10-Q: Maison Solutions: Deepening Losses, Going Concern Doubt

Maison Solutions Inc. reported a significant net loss of $6.5 million for the six months ended October 31, 2025, raising substantial doubt about its ability to continue as a going concern.

Summary

• Net loss attributable to Maison Solutions Inc. was $4,967,742 for the three months ended October 31, 2025, a substantial increase from $256,009 for the same period in 2024.
• For the six months ended October 31, 2025, the net loss attributable to Maison Solutions Inc. was $6,509,275, a significant decline from a net income of $444,899 in the prior year period.
• Revenue decreased by 5.9% to $27.6 million for the three months and by 4.8% to $54.8 million for the six months ended October 31, 2025, primarily due to decreased sales in California supermarkets and the closure of Maison El Monte.
• Gross profit margins declined to 23.4% (3-month) and 23.7% (6-month) from 26.9% and 27.9% respectively, mainly due to increased cost of goods sold from inflation.
• Operating expenses increased by 12.2% for the three months and 8.9% for the six months, driven by a $1.1 million increase in stock compensation expense and other general and administrative costs.
• Non-operating expenses surged due to a $2,694,951 loss on note conversion and an $882,404 unrealized loss on digital assets investment.
• The company reported an accumulated deficit of approximately $8.16 million and negative working capital of $4.19 million as of October 31, 2025.
• Substantial doubt exists about the company's ability to continue as a going concern due to recurring losses and negative working capital.
• Maison El Monte store was closed on June 7, 2025, due to continuous losses, resulting in a $489,380 loss on disposal of assets.
• An $848,493 impairment charge was recorded for the investment in HKGF Market of Arcadia due to plans to close that supermarket business.
• The company acquired $2,919,500 in Worldcoin (WLD) digital assets, which had an unrealized loss of $882,404 by October 31, 2025.
• A new $5.25 million secured bank loan was obtained from Royal Business Bank, personally guaranteed by the CEO and his spouse, and secured by Lee Lee assets.
• Issued two tranches of unsecured convertible promissory notes totaling $6 million, and a $3 million senior secured convertible promissory note, with proceeds from the latter used to acquire Worldcoin.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by substantial and increasing net losses, declining revenues and gross margins, and a negative operating cash flow. The explicit 'going concern' doubt, coupled with significant accumulated deficit and negative working capital, signals a high risk of financial instability. The company is taking on substantial new debt, including convertible notes that pose significant dilution risk to existing shareholders, and has incurred large non-operating losses from note conversions and unrealized digital asset losses. Material weaknesses in internal controls and ongoing legal proceedings further compound the risks. These factors collectively point to a highly unfavorable investment outlook.

Positives

• Net cash provided by financing activities swung to positive $3.3 million for the six months ended October 31, 2025, compared to a negative $4.2 million in the prior year, primarily due to new bank loans and convertible notes.
• The company successfully repaid the $5,642,060 note payable from the Lee Lee acquisition in full on September 8, 2025.
• Net income from discontinued operations (Maison El Monte) was $241,037 for the three months ended October 31, 2025, a positive swing from a $253,937 loss in the prior year.
• Generated $0.56 million in consulting income for providing services to other non-related supermarkets for the six months ended October 31, 2025.
• Cash and cash equivalents increased to $1,365,377 as of October 31, 2025, from $775,360 as of April 30, 2025.

Negatives

• Significant net loss of $4,967,742 for the three months and $6,509,275 for the six months ended October 31, 2025, compared to smaller losses/income in the prior year periods.
• Revenue decreased by 5.9% ($1.7 million) for the three months and 4.8% ($2.7 million) for the six months, primarily due to decreased sales in California supermarkets and the closure of Maison El Monte.
• Gross profit declined by 18.2% ($1.4 million) for the three months and 18.8% ($3.0 million) for the six months, with gross margins decreasing by 3.5% and 4.1% respectively, attributed to inflation and competitive pricing.
• Operating expenses increased by 12.2% ($0.8 million) for the three months and 8.9% ($1.1 million) for the six months, largely due to a $1.1 million increase in stock compensation expense.
• Non-operating expenses increased significantly, including a $2,694,951 loss on note conversion and an $882,404 unrealized loss on digital assets investment.
• Accumulated deficit grew to $8,157,498 as of October 31, 2025, from $1,648,223 as of April 30, 2025.
• Negative working capital of $4.19 million as of October 31, 2025.
• Net cash used in operating activities was $(636,479) for the six months ended October 31, 2025, a significant deterioration from $4,707,531 provided in the prior year.
• Incurred an $848,493 impairment charge on the investment in HKGF Market of Arcadia due to plans to close the supermarket business at that location.
• The company recorded an $882,404 unrealized loss on its Worldcoin digital asset investment.
• Increased interest expense by 160.6% ($382,246) for the three months and 205.1% ($855,599) for the six months ended October 31, 2025.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to recurring losses from operations and negative working capital.
• High competition in the food retail industry from national, regional, and local conventional supermarkets, superstores, alternative food retailers, natural foods stores, specialty stores, farmers markets, supercenters, online retailers, mass/discount retailers, and membership warehouse clubs.
• Inflation increasing purchase costs, occupancy costs, and payroll costs, impacting gross margins.
• Increased operating costs as a public company, including compliance, audit, legal, and consulting expenses.
• Dependence on a few major vendors, with Supplier B accounting for 11% and 12% of total purchases for the three and six months ended October 31, 2025, respectively.
• Credit risk associated with unsecured accounts receivable and loan receivables to centralized vendors.
• Potential for maintenance or renovations to interrupt store operations and result in a decline in customer volume.
• Legal proceedings, including class action securities lawsuits and shareholder derivative actions, with uncertain outcomes and potentially significant compensatory damages.
• Material weaknesses in internal control over financial reporting, including insufficient accounting expertise, lack of timely related party transaction monitoring, inadequate inventory control, insufficient policies and procedures, IT general control deficiencies, and lack of segregation of duties.
• The value of Worldcoin (WLD) digital assets is not fixed and is subject to market volatility.
• Convertible notes contain variable conversion prices and can lead to significant dilution for existing shareholders.
• Covenants on new debt, such as maintaining minimum cash balances and restrictions on incurring new debt or making distributions to related parties without holder approval.

Future Outlook

The company plans to increase revenue by strengthening its sales force, providing attractive sales incentive programs, recruiting experienced managerial personnel, increasing marketing, seeking competitive suppliers, and opening or acquiring additional specialty supermarkets in less-competitive locations. Management believes its cash on hand and operating cash flows will be sufficient for at least the next 12 months, but acknowledges the need for additional resources if business conditions change or investment opportunities arise, potentially through issuing debt or equity securities or obtaining a credit facility. The company expects to meet the registration effectiveness deadline for convertible notes and is evaluating the impact of recently issued accounting standards, not expecting a material impact from most.

Management Comments

• The strategic decision to close Maison El Monte store is part of the Company's ongoing commitment to improve its profitability and support sustainable growth.
• Management of the Company believes in the viability of its strategy to generate sufficient revenues and its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect.
• 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.
• The decrease in our gross profit was mainly due to the increase of cost of goods sold due to inflation while we kept our products selling price at a constant level or with a minimum increase for certain products in order to be competitive.
• Maison believes that a centralized and efficient vendor and supply management system is the key to profitability.
• Maison believes that its centralized vendor management enhances its negotiating power and improves its ability to manage vendor payables.
• Improving the store environment can also attract more customers and lead to an increase in sales.
• 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 October 31, 2025.
• 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.

Industry Context

The food retail industry is highly competitive, with Maison Solutions Inc. facing competition from national, regional, and local conventional supermarkets, superstores, alternative food retailers, natural foods stores, specialty stores, farmers markets, supercenters, online retailers, mass/discount retailers, and membership warehouse clubs, specifically naming 99 Ranch Market, H-Mart, and Weee!. Inflation, at 3.0% for the six months ended October 31, 2025, is increasing purchase, occupancy, and payroll costs, impacting gross margins. Rising minimum wages in California ($16.50/hour) and Arizona ($14.70/hour) further contribute to payroll expenses. The company's strategy of focusing on traditional Asian food and merchandise for Asian-American communities, alongside developing a center-satellite stores network and expanding geographically with acquisitions like Lee Lee International Supermarkets, is a response to this dynamic and competitive landscape.

Corporate Governance

Legal Proceedings

• Ilsan Kim v. Maison Solutions Inc., et. al.: Class action complaint filed January 2, 2024, in New York Supreme Court alleging violations of Sections 11 and 15 of the Securities Act of 1933. Seeking compensatory damages. Stayed in favor of the Rick Green matter.
• Rick Green and Evgenia Nikitina v. Maison Solutions Inc., et. al.: Class action complaint filed January 4, 2024, in US District Court for Central District of California alleging violations of Sections 11 and 15 of the Securities Act of 1933, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Seeking compensatory damages.
• Shah Azad derivatively on behalf of the Company against John Xu et al.: Shareholder derivative action filed April 9, 2024, in US District Court for Central District of California. Alleges 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. Stayed until a motion to dismiss is heard in the class action securities action.
• Arnab Baral derivative complaint: Filed April 12, 2024, in US District Court Central District of California, later consolidated with the Azad case.
• Former employee wrongful termination claim: Filed September 8, 2023, against Maison San Gabriel. Settled confidentially for $25,000 on August 4, 2025.
• Disability access claim: Filed September 3, 2024, against Maison El Monte. Settled confidentially for $6,000 on April 8, 2025.
• Unpaid invoices claim: Filed October 17, 2024, against multiple Maison entities for $115,388.39 for seafood purchases. Case management conference scheduled for January 5, 2026.

Related Party Transactions

• Sales to related parties totaled $3,730 for the three months and $124,848 for the six months ended October 31, 2025, including sales to HKGF Market of Arcadia, LLC and HKGF Market of Alhambra, Inc.
• Purchases from related parties totaled $785,512 for the three months and $1,117,345 for the six months ended October 31, 2025, primarily from Dai Cheong Trading Co Inc. (90% controlled by CEO John Xu).
• Investment in equity purchased from related parties: $162,665 for 10% equity interest in Dai Cheong Trading Company Inc. (controlled by CEO John Xu).
• Accounts receivable related parties: $525,937 as of October 31, 2025, including amounts from HKGF Market of Arcadia, LLC, JC Business Guys, Inc., Grantstone Inc., Ebisu LA2, LLC, and United Food, LLC (all with direct or indirect ties to CEO John Xu).
• Accounts payable related parties: $509,953 as of October 31, 2025, including amounts to Hong Kong Supermarket of Monterey Park, Ltd. (controlled by CEO John Xu), HKGF Market of Alhambra, Inc., and Dai Cheong Trading Co Inc.
• Other receivables related parties: $214,899 as of October 31, 2025, including amounts from Ideal Investment, Ideal City Capital, Dai Cheong Trading Co Inc., Ebisu LA2, LLC, and HKGF Market of Arcadia, LLC (all with ties to CEO John Xu).
• Other payables related parties: $101,167 as of October 31, 2025, including amounts due to John Xu and Grantstone Inc.
• CEO John Xu and spouse Grace Xu personally guaranteed the $5.25 million Royal Business Bank loan and the Senior Secured Note for the Lee Lee acquisition.
• 760,000 Class B Common Stock shares were granted to a company wholly-owned by the CEO as compensation.
• 110,000 common stock shares were granted to the spouse of the CEO.
• Debt covenants prohibit distributions to Parent, Grantor, Guarantors or any other related party without holder approval.

Stakeholder Impact

• Shareholders face significant dilution risk from convertible notes, substantial net losses, negative EPS, and 'going concern' doubt. Class action and derivative lawsuits directly impact shareholder value and confidence.
• Employees are affected by minimum wage increases in California and Arizona, which impact payroll costs. Stock-based compensation was a significant expense.
• Customers may experience reduced access to services due to store closures (Maison El Monte, planned HKGF Arcadia). Inflation is impacting product pricing strategy, with the company aiming to keep prices competitive.
• Suppliers are subject to the company's centralized vendor management, which aims to enhance negotiating power. An unpaid invoices claim for seafood purchases indicates potential issues with supplier relationships.
• Creditors face increased risk due to new bank loans and convertible notes, which increase the company's debt burden. The Royal Business Bank loan is secured by Lee Lee assets and personally guaranteed by the CEO. The Senior Secured Convertible Promissory Note is secured by all company assets, including digital assets. The 'going concern' doubt raises risk for all creditors.
• Management is directly involved in legal proceedings (class action, derivative lawsuits). The CEO and his spouse have personally guaranteed significant loans. Material weaknesses in internal controls indicate challenges for financial management.

Next Steps

• Strengthen sales force and provide attractive sales incentive programs.
• Recruit experienced industry-related managerial personnel.
• Increase marketing and promotion activities.
• Seek suppliers with competitive prices and good quality products.
• Open or acquire additional specialty supermarkets in locations with less competition.
• Potentially raise additional funds through strategic investors, private/public offerings, or bank loans if necessary.
• Continue remediation actions for material weaknesses in internal control over financial reporting, including hiring additional professional staff and providing training.
• Respond to and satisfy SEC requests regarding the registration statement for convertible shares.
• Address pending legal proceedings, including the class action securities lawsuits and shareholder derivative actions.
• Make monthly interest payments on new bank loans and convertible notes.
• Make additional principal curtailments of $150,000 each in November, December, January, and February for the Royal Business Bank loan.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by substantial and increasing net losses, declining revenues and gross margins, and a negative operating cash flow. The explicit 'going concern' doubt, coupled with significant accumulated deficit and negative working capital, signals a high risk of financial instability. The company is taking on substantial new debt, including convertible notes that pose significant dilution risk to existing shareholders, and has incurred large non-operating losses from note conversions and unrealized digital asset losses. Material weaknesses in internal controls and ongoing legal proceedings further compound the risks. These factors collectively point to a highly unfavorable investment outlook.

Keywords

Maison Solutions Inc., MSS, Quarterly Report, SEC Filing, Financial Results, Net Loss, Revenue Decline, Going Concern, Supermarket Retail, Asian Groceries, Digital Assets, Worldcoin, Convertible Notes, Debt Financing, Internal Controls, Related Party Transactions, Legal Proceedings, Store Closure, Inflation Impact, Corporate Governance, Shareholder Lawsuit