Maison Solutions Inc

Previous wording

We are a fast-growing, specialty grocery retailer offering traditional Asian food and merchandise to modern U.S. consumers, in particular to members of Asian-American communities. We are committed to providing Asian fresh produce, meat, seafood, and other daily necessities in a manner that caters to traditional Asian-American family values and cultural norms, while also accounting for the new and faster-paced lifestyle of younger generations and the diverse makeup of the communities in which we operate. To achieve this, we are developing a center-satellite stores network. Since our formation in July 2019, we have acquired equity interests in four (4) traditional Asian supermarkets in Los Angeles, California. Since April 30, 2022, we have been operating these supermarkets as center stores. The center stores target traditional Asian-American, family-oriented customers with a variety of meat, fresh produce and other merchandise, while additionally stocking items which appeal to the broader community. We are operating these traditional Asian-American, family-oriented supermarkets with our management’s deep cultural understanding of our consumers’ unique consumption habits. In addition to the traditional supermarkets, on December 31, 2021, we acquired a 10% equity interest in a new grocery store located in Alhambra, California, a young and active community (the “Alhambra Store”) from Mrs. Grace Xu, the spouse of Mr. John Xu, our chief executive officer (“CEO”), Chairman and President. Our intention is to acquire the remaining 90% equity interest in the Alhambra Store and operate it as our first satellite store. The investment in the Alhambra Store is considered a related party transaction because Mrs. Xu is the spouse of Mr. Xu, our CEO, Chairman and President. Please refer to “Certain Relationships and Related Party Transactions” for further explanation. In May 2021, the Company acquired 10% of the equity interests in Dai Cheong, a wholesale business which mainly supplies foods and groceries imported from Asia, which is owned by John Xu, our CEO, Chairman and President. We intend to acquire the controlling ownership of Dai Cheong. By adding Dai Cheong to our portfolio, we will take the first step toward creating a vertically integrated supply-retail structure. Having an importer as a part of our portfolio will allow us the opportunity to offer a wider variety of products and to reap the benefits of preferred wholesale pricing. On June 27, 2023, we invested $1,440,000 for 40% equity interest in HKGF Market of Arcadia, LLC (“HKGF Arcadia”), a supermarket in the city of Arcadia, California, to further expand our footprint to new neighborhood. On December 6, 2023, we invested an additional $360,000 for another 10% equity interest in HKGF Arcadia. On February 1, 2024, 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 …

Excerpt shortened here; the source contains the full paragraph.

Current wording

We are a fast-growing, specialty grocery retailer offering traditional Asian food and merchandise to modern U.S. consumers, in particular to members of Asian-American communities. We are committed to providing Asian fresh produce, meat, seafood, and other daily necessities in a manner that caters to traditional Asian-American family values and cultural norms, while also accounting for the new and faster-paced lifestyle of younger generations and the diverse makeup of the communities in which we operate. To achieve this, we are developing a center-satellite stores network.

Previous wording

The inflation rate for the United States was 2.9% for the three months ended July 31, 2024, 3.4% for the year ended April 30, 2024 and 4.9% for the year ended April 30, 2023 according to Bureau of Labor Statistics. Inflation increased our purchase costs, occupancy costs, and payroll costs.

Current wording

The inflation rate for the United States was 2.6% for the six months ended October 31, 2024, 3.4% for the year ended April 30, 2024 and 4.9% for the year ended April 30, 2023 according to Bureau of Labor Statistics. Inflation increased our purchase costs, occupancy costs, and payroll costs.

Previous wording

As of July 31, 2024, we had approximately 363 employees including employees from our newly acquired subsidiary, Lee Lee, which is based in the State of Arizona. Our employees are not unionized nor, to our knowledge, are there any plans for them to unionize. We have never experienced a strike or significant work stoppage. We consider our employee relations to be good. Minimum wage rates in some states have recently increased. For example, in California, the minimum wage was $15.50 per hour in 2023 and increased to $16 per hour starting from January 1, 2024; in Arizona, the minimum wage was $13.85 per hour in 2023, and increased to $14.35 per hour starting from January 1, 2024. Our payroll and payroll tax expenses were $3.7 million and $1.7 million for the three months ended July 31, 2024 and 2023, respectively.

Current wording

As of October 31, 2024, we had approximately 385 employees including employees from our newly acquired subsidiary, Lee Lee, which is based in the State of Arizona. Our employees are not unionized nor, to our knowledge, are there any plans for them to unionize. We have never experienced a strike or significant work stoppage. We consider our employee relations to be good. Minimum wage rates in some states have recently increased. For example, in California, the minimum wage was $15.50 per hour in 2023 and increased to $16 per hour starting from January 1, 2024; in Arizona, the minimum wage was $13.85 per hour in 2023, and increased to $14.35 per hour starting from January 1, 2024. Our payroll and payroll tax expenses were $4.3 million and $1.7 million for the three months ended October 31, 2024 and 2023, respectively. Our payroll and payroll tax expenses were $8.0 million and $3.4 million for the six months ended October 31, 2024 and 2023, respectively.

Previous wording

Maison believes that a centralized and efficient vendor and supply management system is the key to profitability. Maison has major vendors, including Lap international, Lawrence Wholesale, BRC International Inc, ONCO Food Corp., GF Distribution, Inc., and XHJC Holding Inc. For the three months ended July 31, 2024, these five suppliers accounted for 9%, 11%, 3%, 5% and 11% of the Company’s total purchases, respectively. For the three months ended July 31, 2023, these five suppliers accounted for 0%, 0%, 19%, 9%, and 34% of the Company’s total purchases, respectively. Maison believes that its centralized vendor management enhances its negotiating power and improves its ability to manage vendor payables.

Current wording

Maison believes that a centralized and efficient vendor and supply management system is the key to profitability. Maison has major vendors, including Lawrence Wholesale, BRC International Inc, ONCO Food Corp., GF Distribution, Inc., and XHJC Holding Inc. For the three months ended October 31, 2024, these five suppliers accounted for 14%, 6%, 0.1%, 1% and 7% of the Company’s total purchases, respectively. For the three months ended October 31, 2023, these five suppliers accounted for 0%, 0%, 32%, 17% and 10% of the Company’s total purchases, respectively. For the six months ended October 31, 2024, these five suppliers accounted for 12%, 9%, 1%, 3%, and 9% of the Company’s total purchases, respectively. For the six months ended October 31, 2023, these five suppliers accounted for 0%, 0%, 33%, 18% and 10% of the Company’s total purchases, respectively. Maison believes that its centralized vendor management enhances its negotiating power and improves its ability to manage vendor payables.

Previous wording

From time to time, Maison conducts maintenance on the fixtures and equipment for its stores. Any maintenance or renovations could interrupt the operation of our stores and result in a decline in customer volume. Significant maintenance or renovation would affect our operations and operating results. Meanwhile, improving the store environment can also attract more customers and lead to an increase in sales. Maison focused on improving and renovating our stores for the three months ended July 31, 2024 and 2023. We spent $295,872 for the three months ended July 31, 2024 for repairs and maintenance and supermarket renovation, an increase of $215,598 compared to $80,274 for the three months ended July 31, 2023 mainly due to the acquisition of our new subsidiary Lee Lee.

Current wording

From time to time, Maison conducts maintenance on the fixtures and equipment for its stores. Any maintenance or renovations could interrupt the operation of our stores and result in a decline in customer volume. Significant maintenance or renovation would affect our operations and operating results. Meanwhile, improving the store environment can also attract more customers and lead to an increase in sales. Maison focused on improving and renovating our stores for the three and six months ended October 31, 2024 and 2023. We spent $154,255 for the three months ended October 31, 2024 for repairs and maintenance and supermarket renovation, an increase of $140,808 compared to $13,447 for the three months ended October 31, 2023 mainly due to the acquisition of our new subsidiary Lee Lee. We spent $450,127 (including $310,977 for Lee Lee) for the six months ended October 31, 2024 for repairs and maintenance and supermarket renovation, an increase of $356,406 compared to $93,721 for the six months ended October 31, 2023 mainly due to the acquisition of our new subsidiary Lee Lee.

Previous wording

The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the three months ended July 31, 2024, the Company had a net income of approximately $700,908. The Company had bank overdraft of $1.80 million, negative working capital of $15.78 million, andan accumulated deficit of approximately $2.12 million as of July 31, 2024. The historical operating results, including recurring losses from operations raise substantial doubt about the Company’s ability to continue as a going concern.

Current wording

The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the three months ended October 31, 2024, the Company had a net loss of approximately $256,009. For the six months ended October 31, 2024, the Company had a net income of approximately $444,899. The Company had bank overdraft of $1.32 million, negative working capital of $15.64 million, andan accumulated deficit of approximately $2.37 million as of October 31, 2024. The historical operating results, including recurring losses from operations raise substantial doubt about the Company’s ability to continue as a going concern.

Previous wording

Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. The Company records inventory shrinkage based on historical data and management’s estimates and provided a reserve for inventory shrinkage for the three months ended July 31, 2024 and 2023.

Current wording

Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. The Company records inventory shrinkage based on historical data and management’s estimates and provided a reserve for inventory shrinkage for the three and six months ended October 31, 2024 and 2023. The Company provided a reserve (reversal) for inventory shrinkage of $110,229 and $(322) for the three months ended October 31, 2024 and 2023, respectively. The Company provided a reserve (reversal) for inventory shrinkage of $314,833 and $(3,559) for the six months ended October 31, 2024 and 2023, respectively.

Previous wording

The Company’s contract liability related to gift cards was $897,810 and $965,696 as of July 31, 2024 and April 30, 2024, respectively.

Current wording

The Company’s contract liability related to gift cards was $810,798 and $965,696 as of October 31, 2024 and April 30, 2024, respectively.

Previous wording

Our net revenues were approximately $29.6 million for the three months ended July 31, 2024, an increase of approximately $15.9 million or 115.6%, from approximately $13.8 million for the three months ended July 31, 2023. The increase in net revenues was driven by the inclusion of revenues from our newly acquired subsidiary, Lee Lee (acquired in April 2024), of $18.2 million, which was partly offset by decreased sales of Maison Monterey Park by $0.3 million, decreased sales of Maison San Gabriel by $0.9 million, decreased sales of Maison Monrovia by $0.6 million and decreased sales of Maison El Monte by $0.5 million, as compared to the three months ended July 31, 2023. Our four California-based supermarkets contributed $11.5 million in revenue during the three months ended July 31, 2024, a decrease of approximately $2.3 million, as compared to the three months ended July 31, 2023. The $2.3 million decrease was mainly due to increased competition from newly opened Asian supermarkets near Maison San Gabriel, the effect of certain COVID-19 pandemic-era relief programs ending in fall 2023 such as losing access to foods stamps due to resume of work requirement for food stamps, as well as the temporary slow-down of the Maison El Monte store due to renovation.

Current wording

Our net revenues were approximately $31.0 million for the three months ended October 31, 2024, an increase of approximately $17.3 million or 125.3%, from approximately $13.8 million for the three months ended October 31, 2023. The increase in net revenues was driven by the inclusion of revenues from our newly acquired subsidiary, Lee Lee (acquired in April 2024), of $19.2 million, which was partly offset by decreased sales of Maison Monterey Park by $0.5 million, decreased sales of Maison San Gabriel by $0.8 million, decreased sales of Maison Monrovia by $0.5 million and decreased sales of Maison El Monte by $0.2 million, as compared to the three months ended October 31, 2023. Our four California-based supermarkets contributed $11.8 million in revenue during the three months ended October 31, 2024, a decrease of approximately $2.0 million, as compared to the three months ended October 31, 2023. The $2.0 million decrease of our California-based supermarkets was mainly due to increased competition from newly opened Asian supermarkets in nearby area, the effect of certain COVID-19 pandemic-era relief programs ending in fall 2023 such as losing access to foods stamps due to resume of work requirement for food stamps, as well as the temporary slow-down of the Maison El Monte store due to renovation.

Previous wording

Cost of revenues includes cost of supermarket product sales and occupancy costs, which are store rent expense, depreciation for store property and equipment, inventory shrinkage costs and store supplies. The depreciation expense comes from machinery & equipment, such as refrigerators, water heaters, forklifts, and freezers and furniture & fixtures, such as metal shelves, shopping carts, and LED lights. Shrinkage costs are different for different types of products. For example, fruits and vegetables have a high allowance rate during the receiving and display process. The seafood and meat departments have a low allowance rate because the non-fresh products can freeze and sell for the same price or even higher price after being cut. The cost of revenues increased by $10.7 million, from $10.6 million for the three months ended July 31, 2023, to approximately $21.4 million for the three months ended July 31, 2024. The increase in cost of revenues was mainly from our newly acquired subsidiary, Lee Lee (acquired in April 2024), by $12.3 million, which was partly offset by decreased cost of revenues from our four California-based supermarkets by $1.6 million.

Current wording

Cost of revenues includes cost of supermarket product sales and occupancy costs, which are store rent expense, depreciation for store property and equipment, inventory shrinkage costs and store supplies. The depreciation expense comes from machinery & equipment, such as refrigerators, water heaters, forklifts, and freezers and furniture & fixtures, such as metal shelves, shopping carts, and LED lights. Shrinkage costs are different for different types of products. For example, fruits and vegetables have a high allowance rate during the receiving and display process. The seafood and meat departments have a low allowance rate because the non-fresh products can freeze and sell for the same price or even higher price after being cut. The cost of revenues increased by $12.2 million, from $10.6 million for the three months ended October 31, 2023, to approximately $22.9 million for the three months ended October 31, 2024. The increase in cost of revenues was mainly from our newly acquired subsidiary, Lee Lee (acquired in April 2024), by $13.5 million, which was partly offset by decreased cost of revenues from our four California-based supermarkets by $1.3 million.

Previous wording

Gross profit was approximately $8.3 million and $3.1 million for the three months ended July 31, 2024 and 2023, respectively. Gross margin was 27.9% and 22.6% for the three months ended July 31, 2024 and 2023, respectively. Our supermarkets’ sales profit margins increased by 5.3% for the three months ended July 31, 2024 compared to the three months ended July 31, 2023. The increase in our gross profit was mainly due to the higher gross profit from our new acquired subsidiary Lee Lee.

Current wording

Gross profit was approximately $8.2 million and $3.1 million for the three months ended October 31, 2024 and 2023, respectively. Gross margin was 26.3% and 22.7% for the three months ended October 31, 2024 and 2023, respectively. Our supermarkets’ sales profit margins increased by 3.6% for the three months ended October 31, 2024 compared to the three months ended October 31, 2023. The increase in our gross profit was mainly due to the higher gross profit from our new acquired subsidiary Lee Lee.

Previous wording

Total operating expenses were approximately $6.6 million for the three months ended July 31, 2024, an increase of approximately $3.3 million, compared to approximately $3.3 million for the three months ended July 31, 2023. Total operating expenses as a percentage of revenues were 22.4% and 24.2% for the three months ended July 31, 2024 and 2023, respectively. The increase in operating expenses was primarily attributable to the increase in selling expenses, which included the increase in payroll expense, utility expense, advertising and promotion expense, postage & delivery expense and merchant service charges as result of the acquisition of Lee Lee. Payroll expense increased by $2.0 million in the three months ended July 31, 2024, as compared to the three months ended July 31, 2023 due to the increase of hourly rate and increased number of employees due to the acquisition of Lee Lee. Utility expenses increased by $0.3 million in the three months ended July 31, 2024, as compared to the three months ended July 31, 2023. Merchant service charges increased by $0.2 million in the three months ended July 31, 2024, as compared to the three months ended July 31, 2023 due to increased sales as describe above.

Current wording

Total operating expenses were approximately $7.5 million for the three months ended October 31, 2024, an increase of approximately $4.6 million, compared to approximately $2.9 million for the three months ended October 31, 2023. Total operating expenses as a percentage of revenues were 24.1% and 20.8% for the three months ended October 31, 2024 and 2023, respectively. The increase in operating expenses was primarily attributable to the increase in selling expenses, which included the increase in payroll expense, utility expense, advertising and promotion expense, postage & delivery expense and merchant service charges as result of the acquisition of Lee Lee. Payroll expense increased by $2.6 million in the three months ended October 31, 2024, as compared to the three months ended October 31, 2023 due to the increase of hourly rate and increased number of employees due to the acquisition of Lee Lee. Utility expenses increased by $0.3 million in the three months ended October 31, 2024, as compared to the three months ended October 31, 2023. Merchant service charges increased by $0.2 million in the three months ended October 31, 2024, as compared to the three months ended October 31, 2023 due to increased sales as describe above.

Previous wording

Interest expense was $183,387 for the three months ended July 31, 2024, an increase of $136,821 from $46,566 for the three months ended July 31, 2023. For the three months ended July 31, 2024, the interest expense was for the SBA Loans and note payable arising from the acquisition of Lee Lee. For the three months ended July 31, 2023, the interest expense was for the SBA Loans and the loans with American First National Bank (the “AFNB Loans”). The AFNB Loans were repaid in full as of April 30, 2024.

Current wording

Interest expense was $242,380 for the three months ended October 31, 2024, an increase of $212,415 from $29,965 for the three months ended October 31, 2023. For the three months ended October 31, 2024, the interest expense was for the SBA Loans and note payable arising from the acquisition of Lee Lee. For the three months ended October 31, 2023, the interest expense was for the SBA Loans and the loans with American First National Bank (the “AFNB Loans”). The AFNB Loans were repaid in full as of April 30, 2024.

Previous wording

Income tax expense was $636,228 for the three months ended July 31, 2024, an increase of $517,322 from income taxes expense of $118,906 for the three months ended July 31, 2023. The increase was mainly due to increased taxable income from our stores for the three months ended July 31, 2024 compared to the three months ended July 31, 2023.

Current wording

Income tax expense was $563,096 for the three months ended October 31, 2024, an increase of $415,936 from income taxes expense of $147,160 for the three months ended October 31, 2023. The increase was mainly due to increased taxable income from our new acquisition stores of Lee-Lee for the three months ended October 31, 2024 compared to the three months ended October 31, 2023.

Previous wording

Net income attributable to the Company was $700,908 for the three months ended July 31, 2024, an increase of $805,847, or 767.9%, from a $104,939 net loss attributable to the Company for the three months ended July 31, 2023. This was mainly attributable to the reasons discussed above, which included an increase in gross profit by $5,159,543, increased net loss attribute to noncontrolling interest by $161,297, which was partly offset by decreased other income by $374,580, increased investment loss of $178,347, increased interest expenses by $136,821, increased operating expenses by $3,307,923 and increased income tax expense by $517,322.

Current wording

Net loss attributable to the Company was $256,009 for the three months ended October 31, 2024, an increase of $347,474, or 379.9%, from a $91,465 net income attributable to the Company for the three months ended October 31, 2023. This was mainly attributable to the reasons discussed above, which included an increase in gross profit by $5,028,566, increased other income by $45,187, which was partly offset by increased investment loss of $241,952, increased interest expenses by $212,415, increased operating expenses by $4,611,023 and increased income tax expense by $415,936.

Previous wording

The increase in general and administrative expenses during the three months ended July 31, 2024 was primarily due to increased office expenses of approximately $148,136, increased office supplies by $186,703, increased amortization expense of $136,250 due to the new trademark acquired through the acquisition of Lee Lee, increased insurance expense by $193,245, and increased repair and maintenance expense by $236,703, which was partly offset by decreased professional fees by $197,247 and decrease other miscellaneous expenses by $31,210.

Current wording

The increase in general and administrative expenses during the six months ended October 31, 2024 was primarily due to increased office expenses of approximately $508,818, increased professional fees by $625,756, increased amortization expense by $272,500 due to the new trademark acquired through the acquisition of Lee Lee, increased insurance expense by $190,883, increased repair and maintenance expense by $337,690, increased other miscellaneous expenses by $96,955 and decreased bad debt reversal by $167,805.

Previous wording

Other expenses were $197,434 for the three months ended July 31, 2024 compare to other income of $355,493 for the three months ended July 31, 2023. For the three months ended July 31, 2024, other expenses mainly consisted of investment loss of $206,803 ($166,028 investment loss from HKGF Arcadia and $40,775 from Alhambra Store), which was partly offset by other income of $9,369. For the three months ended July 31, 2023, other income mainly consisted of $0.4 million ERC received for the three months ended July 31,2023, which was partly offset by investment loss from HKGF Arcadia of $28,456. The ERC is a refundable tax credit for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to December 31, 2021.

Current wording

Other expenses were $379,419 for the six months ended October 31, 2024 compare to other income of $370,273 for the six months ended October 31, 2023. For the six months ended October 31, 2024, other expenses mainly consisted of investment loss of $433,077 ($392,302 investment loss from HKGF Arcadia and $40,775 from Alhambra Store), which was partly offset by other income of $53,658. For the six months ended October 31, 2023, other income mainly consisted of $0.4 million ERC received, which was partly offset by investment loss from HKGF Arcadia of $12,778. The ERC is a refundable tax credit for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to December 31, 2021.

Previous wording

Cash Flows for the Three Months Ended July 31, 2024 Compared to the Three Months Ended July 31, 2023

Current wording

Cash Flows for the Six Months Ended October 31, 2024 Compared to the Six Months Ended October 31, 2023

Previous wording

As of July 31, 2024, we had cash, cash equivalents of approximately $588,896. We had net income attributable to us of $700,908 for the three months ended July 31, 2024, and had a working capital deficit of approximately $15.8 million as of July 31, 2024. As of July 31, 2024, the Company had outstanding loan facilities of approximately $2.55 million SBA loan and $10.1 million secured senior note payable due to the acquisition of Lee Lee.

Current wording

As of October 31, 2024, we had cash, cash equivalents of approximately $355,670. We had net income attributable to us of $444,899 for the six months ended October 31, 2024, and had a working capital deficit of approximately $15.6 million as of October 31, 2024. As of October 31, 2024, the Company had outstanding loan facilities of approximately $2.53 million SBA loan and $9.83 million secured senior note payable due to the acquisition of Lee Lee.

Previous wording

We plan to acquire and open additional supermarkets, satellite stores and warehouses to expand our footprint to both the West Coast and the East Coast. To accomplish such expansion plan, we estimate the 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 to support our preparation and opening of new stores in Southern and Northern California and acquiring additional supermarkets on the East Coast. This is based on the management’s best estimate as of the date of this Report.

Current wording

We plan to acquire and open additional supermarkets, satellite stores and warehouses to expand our footprint to both the West Coast and the East Coast. To accomplish such expansion plan, we estimate the 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 to support our preparation and opening of new stores and acquiring additional supermarkets on the East Coast and additional regions near California. This is based on the management’s best estimate as of the date of this Report.

Previous wording

The following table summarizes our cash flow data for the three months ended July 31, 2024 and 2023.

Current wording

The following table summarizes our cash flow data for the six months ended October 31, 2024 and 2023.

Previous wording

Net cash provided by operating activities was approximately $3.6 million for the three months ended July 31, 2024, which mainly comprised of net income of $617,826, add-back of non-cash adjustments to net income including depreciation and amortization expense of $266,895, inventory impairment of $204,604, and investment loss from 49% equity investee HKGF Arcadia store of $166,028 and investment loss from 10% cost investee HKGF Alhambra store of $40,775. In addition, for the three months ended July 31, 2024, we had cash inflow from (i) decrease to other receivables and other current assets of $752,663, (ii) increased outstanding accounts payable of $2,091,840, (iii) increased outstanding of income tax payable of $713,504, (iv) increased operating lease liabilities of $134,896, and (iv) increase of other long-term payables of $15,432.

Current wording

Net cash provided by operating activities was approximately $4.7 million for the six months ended October 31, 2024, which mainly comprised of net income of $301,731, add-back of non-cash adjustments to net income including depreciation and amortization expense of $527,543, inventory impairment of $314,833, bad debt expense of $62,483 and investment loss from 49% equity investee HKGF Arcadia store of $392,302 and investment loss from 10% cost investee HKGF Alhambra store of $40,775. In addition, for the six months ended October 31, 2024, we had cash inflow from (i) decrease to other receivables and other current assets of $599,926, (ii) increased outstanding accounts payable of $3,783,025 including accounts payable from related parties of $120,804, (iii) increased outstanding income tax payable of $1,222,747, (iv) increased operating lease liabilities of $268,791, and (v) increase of accrued expenses and other payables of $374,645.

Previous wording

However, our net cash provided by operating activities for the three months ended July 31, 2024 was mainly offset by an increase of prepayments of $105,091, an increase of inventories of $753,104, an increase of accounts receivable from related parties of $217,153, an increase of payment of accrued expenses and other payables of $246,651, and an increase of payment for contract liabilities of $67,886.

Current wording

However, our net cash provided by operating activities for the six months ended October 31, 2024 was mainly offset by an increase of inventories of $2,398,913, an increase of prepayments of $442,103, an increase of accounts receivable from related parties of $149,749, and an increase of payment for contract liabilities of $154,898.

Previous wording

Net cash provided by operating activities was approximately $0.6 million for the three months ended July 31, 2023, which mainly comprised of net loss of $26,724, add-back of non-cash adjustments to net loss including depreciation and amortization expense of $67,236, investment loss of $28,456. In addition, for the three months ended July 31, 2023, we had cash inflow from a decrease to accounts receivable from related parties of $22,611, decrease to inventories of $111,174, decrease to prepayments of $463,423, decrease to other receivables and other current assets of $200,754, an increase of outstanding accounts payable from related party of $16,402, an increase of operating lease liabilities of $67,547, and an increase of taxes payables of $120,665.

Current wording

Net cash provided by operating activities was approximately $0.5 million for the six months ended October 31, 2023, which mainly comprised of net income of $64,754 with non-cash adjustment to net income including depreciation expense of $127,451, bad debt reversal of $105,322, provision for inventory shrinkage reversal of $3,559, investment loss of $12,778, and changes in deferred taxes of $3,667. In addition, for the six months ended October 31, 2023, we had cash inflow from decrease to outstanding accounts receivable from related parties of $129,105, decrease to inventories on hand of $155,589, decrease to outstanding other receivables and other current assets of $268,343, an increase of operating lease liabilities of $149,093, an increase of accrued expenses and other payables of $87,983, and an increase of taxes payables of $247,505.

Previous wording

The net cash provided by operating activities for the three months ended July 31, 2023 was mainly offset by non-cash adjustments to net loss including bad debt reversal of $105,322, provision for inventory shrinkage reversal of $3,237, an increase of accounts receivable of $76,974, an increase of payment for accrued expenses and other payables of $58,795, an increase of payment to accounts payable of $154,894, and an increase of payment for contract liabilities of $78,499.

Current wording

The net cash provided by operating activities for the six months ended October 31, 2023 was mainly offset by an increase of accounts receivable of $239,161, an increase of prepayments of $138,307, an increase of contract liabilities of $132,180 and an increase of payment to accounts payable of $149,679.

Previous wording

We had a net income before noncontrolling interest of $617,826 for the three months ended July 31, 2024, an increase of $644,550 compared with a net loss of $26,724 for the three months ended July 31, 2023. Our cash inflow of $3,585,390 for the three months ended July 31, 2024 represented an increase of $2,988,849 cash inflow, compared with a $596,541 cash inflow in the three months ended July 31, 2023. The increased net cash inflow for the three months ended July 31, 2024 was mainly due to increased cash inflow from net income by $644,550 with change of non-cash adjustments by $675,470, increased cash onflow from other receivables and other current assets by $551,909, increased cash inflow from accounts payable by $2,246,734, and increased cash inflow from outstanding income tax payable by $592,839, which was partly offset by increased cash outflow from accounts receivable – related parties by $239,764, increased cash outflow from prepayments by $568,514, increased cash outflow from inventories by $864,278, and increased cash outflow from other payables by $187,856.

Current wording

We had a net income before noncontrolling interest of $301,731 for the six months ended October 31, 2024, an increase of $236,977 compared with of $64,754 for the six months ended October 31, 2023. Our cash inflow of $4,707,531 for the six months ended October 31, 2024 represented an increase of $4,231,429 cash inflow, compared with a $476,102 cash inflow in the six months ended October 31, 2023. The increased net cash inflow for the six months ended October 31, 2024 was mainly due to increased cash inflow from net income by $236,977 with change of non-cash adjustments by $1,269,190, increased cash inflow from accounts receivable by $245,305, increased cash inflow from other receivables and other current assets by $331,583, increased cash inflow from accounts payable by $3,811,900, increased cash inflow from accounts payable from related party by $121,105, increased cash inflow from accrued expenses and other payables by $286,662, increased cash inflow from operating lease liabilities by $119,698 and increased cash inflow from outstanding income tax payable by $975,242, which was partly offset by increased cash outflow from accounts receivable – related parties by $278,854, increased cash outflow from prepayments by $303,796 and increased cash outflow from inventories by $2,554,502.

Previous wording

Net cash used in investing activities was $102,631 for the three months ended July 31, 2024, which mainly consisted of store renovation and purchase of equipment of $102,631.

Current wording

Net cash used in investing activities was $195,085 for the six months ended October 31, 2024, which mainly consisted of store renovation and purchase of equipment of $133,085 and investment into HKGF Market of Arcadia, LLC of $62,000.

Previous wording

Net cash used in investing activities was approximately $1.5 million for the three months ended July 31, 2023, which mainly consisted of the purchase of equipment of $12,809, and payment for investment into Good Fortune Arcadia supermarket of $1.4 million.

Current wording

Net cash used in investing activities was approximately $3.0 million for the six months ended October 31, 2023, which mainly consisted of the purchase of equipment of $18,965, payment of intangible assets purchase of $1.5 million, and payment for 40% investment into Good Fortune Arcadia supermarket of approximately $1.4 million.

Previous wording

Net cash used in financing activities was approximately $2.9 million for the three months ended July 31, 2024, which mainly consisted of repayment for a note payable arising from the acquisition of Lee Lee of $5,000,000 and repayment on SBA loan payable of $16,078, which was partially offset by increase of bank overdraft of $1,707,376 and increase borrowing from related parties $413,738.

Current wording

Net cash used in financing activities was approximately $4.2 million for the six months ended October 31, 2024, which mainly consisted of repayment for a note payable arising from the acquisition of Lee Lee of $5,300,000, loan to related party of $65,000 and repayment on SBA loan payable of $32,287, which was partially offset by increase of bank overdraft of $1,225,672 and increase borrowing from related parties $13,738.

Previous wording

Net cash used in financing activities was approximately $0.1 million for the three months ended July 31, 2023, which mainly consisted of repayment on loans payable of $101,417.

Current wording

Net cash provided by financing activities was approximately $8.5 million for the six months ended October 31, 2023, which mainly consisted of net proceeds from issuance of common stock of approximately $8.7 million, which was partially offset by repayment on loans payable of approximately $0.2 million.

Previous wording

On June 15, 2020, Maison Monrovia entered into a $150,000 Business Loan Agreement with the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050. On June 15, 2020, Maison San Gabriel entered into a $150,000 Business Loan Agreement with the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050. On June 15, 2020, Maison El Monte entered into a $150,000 Business Loan Agreement with the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050. Per the SBA loan agreements, the interests payments on all three SBA loans were deferred to December 2022.

Current wording

On June 15, 2020, Maison Monrovia entered into a $150,000 Business Loan Agreement with the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050.

Previous wording

On January 12, 2022, Maison San Gabriel received an extra $1,850,000 loan from the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050. Maison El Monte received an extra $350,000 loan from the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050.

Current wording

On June 15, 2020, Maison El Monte entered into a $150,000 Business Loan Agreement with the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050. Maison El Monte received an extra $350,000 loan from the SBA at 3.75% annual interest rate and the maturity date on June 15, 2050.

Previous wording

As of July 31, 2024 and April 30, 2024, the Company’s aggregate balance on the three SBA loans was $2,545,221 and $2,561,299, respectively.

Current wording

As of October 31, 2024 and April 30, 2024, the Company’s aggregate balance on the three SBA loans was $2,529,012 and $2,561,299, respectively.

Previous wording

As of July 31, 2024, the Company had an outstanding note payable of $10,126,065 to the sellers of Lee Lee with an annual interest rate of 5%. The Company is required to repay the full amount before February 8, 2025 as described above.

Current wording

As of October 31, 2024, the Company had an outstanding note payable of $9,826,065 to the sellers of Lee Lee. The Company is required to repay the full amount before May 5, 2025.

Previous wording

On April 8, 2024, in connection with the execution of the Senior Secured Note Agreement, and pursuant to the Stock Purchase Agreement, AZLL entered into a guarantee (the “Purchaser Guarantee”) to and for the benefit of the Sellers, pursuant to which AZLL unconditionally guarantees the payment by Lee Lee of the principal amount of the Secured Note, as adjusted pursuant to the Secured Note and the faithful and prompt performance by Lee Lee of the conditions and covenants of the Secured Note.

Current wording

On April 8, 2024, in connection with the execution of the Senior Secured Note Agreement, and pursuant to the Stock Purchase Agreement, AZLL entered into a guarantee (the “AZLL Guarantee”) to and for the benefit of the Sellers, pursuant to which AZLL unconditionally guarantees the payment by Lee Lee of the principal amount of the Secured Note, as adjusted pursuant to the Secured Note and the faithful and prompt performance by Lee Lee of the conditions and covenants of the Secured Note.

Previous wording

Also on April 8, 2024, in connection with the execution of the Senior Secured Note Agreement, and pursuant to the Stock Purchase Agreement, John Jun Xu, Chairman, Chief Executive Officer and controlling stockholder of the Company, and Grace Xu, spouse of John Jun Xu (together with John Jun Xu, the “Xu Guarantors”), entered into a guarantee (the “Xu Guarantee” and, together with the Purchaser Guarantee, the “Guarantees”) to and for the benefit of the Sellers, pursuant to which the Xu Guarantors unconditionally guarantee the payment by Lee Lee of the principal amount of the Secured Note, as adjusted pursuant to the Secured Note and the faithful and prompt performance by Lee Lee of the conditions and covenants of the Secured Note.

Current wording

Also on April 8, 2024, in connection with the execution of the Senior Secured Note Agreement, and pursuant to the Stock Purchase Agreement, John Jun Xu, Chairman, Chief Executive Officer and controlling stockholder of the Company, and Grace Xu, spouse of John Jun Xu (together with John Jun Xu, the “Xu Guarantors”), entered into a guarantee (the “Xu Guarantee” and, together with the AZLL Guarantee, the “Guarantees”) to and for the benefit of the Sellers, pursuant to which the Xu Guarantors unconditionally guarantee the payment by Lee Lee of the principal amount of the Secured Note, as adjusted pursuant to the Secured Note and the faithful and prompt performance by Lee Lee of the conditions and covenants of the Secured Note.

Previous wording

The Company is otherwise periodically involved in various legal proceedings that are incidental to the conduct of its business, including, but not limited to, employment discrimination claims, customer injury claims, and investigations. When the potential liability from a matter can be estimated and the loss is considered probable, the Company records the estimated loss. Due to uncertainties related to the resolution of lawsuits, investigations, and claims, the ultimate outcome may differ from the estimates. Although the Company cannot predict with certainty the ultimate resolution of any lawsuits, investigations, and claims asserted against it, management does not believe any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its financial statements.

Current wording

The Company is otherwise periodically involved in various legal proceedings that are incidental to the conduct of its business, including, but not limited to, employment discrimination claims, customer injury claims, and investigations. When the potential liability from a matter can be estimated and the loss is considered probable, the Company records the estimated loss. Due to uncertainties related to the resolution of lawsuits, investigations, and claims, the ultimate outcome may differ from the estimates. Although the Company cannot predict with certainty the ultimate resolution of any lawsuits, investigations, and claims asserted against it, management does not believe any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its financial statements. Additional information regarding our legal proceedings can be found in Note 17— “Commitments and Contingencies” to the consolidated financial Statements included in this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Previous wording

The Company and Defendants believe the allegations in both complaints are without merit and intend to defend each suit vigorously. It is reasonably possible that a loss may be incurred; however, the possible range of losses is not reasonably estimable given the pending status of both cases.

Current wording

The Company and Defendants believe the allegations in both complaints are without merit and intend to defend each suit vigorously. It is reasonably possible that a loss may be incurred; however, the possible range of losses is not reasonably estimable given the pending status of the cases.

Previous wording

On April 9, 2024, 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. The complaint was filed in the United States District Court for the Central District of California, Case No. 2:24-cv-02897. On April 12, 2024, another derivative complaint was filed by Arnab Baral in the United States District Court Central District of California, Case No. 2:24-cv-03018. The two cases have since been consolidated, with theAzad case taking the lead. The lawsuits allege 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. The claims arise from the allegations underlying the class action securities lawsuits. On July 19, 2024, the Court ordered the Azad case stayed until a motion to dismiss is heard in the class action securities action.

Current wording

On April 9, 2024, 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. The complaint was filed in the United States District Court for the Central District of California, Case No. 2:24-cv-02897. On April 12, 2024, another derivative complaint was filed by Arnab Baral in the United States District Court Central District of California, Case No. 2:24-cv-03018. The two cases have since been consolidated, with theAzad case taking the lead. The lawsuits allege 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. The claims arise from the allegations underlying the class action securities lawsuits. On July 19, 2024, the Court ordered the Azad case stayed until a motion to dismiss is heard in the class action securities action. The Company is not able to make a reasonable estimate about the amount of contingent loss of these cases at current stage.

Previous wording

On September 8, 2023, a complaint was filed by former employee against Maison San Gabriel for wrongful termination and labor law violation. Maison San Gabriel filed a genal denial in November 2023, and case management conference is scheduled for November 21, 2024.

Current wording

On September 8, 2023, a complaint was filed by former employee against Maison San Gabriel for wrongful termination and labor law violation. Maison San Gabriel filed a general denial in November 2023. Status conference is scheduled for July 1, 2025, and final status conference is scheduled for February 26, 2026. Trial is schedule for March 9, 2026. In the complaint, the plaintiff’s counsel asked for a range of $300,000 to $3,000,000. It is too premature at this state of litigation to estimate the chance of prevailing.