Item
1. Financial Statements.
iFRESH
INC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
(UNAUDITED)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
652,642
|
|
|
$
|
1,048,090
|
|
Accounts receivable, net
|
|
|
3,150,523
|
|
|
|
4,027,909
|
|
Inventories, net
|
|
|
9,255,420
|
|
|
|
10,411,366
|
|
Prepaid expenses and other current assets
|
|
|
3,880,795
|
|
|
|
3,721,262
|
|
Total current assets
|
|
|
16,939,380
|
|
|
|
19,208,627
|
|
Advances and receivables - related parties
|
|
|
4,832,796
|
|
|
|
5,220,547
|
|
Property and equipment, net
|
|
|
19,562,408
|
|
|
|
20,287,186
|
|
Intangible assets, net
|
|
|
933,338
|
|
|
|
1,033,337
|
|
Security deposits
|
|
|
1,264,353
|
|
|
|
1,236,073
|
|
Right of use assets-lease
|
|
|
59,839,700
|
|
|
|
-
|
|
Deferred income taxes
|
|
|
-
|
|
|
|
115,589
|
|
Total assets
|
|
$
|
103,371,975
|
|
|
$
|
47,101,359
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
11,337,507
|
|
|
$
|
14,177,700
|
|
Deferred revenue
|
|
|
1,378,418
|
|
|
|
802,392
|
|
Borrowings against lines of credit, current, net
|
|
|
20,113,172
|
|
|
|
21,285,314
|
|
Notes payable, current
|
|
|
78,835
|
|
|
|
98,475
|
|
Finance lease obligations, current
|
|
|
136,639
|
|
|
|
148,778
|
|
Accrued expenses
|
|
|
1,204,862
|
|
|
|
1,393,973
|
|
Operating lease liabilities, current
|
|
|
5,796,913
|
|
|
|
-
|
|
Other payables, current
|
|
|
3,105,380
|
|
|
|
2,926,101
|
|
Total current liabilities
|
|
|
43,151,726
|
|
|
|
40,832,733
|
|
|
|
|
|
|
|
|
|
|
Notes payable, non-current
|
|
|
65,779
|
|
|
|
130,068
|
|
Finance lease obligations, non-current
|
|
|
314,980
|
|
|
|
413,225
|
|
Deferred rent
|
|
|
-
|
|
|
|
6,659,412
|
|
Other payables, non-current
|
|
|
87,901
|
|
|
|
97,900
|
|
Long term operating lease liabilities
|
|
|
60,757,979
|
|
|
|
-
|
|
Total liabilities
|
|
|
104,378,365
|
|
|
|
48,133,338
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity (deficiency)
|
|
|
|
|
|
|
|
|
Preferred shares, $.0001 par value, 1,000,000 shares authorized; none issued.
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value; 100,000,000 shares authorized,
18,371,498 and 16,737,685 shares issued and outstanding as of December 31, 2019 and March 31, 2019,
respectively
|
|
|
1,837
|
|
|
|
1,674
|
|
Additional paid-in capital
|
|
|
21,285,373
|
|
|
|
14,933,829
|
|
Accumulated deficit
|
|
|
(22,293,600
|
)
|
|
|
(15,967,482
|
)
|
Total shareholders’ deficiency
|
|
|
(1,006,390
|
)
|
|
|
(1,031,979
|
)
|
Total liabilities and shareholders’ equity (deficiency)
|
|
$
|
103,371,975
|
|
|
$
|
47,101,359
|
|
See accompanying notes to unaudited condensed consolidated financial statements
iFRESH
INC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For the three months ended December 31,
|
|
|
For the nine months ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
20,546,584
|
|
|
$
|
30,397,501
|
|
|
$
|
65,005,079
|
|
|
$
|
89,490,417
|
|
Net sales-related parties
|
|
|
346,196
|
|
|
|
906,565
|
|
|
|
1,576,985
|
|
|
|
3,186,593
|
|
Total net sales
|
|
|
20,892,780
|
|
|
|
31,304,066
|
|
|
|
66,582,064
|
|
|
|
92,677,010
|
|
Cost of sales
|
|
|
14,789,482
|
|
|
|
22,610,419
|
|
|
|
46,446,352
|
|
|
|
66,665,211
|
|
Cost of sales-related parties
|
|
|
313,231
|
|
|
|
753,392
|
|
|
|
1,293,919
|
|
|
|
2,726,605
|
|
Retail Occupancy costs
|
|
|
1,475,420
|
|
|
|
2,276,924
|
|
|
|
4,982,329
|
|
|
|
6,118,410
|
|
Gross profit
|
|
|
4,314,647
|
|
|
|
5,663,331
|
|
|
|
13,859,464
|
|
|
|
17,166,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
5,615,974
|
|
|
|
7,429,877
|
|
|
|
20,043,647
|
|
|
|
24,608,895
|
|
Loss from operations
|
|
|
(1,301,327
|
)
|
|
|
(1,766,546
|
)
|
|
|
(6,184,183
|
)
|
|
|
(7,442,111
|
)
|
Interest expense, net
|
|
|
(326,339
|
)
|
|
|
(357,301
|
)
|
|
|
(1,285,559
|
)
|
|
|
(1,002,127
|
)
|
Impairment loss
|
|
|
(1,100,000
|
)
|
|
|
-
|
|
|
|
(1,100,000
|
)
|
|
|
-
|
|
Other income
|
|
|
708,494
|
|
|
|
321,538
|
|
|
|
2,359,213
|
|
|
|
913,678
|
|
Loss before income taxes
|
|
|
(2,019,172
|
)
|
|
|
(1,802,309
|
)
|
|
|
(6,210,529
|
)
|
|
|
(7,530,560
|
)
|
Income tax provision
|
|
|
52,096
|
|
|
|
-
|
|
|
|
115,589
|
|
|
|
313,833
|
|
Net Loss
|
|
$
|
(2,071,268
|
)
|
|
$
|
(1,802,309
|
)
|
|
$
|
(6,326,118
|
)
|
|
$
|
(7,844,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.52
|
)
|
Diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.52
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,370,628
|
|
|
|
16,154,392
|
|
|
|
18,307,728
|
|
|
|
15,080,794
|
|
Diluted
|
|
|
18,370,628
|
|
|
|
16,154,392
|
|
|
|
18,307,728
|
|
|
|
15,080,794
|
|
See
accompanying notes to unaudited condensed consolidated financial statements
iFRESH
INC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the nine months ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,326,118
|
)
|
|
$
|
(7,844,393
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
1,590,632
|
|
|
|
1,432,173
|
|
Amortization expense
|
|
|
236,874
|
|
|
|
236,874
|
|
Lease amortization
|
|
|
6,022,761
|
|
|
|
|
|
Impairment loss
|
|
|
1,100,000
|
|
|
|
|
|
Share based compensation
|
|
|
506,066
|
|
|
|
837,354
|
|
Bad debt reserve
|
|
|
85,546
|
|
|
|
233,448
|
|
Deferred income taxes
|
|
|
115,589
|
|
|
|
313,832
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
791,840
|
|
|
|
558,521
|
|
Inventories
|
|
|
1,155,946
|
|
|
|
(1,416,932
|
)
|
Prepaid expenses and other current assets
|
|
|
(159,533
|
)
|
|
|
(1,195,868
|
)
|
Security deposits
|
|
|
(28,280
|
)
|
|
|
12,333
|
|
Accounts payable
|
|
|
(2,840,190
|
)
|
|
|
(735,941
|
)
|
Deferred revenue
|
|
|
576,026
|
|
|
|
273,933
|
|
Accrued expenses
|
|
|
(189,111
|
)
|
|
|
1,040,767
|
|
Taxes payable
|
|
|
-
|
|
|
|
(1,606,504
|
)
|
Deferred rent
|
|
|
-
|
|
|
|
276,345
|
|
Operating lease liabilities
|
|
|
(5,966,981
|
)
|
|
|
-
|
|
Other liabilities
|
|
|
169,277
|
|
|
|
476,446
|
|
Net cash used in operating activities
|
|
|
(3,159,656
|
)
|
|
|
(7,107,612
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Cash advances to related parties
|
|
|
387,751
|
|
|
|
(1,341,521
|
)
|
Cash received from repayment of related party receivable
|
|
|
-
|
|
|
|
4,790,380
|
|
Acquisition of property and equipment
|
|
|
(1,965,854
|
)
|
|
|
(3,441,064
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(1,578,103
|
)
|
|
|
7,795
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Borrowings against Term loan
|
|
|
-
|
|
|
|
3,950,000
|
|
Borrowings against lines of credit
|
|
|
-
|
|
|
|
1,750,000
|
|
Repayments on term loan
|
|
|
(1,309,017
|
)
|
|
|
(1,213,268
|
)
|
Repayments on notes payable
|
|
|
(83,928
|
)
|
|
|
(104,548
|
)
|
Payments on capital lease obligations
|
|
|
(110,385
|
)
|
|
|
(103,588
|
)
|
Cash received from capital contribution
|
|
|
4,394,841
|
|
|
|
-
|
|
Cash received from issuance of stock
|
|
|
1,450,800
|
|
|
|
3,754,021
|
|
Net cash provided by financing activities
|
|
|
4,342,311
|
|
|
|
8,032,617
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(395,448
|
)
|
|
|
932,800
|
|
Cash and cash equivalents at beginning of the period
|
|
|
1,048,090
|
|
|
|
640,915
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
652,642
|
|
|
$
|
1,573,715
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,285,559
|
|
|
$
|
985,771
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
1,606,504
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Capital expenditures funded by capital lease obligations and notes payable
|
|
$
|
-
|
|
|
$
|
779,837
|
|
See
accompanying notes to unaudited condensed consolidated financial statements
iFRESH
INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
For
the nine months ended December 31, 2019 and 2018
|
|
Common Stock
|
|
|
Additional Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balances at March 31, 2018
|
|
|
14,220,548
|
|
|
$
|
1,422
|
|
|
$
|
9,428,093
|
|
|
$
|
(3,964,039
|
)
|
|
$
|
5,465,476
|
|
Net loss
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
(1,876,662
|
)
|
|
|
(1,876,662
|
)
|
Balances at June 30, 2018
|
|
|
14,220,548
|
|
|
$
|
1,422
|
|
|
$
|
9,428,093
|
|
|
$
|
(5,840,701
|
)
|
|
|
3,588,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,165,422
|
)
|
|
|
(4,165,422
|
)
|
Common stock issued in connection of equity finance
|
|
|
451,000
|
|
|
$
|
45
|
|
|
$
|
1,000,620
|
|
|
|
-
|
|
|
|
1,000,665
|
|
Stock issued for service
|
|
|
177,950
|
|
|
$
|
18
|
|
|
$
|
744,413
|
|
|
|
-
|
|
|
|
744,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2018
|
|
|
14,849,498
|
|
|
|
1,485
|
|
|
$
|
11,173,126
|
|
|
$
|
(10,006,123
|
)
|
|
$
|
1,168,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,802,309
|
)
|
|
|
(1,802,309
|
)
|
Common stock issued in connection of equity finance
|
|
|
1,382,000
|
|
|
|
138
|
|
|
|
2,753,219
|
|
|
|
-
|
|
|
|
2,753,357
|
|
Stock issued for service
|
|
|
33,187
|
|
|
|
3
|
|
|
|
92,920
|
|
|
|
-
|
|
|
|
92,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2018
|
|
|
16,264,685
|
|
|
|
1,626
|
|
|
$
|
14,019,265
|
|
|
$
|
(11,808,432
|
)
|
|
$
|
2,212,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2019
|
|
|
16,737,685
|
|
|
|
1,674
|
|
|
$
|
14,933,829
|
|
|
$
|
(15,967,482
|
)
|
|
$
|
(1,031,979
|
)
|
Capital contribution
|
|
|
-
|
|
|
|
-
|
|
|
|
1,119,421
|
|
|
|
-
|
|
|
|
1,119,421
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,368,127
|
)
|
|
|
(3,368,127
|
)
|
Common stock issued in connection of warrants exercise
|
|
|
1,170,000
|
|
|
$
|
117
|
|
|
|
1,450,683
|
|
|
|
-
|
|
|
|
1,450,800
|
|
Stock issued for service
|
|
|
443,813
|
|
|
$
|
44
|
|
|
|
470,398
|
|
|
|
-
|
|
|
|
470,442
|
|
Balances at June 30, 2019
|
|
|
18,351,498
|
|
|
$
|
1,835
|
|
|
|
17,974,331
|
|
|
|
(19,335,609
|
)
|
|
|
(1,359,443
|
)
|
Capital contribution
|
|
|
-
|
|
|
|
-
|
|
|
|
646,111
|
|
|
|
-
|
|
|
|
646,111
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(886,723
|
)
|
|
|
(886,723
|
)
|
Balances at September 30, 2019
|
|
|
18,351,498
|
|
|
|
1,835
|
|
|
$
|
18,620,442
|
|
|
$
|
(20,222,332
|
)
|
|
$
|
(1,600,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution
|
|
|
-
|
|
|
|
-
|
|
|
|
2,629,309
|
|
|
|
-
|
|
|
|
2,629,309
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,071,268
|
)
|
|
|
(2,071,268
|
)
|
Stock issued for service
|
|
|
20,000
|
|
|
|
2
|
|
|
|
35,622
|
|
|
|
-
|
|
|
|
35,624
|
|
Balances at December 31, 2019
|
|
|
18,371,498
|
|
|
|
1,837
|
|
|
$
|
21,285,373
|
|
|
$
|
(22,293,600
|
)
|
|
$
|
(1,006,390
|
)
|
See
accompanying notes to unaudited condensed consolidated financial statements
iFRESH
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Description of Business
Organization
and General
iFresh
(herein referred to collectively with its subsidiaries as the “Company”) is an Asian/Chinese supermarket chain with
multiple retail locations and its own distribution operations, currently all located along the East Coast of the United States.
The Company offers seafood, vegetables, meat, fruit, frozen goods, groceries, and bakery products through its retail stores.
On
June 7, 2019, the Company, entered into certain Share Exchange Agreement (“Exchange Agreement”) with Xiaotai International
Investment Inc. (“Xiaotai”), a Cayman Island Company, and certain shareholders of Xiaotai (collectively with Xiaotai,
“Seller”), pursuant to which, among other things and subject to the terms and conditions contained therein, the Company
will acquire all of the outstanding issued shares and other equity interests in Xiaotai from certain shareholders of Xiaotai (such
transactions, collectively, the “Acquisition”). The Company agreed to issue to the sellers an aggregate of 254,813,383
shares of the Company’s common stock, par value $0.0001.
On
the same day, the Company and its wholly owned subsidiary NYM Holding Inc. entered into a Share Purchase Agreement (the “Purchase
Agreement”) with Go Fresh 365 Inc., (“Go Fresh”) a Florida company solely owned by Mr. Long Deng, IFMK’s
Chief Executive Officer. The Purchase Agreement provides for the sale of 100% of the equity interest in NYM to Go Fresh, in exchange
for cash consideration of $9.1 million (the “Spin-off”). The transactions contemplated by the Purchase Agreement would
take place contemporaneously with the closing of the Acquisition. It is anticipated that, following completion of the Spin-off,
Go Fresh will receive 100% of the equity interest of NYM, and that the Company’s business upon completion of the Acquisition
and the Spin-off will be that of Xiaotai and its subsidiaries. Closing of the acquisition had been pending subject to regulatory
approval by NASDAQ.
In
November 5, 2019, Zhejiang Xiaotai is alleged to have conducted illegal fundraising in China and several executives of Xiaotai
are currently detained and held in custody by the local police. iFresh issued written notice to Xiaotai International and Xiaotai
Shareholders to terminate the Exchange Agreement effective immediately. Meanwhile, the Spin-off has been cancelled.
2.
Liquidity and Going Concern
As
reflected in the Company’s unaudited condensed consolidated financial statements, the Company had operating losses for the
nine months ended December 31, 2019 and in fiscal year 2019 and had negative working capital of $26.2 million and $21.6 million
as of December 31, 2019 and March 31, 2019, respectively. The Company had deficiency of $1.0 million and $1.0 million as of December
31, 2019 and March 31, 2019. The Company did not meet certain financial covenants required in the credit agreement with Keybank
National Association (“Keybank”). As of December 31, 2019, the Company has outstanding loan facilities of approximately
$20.1 million due to Keybank. Failure to maintain these loan facilities will have a significant impact on the Company’s
operations.
In
assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient
revenue sources in the future and its operating and capital expenditure commitments. iFresh had funded working capital and other
capital requirements in the past primarily by equity contributions from shareholders, cash flow from operations, and bank loans.
As of December 31, 2019, the Company also has $4.8 million of advances and receivable from the related parties we intend to collect.
Although
the Company has been timely repaying the KeyBank facility in accordance with its terms, the Company was in default under the Credit
Agreement as of December 31, 2019 and March 31, 2019. Specifically, the financial covenants of the Credit Agreement require the
Company to maintain a senior funded debt to earnings before interest, tax, depreciation and amortization (“EBITDA”)
ratio for the trailing 12 month period of less than 3.00 to 1.00 at the last day of each fiscal quarter. As of December 31, 2019
and March 31, 2019, this ratio was greater than 3.00 to 1.00, and the Company was therefore not in compliance with the financial
covenants of the KeyBank loan. In addition, the Company violated the loan covenant when Mr. Long Deng, CEO and major shareholder
of the Company sold an aggregate of 8,294,989 restricted shares to HK Xu Ding Co., Limited, representing 51% of the total issued
and outstanding shares of the Company as of December 31, 2018. The Company failed to obtain a written consent for the occurrence
of the change of ownership. KeyBank has notified the Company in February that it has not waived the default and reserves
all of its rights, power, privileges, and remedies under the Credit Agreement. Effective as of March 1, 2019, interest was accrued
on all loans at the default rate.
On
May 20, 2019 (the “Effective Date”), the Company entered into a forbearance agreement (the “Forbearance Agreement”)
with KeyBank, pursuant to which KeyBank has agreed to delay the exercise of its rights and remedies under the Loan agreement based
on the existence of the events of shares transfer defaults for certain period of time. The Forbearance Agreement contains
customary forbearance covenants and other forbearance covenants and defined certain events of defaults. Starting from May, 2019,
the monthly payment decreased to $142,842 as originally required per the credit facility agreements.
The
Company failed to meet its obligations under the Loan Agreements by the end of the First Forbearance Period. On October 17, 2019
(the “Effective Date”), the Company, Go Fresh 365, Inc. (“Go Fresh”), Mr. Long Deng and Keybank entered
into the second forbearance agreement (the “Second Forbearance Agreement”). Pursuant to certain Guaranty Agreement
dated as of December 26, 2016, as amended by several joinder agreements and the Second Forbearance Agreement, the Company, certain
subsidiaries of NYM, Go Fresh and Mr. Long Deng (collectively, the “Guarantors”, and together with the Borrower, the
“Loan Parties”) have agreed to guarantee the payment and performance of the obligations of the Borrower under the
Credit Agreement (“Obligations”). Key Bank has agreed to delay the exercise of its rights and remedies under the Loan
Agreement based on the existence of certain events of default (the “Specified Events of Default”) until the earlier
to occur of: (a) 5:00 p.m. Eastern Time on the November 29, 2019; and (b) a Forbearance Event of Default. This second forbearance
period has expired and discussion between Key Bank and the new counsel of NYM Holding is in process.
On
December 17, 2019, the Company received a letter from the Listing Qualifications Staff (the “Staff’) of the Nasdaq
Stock Market LLC (“Nasdaq”), which stated that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2),
which requires an issuer to maintain a minimum closing bid price of $1.00 per share (the “Bid Price Rule”). In accordance
with the Nasdaq Listing Rules, the Company was provided with a 180-day grace period to regain compliance with the Bid Price Rule,
through June 15, 2020. The notice has no immediate impact on the listing or trading of the Company’s securities on Nasdaq.
The
Company’s principal liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure
obligations. The Company’s ability to fund these needs will depend on its future performance, which will be subject
in part to general economic, competitive and other factors beyond its control. These conditions raise substantial doubt as to
the Company’s ability to remain a going concern.
3.
Basis of Presentation and Principles of Consolidation
The
Company’s unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”). The unaudited condensed consolidated financial statements
include the financial statements of iFresh and its subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation.
The
unaudited interim financial information as of December 31, 2019 and for the nine months ended December 31, 2019 and 2018 have
been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain
information and footnote disclosures, which are normally included in annual financial statements prepared in accordance with U.S.
GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial information
should be read in conjunction with the audited consolidated financial statements and the notes thereto for the fiscal year ended
March 31, 2019.
The
Company has two reportable and operating segments. The Company’s Chief Executive Officer is the Chief Operating Decision
Maker (“CODM”). The CODM bears ultimate responsibility for, and is actively engaged in, the allocation of resources
and the evaluation of the Company’s operating and financial results.
4.
Summary of Significant Accounting Policies
Significant
Accounting Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. Such estimates
and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s
critical accounting estimates included, but are not limited to: allowance for estimated uncollectible receivables, inventory valuations,
allowance for deferred tax assets, lease assumptions, impairment of long-lived assets, impairment of intangible assets, and income
taxes. Actual results could differ from those estimates.
Accounts
Receivable
Accounts
receivable consist primarily of uncollected amounts from customer purchases (primarily from the Company’s two distribution
operations), credit card receivables, and food stamp vouchers, and are presented net of an allowance for estimated uncollectible
amounts.
The
Company periodically assesses its accounts receivable for collectability on a specific identification basis. If collectability
of an account becomes unlikely, an allowance is recorded for that doubtful account. Once collection efforts have been exhausted,
the account receivable is written off against the allowance.
Inventories
Inventories
consist of merchandise purchased for resale, which are stated at the lower of cost or market. The cost method is used for wholesale
and retail perishable inventories by assigning costs to each of these items based on a first-in, first-out (FIFO) basis (net of
vendor discounts).
The
Company’s wholesale and retail non-perishable inventory is valued at the lower of cost or market using weighted average
method.
Leases
On
April 1, 2019 the Company adopted Accounting Standards Update (“ASU”) 2016-02. For all leases that were entered
into prior to the effective date of ASC 842, we elected to apply the package of practical expedients. Based on this guidance
we will not reassess the following: (1) whether any expired or existing contracts are or contain leases; (2) the lease
classification for any expired or existing leases; and (3) initial direct costs for any existing leases. The adoption of
Topic 842 resulted in the presentation of $59,839,700 of operating lease assets and $66,554,892 operating lease liabilities
on the consolidated balance sheet as of December 31, 2019. See Note 12 for additional information.
The
Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on the Company’s
consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of obligations under
capital leases, and obligations under capital leases, non-current on our consolidated balance sheets.
Operating
lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments
over the lease term at commencement date, adjusted by the deferred rent liabilities at the adoption date. As most of the Company’s
leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at
commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments
made and excludes lease incentives and initial direct costs incurred. The Company’s terms may include options to extend
or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease
payments is recognized on a straight-line basis over the lease term.
Deferred
financing costs
The
Company presents deferred financing costs as a reduction of the carrying amount of the debt rather than as an asset. Deferred
financing costs are amortized over the term of the related debt using the effective interest method and reported as interest
expense in the consolidated financial statements.
Fair
Value Measurements
The
Company records its financial assets and liabilities in accordance with the framework for measuring fair value in accordance with
U.S GAAP. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:
Level
1: Quoted prices for identical instruments in active markets.
Level
2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that
are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active
markets.
Level
3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Fair
value measurements of nonfinancial assets and non-financial liabilities are primarily used in the impairment analysis of intangible
assets and long-lived assets.
Cash
and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, advances to related parties,
accounts payable, deferred revenue and accrued expenses approximate fair value because of the short maturity of those instruments.
Based on comparable open market transactions, the fair value of the lines of credit and other liabilities, including current maturities,
approximated their carrying value as of December 31, 2019and March 31, 2019, respectively. The Company’s estimates of the
fair value of line of credit and other liabilities (including current maturities) were classified as Level 2 in the fair value
hierarchy.
Revenue
Recognition
In
accordance with Topic 606 revenue is recognized at the time the sale is made, at which time our walk-in customers take immediate
possession of the merchandise or delivery is made to our wholesale customers. Payment terms are established for our wholesale
customers based on the Company’s pre-established credit requirements. Payment terms vary depending on the customer. Based
on the nature of receivables, no significant financing components exist. Sales are recorded net of discounts, sales incentives
and rebates, sales taxes and estimated returns and allowances. We estimate the reduction to sales and cost of sales for returns
based on current sales levels and our historical return experience.
Topic
606 defines a performance obligation as a promise in a contract to transfer a distinct good or service to the customer and is
considered the unit of account. The majority of our contracts have one single performance obligation as the promise to transfer
the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct.
We
had no material contract assets, contract liabilities, or costs to obtain and fulfill contracts recorded on the Consolidated Balance
Sheet as of December 31, 2019 and March 31, 2019. For the nine months ended December 31, 2019 and 2018, revenue recognized
from performance obligations related to prior periods were $802,392 and $326,459, respectively.
Revenue
expected to be recognized in any future periods related to remaining performance obligations is insignificant.
The
following table summarizes disaggregated revenue from contracts with customers by product group:
|
|
For the Nine months ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Grocery
|
|
$
|
27,953,116
|
|
|
$
|
36,561,550
|
|
Perishable goods
|
|
|
38,628,948
|
|
|
|
56,115,460
|
|
Total
|
|
$
|
66,582,064
|
|
|
$
|
92,677,010
|
|
|
|
For the three months
ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Grocery
|
|
$
|
7,522,433
|
|
|
$
|
11,333,857
|
|
Perishable goods
|
|
|
13,370,347
|
|
|
|
19,970,209
|
|
Total
|
|
$
|
20,892,780
|
|
|
$
|
31,304,066
|
|
Recently
Issued Accounting Pronouncements
In
June 2018, the FASB issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies
the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on
such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The changes
take effect for public companies for fiscal years starting after December. 15, 2018, including interim periods within that fiscal
year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption
date of Topic 606. On April 1, 2019, the Company adopted this ASU and the adoption did not have a material impact on the Company’s
unaudited condensed consolidated financial statements.
In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement
of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires companies
to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader
range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective
for fiscal years beginning after December 15, 2019, including those interim periods within those fiscal years. The Company
is currently assessing the impact of adopting this standard, but based on a preliminary assessment, does not expect the adoption
of this guidance to have a material impact on its condensed consolidated financial statements.
No
other new accounting pronouncements issued or effective had, or are expected to have, a material impact on the Company’s
condensed consolidated financial statements.
5.
Accounts Receivable
A
summary of accounts receivable, net is as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Customer purchases
|
|
$
|
3,647,757
|
|
|
$
|
4,008,747
|
|
Credit card receivables
|
|
|
155,983
|
|
|
|
532,369
|
|
Food stamps
|
|
|
45,298
|
|
|
|
99,762
|
|
Others
|
|
|
2,518
|
|
|
|
2,518
|
|
Total accounts receivable
|
|
|
3,851,556
|
|
|
|
4,643,396
|
|
Allowance for bad debt
|
|
|
(701,033
|
)
|
|
|
(615,487
|
)
|
Accounts receivable, net
|
|
$
|
3,150,523
|
|
|
$
|
4,027,909
|
|
6.
Inventories
A
summary of inventories, net is as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Non-perishables
|
|
$
|
8,004,875
|
|
|
$
|
8,762,634
|
|
Perishables
|
|
|
1,300,192
|
|
|
|
1,723,882
|
|
Inventories
|
|
|
9,305,067
|
|
|
|
10,486,516
|
|
Allowance for slow moving or defective inventories
|
|
|
(49,647
|
)
|
|
|
(75,150
|
)
|
Inventories, net
|
|
$
|
9,255,420
|
|
|
$
|
10,411,366
|
|
7.
Advances and receivables - related parties
A
summary of advances and receivables - related parties is as follows:
|
|
December 31,
|
|
|
March 31,
|
|
Entities
|
|
2019
|
|
|
2019
|
|
Pacific Supermarkets Inc.
|
|
|
-
|
|
|
|
437,863
|
|
NY Mart MD Inc.
|
|
|
616,131
|
|
|
|
335,374
|
|
Advances - related parties
|
|
$
|
616,131
|
|
|
$
|
773,237
|
|
|
|
|
|
|
|
|
|
|
New York Mart, Inc.
|
|
|
605,265
|
|
|
|
605,265
|
|
Pacific Supermarkets Inc.
|
|
|
-
|
|
|
|
428,237
|
|
NY Mart MD Inc.
|
|
|
3,363,049
|
|
|
|
3,181,011
|
|
iFresh Harwin Inc.
|
|
|
248,351
|
|
|
|
232,797
|
|
Receivables – related parties
|
|
|
4,126,665
|
|
|
|
4,447,310
|
|
Total advances and receivables – related parties
|
|
$
|
4,832,796
|
|
|
$
|
5,220,547
|
|
The
Company has advanced funds to related parties and accounts receivable due from the related parties with the intention of converting
some of these advances and receivables into deposits towards the purchase price upon planned acquisitions of some of these entities,
which are directly or indirectly owned, in whole or in part, by Mr. Long Deng, the shareholder the Chief Executive Officer of
the Company. Accounts receivable due from related parties relate to the sales to these related parties (see Note 16). The advances
and receivables are interest free, repayable on demand, and guaranteed by Mr. Long Deng.
8.
Property and Equipment
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Furniture, fixtures and equipment
|
|
$
|
20,825,384
|
|
|
$
|
19,957,600
|
|
Automobiles
|
|
|
2,155,595
|
|
|
|
2,214,306
|
|
Leasehold improvements
|
|
|
10,006,203
|
|
|
|
8,849,422
|
|
Software
|
|
|
6,735
|
|
|
|
6,735
|
|
Total property and equipment
|
|
|
32,993,917
|
|
|
|
31,028,063
|
|
Accumulated depreciation and impairment
|
|
|
(13,431,509
|
)
|
|
|
(10,740,877
|
)
|
Property and equipment, net
|
|
$
|
19,562,408
|
|
|
$
|
20,287,186
|
|
Depreciation
expense for the nine months ended December 31, 2019 and 2018 was $1,590,632 and $1,432,173, respectively. For the three months
ended December 31, 2019 and 2018, the depreciation expense was $497,060 and $488,688, respectively. As of December 31, 2019, the
Company charged impairment loss of $1,100,000 for the leasehold improvement for a closed stores in New York area.
9.
Intangible Assets
A
summary of the activities and balances of intangible assets are as follows:
|
|
Balance at
March 31,
|
|
|
|
|
|
Balance at
December 31,
|
|
|
|
2019
|
|
|
Additions
|
|
|
2019
|
|
Gross Intangible Assets
|
|
|
|
|
|
|
|
|
|
Acquired leasehold rights
|
|
$
|
2,500,000
|
|
|
$
|
-
|
|
|
$
|
2,500,000
|
|
Total intangible assets
|
|
$
|
2,500,000
|
|
|
$
|
-
|
|
|
$
|
2,500,000
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated amortization
|
|
$
|
(1,466,663
|
)
|
|
$
|
(99,999
|
)
|
|
$
|
(1,566,662
|
)
|
Intangible assets, net
|
|
$
|
1,033,337
|
|
|
$
|
(99,999
|
)
|
|
$
|
933,338
|
|
Amortization
expense was $99,999 and $99,999 for the nine months ended December 31, 2019 and 2018, respectively. Future amortization associated
with the net carrying amount of definite-lived intangible assets is as follows:
Year Ending September 30,
|
|
|
|
2020
|
|
$
|
133,333
|
|
2021
|
|
|
133,333
|
|
2022
|
|
|
133,333
|
|
2023
|
|
|
133,333
|
|
2024
|
|
|
133,333
|
|
Thereafter
|
|
|
266,673
|
|
Total
|
|
$
|
933,338
|
|
10.
Debt
A
summary of the Company’s debt is as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Revolving Line of Credit-KeyBank National Association
|
|
$
|
4,950,000
|
|
|
$
|
4,950,000
|
|
Delayed Term Loan-KeyBank National Association
|
|
|
4,119,983
|
|
|
|
4,494,983
|
|
Term Loan-KeyBank National Association
|
|
|
11,408,189
|
|
|
|
12,342,206
|
|
Less: Deferred financing cost
|
|
|
(365,000
|
)
|
|
|
(501,875
|
)
|
Total
|
|
$
|
20,113,172
|
|
|
$
|
21,285,314
|
|
KeyBank
National Association (“KeyBank”) – Senior Secured Credit Facilities
On
December 23, 2016, NYM, as borrower, entered into a $25 million senior secured Credit Agreement (the “Credit Agreement”)
with Key Bank National Association (“Key Bank” or “Lender”). The Credit Agreement provides for (1) a revolving
credit of $5,000,000 for making advance and issuance of letter of credit, (2) $15,000,000 of effective date term loan and (3)
$5,000,000 of delayed draw term loan. The interest rate is equal to (1) the Lender’s “prime rate” plus 0.95%,
or (b) the Adjusted LIBOR rate plus 1.95%. Both the termination date of the revolving credit and the maturity date of the term
loans are December 23, 2021. The Company will pay a commitment fee equal to 0.25% of the undrawn amount of the Revolving Credit
Facility and 0.25% of the unused Delayed Draw Term Loan Facility. $4,950,000 of the revolving credit was used as of December 31,
2019.
$15,000,000
of the term loan was fully funded by the lender in January 2017. The Company is required to make fifty-nine consecutive monthly
payments of principal and interest in the amount of $142,842 starting from February 1, 2017 and a final payment of the then entire
unpaid principal balance of the term loan, plus accrued interest on the maturity date. On December 23, 2016, the Company used
the proceeds from the loan term to pay off the outstanding balance under the Bank of America credit line agreement and HSBC line
of credit.
The
Delayed Draw Term Loan shall be advanced on the Delayed Draw Funding date, which is no later than December 23, 2021.
The
senior secured credit facility is secured by all assets of the Company and is jointly guaranteed by the Company and its subsidiaries
and contains financial and restrictive covenants. The financial covenants require NYM to deliver audited condensed consolidated
financial statements within one hundred twenty days after the fiscal year end and to maintain a fixed charge coverage ratio not
less than 1.1 to 1.0 and senior funded debt to earnings before interest, tax, depreciation and amortization (“EBITDA”)
ratio less than 3.0 to 1.0 at the last day of each fiscal quarter, beginning with the fiscal quarter ending March 31, 2017. As
of December 31, 2019 and March 31, 2019, the Company has negative EBITDA, thus the ratio was negative and the Company was not
in compliance with the financial covenants of the KeyBank loan. Except as stated below, the senior secured credit facility is
subject to customary events of default. It will be an event of default if Mr. Long Deng resigns, is terminated, or is no longer
actively involved in the management of NYM and a replacement reasonably satisfactory to the Lender is not made within sixty (60)
days after such event takes place. The Company violated the loan covenant when Mr. Long Deng, CEO and major shareholder of the
Company sold an aggregate of 8,294,989 restricted shares to HK Xu Ding Co., Limited on January 23, 2019, representing 51% of the
total issued and outstanding shares of the Company as of December 31, 2018. The Company failed to obtain a written consent for
the occurrence of the change of ownership. As a result, effective as of March 1, 2019, interest was accrued on all loans at the
default rate and the monthly principal and interest payment due under the effective date term loan will be $155,872 instead of
$142,842.
On
May 20, 2019 (the “Effective Date”), the Company entered into a forbearance agreement (the “Forbearance Agreement”)
with KeyBank, pursuant to which KeyBank has agreed to delay the exercise of its rights and remedies under the Loan agreement based
on the existence of the events of shares transfer defaults for certain period of time. The Forbearance Agreement contains
customary forbearance covenants and other forbearance covenants and defined certain events of defaults. Starting from May, 2019,
the monthly payment decreased to $142,842 as originally required per the credit facility agreements.
The
Company failed to meet its obligations under the Loan Agreements by the end of the First Forbearance Period. On October 17, 2019
(the “Effective Date”), the Company, Go Fresh 365, Inc. (“Go Fresh”), Mr. Long Deng and Keybank entered
into the second forbearance agreement (the “Second Forbearance Agreement”). Pursuant to certain Guaranty Agreement
dated as of December 26, 2016, as amended by several joinder agreements and the Second Forbearance Agreement, the Company, certain
subsidiaries of NYM, Go Fresh and Mr. Long Deng (collectively, the “Guarantors”, and together with the Borrower, the
“Loan Parties”) have agreed to guarantee the payment and performance of the obligations of the Borrower under the
Credit Agreement (“Obligations”). Key Bank has agreed to delay the exercise of its rights and remedies under the Loan
Agreement based on the existence of certain events of default (the “Specified Events of Default”) until the earlier
to occur of: (a) 5:00 p.m. Eastern Time on the November 29, 2019; and (b) a Forbearance Event of Default. This second forbearance
period has expired and discussion between Key Bank and the new counsel of NYM Holding is in process.
Maturities
of borrowings against the term loan under this credit facility for each of the next five years are as follows:
Year Ending December 31
|
|
|
|
2020
|
|
$
|
1,548,793
|
|
2021
|
|
|
1,604,485
|
|
2022
|
|
|
16,959,894
|
|
Total
|
|
$
|
20,113,172
|
|
11.
Notes Payable
Notes
payables consist of the following:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Triangle Auto Center, Inc.
|
|
|
|
|
|
|
Secured by vehicle, 4.02%, principal and interest of $890 due monthly through January 28, 2021
|
|
|
11,292
|
|
|
|
18,823
|
|
Colonial Buick GMC
|
|
|
|
|
|
|
|
|
Secured by vehicle, 8.64%, principal and interest of $736 due monthly through February 1, 2020
|
|
|
-
|
|
|
|
6,350
|
|
Koeppel Nissan, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 3.99%, principal and interest of $612 due monthly through January 18, 2021
|
|
|
-
|
|
|
|
12,378
|
|
Secured by vehicle, 0.9%, principal and interest of $739 due monthly through March 14, 2020
|
|
|
-
|
|
|
|
8,826
|
|
Secured by vehicle, 7.86%, principal and interest of $758 due monthly through September 1, 2022
|
|
|
20,576
|
|
|
|
25,415
|
|
Silver Star Motors
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.22%, principal and interest of $916 due monthly through June 1, 2021
|
|
|
15,945
|
|
|
|
23,546
|
|
BMO
|
|
|
|
|
|
|
|
|
Secured by vehicle, 5.99%, principal and interest of $1,924 due monthly through July 1, 2020
|
|
|
34,802
|
|
|
|
50,172
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.01%, principal and interest of $420 due monthly through December 1, 2021
|
|
|
9,666
|
|
|
|
13,096
|
|
Toyota Finance
|
|
|
|
|
|
|
|
|
Secured by vehicle, 0%, principal and interest of $632 due monthly through August, 2022
|
|
|
20,237
|
|
|
|
25,928
|
|
Secured by vehicle, 4.87%, principal and interest of $761 due monthly through July, 2021
|
|
|
18,339
|
|
|
|
24,031
|
|
Secured by vehicle, 0%, principal and interest of $633 due monthly through April 1, 2022
|
|
|
13,757
|
|
|
|
19,978
|
|
Total Notes Payable
|
|
$
|
144,614
|
|
|
$
|
228,543
|
|
Current notes payable
|
|
|
(78,835
|
)
|
|
|
(98,475
|
)
|
Long-term notes payable, net of current maturities
|
|
$
|
65,779
|
|
|
$
|
130,068
|
|
All
notes payables are secured by the underlying financed automobiles.
Maturities
of the notes payables for each of the next five years are as follows:
Year Ending December 31,
|
|
|
|
2020
|
|
$
|
78,835
|
|
2021
|
|
|
53,115
|
|
2022
|
|
|
12,664
|
|
Total
|
|
$
|
144,614
|
|
12.
Lease
The
Company’s material leases consist of store, warehouse, parking lots and its offices with expiration dates through 2027.
In general, the leases have remaining terms of 1-20 years, most of which include options to extend the leases. The lease
term is generally the minimum noncancelable period of the lease. The Company does not include option periods unless the Company
determines that it is reasonably certain of exercising the option at inception or when a triggering event occurs.
Balance
sheet information related to the Company’s operating and finance leases (noting the financial statement caption each is
included with) as of December 31, 2019 was as follows:
|
|
As of
December 31,
2019
|
|
Operating Lease Assets:
|
|
|
|
Operating Lease
|
|
$
|
59,839,700
|
|
Total operating lease assets
|
|
|
59,839,700
|
|
Operating lease obligations:
|
|
|
|
|
Current operating lease liabilities
|
|
|
5,796,913
|
|
Non-current operating lease liabilities
|
|
|
60,757,979
|
|
Total Lease liabilities
|
|
$
|
66,554,892
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term Operating Lease
|
|
|
13.65 years
|
|
Weighted Average discount rate
|
|
|
4.3
|
%
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Finance lease Assets
|
|
|
|
|
|
|
Vehicles under finance lease
|
|
$
|
1,033,131
|
|
|
$
|
1,033,131
|
|
Accumulated depreciation
|
|
|
352,517
|
|
|
|
244,116
|
|
Finance lease assets, net
|
|
$
|
680,614
|
|
|
$
|
789,115
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Finance lease obligations:
|
|
|
|
|
|
|
Current
|
|
$
|
136,639
|
|
|
$
|
148,778
|
|
Long-term
|
|
|
314,980
|
|
|
|
413,225
|
|
Total obligations
|
|
$
|
451,619
|
|
|
$
|
562,003
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term Finance Lease
|
|
|
|
|
|
|
2.13 years
|
|
Weighted Average discount rate
|
|
|
|
|
|
|
7.1
|
%
|
Supplemental
cash flow information related to leases was as follows:
|
|
As of
December 31,
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating Lease
|
|
$
|
5,966,981
|
|
Finance lease
|
|
|
110,385
|
|
The
estimated future lease payments under the operating and finance leases are as follows:
|
|
Capital
|
|
|
Operating,
|
|
|
|
Lease
|
|
|
lease
|
|
2020
|
|
|
174,863
|
|
|
|
8,544,127
|
|
2021
|
|
|
153,823
|
|
|
|
8,262,061
|
|
2022
|
|
|
146,831
|
|
|
|
8,302,992
|
|
2023
|
|
|
45,948
|
|
|
|
8,062,637
|
|
2024
|
|
|
-
|
|
|
|
7,612,489
|
|
Thereafter
|
|
|
-
|
|
|
|
47,641,309
|
|
Total minimum lease payments
|
|
$
|
521,465
|
|
|
$
|
88,425,615
|
|
Less: Amount representing interest
|
|
|
(69,846
|
)
|
|
|
(21,870,723
|
)
|
Total
|
|
$
|
451,619
|
|
|
$
|
66,554,892
|
|
13.
Segment Reporting
ASC
280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent
with the Company’s internal organizational structure as well as information about geographical areas, business segments
and major customers in financial statements for details on the Company’s business segments. The Company uses the “management
approach” in determining reportable operating segments. The management approach considers the internal organization and
reporting used by the Company’s CODM for making operating decisions and assessing performance as the source for determining
the Company’s reportable segments. Management, including the CODM, reviews operation results by the revenue of different
products or services. Based on management’s assessment, the Company has determined that it has two operating segments as
defined by ASC 280, consisting of wholesale and retail operations.
The
primary financial measures used by the Company to evaluate performance of individual operating segments are sales and income before
income tax provision.
The
following table presents summary information by segment for the nine months ended December 31, 2019 and 2018, respectively:
|
|
Nine months ended December 31, 2019
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
Net sales
|
|
$
|
12,262,443
|
|
|
$
|
54,319,621
|
|
|
$
|
66,582,064
|
|
Cost of sales
|
|
|
9,213,881
|
|
|
|
38,526,390
|
|
|
|
47,740,271
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
4,982,329
|
|
|
|
4,982,329
|
|
Gross profit
|
|
$
|
3,048,562
|
|
|
$
|
10,810,902
|
|
|
$
|
13,859,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(9,178
|
)
|
|
$
|
(1,276,381
|
)
|
|
$
|
(1,285,559
|
)
|
Depreciation and amortization
|
|
$
|
439,691
|
|
|
$
|
7,456,201
|
|
|
$
|
7,895,892
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
2,163,761
|
|
|
$
|
2,163,761
|
|
Segment loss before income tax provision
|
|
$
|
641,258
|
|
|
$
|
(6,851,787
|
)
|
|
$
|
(6,210,529
|
)
|
Income tax provision
|
|
$
|
11,935
|
|
|
$
|
103,654
|
|
|
$
|
115,589
|
|
Segment assets
|
|
$
|
14,838,292
|
|
|
$
|
88,533,683
|
|
|
$
|
103,371,975
|
|
|
|
Nine months ended December 31, 2018
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
13,940,908
|
|
|
$
|
78,736,102
|
|
|
$
|
92,677,010
|
|
Cost of sales
|
|
|
10,469,830
|
|
|
|
58,921,986
|
|
|
|
69,391,816
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
6,118,410
|
|
|
|
6,118,410
|
|
Gross profit
|
|
$
|
3,471,078
|
|
|
$
|
13,695,706
|
|
|
$
|
17,166,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(11,334
|
)
|
|
$
|
(990,793
|
)
|
|
$
|
(1,002,127
|
)
|
Depreciation and amortization
|
|
$
|
181,380
|
|
|
$
|
1,487,667
|
|
|
$
|
1,669,047
|
|
Capital expenditures
|
|
$
|
28,613
|
|
|
$
|
4,192,288
|
|
|
$
|
4,220,901
|
|
Segment income (loss) before income tax provision (benefit)
|
|
$
|
36,983
|
|
|
$
|
(7,567,539
|
)
|
|
$
|
(7,530,556
|
)
|
Income tax provision (benefit)
|
|
$
|
43,831
|
|
|
$
|
270,002
|
|
|
$
|
313,833
|
|
Segment assets
|
|
$
|
11,236,146
|
|
|
$
|
39,175,016
|
|
|
$
|
50,411,162
|
|
|
|
Three months ended December 31, 2019
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
Net sales
|
|
$
|
3,839,292
|
|
|
$
|
17,053,488
|
|
|
$
|
20,892,780
|
|
Cost of sales
|
|
|
3,168,722
|
|
|
|
11,933,991
|
|
|
|
15,102,713
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
1,475,420
|
|
|
|
1,475,420
|
|
Gross profit
|
|
$
|
670,570
|
|
|
$
|
3,644,077
|
|
|
$
|
4,314,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(3,951
|
)
|
|
$
|
(322,388
|
)
|
|
$
|
(326,339
|
)
|
Depreciation and amortization
|
|
$
|
55,113
|
|
|
$
|
2,503,145
|
|
|
$
|
2,558,258
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
1,383,242
|
|
|
$
|
1,383,242
|
|
Segment income (loss) before income tax provision
|
|
$
|
(46,261
|
)
|
|
$
|
(1,972,911
|
)
|
|
$
|
(2,019,172
|
)
|
Income tax provision
|
|
$
|
1,520
|
|
|
$
|
50,576
|
|
|
$
|
52,096
|
|
Segment assets
|
|
$
|
14,838,292
|
|
|
$
|
88,533,683
|
|
|
$
|
103,371,975
|
|
|
|
Three months ended December 31, 2018
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
4,323,321
|
|
|
$
|
26,980,745
|
|
|
$
|
31,304,066
|
|
Cost of sales
|
|
|
3,129,400
|
|
|
|
20,234,411
|
|
|
|
23,363,811
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
2,276,924
|
|
|
|
2,276,924
|
|
Gross profit
|
|
$
|
1,193,921
|
|
|
$
|
4,469,410
|
|
|
$
|
5,663,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(3,368
|
)
|
|
$
|
(353,933
|
)
|
|
$
|
(357,301
|
)
|
Depreciation and amortization
|
|
$
|
63,990
|
|
|
$
|
526,469
|
|
|
$
|
590,459
|
|
Capital expenditures
|
|
$
|
10,300
|
|
|
$
|
510,228
|
|
|
$
|
520,528
|
|
Segment loss before income provision (benefit)
|
|
$
|
(95,459
|
)
|
|
$
|
(1,706,850
|
)
|
|
$
|
(1,802,309
|
)
|
Income tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Segment assets
|
|
$
|
11,236,146
|
|
|
$
|
39,175,016
|
|
|
$
|
50,411,162
|
|
14.
Shareholder’s Equity
On
October 19, 2018, the Company and certain institutional investors entered into a securities purchase agreement (the “Purchase
Agreement”), pursuant to which the Company agreed to sell to such investors an aggregate of 1,275,000 shares of common stock
(the “Common Stock”) in a registered direct offering and warrants to purchase up to approximately 1,170,000 shares
of the Company’s Common Stock in a concurrent private placement, for gross proceeds of approximately $2.55 million (the
“Financing”). The warrants will be exercisable immediately following the date of issuance and have an exercise price
of $2.25. The warrants will expire 5 years from the earlier of the date on which the shares of Common Stock issuable upon exercise
of the warrants may be sold pursuant to an effective registration statement or may be exercised on a cashless basis and be immediately
sold pursuant to Rule 144. The purchase price for each share of Common Stock and the corresponding warrant is $2.00. Each warrant
is subject to anti-dilution provisions that require adjustment of the number of shares of Common Stock that may be acquired upon
exercise of the warrant, or to the exercise price of such shares, or both, to reflect stock dividends and splits, subsequent rights
offerings, pro-rata distributions, and certain fundamental transactions.
Management
determined that these warrants are equity instruments because the warrants are both a) indexed to its own stock; and b) classified
in stockholders’ equity. The warrants were recorded at their fair value on the date of grant as a component of stockholders’
equity. On June 5, 2019, these warrants have been exchanged to new warrants with exercise price of $1.35 and the new warrants
will expire on June 5, 2023.
On
December 11, 2019, iFresh Inc. (the “Company”) entered into the following agreements:
|
●
|
An
agreement (the “Acquisition Agreement”) between the Company and Long Deng, the Chief Executive Officer and Chairman
of the Company, pursuant to which Mr. Deng will sell his 70% interest in Dragon Seeds LLC to the Company in exchange for the Company’s
common stock. The closing of the acquisition is contingent on receiving stockholder approval for the transaction and the Company’s
receipt of a valuation opinion demonstrating that the fair market value of the Interest is equal to or greater than the aggregate
fair market value of the consideration to be paid by the Company. Dragon Seeds LLC makes certain customary representations and
warranties to the Company in connection with the Acquisition Agreement
|
|
●
|
An
agreement (the “Purchase Agreement”) with Jian Chen pursuant to which Jian Chen agreed to purchase 6,578,948 shares
of the Company’s common stock in exchange for $2,500,000. The closing of the transactions contemplated by the Purchase Agreement
are contingent on the closing of the acquisition of Dragon Seeds LLC by the Company.
|
|
●
|
An
agreement (the “Conversion Agreement”) between Mr. Deng and the Company,
pursuant to which the Mr. Deng agreed to convert debt owed to him by the Company into
1,000 preferred shares of the Company’s common stock. Upon receiving stockholder
approval for the conversion, the 1,000 shares of preferred stock will automatically convert
into shares of the Company’s common stock.
|
All
of the issuances and conversions of the Company’s common stock in the foregoing agreements were at a price per share of
$0.38, the closing price of the Company’s common stock on December 10, 2019. As of the date of the report, these transactions
are still contingent on stockholders’ approval.
15.
Income Taxes
iFresh
is a Delaware holding company that is subject to the U.S. income tax.
NYM
is taxed as a corporation for income tax purposes and as a result of the “Contribution Agreement” entered into in
December 31, 2014 NYM has elected to file a consolidated federal income tax return with its eleven subsidiaries. NYM and the shareholders
of the eleven entities, as parties to the Contribution Agreement, entered into a tax-free transaction under Section 351 of the
Internal Revenue Code of 1986 whereby the eleven entities became wholly owned subsidiaries of the Company. As a result of the
tax-free transaction and the creation of a consolidated group, the subsidiaries are required to adopt the tax year-end of its
parent, NYM. NYM was incorporated on December 30, 2014 and has adopted a tax-year end of March 31.
Certain
of the subsidiaries have incurred net operating losses (“NOL”) in tax years ending prior to the Contribution Agreement.
The net operating losses are subject to the Separate Return Limitation Year (“SRLY”) rules which limit the utilization
of the losses to the subsidiaries who generated the losses. The SRLY losses are not available to offset taxable income generated
by members of the consolidated group.
Based
upon management’s assessment of all available evidence, the Company believes that it is more-likely-than-not that the deferred
tax assets, will not be fully realizable. The valuation allowance for deferred tax assets was approximately $5,582,580 and $4,166,595
as of December 31, 2019 and March 31, 2019.
The
Company has approximately $17,041,393 and $10,715,275 of US NOL carry forward as of December 31, 2019 and March 31, 2019, respectively.
For income tax purpose, those NOLs will expire in the year 2032 through 2038.
Income
Tax Provision (Benefit)
The
provision (benefit) for income taxes consists of the following components:
|
|
For the nine months ended
|
|
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
86,692
|
|
|
|
235,375
|
|
State
|
|
|
28,897
|
|
|
|
78,458
|
|
|
|
|
115,589
|
|
|
|
313,833
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
115,589
|
|
|
$
|
313,833
|
|
Tax
Rate Reconciliation
Following
is a reconciliation of the Company’s effective income tax rate to the United State federal statutory tax rate:
|
|
Nine months ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Expected tax at U.S. statutory income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
State and local income taxes, net of federal income tax effect
|
|
|
7
|
%
|
|
|
14
|
%
|
Other non-deductible fees and expenses
|
|
|
2.8
|
%
|
|
|
3
|
%
|
Change of deferred tax reserve
|
|
|
(27.8
|
)%
|
|
|
(44.5
|
)%
|
Other
|
|
|
(4.9
|
)%
|
|
|
2.3
|
%
|
Effective tax rate
|
|
|
(1.9
|
)%
|
|
|
(4.2
|
)%
|
Deferred
Taxes
The
effect of temporary differences included in the deferred tax accounts as follows:
|
|
December 31,
|
|
March 31,
|
|
|
2019
|
|
2019
|
Deferred Tax Assets/ (Liabilities):
|
|
|
|
|
Deferred expenses
|
|
$
|
179,522
|
|
|
$
|
101,829
|
|
Sec 263A Inventory Cap
|
|
|
253,932
|
|
|
|
208,514
|
|
Leasing liabilities/Deferred rent
|
|
|
2,109,994
|
|
|
|
2,092,128
|
|
Depreciation and amortization
|
|
|
(2,570,437
|
)
|
|
|
(2,305,164
|
)
|
Net operating losses
|
|
|
5,329,692
|
|
|
|
3,898,744
|
|
163 (j) business interest
|
|
|
279,877
|
|
|
|
286,133
|
|
Impairment Loss
|
|
|
308,000
|
|
|
|
-
|
|
Valuation allowance
|
|
|
(5,890,580
|
)
|
|
|
(4,166,595
|
)
|
Net Deferred Tax Assets
|
|
$
|
-
|
|
|
$
|
115,589
|
|
16.
Related-Party Transactions
Management
Fees, Advertising Fees and Sale of Non-Perishable and Perishable Products to Related Parties
The
following is a detailed breakdown of significant management fees, advertising fees and sale of products for the nine months ended
December 31, 2019 and 2018 to related parties, which are directly or indirectly owned, in whole or in part, by Mr. Long Deng,
shareholder and the CEO, and not eliminated in the unaudited condensed consolidated financial statements. In addition, the outstanding
receivables due from these related parties as of December 31, 2019 and March 31, 2019 were included in advances and receivables
– related parties (see Note 8).
Nine months ended December 31, 2019
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable & Perishable
Sales
|
|
Dragon Seeds Inc.
|
|
|
3,650
|
|
|
|
-
|
|
|
|
-
|
|
NY Mart MD Inc.
|
|
|
59,300
|
|
|
|
8,920
|
|
|
|
822,200
|
|
NYM Elmhurst Inc.
|
|
|
69,599
|
|
|
|
4,102
|
|
|
|
644,753
|
|
Spring Farm Inc.
|
|
|
6,050
|
|
|
|
-
|
|
|
|
58,134
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
51,897
|
|
Others
|
|
|
30,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
169,349
|
|
|
$
|
13,022
|
|
|
$
|
1,576,985
|
|
Nine months ended December 31, 2018
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable & Perishable
Sales
|
|
New York Mart, Inc.
|
|
$
|
11,651
|
|
|
$
|
880
|
|
|
$
|
193,741
|
|
Pacific Supermarket Inc.
|
|
|
77,998
|
|
|
|
14,040
|
|
|
|
1,314,938
|
|
NY Mart MD Inc.
|
|
|
72,119
|
|
|
|
10,920
|
|
|
|
1,622,255
|
|
New York Mart El Monte Inc.
|
|
|
4,944
|
|
|
|
1,600
|
|
|
|
-
|
|
iFresh Harwin Inc.
|
|
|
2,862
|
|
|
|
2,600
|
|
|
|
9,677
|
|
Spring Farm Inc.
|
|
|
3,702
|
|
|
|
-
|
|
|
|
2,708
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
NYM Tampa Seafood Inc.
|
|
|
550
|
|
|
|
|
|
|
|
-
|
|
Pine Court Sunrise, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
43,274
|
|
Elhurst
|
|
|
8,877
|
|
|
|
860
|
|
|
|
-
|
|
|
|
$
|
182,703
|
|
|
$
|
30,900
|
|
|
$
|
3,186,592
|
|
Three months ended December 31, 2019
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable & Perishable
Sales
|
|
Dragon Seeds Inc.
|
|
|
850
|
|
|
|
-
|
|
|
|
-
|
|
NY Mart MD Inc.
|
|
|
15,000
|
|
|
|
2,600
|
|
|
|
181,286
|
|
NYM Elmhurst Inc.
|
|
|
22,441
|
|
|
|
812
|
|
|
|
159,055
|
|
Spring Farm Inc.
|
|
|
750
|
|
|
|
-
|
|
|
|
-
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
5,854
|
|
Others
|
|
|
30,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
69,791
|
|
|
$
|
3,412
|
|
|
$
|
346,195
|
|
Three months ended December 31, 2018
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable & Perishable
Sales
|
|
New York Mart, Inc.
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Pacific Supermarket Inc.
|
|
|
21,945
|
|
|
|
1,530
|
|
|
|
295,344
|
|
NY Mart MD Inc.
|
|
|
32,836
|
|
|
|
3,560
|
|
|
|
600,776
|
|
Pine Court Sunrise, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
9,647
|
|
Elhurst
|
|
|
8,877
|
|
|
|
860
|
|
|
|
|
|
Spring Farm Inc.
|
|
|
3,702
|
|
|
|
|
|
|
|
797
|
|
|
|
$
|
67,360
|
|
|
$
|
5,950
|
|
|
$
|
906,564
|
|
Long-Term
Operating Lease Agreement with a Related Party
The
Company leases warehouse and stores from related parties that is owned by Mr. Long Deng, the CEO of the Company, and will expire
on April 30, 2026. Rent incurred to the related party was $605,492 and $877,381 for the nine months ended on December 31, 2019
and 2018 respectively, and $201,831 and $292,460 for the three months ended on December 31, 2019 and 2018, respectively.
17.
Contingent Liabilities
The
Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve
these matters in a manner that the Company believes best serves the interests of its stakeholders. These matters have not resulted
in any material losses to date.
Leo
J. Motsis, as Trustee of the 140-148 East Berkeley Realty Trust v. Ming’s Supermarket, Inc.
Ming’s
Supermarket, Inc. (“Ming”), the subsidiary of the Company, is a tenant at a building located at 140-148 East Berkeley
Street, Boston, MA (the “Property”), pursuant to a lease dated September 24, 1999 (the “Lease”). The Lease
had a 10-year initial term, followed by an option for two additional 10-year terms. Ming has exercised that first option and the
Lease has approximately 15 years remaining to run if the second option is also exercised. The Lease also gives Ming a right of
first refusal on any sale of the building.
On
February 22, 2015, a sprinkler pipe burst in the Property. This caused the Inspectional Services Department of the City of Boston
(“ISD”) to inspect the Property. The ISD found a number of problems which have prevented further use of the Property.
The ISD notified both landlord and tenant that the Property was only permitted for use as an elevator garage and that its use
as a warehouse was never permitted and that a conditional use permit must be obtained from the City of Boston to make such use
lawful. Moreover, the Property was found to have major structural issues requiring repair, as well as issues with the elevator
and outside glass. The result of the ISD’s findings are that Ming was ordered not to use the Property for any purpose unless
and until the structural and other repairs are completed and its use as a warehouse is permitted by the Boston Zoning Board.
While
the Lease provides that the elevator (approximate cost $400,000) and glass repairs (approximate cost $30,000) are the responsibility
of the tenant, the structural repairs (approximate cost $500,000) are the landlord’s responsibility under the Lease, unless
the structural damage was caused by the tenant’s misuse of the Property. In this regard Ming has retained an expert who
testified the structural damage to the building was caused by long term water infiltration and is not the result of anything Ming
did. Ming initially sought for the landlord to perform the structural repairs and agreed that upon completion of those repairs,
Ming would repair the elevator and the broken glass. In addition, Ming asked the landlord to cooperate in permitting use of the
Property as a warehouse.
The
landlord refused to either perform structural repairs or to cooperate on the permitting. As a result, as of April 2015, Ming began
withholding rent, since Ming was barred from using the Property by order of the ISD. The landlord then sued Ming for breach of
the Lease and unpaid rent, and Ming counterclaimed for constructive eviction and for damages resulting from the landlord’s
breach of its duty to perform structural repairs under the Lease.
The
case was tried before a jury in August 2017. The jury awarded Ming judgment against the landlord in the amount of $795,000, plus
continuing damages of $2,250 per month until the structural repairs are completed. The court found that the landlord’s actions
violated the Massachusetts unfair and deceptive acts and practices statute and therefore doubled the amount of damages to $1,590,000
and further ruled that Ming should also recover costs and attorneys’ fees of approximately $250,000. The result is a judgment
in favor of Ming and against the landlord that will total approximately $1.85 million. The judgment requires the landlord to repair
the premises and obtain an occupancy permit. The landlord is responsible to Ming for damages in the amount of $2,250 per month
until an occupancy permit is issued. The judgment also accrues interest at the rate of 12% per year until paid.
The
landlord filed a Notice of Appeal, which will delay ultimate resolution of this matter for potentially one year or more. Ming
has filed a lien against the landlord’s real estate as security for the judgment.
On
May 31, 2018, the ISD issued an occupancy permit, triggering Ming’s requirement to resume regular rental payments. The result
is a judgment in favor of Ming and against the landlord that will total approximately $1.85 million.
The
appeal hearing was held in July 12, 2019 and judge concluded that the landlord should be required both to perform the relevant
obligations of the lease in the future and to pay damages caused by his previous failure to do so and for any period of delay
in completing specific performance. On November 5, 2019, the Appeal Count issued a full decision affirming the judgment was entered
and transmitted a rescript of the affirmance of the judgment to the superior count.
Hartford
Fire Insurance Company v. New York Mart Group Inc.
On
November 28, 2018, a lawsuit was filed against New York Mart Group, Inc. by Hartford Fire Insurance Company (“Hartford”),
who seeks contractual indemnification from the Company and other defendants relating to certain supersedeas bonds issued by Hartford
in connection with the unsuccessful appeal of state court litigation by iFresh’s codefendant. Hartford alleges that iFresh
guaranteed performance of the bonds and therefore seeks to enforce the indemnification terms thereof against iFresh in addition
to the other defendants. On June 14, 2019, Hartford filed a motion for summary judgment against iFresh, arguing that Hartford
is entitled to judgment as a matter of law. On July 29, 2019, the Court granted judgment against iFresh in a consented amount
of $458,497.81for its alleged loss.The Court is still having a hearing on Hartford’s entitlement to attorneys’ fees/costs.
The Company has accrued $500,000 for the potential loss and expense associated with this case.
Winking
Group LLC v. New York Supermarket E. Broadway Inc.
A
subsidiary of the Company, New York Supermarket E. Broadway Inc., entered into a lease with Winking Group LLC for the Company’s
store located at 75 East Broadway, NY, 10002. The landlord sued the Company for failing to pay rent and additional fee of $450,867.
The Company is currently negotiating an agreement with the landlord to settle the case. On November 21, 2019, the Company consented
to a final judgement of possession in favor of Winking Group LLC in the amount of $400,000, with $50,867 being waived by the landlord.
$400,000 was paid as of December 31, 2019.
18.
Subsequent Event
On
December 11, 2019, iFresh Inc. (the “Company”) entered into the following agreements:
|
●
|
An
agreement (the “Acquisition Agreement”) between the Company and Long Deng, the Chief Executive Officer and Chairman
of the Company, pursuant to which Mr. Deng will sell his 70% interest in Dragon Seeds LLC to the Company in exchange for the Company’s
common stock. The closing of the acquisition is contingent on receiving stockholder approval for the transaction and the Company’s
receipt of a valuation opinion demonstrating that the fair market value of the Interest is equal to or greater than the aggregate
fair market value of the consideration to be paid by the Company. Dragon Seeds LLC makes certain customary representations and
warranties to the Company in connection with the Acquisition Agreement
|
|
●
|
An
agreement (the “Purchase Agreement”) with Jian Chen pursuant to which Jian Chen agreed to purchase 6,578,948 shares
of the Company’s common stock in exchange for $2,500,000. The closing of the transactions contemplated by the Purchase Agreement
are contingent on the closing of the acquisition of Dragon Seeds LLC by the Company.
|
|
●
|
An
agreement (the “Conversion Agreement”) between Mr. Deng and the Company,
pursuant to which the Mr. Deng agreed to convert debt owed to him by the Company into
1,000 preferred shares of the Company’s common stock. Upon receiving stockholder
approval for the conversion, the 1,000 shares of preferred stock will automatically convert
into shares of the Company’s common stock.
|
All
of the issuances and conversions of the Company’s common stock in the foregoing agreements were at a price per share of
$0.38, the closing price of the Company’s common stock on December 10, 2019. As of the date of the report, these transactions
are still contingent on stockholders’ approval
On
January 9, 2020, the Company and Mr. Deng amended the Conversion Agreement to extend the date on which it could be completed to
January 15, 2020 (see note 14). On January 13, 2020, the Company filed a Certificate of Designation creating the class of Preferred
Stock required by the Conversion Agreement, and around 3 million liabilities owed to Mr. Deng were converted into 1,000 shares
of Series A Convertible Preferred Stock (the “Preferred Stock”). The Preferred Stock has no voting rights, and will
convert automatically into 9,210,526 shares of the Company’s common stock once the conversion is approved by the Company’s
stockholders. In the event of the liquidation of the Company, the Preferred Stock has a preference equal to around 3 million over
the Company’s common stock. The 1,000 shares of preferred stock has been issued on January 13, 2020.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking
Statements
This
report includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about
us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as “may,” “should,” “could,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to
such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”)
filings. References to “we”, “us”, “our,” “iFresh” or the “Company”
are to iFresh Inc., except where the context requires otherwise. The following discussion should be read in conjunction
with our unaudited condensed financial statements and related notes thereto included elsewhere in this report.
Overview
iFresh
Inc. (“we,” “us,” “our,” or “iFresh” or the “Company”) is a Delaware
company incorporated in July 2016 in order to reincorporate E-Compass Acquisition Corp. (“E-Compass”) to Delaware
pursuant to the Merger Agreement (as defined below). Immediately following the reincorporation, we acquired NYM Holding, Inc. (“NYM”).
E-Compass was a blank check company formed for the purpose of entering into a share exchange, asset acquisition, share purchase,
recapitalization, reorganization or other similar business combination with one or more businesses or entities. NYM is a fast
growing Asian/Chinese grocery supermarket chain in the north-eastern U.S. providing food and other merchandise hard to find in
mainstream grocery stores. Since NYM was formed in 1995, NYM has been targeting the Chinese and other Asian population in the
U.S. with its in-depth cultural understanding of its target customer’s unique consumption habits. iFresh currently has ten
retail supermarkets across New York, Massachusetts and Florida, with in excess of 6,224,500 sales transactions in its stores in
the fiscal year ended March 31, 2019. It currently has one in-house wholesale businesses, Strong America Limited (“Strong
America”) covering more than 6,000 wholesale products and servicing both NYM retail supermarkets and over 1,000 external
clients that range from wholesalers to retailing groceries and restaurants. NYM has a stable supply of food from farms in New
Jersey and Florida, ensuring reliable supplies of the most popular vegetables, fruits and seafood. Its wholesale business and
long term relationships with farms insulate NYM from supply interruptions and sales declines, allowing it to remain competitive
even during difficult markets.
Recent
Developments
Termination
of Acquisition
On
June 7, 2019, iFresh Inc. entered into a Share Exchange Agreement (the “Exchange Agreement”) with Xiaotai International
Investment Inc. (“Xiaotai International”) and the equity holders of Xiaotai International (the “Xiaotai Shareholders”),
pursuant to which, among other things and subject to the terms and conditions contained therein, iFresh would acquire all of the
outstanding issued shares and other equity interests in Xiaotai International from the Xiaotai Shareholders (the “Acquisition”).
Pursuant to the Exchange Agreement, in exchange for all of the outstanding shares of Xiaotai International, iFresh agreed to issue
254,813,383 shares of its common stock to the Xiaotai Shareholders. Xiaotai International operates through its variable interest
entity, Zhejiang Xiaotai Technology Co. Ltd. (“Zhejiang Xiaotai”), in China.
As
disclosed in a current report on Form 8-K filed on November 5, 2019, we received news regarding an ongoing investigation of Zhejiang
Xiaotai by the Hangzhou Police Department, Binjiang Branch (“Hangzhou Police”) through a public notice released by
the Hangzhou Police on November 3, 2019 (the “Police Report”). Zhejiang Xiaotai is alleged to have conducted illegal
fundraising from the public. The report also stated that several executives of Zhejiang Xiaotai have been detained and are being
held in custody.
On
November 5, 2019 (the “Termination Date”), iFresh issued written notice to Xiaotai International and Xiaotai Shareholders
to terminate the Exchange Agreement pursuant to section 9.1(c), (e) and (f) of the Exchange Agreement, effective immediately.
From
and after the Termination Date, the Exchange Agreement will be of no further force or effect, and the rights and obligations of
each party thereunder shall terminate, except for (a) any rights and obligations of the parties that are expressly designated
thereunder to survive the termination of the Exchange Agreement and (b) any other rights and obligations of the parties that come
into being or effect upon the termination of the Exchange Agreement.
In
conjunction with the Acquisition, on June 7, 2019, iFresh and NYM Holding, Inc. (“NYM”) entered into a Share Purchase
Agreement (the “Purchase Agreement”) with Go Fresh 365 Inc. (“Go Fresh”), a corporation solely owned by
Mr. Long Deng, iFresh’s Chief Executive Officer. The Purchase Agreement provides for the sale of 100% of the equity interest
in NYM to Go Fresh for cash consideration of $9.1 million (the “Spin-off”). Pursuant to the Purchase Agreement, one
of the closing conditions of the Spin-off is that all the conditions to the obligations of each party to consummate the Acquisition
described in the Exchange Agreement shall have been satisfied.
As
a result of the termination of the Exchange Agreement, on November 5, 2019, iFresh, NYM and Go Fresh mutually agreed to terminate
the Purchase Agreement, effective immediately.
The
board of directors of the Company approved the termination of both the Exchange Agreement and the Purchase Agreement on November
5, 2019.
Nasdaq
Delisting Notice
On
November 6, 2019, iFresh Inc. received a letter from the Listing Qualifications Staff (the “Staff’) of The Nasdaq
Stock Market LLC (“Nasdaq”), which stated that, based upon the Company’s continued non-compliance with Nasdaq
Listing Rule 5550(b), which requires stockholders’ equity of $2.5 million, or a market value of listed securities of $35
million, or net income from continuing operations of $500,000, the Staff had determined not to grant an extension to allow the
Company to demonstrate compliance, the Company’s securities would be subject to delisting from Nasdaq unless the Company
timely requests a hearing before a Nasdaq Hearings Panel (the “Panel”). The Company timely requested a hearing before
the Panel, and, on December 18, 2019, the Company received a letter from the Panel granting the Company’s request for continued
listing on Nasdaq pursuant to an extension to evidence compliance with the Stockholder’s Equity Requirement. The Company’s
continued listing on Nasdaq is subject to the Company’s timely compliance with certain interim milestones and, ultimately,
the Company evidencing compliance with the Stockholders’ Equity Requirement by no later than April 15, 2020.
Forbearance
Agreement
On
May 20, 2019, iFresh, NYM (or the “Borrower”), certain subsidiaries of NYM, Mr. Long Deng and KeyBank National Association
(“Keybank” or the “Lender”) entered into the first forbearance agreement (the “First Forbearance
Agreement”) with respect to that certain Credit Agreement, dated as of December 23, 2016, as amended, pursuant to which
KeyBank made available to NYM a revolving credit facility, a term loan facility, and other credit accommodations (the “Loan
Agreements”). The Lender has agreed to delay the exercise of its rights and remedies under the Loan Agreements based on
the existence of certain events of default until the earlier to occur of: (a) 5:00 p.m. Eastern Time on the 90th day
from the date of the First Forbearance Agreement (the “First Forbearance Period”); and (b) a Forbearance Event of
Default. Reference is made to the current report on Form 8-K filed with the SEC on May 21, 2019.
The
Borrower did not meet its obligations under the Loan Agreements by the end of the First Forbearance Period. On October 17, 2019
(the “Effective Date”), the Company, NYM, certain subsidiaries of NYM, Go Fresh 365, Inc. (“Go Fresh”),
Mr. Long Deng and Keybank entered into the second forbearance agreement (the “Second Forbearance Agreement”). Pursuant
to certain Guaranty Agreement dated as of December 26, 2016, as amended by several joinder agreements and the Second Forbearance
Agreement, the Company, certain subsidiaries of NYM, Go Fresh and Mr. Long Deng (collectively, the “Guarantors”, and
together with the Borrower, the “Loan Parties”) have agreed to guarantee the payment and performance of the obligations
of the Borrower under the Credit Agreement (“Obligations”). Terms used but not otherwise defined herein have the meanings
ascribed to them in the Second Forbearance Agreement.
The
Lender agreed to delay the exercise of its rights and remedies under the Loan Agreement based on the existence of certain events
of default (the “Specified Events of Default”) until the earlier to occur of: (a) 5:00 p.m. Eastern Time on the November
29, 2019; and (b) a Forbearance Event of Default. No subsequent agreements or amendments have been entered into.
Outlook
iFresh
is an Asian Chinese supermarket chain in the U.S. northeastern region with nine retail super markets and two wholesale facilities.
iFresh plans to strategically expand along the I-95 corridor and its goal is to cover all states on the east coast.
|
a.
|
iFresh
provides unique products to meet the demands of the Asian/Chinese American Market;
|
|
b.
|
iFresh
has established a merchandising system backed by an in-house wholesale business and by long-standing relationships with farms;
|
|
c.
|
iFresh
maintains an in-house cooling system with unique hibernation technology that is has developed over 20 years to preserve perishables,
especially produce and seafood;
|
|
d.
|
iFresh
capitalizes on economies of scale, allowing strong negotiating power with upstream vendors, downstream customers and sizable
competitors; and
|
|
e.
|
iFresh
has a proven and replicable track record of management, operation, acquisition and organic growth.
|
iFresh’s
net sales were $66.6 million and $92.7 million for the nine months ended December 31, 2019 and 2018, respectively. In terms of
sales by category, Perishables constituted approximately 58% of the total sales for the nine months ended December 31, 2019. iFresh’s
net loss was $6.3 million for the nine months ended December 31, 2019, a decrease of $1.5 million, or 19.4%, from $7.8 million
of net loss for the nine months ended December 31, 2018. Adjusted EBITDA was $-3.1 million for the nine months ended December
31, 2019, a decrease of $1.8 million, or 36.3%, from $-4.9 million for the nine months ended December 31, 2018.
An
acquisition agreement (the “Acquisition Agreement”) was entered on December 11, 2019 between the Company and Long
Deng, the Chief Executive Officer and Chairman of the Company, pursuant to which Mr. Deng will sell his 70% interest in Dragon
Seeds LLC to the Company in exchange for the Company’s common stock. The closing of the acquisition is contingent on receiving
stockholder approval for the transaction and the Company’s receipt of a valuation opinion demonstrating that the fair market
value of the Interest is equal to or greater than the aggregate fair market value of the consideration to be paid by the Company.
Factors
Affecting iFresh’s Operating Results
Seasonality
iFresh’s
business shows seasonal fluctuations. Sales in its first and second fiscal quarters (ending June 30 and September 30, respectively)
are usually 5% to 10% lower than in third and fourth quarters (ending December 31 and March 31, respectively). In its third fiscal
quarter, customers make holiday purchases for Thanksgiving and Christmas. In its fourth quarter, customers make purchases for
traditional Chinese holidays, such as the Spring Festival (Chinese New Year, in January or February).
Competition
The
Company faces competition from other Asian supermarkets. In the fiscal year 2019, two of our stores located in Boston and New
York experienced significantly decreased sales due to competition from newly opened grocery stores. In first quarter of fiscal
year 2020, the Company contracted these two stores to third party to operate and are collecting contracting fees. The gross margin
was low in these stores since the Company’s distribution center in New York area could not lower the purchase cost of the
stores in MA. The Company’s retail sales decreased significantly due to the change of operations of these two stores.
Payroll
Minimum
wage rates in some states increased. For example, the minimum wage rose from $13 to $15 per hour in New York City, payroll
and related expenses decreased by $1.2 million, or 7.7% for the year ended March 31, 2019 compared the year ended March 31,
2018. Due to close of one store and change of operations in 2 stores in MA (see discussion in “net sales” section
below), payroll and related expenses decreased by $2.5 million or 24% for the nine months ended December 31, 2019 as compared
to the same period of last year as a result of workforce reduction to reduce costs.
Vendor
and Supply Management
iFresh
believes that a centralized and efficient vendor and supply management system are the keys to profitability. iFresh operates its
own wholesale facilities, which supplied about 19.6 % and 12.8% of its procurement for the fiscal year ended March 31, 2019 and
nine months ended December 31, 2019, respectively. iFresh believes that its centralized vendor management enhances iFresh’s
negotiating power and improves its ability to turnover inventory and vendor payables. Any changes to the vendor and supply management
could affect iFresh’s purchasing costs and operating expenses. Starting from Q4 of fiscal year 2019, the Company’s
wholesale business gradually slows down and the retail stores are heavily relied on third party vendors for inventory supplies
instead of centralized supply system.
Store
Maintenance and Renovation
From
time to time, iFresh 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 of customer volume, and therefore sales volume, but will, in the opinion of
management, boost sales after they are completed. Significant maintenance or renovation would affect our operation and operating
results. As of December 31, 2019, two iFresh stores are under renovation and have not opened yet. iFresh incurred $449,948 in
expenses for these stores for the year ended March 31, 2019. One store was under renovation for 10 months in the year of 2019
and incurred $871,709 in expense. Because these stores are being renovated, sales are affected.
Store
Acquisitions and Openings
iFresh
expects the new stores it acquires or opens to be the primary driver of its sales, operating profit and market share gains. iFresh’s
results will be materially affected by the timing and number of new store additions and the amount of new store opening costs.
For example, iFresh would incur rental, utilities and employee expenses during any period of renovation, which would be recorded
as expenses on the income statement and would decrease iFresh’s profit when a store opens. iFresh may incur higher than
normal employee costs associated with setup, hiring, training, and other costs related to opening a new store. Operating margins
are also affected by promotional discounts and other marketing costs and strategies associated with new store openings, primarily
due to overstocking, and costs related to hiring and training new employees. Additionally, promotional activities may result in
higher than normal net sales in the first several weeks following a new store opening. A new store builds its sales volume and
its customer base over time and, as a result, generally has lower margins and higher operating expenses, as a percentage of sales,
than our more mature stores. A new store could take more than a year to achieve a level of operating performance comparable to
our existing stores.
How
to Assess iFresh’s Performance
In
assessing performance, iFresh’s management considers a variety of performance and financial measures, including principal
growth in net sales, gross profit and Adjusted EBITDA. The key measures that we use to evaluate the performance of our business
are set forth below:
Net
Sales
iFresh’s
net sales comprise gross sales net of coupons and discounts. We do not record sales taxes as a component of retail revenues as
it considers it a pass-through conduit for collecting and remitting sales taxes.
Gross
Profit
iFresh
calculates gross profit as net sales less cost of sales and occupancy costs. Gross margin represents gross profit as a percentage
of its net sales. Occupancy costs include store rental costs and property taxes. The components of our cost of sales and occupancy
costs may not be identical to those of its competitors. As a result, our gross profit and gross margin may not be comparable to
similar data made available by our competitors.
Cost
of sales includes the cost of inventory sold during the period, including the direct costs of purchased merchandise (net of discounts
and allowances), distribution and supply chain costs, buying costs and supplies. iFresh recognizes vendor allowances and merchandise
volume related rebate allowances as a reduction of inventories during the period when earned and reflects the allowances as a
component of cost of sales as the inventory is sold. Shipping and handling for inventories purchased are included in cost of goods
sold.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses primarily consist of retail operational expenses, administrative salaries and benefits costs,
marketing, advertising and corporate overhead.
Adjusted
EBITDA
iFresh
believes that Adjusted EBITDA is a useful performance measure and can be used to facilitate a comparison of NYM’s operating
performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends
affecting our business than GAAP measures alone can provide. iFresh also uses Adjusted EBITDA as one of the primary methods for
planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against
such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans
for employees, including senior executives. Other companies in the industry may calculate Adjusted EBITDA differently than iFresh
does, limiting its usefulness as a comparative measure.
iFresh’s
management defines Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization expense, store
opening costs, and non-recurring expenses. All of the omitted items are either (i) non-cash items or (ii) items that we do
not consider in assessing its ongoing operating performance. Because it omits non-cash items, iFresh’s management believes
that Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other
non-cash charges and more reflective of other factors that affect its operating performance. iFresh’s management believes
that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating
results and trends and in comparing the company’s financial measures with other specialty retailers, many of which present
similar non-GAAP financial measures to investors.
Results
of Operations for the nine months ended December 31, 2019 and 2018
|
|
For the nine months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Net sales-third parties
|
|
$
|
65,005,079
|
|
|
$
|
89,490,417
|
|
|
$
|
(24,485,338
|
)
|
|
|
(27.4
|
)%
|
Net sales-related parties
|
|
|
1,576,985
|
|
|
|
3,186,593
|
|
|
|
(1,609,608
|
)
|
|
|
(50.5
|
)%
|
Total Sales
|
|
|
66,582,064
|
|
|
|
92,677,010
|
|
|
|
(26,094,946
|
)
|
|
|
(28.2
|
)%
|
Cost of sales-third parties
|
|
|
46,446,352
|
|
|
|
66,665,211
|
|
|
|
(20,218,859
|
)
|
|
|
(30.3
|
)%
|
Cost of sales-related parties
|
|
|
1,293,919
|
|
|
|
2,726,605
|
|
|
|
(1,432,686
|
)
|
|
|
(52.5
|
)%
|
Occupancy costs
|
|
|
4,982,329
|
|
|
|
6,118,410
|
|
|
|
(1,136,081
|
)
|
|
|
(18.6
|
)%
|
Gross Profit
|
|
|
13,859,464
|
|
|
|
17,166,784
|
|
|
|
(3,307,320
|
)
|
|
|
(19.3
|
)%
|
Selling, general, and administrative expenses
|
|
|
20,043,647
|
|
|
|
24,608,895
|
|
|
|
(4,565,248
|
)
|
|
|
(18.6
|
)%
|
Income from operations
|
|
|
(6,184,183
|
)
|
|
|
(7,442,111
|
)
|
|
|
1,257,928
|
|
|
|
(16.9
|
)%
|
Interest expense
|
|
|
(1,285,559
|
)
|
|
|
(1,002,127
|
)
|
|
|
(283,432
|
)
|
|
|
28.3
|
%
|
Impairment loss
|
|
|
(1,100,000
|
)
|
|
|
-
|
|
|
|
(1,100,000
|
)
|
|
|
(100
|
)%
|
Other income
|
|
|
2,359,213
|
|
|
|
913,678
|
|
|
|
1,445,535
|
|
|
|
158.2
|
%
|
Loss before income tax provision
|
|
|
(6,210,529
|
)
|
|
|
(7,530,560
|
)
|
|
|
1,320,031
|
|
|
|
(17.5
|
)%
|
Income tax provision
|
|
|
115,589
|
|
|
|
313,833
|
|
|
|
(198,244
|
)
|
|
|
(63.2
|
)%
|
Net loss
|
|
|
(6,326,118
|
)
|
|
|
(7,844,393
|
)
|
|
|
1,518,275
|
|
|
|
(19.4
|
)%
|
Net loss attributable to common shareholders
|
|
$
|
(6,326,118
|
)
|
|
$
|
(7,844,393
|
)
|
|
$
|
1,518,275
|
|
|
|
(19.4
|
)%
|
Net
Sales
|
|
For the nine months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Net sales of retail-third parties
|
|
$
|
54,319,621
|
|
|
$
|
78,736,102
|
|
|
$
|
(24,416,481
|
)
|
|
|
(31.0
|
)%
|
Net sales of wholesale-third parties
|
|
|
10,685,458
|
|
|
|
10,754,315
|
|
|
|
(68,857
|
)
|
|
|
(0.6
|
)%
|
Net sales of wholesale-related parties
|
|
|
1,576,985
|
|
|
|
3,186,593
|
|
|
|
(1,609,608
|
)
|
|
|
(50.5
|
)%
|
Total Net Sales
|
|
$
|
66,582,064
|
|
|
$
|
92,677,010
|
|
|
$
|
(26,094,946
|
)
|
|
|
(28.2
|
)%
|
iFresh’s
net sales were $66.6 million for the nine months ended December 31, 2019, a decrease of $26.1 million, or 28.2 %, from $ 92.7
million for the nine months ended December 31, 2018.
Net
retail sales to third parties decreased by $24.4 million, or 31%, from $78.7 million for the nine months ended December 31, 2018
to $54.3 million for the nine months ended December 31, 2019. The decrease resulted mainly from our Quincy (Zen Store) and
Boston (Ming Store), Massachusetts stores. Ming and Zen contributed $16.2 million of retail sales for the nine months ended December
31, 2018. Starting from the fiscal year 2019, these two stores experienced significantly decreased sales due to competition from
newly opened grocery stores. On April 1, 2019, the Company entered into an agreement for the two stores with third parties to
operate those stores, and the Company is collecting management fees from the third parties. Management fees are $40,000 per month
for the first six months and $50,000 after the first six months, and the term of the agreements is 36 months. In addition, the
Company bills the other party for rent and utilities expense incurred and the other party will be responsible for payroll and
employee benefits. The Company sold all inventory at net book value of $1.5 million, but retains ownership of all property and
equipment. The depreciation and amortization expense were approximately $420,000 for the nine months ended December 31, 2019.
In addition, sales from our stores in New York City decreased by $8.9 million because 1) we closed store in Avenue U2 in early
September, which contributed $5.8 million of sales for the nine months ended December 31, 2018, compared to $2.9 million of sales
for the nine months ended December 31, 2019; 2), we contracted part of vegetables and fruits business to third parties in our
store to improve our margin.
Our
total net wholesale sales decreased by $1.7 million from $13.9 million for the nine months ended December 31, 2018 to $12.3 million
for the nine months ended December 31, 2019, attributable that our sales to related parties decreased by $1.6 million from the
nine months ended December 31, 2018 to the nine months ended December 31, 2019, attributable to that New York Mart Group Inc.
is going out of business.
Cost
of sales, Occupancy costs and Gross Profit
Retail Segment
|
|
For the nine months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Cost of sales
|
|
$
|
38,526,390
|
|
|
$
|
58,921,986
|
|
|
$
|
(20,395,596
|
)
|
|
|
(34.6
|
)%
|
Occupancy costs
|
|
|
4,982,329
|
|
|
|
6,118,410
|
|
|
|
(1,136,081
|
)
|
|
|
(18.6
|
)%
|
Gross profit
|
|
|
10,810,902
|
|
|
|
13,695,706
|
|
|
|
(2,884,801
|
)
|
|
|
(21.1
|
)%
|
Gross margin
|
|
|
19.9
|
%
|
|
|
17.4
|
%
|
|
|
2.5
|
%
|
|
|
-
|
|
For
the retail segment, cost of sales decreased by $20.4 million, from $58.9 million for the nine months ended December 31, 2018,
to $38.5 million for the nine months ended December 31, 2019. The decrease was consistent with the decreased sales and mainly
due to changes we made to Ming and Zen store in MA and close of store in Avenue U2 mentioned above. Costs decreased by 34.6%,
compared to a sales decrease of 31%, leading to a higher margin, which was calculated before adding the occupancy cost to the
total cost. This is expected when the strategic decision was made to contract the stores to third parties to operate.
Occupancy
costs consist of store-level expenses such as rental expenses, property taxes, and other store specific costs. Occupancy costs
decreased by approximately $1.1 million, which was mainly attributable to the decreased rent from Ming and Zen stores which are
operated by third parties as mentioned above and cancellation of one of the lease signed between New York Market Group with the
Company’s affiliates since New York Market Group is going out of business.
Gross
profit was $10.8 and $13.7 million for the nine months ended December 31, 2019 and 2018, respectively. Gross margin was 19.9%
and 17.4% for the nine months ended December 31, 2019 and 2018, respectively. The gross margin for the nine months ended December
31, 2018 was lower than usual is because, in the last summer, our retail stores increased purchases from local farms instead of
purchasing directly from our wholesalers, which increased our cost of sales.
Wholesale Segment
|
|
For the nine months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Cost of sales
|
|
$
|
9,213,881
|
|
|
$
|
10,469,830
|
|
|
$
|
(1,255,949
|
)
|
|
|
(12
|
)%
|
Gross profit
|
|
|
3,048,562
|
|
|
|
3,471,078
|
|
|
|
(422,516
|
)
|
|
|
(12.2
|
)%
|
Gross margin
|
|
|
24.9
|
%
|
|
|
24.9
|
%
|
|
|
-
|
%
|
|
|
-
|
|
For
our wholesale segment, the cost of sales for the nine months ended December 31, 2019 decreased by $1.3 million, or 12%, from $10.5
million for the nine months ended December 31, 2018 to $9.2 million for the nine months ended December 31, 2019. The decrease
is consistent with the significant decrease of sales from the wholesale segment in 2019.
Gross
profit for the nine months ended December 31, 2019 decreased by around $423,000, or 12.2%, from $3.5 million for the nine months
ended December 31, 2018 to $3.1 million for the nine months ended December 31, 2019. Gross margin was consistent in these two
periods.
Selling,
General and Administrative Expenses
Selling,
general, and administrative expenses were $20.0 million for the nine months ended December 31, 2019, a decrease of $4.6 million,
or 18.6%, compared to $24.6 million for the nine months ended December 31, 2018, which was mainly attributable to the $3.5 million
expense decrease from two stores in MA since we contracted these two stores in MA and we do not operate these two stores ourselves,
as well as close down of one store in New York city. In addition, one of our wholesale company is going out of business
and selling, general, and administrative expenses decreased by $1.2 million.
Interest
Expense
Interest
expense was $1.3 million for the nine months ended December 31, 2019, an increase of $0.3 million, or 28.3%, from $ 1.0 million
for the nine months ended December 31, 2018, attributable to the increased average outstanding loan balance from $19.4 from nine
months ended December 31, 2018 to $20.7 for the nine months ended December 31, 2019. In addition, the Company paid approximately
$150,000 of forbearance fee to Key Bank in May due to the violation of covenant.
Impairment
Loss and Other income
The
Company charged $1.1 million impairment loss related leasehold improvements in one closed store in New York area.
Other
income was $2.4 million for the nine months ended December 31, 2019, which included management and advertising fee income, rental
income, lottery sales, and other miscellaneous income. Other income increased $1.4 million, 158.2%, from $0.9 million for the
nine months ended December 31, 2018. For the nine months ended December 31, 2019, the Company collected $0.5 million of management
fee from contracting Ming and Zen in MA to third parties for operation, net of rental expense the Company for these two stores.
In addition, the Company has subleased some spaces in its stores for small vendors to sell prepared foods. Rental income increased
by $0.6 million.
Income
Taxes Provision
We
are subject to U.S. federal and state income taxes. Income tax expense was around $116,000 for the nine months ended December
31, 2019, compared to $314,000 of income tax expense for the nine months ended December 31, 2018. The effective income tax rate
was -1.9% and -4% for the nine months ended December 31, 2019 and 2018, respectively. For the nine months ended December 31, 2019
and 2018, the Company made reserve for deferred tax asset due to the significant loss incurred.
Net
Income (loss)
|
|
For the nine months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Net loss
|
|
$
|
(6,326,118
|
)
|
|
$
|
(7,844,393
|
)
|
|
$
|
1,518,275
|
|
|
|
-19.4
|
%
|
Net Loss Margin
|
|
|
-9.5
|
%
|
|
|
-8.46
|
%
|
|
|
-1.04
|
%
|
|
|
|
|
Net
loss was $6.3 million for the nine months ended December 31, 2019, a decrease of $1.5 million, or 19.4%, from $7.8 million of
net loss for the nine months ended December 31, 2018, mainly attributable to the decreased selling, general, and administrative
expenses, increased other income described above, offset by decrease of gross margin. Net loss as a percentage of sales was -9.5%
and -8.46% for the nine months ended December 31, 2019 and 2018, respectively.
Adjusted
EBITDA
|
|
For the nine months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Net income
|
|
$
|
(6,326,118
|
)
|
|
$
|
(7,844,393
|
)
|
|
$
|
1,518,275
|
|
|
|
(19.4
|
)%
|
Interest expense
|
|
|
1,285,559
|
|
|
|
1,002,127
|
|
|
|
283,432
|
|
|
|
28.3
|
%
|
Income tax provision
|
|
|
115,589
|
|
|
|
313,833
|
|
|
|
(198,244
|
)
|
|
|
(63.2
|
)%
|
Depreciation
|
|
|
1,590,632
|
|
|
|
1,432,173
|
|
|
|
158,459
|
|
|
|
11.1
|
%
|
Amortization
|
|
|
236,874
|
|
|
|
236,874
|
|
|
|
-
|
|
|
|
-
|
%
|
Adjusted EBITDA
|
|
$
|
(3,097,464
|
)
|
|
$
|
(4,859,386
|
)
|
|
$
|
1,761,922
|
|
|
|
(36.3
|
)%
|
Percentage of sales
|
|
|
-4.7
|
%
|
|
|
-5.2
|
%
|
|
|
0.6
|
%
|
|
|
|
|
Loss
before income tax, depreciation, and amortization was $3.1 million for the nine months ended December 31, 2019, a decrease of
$1.8 million, as compared to income before income tax, depreciation, and amortization of $4.9 million for the nine months ended
December 31, 2018, mainly attributable to the decrease in net loss resulting from decreased selling, general, and administrative
expenses, increased other income described above, offset by decrease of gross margin and increased impairment loss.
Results
of Operations for the three months ended December 31, 2019 and 2018
|
|
For the three months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Net sales-third parties
|
|
$
|
20,546,584
|
|
|
$
|
30,397,501
|
|
|
$
|
(9,850,917
|
)
|
|
|
(32.4
|
)%
|
Net sales-related parties
|
|
|
346,196
|
|
|
|
906,565
|
|
|
|
(560,369
|
)
|
|
|
(61.8
|
)%
|
Total Sales
|
|
|
20,892,780
|
|
|
|
31,304,066
|
|
|
|
(10,411,286
|
)
|
|
|
(33.3
|
)%
|
Cost of sales-third parties
|
|
|
14,789,482
|
|
|
|
22,610,419
|
|
|
|
(7,820,937
|
)
|
|
|
(34.6
|
)%
|
Cost of sales-related parties
|
|
|
313,231
|
|
|
|
753,392
|
|
|
|
(440,161
|
)
|
|
|
(58.4
|
)%
|
Occupancy costs
|
|
|
1,475,420
|
|
|
|
2,276,924
|
|
|
|
(801,504
|
)
|
|
|
(35.2
|
)%
|
Gross Profit
|
|
|
4,314,647
|
|
|
|
5,663,331
|
|
|
|
(1,348,684
|
)
|
|
|
(23.8
|
)%
|
Selling, general and administrative expenses
|
|
|
5,615,974
|
|
|
|
7,429,877
|
|
|
|
(1,813,903
|
)
|
|
|
(24.4
|
)%
|
Loss from operations
|
|
|
(1,301,327
|
)
|
|
|
(1,766,546
|
)
|
|
|
465,219
|
|
|
|
(26.3
|
)%
|
Interest expense
|
|
|
(326,339
|
)
|
|
|
(357,301
|
)
|
|
|
30,962
|
|
|
|
(8.7
|
)%
|
Impairment loss
|
|
|
(1,100,000
|
)
|
|
|
-
|
|
|
|
(1,100,000
|
)
|
|
|
(100
|
)%
|
Other income
|
|
|
708,494
|
|
|
|
321,538
|
|
|
|
386,956
|
|
|
|
120.3
|
%
|
Loss before income tax provision
|
|
|
(2,019,172
|
)
|
|
|
(1,802,309
|
)
|
|
|
216,863
|
|
|
|
(12
|
)%
|
Income tax provision
|
|
|
52,096
|
|
|
|
-
|
|
|
|
52,096
|
|
|
|
100
|
%
|
Net Loss
|
|
$
|
(2,071,268
|
)
|
|
$
|
(1,802,309
|
)
|
|
$
|
268,959
|
|
|
|
14.9
|
%
|
Net Loss attributable to common shareholders
|
|
$
|
(2,071,268
|
)
|
|
$
|
(1,802,309
|
)
|
|
$
|
268,959
|
|
|
|
14.9
|
%
|
Net
Sales
|
|
For the three months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Net sales of retail
|
|
$
|
17,053,488
|
|
|
$
|
26,980,745
|
|
|
$
|
(9,927,257
|
)
|
|
|
(36.8
|
)%
|
Net sales of wholesale-third parties
|
|
|
3,493,096
|
|
|
|
3,416,756
|
|
|
|
76,340
|
|
|
|
2.2
|
%
|
Net sales of wholesale-related parties
|
|
|
346,196
|
|
|
|
906,565
|
|
|
|
(560,369
|
)
|
|
|
(61.8
|
)%
|
Total Net Sales
|
|
$
|
20,892,780
|
|
|
$
|
31,304,066
|
|
|
$
|
(10,411,286
|
)
|
|
|
(33.3
|
)%
|
iFresh’s
net sales were $20.9 million for the three months ended December 31, 2019, a decrease of $10.4 million, or 33.3%, from $31.3 million
for the three months ended December 31, 2018.
The
decrease resulted mainly from our Quincy (Zen Store) and Boston (Ming Store), Massachusetts stores. Ming and Zen contributed $5.6
million of retail sales for the three months ended December 31, 2018. Starting from the fiscal year 2019, these two stores experienced
significantly decreased sales due to competition from newly opened grocery stores. On April 1, 2019, the Company entered into
an agreement for the two stores with third parties to operate those stores, and the Company is collecting management fees from
the third parties. Management fees are $40,000 per month for the first six months and $50,000 after the first six months, and
the term of the agreements is 36 months. In addition, the Company bills the other party for rent and utilities expense incurred
and the other party will be responsible for payroll and employee benefits. The Company sold all inventory at net book value of
$1.5 million, but retains ownership of all property and equipment. The depreciation and amortization expense were approximately
$140,000 for the three months ended December 31, 2019. In addition, sales from our stores in New York City decreased by $4.9 million
because 1) we closed store in Avenue U2 in early September, which contributed $5.8 million of sales for the nine months ended
December 31, 2018, compared to $2.9 million of sales for the nine months ended December 31, 2019; 2), we contracted part of vegetables
and fruits business to third parties in our store to improve our margin.
Our
total net wholesale sales decreased by $0.5 million from $4.3 million for the three months ended December 31, 2018 to $3.8 million
for the three months ended December 31, 2019, attributable that our sales to related parties decreased by $0.4 million from the
three months ended December 31, 2018 to the three months ended December 31, 2019, attributable to that New York Mart Group Inc.
is going out of business.
Cost
of sales, Occupancy costs and Gross profit
Retail Segment
|
|
For the three months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Cost of sales
|
|
$
|
11,933,991
|
|
|
$
|
20,234,411
|
|
|
$
|
(8,300,420
|
)
|
|
|
(41
|
)%
|
Occupancy costs
|
|
|
1,475,420
|
|
|
|
2,276,924
|
|
|
|
(801,504
|
)
|
|
|
(35.2
|
)%
|
Gross profit
|
|
|
3,644,077
|
|
|
|
4,469,410
|
|
|
|
(825,333
|
)
|
|
|
(18.5
|
)%
|
Gross margin
|
|
|
21.4
|
%
|
|
|
16.6
|
%
|
|
|
4.8
|
%
|
|
|
|
|
For
the retail segment, cost of sales decreased by $8.3 million, from $20.2 million for the three months ended December 31, 2018,
to $11.9 million for the three months ended December 31, 2019. The decrease was consistent with the sales decreased and
mainly due to changes we made to Ming and Zen store in MA and close of store in Avenue U2 mentioned above. The cost decreased
by 41%, compared to sales decrease of 36.8%, lead to higher margin which was calculated before adding the occupancy cost in
the total cost. This was expected when the strategic decision was made to contract the stores to third parties to
operate.
Occupancy
costs consist of store-level expenses such as rental expenses, property taxes, and other store specific costs. Occupancy costs
decreased by approximately $0.8 million, which was mainly attributable to decreased rent from Ming and Zen stores which are operated
by third parties as mentioned above and the cancellation of one of the lease signed between New York Market Group with the Company’s
affiliates since New York Market Group is going out of business.
Gross
profit was $3.6 and $4.5 million for the three months ended December 31, 2019 and 2018, respectively. Gross margin was 21.4% and
16.6% for the three months ended December 31, 2019 and 2018, respectively. The gross margin for the three months ended December
31, 2018 was lower than usual is because, in the last summer, our retail stores increased purchases from local farms instead of
purchasing directly from our wholesalers, which increased our cost of sales.
Wholesale Segment
|
|
For the three months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Cost of sales
|
|
$
|
3,168,722
|
|
|
$
|
3,129,400
|
|
|
$
|
39,322
|
|
|
|
1.3
|
%
|
Gross profit
|
|
$
|
670,570
|
|
|
|
1,193,921
|
|
|
|
(523,351
|
)
|
|
|
(43.8
|
)%
|
Gross margin
|
|
|
17.5
|
%
|
|
|
27.6
|
%
|
|
|
-10
|
%
|
|
|
|
|
For
our wholesale segment, the cost of sales for the three months ended December 31, 2019 increased by $39,000, or 1.3%, from
$3.13 million for the three months ended December 31, 2018 to $3.17 million for the three months ended December 31, 2019. The
decrease is due to the increase tariff on imports from China, which is our main purchase coming from.
Gross
profit for the three months ended December 31, 2019 decreased by around $523,000, or 43.8%, from $1.2 million for the three months
ended December 31, 2018 to $0.7 million for the three months ended December 31, 2019. Gross margin decreased by 10.1% from 27.6%
to 17.5%. The increase was due to the significant increase of tariff for imports from China as mentioned above.
Selling,
General, and Administrative Expenses
Selling,
general, and administrative expenses was $5.6 million for the three months ended December 31, 2019, a decrease of $1.8 million,
or 24.4%, compared to $7.4 million for the three months ended December 31, 2018, which was mainly attributable to the $1.6 million
expense decrease from two stores in MA since we contracted these two stores and we do not operate these two stores ourselves,
as well as close down of one store in New York city. One of our wholesale company is going out of business and selling,
general, and administrative expenses decreased by $0.3 million.
Interest
Expense
Interest
expense was $326,339 for the three months ended December 31, 2019, a decrease of $30,962, or 8.7%, from $357,301 for the three
months ended December 31, 2018, primarily attributable to the decreased average loan balance from $21.9 million for the three
months ended December 31, 2018 to $20.3 million for the three months ended December 31, 2019.
Impairment
loss and Other income
The
Company charged $1.1 million impairment loss related leasehold improvements in one closed store in New York area.
Other
income was $0.7 million for the three months ended December 31, 2019, an increase of $0.4 million, or 120.3%, from $0.3 million
for the three months ended December 31, 2018. For the three months ended December 31, 2019, the Company collected $0.3 million
of management fee from contracting Ming and Zen in MA to third parties for operation. In addition, the Company has subleased some
spaces in its stores for small vendors to sell prepared foods. Rental income increased by $0.2 million.
Income
Taxes Provision
The
Company is subject to U.S. federal and state income taxes. Income tax was $52,096 for the three months ended December 31, 2019,
an increase of $52,096, or 100%, compared to $0 of tax for the three months ended December 31, 2018. For the three months ended
December 31, 2019, the Company made reserve for deferred tax asset due to the significant loss incurred.
Net
Income (loss)
|
|
For the three months ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Net loss
|
|
$
|
(2,071,268
|
)
|
|
$
|
(1,802,309
|
)
|
|
$
|
(268,959
|
)
|
|
|
14.9
|
%
|
Net Profit Margin
|
|
|
(9.91
|
)%
|
|
|
(5.76
|
)%
|
|
|
(4.15
|
)%
|
|
|
|
|
Net
loss was $2.1 million for the three months ended December 31, 2019, a decrease of $0.27 million, or 14.9%, from $1.8 million of
net loss for the three months ended December 31, 2018, mainly attributable to the increase in gross margin and decrease in selling,
general, and administrative expenses and lower interest expenses, as described above.
Adjusted
EBITDA
|
|
For the three month ended
December 31,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Net loss
|
|
$
|
(2,071,268
|
)
|
|
$
|
(1,802,309
|
)
|
|
$
|
(268,959
|
)
|
|
|
14.9
|
%
|
Interest expense
|
|
|
326,339
|
|
|
|
357,301
|
|
|
|
(30,962
|
)
|
|
|
(8.7
|
)%
|
Income tax provision
|
|
|
52,096
|
|
|
|
-
|
|
|
|
52,096
|
|
|
|
100
|
%
|
Depreciation
|
|
|
497,060
|
|
|
|
488,688
|
|
|
|
8,372
|
|
|
|
1.7
|
%
|
Amortization
|
|
|
78,958
|
|
|
|
101,771
|
|
|
|
(22,813
|
)
|
|
|
(22.4
|
)%
|
Adjusted EBITDA
|
|
$
|
(1,116,815
|
)
|
|
$
|
(854,549
|
)
|
|
$
|
(262,266
|
)
|
|
|
31
|
%
|
Percentage of sales
|
|
|
(5.3
|
)%
|
|
|
(2.7
|
)%
|
|
|
(2.6
|
)%
|
|
|
|
|
Adjusted
EBITDA loss was $1.1 million for the three months ended December 31, 2019, an increase of $0.3 million, or 31%, as compared
to $0.9 million of EBITDA loss for the three months ended December 31, 2018, mainly attributable to increased net loss of
approximately $0.3 million. The ratio of Adjusted EBITDA to sales was (5.3)% and (2.7)% for the three months ended December
31, 2019 and 2018, respectively.
Liquidity
and Capital Resources
As
of December 31, 2019, iFresh had cash and cash equivalents of approximately $0.7 million. iFresh had operating losses for the
nine months ended December 31, 2019 and had negative working capital of $26.1 million and $21.6 million as of December 31, 2019
and March 31, 2019, respectively. iFresh had negative equity of $1.0 million as of December 31, 2019 and March 31, 2019. The long-term
KeyBank loan of $20.1 million has been presented as short-term because the Company is not in compliance with the KeyBank loan
covenants and KeyBank has the option to accelerate payment at any time. The Company did not meet certain financial covenants required
in the credit agreement with KeyBank National Association (“KeyBank”). As of December 31, 2019, the Company has outstanding
loan facilities of approximately $20.1 million due to KeyBank. Failure to maintain these loan facilities will have a significant
impact on the Company’s operations. iFresh had funded working capital and other capital requirements in the past primarily
by equity contribution from shareholders, cash flow from operations, and bank loans. Cash is required to pay purchase costs for
inventory, rental, salaries, office rental expenses, income taxes, other operating expenses and repay debts. iFresh’s ability
to repay its current obligation will depend on the future realization of its current assets. iFresh’s management has considered
the historical experience, the economy, trends in the retail industry, the expected collectability of the accounts receivables
and the realization of the inventories as of December 31, 2019. iFresh’s ability to continue to fund these items may be
affected by general economic, competitive and other factors, many of which are outside of our control.
We
have $4.8 million of advances and receivables from related parties that we intend to collect or acquire, and these advances and
receivables will be used to offset part of the acquisition consideration for such related parties.
The
Company’s principal liquidity needs are to meet its working capital requirements, operating expenses, and capital expenditure
obligations. As of December 31, 2019, the Company remains in noncompliance with the financial covenants of the KeyBank Loan.
These conditions continue to raise doubt as to the Company’s ability to remain a going concern.
The
following table summarizes iFresh’s cash flow data for the nine months ended December 31, 2019 and 2018.
|
|
For the nine months
ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net cash used in operating activities
|
|
$
|
(3,159,656
|
)
|
|
$
|
(7,107,612
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(1,578,103
|
)
|
|
|
7,795
|
|
Net cash provided by financing activities
|
|
|
4,342,311
|
|
|
|
8,032,617
|
|
Net Increase (decrease) in cash and cash equivalents
|
|
$
|
(395,448
|
)
|
|
$
|
932,800
|
|
Operating
Activities
Net
cash used in operating activities consists primarily of net income adjusted for non-cash items, including depreciation, changes
in deferred income taxes, loss on early extinguishment of debt, and the effect of working capital changes. Net cash used in operating
activities was approximately $3.2 million for the nine months ended December 31, 2019, a decrease of $4.0 million, or 56%, compared
to $ 7.1 million used in operating activities for the nine months ended December 31, 2018. The decrease was a result of a decrease
of net loss of $1.5 million, impairment loss of $1.1 million and an increase of $1.7 million from change of working capital mainly
resulting from decrease from inventory and tax payable.
Investing
Activities
Net
cash used in investing activities was approximately $1.6 million for the nine months ended December 31, 2019, an increase of
approximately $1.6 million, compared to approximately $8,000 provided by investing activities for the nine months ended
December 31, 2018. The increase was primarily attributable to the decrease of $3.0 million net cash collected from related
party, offset by decrease of in acquisition of property and equipment in 2019 of $1.5 million.
Financing
Activities
Net
cash provided by financing activities was approximately $4.3 million for the nine months ended December 31, 2019, which mainly
consisted of cash received from capital contribution of $4.4 million, and cash received from issuance of stock of $1.5 million,
offset by net cash paid for bank loans of $1.3 million, $194,000 cash paid notes payable, and capital leases. Net cash provided
from financing activities was $8.0 million for the nine months ended December 31, 2018, which mainly consisted of net cash flow
from bank loans of $5.7 million, cash received from issuance of stock of $3.7 million, offset by $208,000 cash paid for notes
payable and capital leases and repayment on term loan of $1.2 million.
KeyBank
National Association – Senior Secured Credit Facilities
On
December 23, 2016, NYM, as borrower, entered into a $25 million senior secured Credit Agreement (the “Credit Agreement”)
with Key Bank National Association (“Key Bank” or “Lender”). The Credit Agreement provides for (1) a revolving
credit of $5,000,000 for making advance and issuance of letter of credit, (2) $15,000,000 of effective date term loan and (3)
$5,000,000 of delayed draw term loan. The interest rate is equal to (1) the Lender’s “prime rate” plus 0.95%,
or (b) the Adjusted LIBOR rate plus 1.95%. Both the termination date of the revolving credit and the maturity date of the term
loans are December 23, 2021. The Company will pay a commitment fee equal to 0.25% of the undrawn amount of the Revolving Credit
Facility and 0.25% of the unused Delayed Draw Term Loan Facility. $4,950,000 of the revolving credit was used as of December 31,
2019.
$15,000,000
of the term loan was fully funded by the lender in January 2017. The Company is required to make fifty-nine consecutive monthly
payments of principal and interest in the amount of $142,842 starting from February 1, 2017 and a final payment of the then entire
unpaid principal balance of the term loan, plus accrued interest on the maturity date.
A
Delayed Draw Term Loan was available and would be advanced on the Delayed Draw Funding date (as defined in the Credit Agreement,
which is no later than December 23, 2021. A withdrawal of $5 million under the Delayed Draw Term Loan was made as of December
31, 2019.
The
senior secured credit facility is secured by all assets of the Company and is jointly guaranteed by the Company and its subsidiaries
and contains financial and restrictive covenants. The financial covenants require NYM to deliver audited consolidated financial
statements within one hundred twenty days after the fiscal year end and to maintain a fixed charge coverage ratio not less than
1.1 to 1.0 and senior funded debt to earnings before interest, tax, depreciation and amortization (“EBITDA”) ratio
less than 3.0 to 1.0 at the last day of each fiscal quarter, beginning with the fiscal quarter ending March 31, 2017. Except as
stated below, the senior secured credit facility is subject to customary events of default. It will be an event of default if
Mr. Long Deng resigns, is terminated, or is no longer actively involved in the management of NYM and a replacement reasonably
satisfactory to the Lender is not made within sixty (60) days after such event takes place. The Company violated the loan covenant
when Mr. Long Deng, CEO and major shareholder of the Company sold an aggregate of 8,294,989 restricted shares to HK Xu Ding Co.,
Limited on January 23, 2019, representing 51% of the total issued and outstanding shares of the Company as of December 31, 2018.
The Company failed to obtain a written consent for the occurrence of the change of ownership. As a result, effective as of March
1, 2019, interest was accrued on all loans at the default rate and the monthly principal and interest payment due under the effective
date term loan will be $155,872 instead of $142,842.
On
May 20, 2019 (the “Effective Date”), the Company entered into a forbearance agreement (the “Forbearance Agreement”)
with KeyBank, pursuant to which KeyBank has agreed to delay the exercise of its rights and remedies under the Loan agreement based
on the existence of the events of defaults for certain period of time. The Forbearance Agreement contains customary forbearance
covenants and other forbearance covenants and defined certain events of defaults. Starting from May, 2019, the monthly payment
decreased to $142,842 as originally required per the credit facility agreements.
The
Company failed to meet its obligations under the Loan Agreements by the end of the First Forbearance Period. On October 17, 2019
(the “Effective Date”), the Company, Go Fresh 365, Inc. (“Go Fresh”), Mr. Long Deng and Keybank entered
into the second forbearance agreement (the “Second Forbearance Agreement”). Pursuant to certain Guaranty Agreement
dated as of December 26, 2016, as amended by several joinder agreements and the Second Forbearance Agreement, the Company, certain
subsidiaries of NYM, Go Fresh and Mr. Long Deng (collectively, the “Guarantors”, and together with the Borrower, the
“Loan Parties”) have agreed to guarantee the payment and performance of the obligations of the Borrower under the
Credit Agreement (“Obligations”). Key Bank has agreed to delay the exercise of its rights and remedies under the Loan
Agreement based on the existence of certain events of default (the “Specified Events of Default”) until the earlier
to occur of: (a) 5:00 p.m. Eastern Time on the November 29, 2019; and (b) a Forbearance Event of Default. This second forbearance
period has expired and discussion between Key Bank and the new counsel of NYM Holding is in process.
The
Company has been repaying this facility in accordance with its terms. The financial covenants of the Credit Agreement require
the Company to maintain a senior funded debt to earnings before interest, tax, depreciation and amortization (“EBITDA”)
ratio for the trailing 12-month period of less than 3.00 to 1.00 at the last day of each fiscal quarter. As of December 31, 2019
and March 31, 2019, the Company has negative EBITDA, thus the ratio was negative and the Company was not in compliance with the
financial covenants of the KeyBank loan.
While
KeyBank has not yet acted to accelerate payment of the facility, KeyBank considers the Company to be in default and will not make
any further advances under the Credit Facility until the Company comes into compliance with the Credit Agreement.
Commitments
and Contractual Obligations
The
following table presents the Company’s material contractual obligations as of December 31, 2019:
Contractual Obligations (unaudited)
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
Bank Loans
|
|
$
|
20,113,172
|
|
|
$
|
1,548,793
|
|
|
$
|
18,564,379
|
|
|
$
|
—
|
|
|
|
—
|
|
Estimated interest payments on bank loans
|
|
|
1,072,046
|
|
|
|
496,351
|
|
|
|
575,695
|
|
|
|
—
|
|
|
|
—
|
|
Notes payable
|
|
|
144,614
|
|
|
|
78,835
|
|
|
|
65,779
|
|
|
|
|
|
|
|
—
|
|
Capital lease obligations including interest
|
|
|
521,465
|
|
|
|
174,863
|
|
|
|
300,654
|
|
|
|
45,948
|
|
|
|
—
|
|
Operating
Lease Obligations(1)
|
|
|
88,425,615
|
|
|
|
8,544,127
|
|
|
|
16,565,053
|
|
|
|
15,675,125
|
|
|
|
47,641,310
|
|
|
|
$
|
110,276,912
|
|
|
$
|
10,842,969
|
|
|
$
|
36,071,560
|
|
|
$
|
15,721,073
|
|
|
$
|
47,641,310
|
|
|
(1)
|
Operating
lease obligations do not include common area maintenance, utility and tax payments to which iFresh is obligated, which is
estimated to be approximately 50% of operating lease obligation.
|
Off-balance
Sheet Arrangements
iFresh
is not a party to any off-balance sheet arrangements.
Critical
Accounting Estimates
The
discussion and analysis of iFresh’s financial condition and results of operations are based upon its financial statements,
which have been prepared in accordance with GAAP. These principles require iFresh’s management to make estimates and judgments
that affect the reported amounts of assets, liabilities, sales and expenses, cash flow and related disclosure of contingent assets
and liabilities. The estimates include, but are not limited to, revenue recognition, inventory valuation, impairment of long-lived
assets, lease, and income taxes. iFresh bases its estimates on historical experience and on various other assumptions that it
believes to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are
material differences between these estimates and the actual results, future financial statements will be affected.
iFresh’s
management believes that among their significant accounting policies, which are described in Note 3 to the unaudited condensed
consolidated financial statements of iFresh included in this Form 10-Q, the following accounting policies involve a greater degree
of judgment and complexity. Accordingly, iFresh’s management believes these are the most critical to fully understand and
evaluate its financial condition and results of operations.
Revenue
Recognition
In
accordance with Topic 606 revenue is recognized at the time the sale is made, at which time our walk-in customers take immediate
possession of the merchandise or delivery is made to our wholesale customers. Payment terms are established for our wholesale
customers based on the Company’s pre-established credit requirements. Payment terms vary depending on the customer. Based
on the nature of receivables no significant financing components exist. Sales are recorded net of discounts, sales incentives
and rebates, sales taxes and estimated returns and allowances. We estimate the reduction to sales and cost of sales for returns
based on current sales levels and our historical return experience.
Topic
606 defines a performance obligation as a promise in a contract to transfer a distinct good or service to the customer and is
considered the unit of account. The majority of our contracts have one single performance obligation as the promise to transfer
the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct.
We
had no material contract assets, contract liabilities or costs to obtain and fulfill contracts recorded on the Condensed Consolidated
Balance Sheet as of September 30, 2019. Revenue recognized from performance obligations related to prior periods was insignificant.
Inventories
Inventories
consist of merchandise purchased for resale, which are stated at the lower of cost or market. The cost method is used for wholesale
and retail perishable inventories by assigning costs to each of these items based on a first-in, first-out (FIFO) basis (net of
vendor discounts).
The
Company’s wholesale and retail non-perishable inventory is valued at the lower of cost or market using weighted average
method.
Impairment
of Long-Lived Assets
iFresh
assesses its long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. The Company groups and
evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which independent identifiable
cash flows are available. Factors which may indicate potential impairment include a significant underperformance relative to the
historical or projected future operating results of the store or a significant negative industry or economic trend. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows
expected to be generated by that asset. If impairment is indicated, a loss is recognized for any excess of the carrying value
over the estimated fair value of the asset group. The fair value is estimated based on the discounted future cash flows or comparable
market values, if available.
Leases
On
April 1, 2019 the Company adopted Accounting Standards Update (“ASU”) 2016-02. For all leases that were entered into
prior to the effective date of ASC 842, we elected to apply the package of practical expedients. Based on this guidance we will
not reassess the following: (1) whether any expired or existing contracts are or contain leases; (2) the lease classification
for any expired or existing leases; and (3) initial direct costs for any existing leases. The adoption of Topic 842 resulted in
the presentation of $59,839,700 of operating lease assets and $66,554,892 operating lease liabilities on the consolidated balance
sheet as of December 31, 2019. See Note 12 for additional information.
The
Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on the Company’s
consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of obligations under
capital leases, and obligations under capital leases, non-current on our consolidated balance sheets.
Operating
lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments
over the lease term at commencement date, adjusted by the deferred rent liabilities at the adoption date. As most of the Company’s
leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at
commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments
made and excludes lease incentives and initial direct costs incurred. The Company’s terms may include options to extend
or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease
payments is recognized on a straight-line basis over the lease term.
Income
Taxes
iFresh
must make certain estimates and judgments in determining income tax expense for financial statement purposes. The amount of taxes
currently payable or refundable is accrued, and deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets are also recognized for realizable loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates in effect for the fiscal year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in income tax rates is
recognized in income in the period that includes the enactment date.
iFresh
apply the provisions of the authoritative guidance on accounting for uncertainty in income taxes that was issued by the Financial
Accounting Standards Board, or FASB. Pursuant to this guidance, and may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the
technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should
be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The
authoritative guidance also addresses other items related to uncertainty in income taxes, including derecognition, measurement,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
Recently
Issued Accounting Pronouncements
In
June 2018, the FASB issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies
the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on
such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The changes
take effect for public companies for fiscal years starting after Dec. 15, 2018, including interim periods within that fiscal year.
For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within
fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date
of Topic 606. The Company expects that the adoption of this ASU would not have a material impact on the Company’s consolidated
financial statements.
In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement
of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires companies
to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader
range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective
for fiscal years beginning after December 15, 2019, including those interim periods within those fiscal years. The Company
is currently assessing the impact of adopting this standard, but based on a preliminary assessment, does not expect the adoption
of this guidance to have a material impact on its condensed consolidated financial statements.