of Audit Trail Record Control, Password Management, Vulnerability Scanning or Penetration Testing; (6) Segregation of Duties, Privileged Access, and Monitoring Controls; and (7) System Monitoring and Incident Management; and (vi) accounting personnel have the ability in the accounting system to prepare, review, and post the same accounting journal entry.
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Plan of Remediation of Material Weakness in Internal Control Over Financial Reporting
As previously reported in our Annual Report on Form 10-K for the fiscal year ended April 30, 2023, following the identification and communication of the material weaknesses, management commenced remediation actions relating to the material weaknesses beginning in the first quarter of fiscal year 2024.
We have taken, and are taking, certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We plan to hire additional credentialed professional staff and consulting professionals with greater knowledge and experience of U.S. GAAP and related regulatory requirements to oversee our financial reporting process in order to ensure our compliance with U.S. GAAP and other relevant securities laws. In addition, we plan to provide additional training to our accounting personnel on U.S. GAAP, and other regulatory requirements regarding the preparation of financial statements. Until such time as we hire qualified accounting personnel with the requisite U.S. GAAP knowledge and experience and train our current accounting personnel, we have engaged an outside CPA with U.S. GAAP knowledge and experience to supplement our current internal accounting personnel and assist us in the preparation of our financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as described above.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding our legal proceedings can be found in Note 17 — “Commitments and Contingencies” to the consolidated financial Statements included in this Quarterly Report on Form 10-Q and is incorporated herein by reference.
ITEM 1A. RISK FACTORS
Not required for a smaller reporting company. However, as of the date of this Report, there have been no material changes to the risk factors included in our Annual Report on Form 10-K for the year ended April 30, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished herewith. |
| # | Exhibits and Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted exhibit and schedule to the SEC upon request. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MAISON SOLUTIONS INC. | ||
| Date: March 17, 2025 | By: | /s/ John Xu |
| Name: | John Xu | |
| Title: | Chief Executive Officer, Chairman and President | |
| (Principal Executive Officer) | ||
| Date: March 17, 2025 | By: | /s/ Alexandria M. Lopez |
| Name: | Alexandria M. Lopez | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) | ||
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