10-Q: Maison Solutions Reports Q1 Loss Amid Revenue Decline

Maison Solutions Inc. reported a significant net loss for the quarter ended July 31, 2025, driven by decreased revenue, increased operating costs, and impairment charges, alongside ongoing internal control weaknesses.

Summary

• Net revenue decreased by 3.6% to $27.17 million for the three months ended July 31, 2025, compared to $28.18 million in the prior year period.
• The company recorded a net loss attributable to Maison Solutions Inc. of $(1.54) million, a substantial decline from a net income of $0.70 million in the same period last year.
• Gross profit fell by 19.4% to $6.56 million, with gross margin decreasing from 28.9% to 24.2%.
• Operating expenses increased by 5.1% to $6.37 million, primarily due to higher selling expenses, payroll, and merchant service charges.
• An impairment charge of $848,493 was recognized for the investment in HKGF Market of Arcadia due to plans to close the supermarket business at that location.
• The Maison El Monte store was closed in June 2025 due to continuous losses, resulting in a net loss from discontinued operations of $(825,499) for the quarter.
• Interest expense surged by 264.4% to $652,409, mainly from SBA loans, a convertible note, and the note payable for the Lee Lee acquisition.
• The company had a negative working capital of $9.78 million and an accumulated deficit of $3.19 million as of July 31, 2025.
• A $4.88 million note payable related to the Lee Lee acquisition was fully repaid on September 8, 2025, using proceeds from a new $5.25 million loan from Royal Business Bank.
• The company did not meet the financial test for its convertible note, which requires maintaining a cash balance of at least $500,000, as of July 31, 2025.

Sentiment

Score: 3

Explanation: The company reported significant net losses, declining revenue and gross profit, and increased operating and interest expenses. Material weaknesses in internal controls persist, and multiple legal proceedings are ongoing. While there was a positive cash flow from operations and a major debt repayment post-period, the overall financial health and operational challenges indicate a weak performance and significant risks.

Positives

• Cash on hand increased to $1,070,802 as of July 31, 2025, from $775,360 as of April 30, 2025.
• The $4.88 million note payable from the Lee Lee acquisition was fully repaid on September 8, 2025, reducing a significant short-term debt obligation.
• Secured a new $5.25 million business loan from Royal Business Bank to facilitate the repayment of the Lee Lee acquisition note.
• Generated $335,000 in consulting income by providing services to other non-related supermarkets.
• Received an income tax refund of $0.1 million.
• A gain of $309,904 was recognized from the change in fair value of derivative liability related to a convertible note.
• Lee Lee stores, acquired in April 2024, showed increased sales of $0.3 million, partially offsetting declines in California stores.
• Entered into a new agency agreement with Kweichow Moutai Co., Ltd. for export operations of liquor and liqueur products, effective through December 31, 2025, potentially opening new revenue streams.

Negatives

• Net revenue decreased by 3.6% to $27.17 million, primarily due to reduced sales in California-based supermarkets (Maison Monterey Park, San Gabriel, Monrovia) by $1.3 million.
• Gross profit decreased by 19.4% to $6.56 million, and gross margin declined by 4.7 percentage points to 24.2%, mainly due to increased cost of goods sold from inflation.
• Net loss attributable to Maison Solutions Inc. was $(1.54) million, a significant reversal from a net income of $0.70 million in the prior year.
• Net loss from continuing operations was $(784,798), compared to a net income of $1,111,136 in the prior year, representing a 170.6% increase in net loss.
• Net loss from discontinued operations (Maison El Monte) increased by 84.5% to $(825,499).
• Operating expenses increased by 5.1% to $6.37 million, with payroll expense increasing by $0.4 million due to higher hourly rates and merchant service charges increasing by $53,723.
• Interest expense increased by 264.4% to $652,409, reflecting higher borrowing costs.
• An impairment charge of $848,493 was recorded for the investment in HKGF Market of Arcadia due to the planned closure of the supermarket business at that location.
• The company reported a negative working capital of $9.78 million and an accumulated deficit of $3.19 million as of July 31, 2025.
• The company did not meet the financial test for its convertible note, which requires a minimum cash balance of $500,000, as of July 31, 2025.

Risks

• Significant competition in the food retail industry from national, regional, and local conventional supermarkets, superstores, natural foods stores, specialty stores, farmers markets, supercenters, online retailers, mass/discount retailers, and membership warehouse clubs.
• Increased operating costs as a public company, including compliance, audit, legal, and consulting expenses.
• Inflationary pressures increasing purchase costs, occupancy costs, and payroll costs.
• Rising minimum wage rates in California and Arizona impacting payroll expenses.
• Potential negative impact on results of operations from intensified competition, loss of sales, decreased market share, reduced margins from competitive pricing, or greater operating costs.
• Material weaknesses in internal control over financial reporting, including insufficient accounting expertise, lack of timely related party transaction monitoring, inadequate perpetual inventory control, lack of adequate policies and procedures in control environment and activities, information technology general control deficiencies, and lack of segregation of duties in accounting personnel.
• Pending class action lawsuits 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, with possible range of losses not estimable.
• Shareholder derivative actions alleging breaches of fiduciary duty, abuse of control, unjust enrichment, gross mismanagement, waste of corporate assets, and contribution under securities acts, with possible range of losses not estimable.
• Contingent liability for unpaid invoices of seafood purchase totaling $115,388.39, with the outcome currently not estimable.
• The company may need additional cash resources in the future if business conditions change or if it pursues investment, acquisition, or strategic cooperation opportunities, with no assurance that such financing will be available on favorable terms or at all.
• Any future equity financing could result in immediate and possibly significant dilution to existing shareholders.
• Failure to manage growth or execute strategies effectively could materially and adversely affect business, results of operations, and prospects.
• The convertible note requires the company to maintain a minimum cash balance of $500,000, which was not met as of July 31, 2025, potentially triggering an Event of Default.

Future Outlook

The company plans to increase revenue by strengthening its sales force, implementing 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 current cash and operating cash flows will be sufficient for the next 12 months but acknowledges the potential need for additional cash resources for changed business conditions, investments, acquisitions, or strategic cooperation, which may involve issuing debt or equity securities or obtaining a credit facility. The initial registration statement for the convertible note is under SEC review, but the company expects to meet the effectiveness deadline.

Management Comments

• The strategic decision to close Maison El Monte store is part of our ongoing commitment to improve its profitability and support sustainable growth.
• We believe in the viability of our strategy to generate sufficient revenues and our ability to raise additional funds on reasonable terms and conditions, though there can be no assurances to that effect.
• We believe that our cash on hand and operating cash flows will be sufficient to fund our operations over at least the next 12 months from the date of issuance of these financial statements.
• We may need additional cash resources in the future if we experience changed business conditions or other developments and may also need additional cash resources in the future if we wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions.
• If it is determined that the cash requirements exceed our amounts of cash on hand, we may seek to issue debt or equity securities or obtain a credit facility.
• We and the Defendants believe the allegations in both class action complaints are without merit and intend to defend each suit vigorously.

Industry Context

The food retail industry is highly competitive, with Maison Solutions Inc. facing competition from national, regional, and local conventional supermarkets, superstores, natural foods stores, specialty stores, farmers markets, supercenters, online retailers, mass/discount retailers, and membership warehouse clubs. The company specifically identifies 99 Ranch Market, H-Mart, and Weee! as principal competitors. The industry is currently experiencing inflationary pressures, which have increased Maison's purchase, occupancy, and payroll costs. Additionally, rising minimum wage rates in key operating states like California and Arizona are contributing to increased payroll expenses.

Comparison to Industry Standards

• The company's gross margin of 24.2% for the quarter ended July 31, 2025, is lower than typical industry averages for specialty grocery retailers, which often aim for higher margins due to niche product offerings. For example, some specialty grocers might target gross margins in the 30-40% range, indicating Maison's competitive pricing or cost pressures.
• The reported net loss and negative working capital position suggest underperformance compared to financially healthy industry peers like 99 Ranch Market or H-Mart, which generally maintain positive profitability and stronger liquidity to support operations and growth.
• The increase in operating expenses, particularly payroll due to minimum wage hikes, is a common industry trend, but Maison's significant increase in interest expense (264.4%) indicates a higher debt burden or less favorable financing terms compared to more established competitors.
• The closure of Maison El Monte due to continuous losses and the impairment of the HKGF Market of Arcadia investment highlight challenges in store profitability and expansion strategy, contrasting with competitors who may be successfully expanding their footprint or optimizing existing locations.

Corporate Governance

Legal Proceedings

• Class action complaint (Ilsan Kim v. Maison Solutions Inc., et. al) filed on January 2, 2024, in New York Supreme Court, alleging violations of Sections 11 and 15 of the Securities Act of 1933, seeking compensatory damages. Action stayed in favor of the Rick Green matter.
• Class action complaint (Rick Green and Evgenia Nikitina v. Maison Solutions Inc., et. al.) filed on January 4, 2024, in U.S. District Court for the 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. Management believes allegations are without merit.
• Shareholder derivative action (Shah Azad derivatively on behalf of the Company against John Xu et al.) filed on April 9, 2024, in U.S. District Court for the Central District of California, alleging breaches of fiduciary duty, abuse of control, unjust enrichment, gross mismanagement, waste of corporate assets, and contribution under securities acts. Consolidated with Arnab Baral's complaint and stayed until a motion to dismiss in the class action securities action is heard.
• Complaint filed on September 8, 2023, against Maison San Gabriel for wrongful termination and labor law violation, with a requested range of $300,000 to $3,000,000. Settled on August 4, 2025, for $25,000.
• Claim filed on September 3, 2024, against Maison El Monte alleging violations of the Unruh Civil Rights Act and the California Disabled Persons Act. Settled on April 8, 2025, for $6,000.
• Complaint filed on October 17, 2024, 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 totaling $115,388.39. Outcome not estimable at the current stage.

Related Party Transactions

• Sales to HKGF Market of Arcadia, LLC (Maison owns 49% equity interest) of $121,118 for the three months ended July 31, 2025.
• Purchases from United Food, LLC (John Xu, CEO, owns 24%) of $2,764 for the three months ended July 31, 2025.
• Purchases from HKGF Market of Arcadia, LLC (Maison owns 49% equity interest) of $54,366 for the three months ended July 31, 2025.
• Purchases from Dai Cheong Trading Co Inc. (John Xu controls 90%, Maison owns 10%) of $274,703 for the three months ended July 31, 2025.
• Investment of $162,665 in 10% equity interest of Dai Cheong Trading Company Inc., purchased from DC Holding CA, Inc. (100% owned by John Xu).
• Investment of $40,775 in 10% equity interest of HKGF Market of Alhambra, Inc., purchased from Ms. Grace Xu (spouse of John Xu).
• Accounts receivable from HKGF Market of Arcadia, LLC of $131,967 as of July 31, 2025.
• Accounts receivable from JC Business Guys, Inc. (51% equity interest shareholder of HKGF Market of Arcadia, LLC) of $72,810 as of July 31, 2025.
• Accounts receivable from Grantstone Inc. (John Xu indirectly owns 100%) of $9,570 as of July 31, 2025.
• Accounts receivable from United Food, LLC of $303,942 as of July 31, 2025.
• Accounts payable to Hong Kong Supermarket of Monterey Park, Ltd. (John Xu controls) of $440,166 as of July 31, 2025.
• Accounts payable to HKGF Market of Alhambra, Inc. of $34,556 as of July 31, 2025.
• Accounts payable to Dai Cheong Trading Co Inc. of $94,247 as of July 31, 2025.
• Other receivables from Ideal Investment (John Xu has majority ownership) of $3,995 as of July 31, 2025.
• Other receivables from Ideal City Capital (John Xu has majority ownership) of $30,000 as of July 31, 2025.
• Other receivables from HKGF Market of Arcadia, LLC of $105,000 as of July 31, 2025.
• Other payables to John Xu of $222,049 as of July 31, 2025.
• Other payables to Grace Xu of $40,775 as of July 31, 2025.
• Other payables to New Victory Foods Inc (John Xu owns 100%) of $250,000 as of July 31, 2025.
• CEO John Xu and his spouse Grace Xu personally guaranteed the new $5.25 million loan from Royal Business Bank, with Mr. Xu pledging real property as collateral.

Stakeholder Impact

• **Shareholders:** Negative impact due to significant net losses, declining revenue, increased accumulated deficit, and negative working capital. Potential for dilution from future capital raises. Uncertainty from ongoing legal proceedings.
• **Employees:** Impacted by store closures (Maison El Monte) but also by rising minimum wages in California and Arizona, leading to increased payroll expenses.
• **Customers:** Closure of Maison El Monte store reduces service availability in that area. Potential for improved in-store technology and wider product variety through JD.com collaboration (though no new progress reported).
• **Suppliers:** The company has significant prepayments to vendors, indicating reliance on certain suppliers. There is a pending legal claim for unpaid invoices, which could affect supplier relationships.
• **Creditors:** The company has substantial debt, including SBA loans and a convertible note. While a major note payable was repaid, the negative working capital and failure to meet a convertible note financial test indicate potential liquidity concerns, which could impact creditors.

Next Steps

• Continue efforts to increase revenue by strengthening sales force, implementing incentive programs, recruiting managerial personnel, increasing marketing, and seeking competitive suppliers.
• Explore opportunities for opening or acquiring additional specialty supermarkets in less-competitive locations.
• Address and remediate identified material weaknesses in internal control over financial reporting by hiring additional professional staff, providing training, and engaging outside CPA expertise.
• Continue to defend vigorously against pending class action lawsuits and shareholder derivative actions.
• Monitor and manage the ongoing legal proceeding for unpaid invoices of seafood purchase.
• Fulfill the requirements of the new agency agreement with Kweichow Moutai Co., Ltd., including transferring the RMB 300,000 deposit.
• Work towards the effectiveness of the initial registration statement for the convertible note, which is currently under SEC review.

Key Dates

Recommendation

The company's financial performance for the quarter ended July 31, 2025, shows significant deterioration, with a substantial net loss, declining revenue and gross profit, and increased operating and interest expenses. The negative working capital and accumulated deficit indicate severe liquidity and solvency issues. Persistent material weaknesses in internal controls raise concerns about financial reporting reliability. Multiple ongoing class action and derivative lawsuits add significant legal and reputational risk, with unestimable potential losses. While a major debt was repaid post-period, it was replaced by another, and the company failed a financial covenant on its convertible note. These factors collectively point to a highly distressed financial position and significant operational challenges, making the stock a strong sell for seasoned investors.

Keywords

Specialty Grocery, Asian Supermarket, Retail, SEC Filing, 10-Q, Financial Results, Net Loss, Revenue Decline, Operating Expenses, Internal Controls, Legal Proceedings, Debt Repayment, Capital Raise, Store Closure, Inflation, Competition, Related Party Transactions