10-Q: Maison Solutions Inc. Reports Q3 2025 Results: Revenue Soars, Acquisition Drives Growth

Sentiment:

Quarterly Report 17 March 2025 4:43 PM

Maison Solutions Inc. reports a significant increase in revenue for Q3 2025, driven by the acquisition of Lee Lee Oriental Supermart, but acknowledges ongoing challenges with internal controls and related party transactions.

Capital raiseOn March 12, 2025, the Company entered into a securities purchase agreement with an institutional investor to issue and sell 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 Company also agreed to issue and sell a note purchase 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%).

Better than expectedThe company's revenue and net income significantly improved compared to the same period last year, primarily due to the acquisition of Lee Lee Oriental Supermart.

Summary

Maison Solutions Inc. reported net revenues of $34.1 million for the three months ended January 31, 2025, a 151.1% increase compared to $13.6 million for the same period in 2024.
The increase in revenue is primarily attributed to the acquisition of Lee Lee Oriental Supermart, which contributed $21.6 million.
The company's four California-based supermarkets experienced a decrease in revenue of $1.1 million due to increased competition and the end of certain COVID-19 pandemic-era relief programs.
Cost of revenues increased by 155.6% to $26.6 million, mainly due to the Lee Lee acquisition.
Gross profit increased to $7.5 million, but gross margin decreased slightly to 22.1% from 23.4%.
Operating expenses increased to $6.4 million, primarily due to increased selling expenses related to the Lee Lee acquisition.
The company reported a net income of $1,011,763 for the quarter, compared to a net loss of $548,954 in the same period last year.
For the nine months ended January 31, 2025, net revenues were $94.8 million, a 130.6% increase from $41.1 million in 2024.
The company reported a net income of $1,456,662 for the nine months ended January 31, 2025, compared to a net loss of $562,428 in the same period last year.
The company is addressing material weaknesses in internal control over financial reporting, including hiring additional personnel with U.S. GAAP expertise and providing additional training to accounting personnel.

Sentiment

Score: 6

Explanation: The sentiment is mixed. While revenue and net income have improved, material weaknesses in internal control and ongoing legal proceedings raise concerns. The company's future outlook is dependent on its ability to manage growth, improve internal controls, and resolve legal issues.

Positives

Significant revenue growth driven by the acquisition of Lee Lee Oriental Supermart.
Improved net income compared to the previous year.
Increased gross profit and gross margin for the nine months ended January 31, 2025.
The company is taking steps to remediate material weaknesses in internal control over financial reporting.

Negatives

Decrease in revenue from California-based supermarkets due to increased competition and the end of certain COVID-19 pandemic-era relief programs.
Material weaknesses in internal control over financial reporting persist.
The company has an accumulated deficit of approximately $1.36 million and negative working capital of $11.50 million as of January 31, 2025.
Increased interest expense due to the Lee Lee acquisition note.
The company is involved in various legal proceedings.

Risks

Intense competition in the food retail industry.
Inflation increasing purchase, occupancy, and payroll costs.
Potential disruptions from store maintenance and renovations.
The company may need additional cash resources in the future.
Ongoing legal proceedings could have a material adverse effect on the company's financial statements.
The company's ability to repay its current expenses and obligations will depend on the future realization of its current assets.

Future Outlook

The Company plans to acquire and open additional supermarkets, satellite stores and warehouses to expand its footprint to both the West Coast and the East Coast, estimating a 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.

Management Comments

Maison believes that a centralized and efficient vendor and supply management system is the key to profitability.
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.

Industry Context

The food retail industry is highly competitive, with Maison Solutions competing against national, regional, and local supermarkets, superstores, and online retailers. Key competitors include 99 Ranch Market and H-Mart for conventional supermarkets and Weee! for online groceries.

Comparison to Industry Standards

It is difficult to compare Maison Solutions directly to industry standards without more specific information on comparable companies and metrics.
However, the company's revenue growth significantly outpaces the average growth rate for the supermarket industry, which suggests a strong performance relative to its peers.
The company's gross margin is slightly below the average for the supermarket industry, which may indicate a need to improve cost management or pricing strategies.
The company's ongoing legal proceedings and material weaknesses in internal control are potential areas of concern that could negatively impact its financial performance and reputation.

Legal Proceedings

The Company and its executive officers and directors, as well as Joseph Stone Capital LLC, and AC Sunshine Securities LLC, the underwriters in the Companys 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).
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).
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.
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.
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.

Related Party Transactions

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.
In May 2021, the Company purchased a 10% equity interest in Dai Cheong Trading Company Inc., a grocery trading company, for $162,665 from DC Holding CA, Inc. DC Holding CA, Inc. is owned by John Xu, the Chief Executive Officer, Chairman and President of the Company.
In December 2021, the Company purchased a 10% equity interest in HKGF Market of Alhambra, Inc, the legal entity holding the Alhambra Store (as defined below) for $40,775 from Ms. Grace Xu, a related party as the spouse of Mr. John Xu, the Chief Executive Officer, Chairman and President of the Company.

Stakeholder Impact

Shareholders: The improved financial performance is positive, but ongoing legal proceedings and internal control weaknesses are concerning.
Employees: The acquisition of Lee Lee has likely led to increased employment opportunities, but the company's financial stability and future growth are dependent on its ability to manage its operations effectively.
Customers: The company's focus on providing traditional Asian food and merchandise to U.S. consumers is likely to continue, but the company's ability to maintain competitive pricing and quality may be affected by inflation and competition.
Creditors: The company's increased debt levels and ongoing legal proceedings may increase the risk of default, but the company's improved financial performance and efforts to remediate internal control weaknesses are positive signs.

Next Steps

The company plans to acquire and open additional supermarkets, satellite stores and warehouses to expand its footprint to both the West Coast and the East Coast.
The company plans 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.
The company plans to provide additional training to our accounting personnel on U.S. GAAP, and other regulatory requirements regarding the preparation of financial statements.

Key Dates

Date	Description
2019-07-24	Maison Solutions Inc. was founded.
2019-07-31	The Company purchased 91% of the equity interests in Good Fortune Supermarket San Gabriel, LP (Maison San Gabriel) and 85.25% of the equity interests in Good Fortune Supermarket of Monrovia, LP (Maison Monrovia).
2019-10-31	The Company purchased 91.67% of the equity interests in Super HK of El Monte, Inc. (Maison El Monte).
2020-06-15	Maison Monrovia, Maison San Gabriel, and Maison El Monte entered into Business Loan Agreements with the SBA.
2021-04-19	Maison entered into a Collaboration Agreement with JD E-commerce America Limited.
2021-05-31	The Company purchased a 10% equity interest in Dai Cheong Trading Company Inc.
2021-09-08	The total number of authorized shares of all classes of stock was increased to 100,000,000 by way of a 200-for-1 stock split.
2021-12-31	The Company acquired a 10% equity interest in a new grocery store located in Alhambra, California.
2022-01-06	Maison El Monte entered into an additional Business Loan Agreement with the SBA.
2022-01-12	Maison San Gabriel entered into an additional Business Loan Agreement with the SBA.
2022-06-30	The Company purchased 100% equity interest in GF Supermarket of MP, Inc. (Maison Monterey Park).
2023-10-10	The Company's initial public offering (IPO) of 2,500,000 shares of Class A common stock closed.
2023-10-30	The Company entered a System Purchase and Implementation Consulting Agreement with Drem Consulting Pte. Ltd.
2023-11-03	The Company incorporated a wholly-owned subsidiary, AZLL LLC (AZLL), in Arizona.
2023-11-22	The Company entered into certain securities purchase agreements (the Securities Purchase Agreements) with certain investors (the PIPE Investors).
2023-12-06	The Company invested an additional $360,000 for another 10% equity interest in HKGF Arcadia.
2023-12-14	The Company purchased 10% equity interest in TMA Liquor Inc (TMA).
2024-01-02	The Company and our executive officers and directors, as well as Joseph Stone Capital LLC, and AC Sunshine Securities LLC, the underwriters in the Companys 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).
2024-01-04	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).
2024-02-01	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 Guys percentage equity interest to 51%.
2024-04-04	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 100% of the outstanding equity interests in Lee Lee from the Sellers.
2024-04-08	AZLL closed an acquisition transaction and purchased 100% of the equity interests in Lee Lee Oriental Supermart, Inc. (Lee Lee).
2024-04-09	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.
2024-04-12	Another derivative complaint was filed by Arnab Baral in the United States District Court Central District of California, Case No. 2:24-cv-03018.
2024-04-17	The parties agreed to stay the action in favor of the Rick Green matter described immediately below.
2024-06-10	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).
2024-07-19	The Court ordered the Azad case stayed until a motion to dismiss is heard in the class action securities action.
2024-08-28	AZLL filed a Statement of Merger with the ACC, pursuant to which Lee Lee merged into AZLL, effective August 28, 2024 (the Merger).
2024-09-03	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.
2024-09-09	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).
2024-10-17	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.
2024-10-21	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.
2025-03-12	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 (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).
2026-05-11	Extended Maturity Date of the Note.

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