Maison Solutions Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended April 30, 2023, compared with fiscal year ended April 30, 2022. The filing is an annual report, not a report for 2022 Q4; it does not provide standalone quarterly results.
Business context
Maison operates specialty Asian grocery supermarkets concentrated in the Los Angeles area. Its strategy combines full-service “center” stores with smaller community “satellite” stores, supported by online ordering and delivery. The company acquired the Monterey Park supermarket on June 30, 2022; it also held 10% interests in the Alhambra store and related-party wholesaler Dai Cheong, with plans to acquire controlling interests.
Key financial results
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net revenue | $55.4 million | $42.0 million | +32.0% |
| Gross profit / margin | $12.45 million / 22.5% | $8.29 million / 19.7% | Margin +2.8 percentage points |
| Operating income (loss) | $83,647 | ($826,590) | Improved |
| Consolidated net income (loss) | $1.64 million | ($655,026) | Improved |
| Net income (loss) attributable to Maison | $1.25 million | ($562,744) | Improved |
| Operating cash flow | $484,191 | $1.49 million | Down |
Basic and diluted earnings per share attributable to Maison were $0.08, versus a loss of $0.04 in FY2022. Revenue growth was primarily from $14.8 million of sales from the acquired Monterey Park store. The company says sales at its other stores declined about $1.3 million, citing reduced pandemic-related grocery demand, nearby competition, and lower online purchasing.
Gross margin improved, principally due to better margins at the El Monte and Monrovia stores. Selling, general and administrative expenses rose 35.7% to $12.37 million, faster than revenue; operating expenses equaled 22.3% of revenue versus 21.7% in FY2022. Payroll and payroll taxes increased to $6.2 million from $4.5 million.
FY2023 other income included an approximately $1.88 million employee retention credit (ERC). Excluding this material, non-recurring credit, reported operating income was only $83,647; the filing does not provide a formal adjusted earnings measure.
Liquidity, debt and cash flow
- Cash and cash equivalents were $2.57 million at April 30, 2023. Working capital was in deficit by $86,864.
- Loan payables totaled approximately $2.93 million, including about $308,000 owed to American First National Bank and $2.62 million of SBA loans. The balance sheet also reports a separate $150,000 demand note bearing 10% annual interest.
- Operating lease liabilities were $24.47 million; total contractual obligations, including leases and debt, were $27.41 million. Lease expense was $2.72 million.
- Operating cash flow fell to $484,191 despite net income, with cash uses including higher prepayments, receivables and payments of payables. Investing cash flow was positive $1.86 million, largely from collection of vendor loans, partly offset by the $2.5 million Monterey Park acquisition. Financing cash flow was negative $746,637.
- The filing reports a debt-service-coverage covenant issue on the bank loan, with no waiver disclosed and no bank action reported as of the filing. It also reports FY2023 coverage ratios above the 1.3 minimum while stating that the prior covenant issue continues to affect classification. The bank loan is due March 2, 2024.
Outlook, risks and unusual items
Management estimated $35–$40 million of capital investment for expansion, including $13–$16 million within the next 12 months. Plans include acquiring the remaining interests in Alhambra and Dai Cheong, opening additional California satellite stores, acquiring up to five East Coast center stores, and establishing a New York warehouse. The company targeted ten center stores by the end of 2025. These are plans, not assured outcomes; management said additional financing may be needed and may not be available on favorable terms.
- Execution and funding: The center-satellite model is unproven, expansion could strain resources, and new stores may initially reduce margins. The company is geographically concentrated in Los Angeles and faces competition, inflation, labor-cost, lease, perishable-inventory and supplier-concentration risks.
- Related parties: The company reports multiple transactions with CEO John Xu, his spouse, and affiliated entities, including the Monterey Park acquisition, purchases, sales, balances and equity investments. The filing identifies potential conflicts and says some transactions may not be on arm’s-length terms.
- Internal controls: Management concluded disclosure controls were ineffective and identified material weaknesses involving accounting expertise and segregation of duties, related-party monitoring, inventory records and counts, control procedures, and IT controls. Remediation began in FY2024. The auditors gave opinions on the financial statements but did not attest to internal-control effectiveness.
- Post-year-end transaction: On June 27, 2023, Maison invested $1.44 million for a 40% interest in a supermarket in Arcadia.
- Legal and tax matters: The company says pending proceedings are not expected to have a material adverse effect, but reports an accrued $237,000 legal loss and a pending consumer case. It also disclosed uncertain tax positions and an intention to amend tax returns.
Important facts for investors to verify
- Whether the $1.88 million ERC is valid, fully collectible, and non-recurring, and how results look without it.
- The bank covenant status, whether the lender granted or will grant a waiver, and the timing and funding of the approximately $308,000 bank balance.
- How management expects to fund the $35–$40 million expansion plan and whether actual capital needs or timelines differ from estimates.
- Progress on remediation of material weaknesses, especially inventory controls, related-party tracking, and accounting-system access and review.
- Terms, valuation and governance safeguards for related-party arrangements and proposed acquisitions, including Alhambra and Dai Cheong.
- Reconciliation of the filing’s differing descriptions of the perishable-sales share: it reports 56.5% and 57.5% in one risk disclosure, but elsewhere gives 57.5% and 60.7% for FY2023 and FY2022.