MSS

Business Context and Reporting Period

Company: Maison Solutions Inc. (MSS)

Filing Type: Form 10-Q (Quarterly Report)

Reporting Period: Quarter and nine months ended January 31, 2026

Business Overview: A specialty grocery retailer operating Asian supermarkets in California and Arizona. The company operates as a single reportable segment.

Key Operational Event: The company closed its Maison El Monte store on June 7, 2025, due to continuous losses. Results for this location are reported as discontinued operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 8.6% ($2.78 million) for the quarter and 6.1% ($5.52 million) for the nine months compared to the prior year. This was driven by decreased sales across California stores (Maison Monterey Park, Monrovia, San Gabriel) and Arizona (Lee Lee) due to high local competition.
• Operating Loss: The company reported an operating loss of $2.82 million for the quarter, a significant deterioration from an operating income of $1.19 million in the prior year quarter. For the nine months, the operating loss was $3.99 million versus income of $4.18 million previously.
• Expense Surge: General and administrative (G&A) expenses increased 313.7% for the quarter and 110.3% for the nine months. Key drivers included a $1.9 million bad debt expense, $1.9 million in stock compensation, and increased professional fees.
• Non-Operating Losses: Significant non-operating losses were recorded due to:
  • Derivative Liability: A $3.41 million loss (nine months) from changes in the fair value of derivative liabilities associated with convertible notes.
  • Digital Assets: An unrealized loss of $1.86 million (nine months) on Worldcoin (WLD) investments, which declined from a cost basis of $2.92 million to a fair value of $1.05 million.
  • Investment Impairments: Full impairment of investments in HKGF Market of Arcadia ($0.85 million) and TMA Liquor ($0.075 million).

Guidance, Outlook, Risks, and Contingencies

• Going Concern: The filing explicitly states substantial doubt about the company's ability to continue as a going concern due to recurring losses, an accumulated deficit of $13.37 million, and negative working capital. Management plans to raise additional funds via equity or debt offerings.
• Nasdaq Compliance: The company received notice from Nasdaq regarding non-compliance with the $1.00 minimum bid price requirement. It has been granted an extension until July 6, 2026, to regain compliance, potentially via a reverse stock split.
• Legal Settlements:
  • Settled class action securities lawsuits for a total of $2.65 million ($1.3 million company portion after insurance).
  • Settled shareholder derivative actions for $400,000 in attorney fees.
  • Settled a wrongful termination claim for $25,000 and a disability access claim for $6,000.
• Debt Structure: The company has significant debt obligations including SBA loans (~$2.57 million), a new bank loan from Royal Business Bank ($5.25 million principal), and convertible notes (~$5.75 million principal). Some convertible notes require the company to maintain specific cash balances.
• Internal Controls: The company identified material weaknesses in internal controls over financial reporting, including insufficient accounting expertise, lack of related party transaction monitoring, and inadequate inventory controls.

Investor Verification Checklist

• Liquidity Runway: Verify the sufficiency of the $1.52 million cash balance against the $6.21 million working capital deficit and upcoming debt maturities.
• Debt Covenants: Confirm compliance with cash balance covenants in the new convertible notes and bank loan agreements.
• Digital Asset Volatility: Assess the risk exposure to the $1.05 million Worldcoin holding and the potential for further unrealized losses.
• Revenue Recovery: Evaluate the effectiveness of management's strategy to counteract the 6-8% revenue decline caused by local competition.
• Capital Raising: Monitor progress on the registration statements for convertible notes and any new equity offerings required to address the going concern warning.
• Internal Control Remediation: Review the timeline and effectiveness of hiring qualified accounting staff to address material weaknesses in financial reporting.