NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1. Organization and Description of Business
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.
2. Liquidity and Going Concern
As reflected in the Company’s unaudited
condensed consolidated financial statements, the Company had operating losses for the three months ended June 30, 2018 and for
the fiscal year 2018. The Company had negative working capital of $21.1 million and $18.4 million as of June 20, 2018 and March
31, 2018, respectively. The Company did not meet the financial covenant required in the credit agreement with KeyBank National
Association (“KeyBank”) as of June 30, 2018 and March 31, 2018. As of June 30, 2018, the Company has outstanding loan
facilities of approximately $22.3 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 contribution from shareholders, cash flow from operations, and bank loans. As of June 30, 2018, the Company also has $9.1
million of advances and receivable from related parties that the Company intends to collect or use to offset potential future acquisitions.
The Company also plans to issue additional stock in lieu of cash as part of potential future acquisitions and plan to raise additional
capital through sales of Company stock if necessary.
Although the Company has been repaying the KeyBank
facility in accordance with its terms, the Company failed to timely pay taxes in the aggregate principal amount of $1,187,693 as
of March 31, 2018, which resulted in the IRS imposing a tax lien on the Company on June 11, 2018 in the amount of $1,236,831.08.
By June 29, 2018, the Company had paid the full amount of the outstanding IRS obligation. By July 30, 2018, the IRS tax lien had
been released. Due to the Company’s failure to timely pay federal taxes and the IRS’s imposition of a tax lien, the
Company was in default under the Credit Agreement as of March 31, 2018. In addition, 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 June 30, 2018 and
March 31, 2018, 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. KeyBank has notified the Company that it has not waived the default and reserves all of its rights, power,
privileges, and remedies under the Credit Agreement. KeyBank has not yet acted to accelerate payment of the facility.
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 June 30, 2018 and for the three months ended June 30, 2018 and 2017 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, 2018.
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 include,
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.
Restricted Cash
Restricted cash represents cash held by
depository banks in order to comply with the provisions of certain debt agreements.
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.
Operating Leases
The Company leases retail stores, warehouse
facilities and administrative offices under operating leases. Incentives received from lessors are deferred and recorded as a
reduction of rental expense over the lease term using the straight-line method. Store lease agreements generally include rent
escalation provisions. The Company recognizes escalations of minimum rents as deferred rent and amortizes these balances on a
straight-line basis over the term of the lease.
Capital Lease Obligations
The Company has recorded capital lease
obligations for equipment leases at both June 30, 2018 and March 31, 2018. In each case, the Company was deemed to be the owner
under lease accounting guidance. Further, each lease contains provisions indicating continuing involvement with the equipment
at the end of the lease period. As a result, in accordance with applicable accounting guidance, related assets subject to the
leases are reflected on the Company’s consolidated balance sheets and amortized over the lesser of the lease term or their
remaining useful lives. The present value of the lease payments associated with the equipment is recorded as capital lease obligations.
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 condensed 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 June 30, 2018 and March 31, 2018, 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 unaudited Condensed Consolidated Balance Sheet as of June
30, 2018. For the three month’s ended June 30, 2018, revenue recognized from performance obligations related to
prior periods was insignificant.
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 Three Months Ended
|
|
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Grocery
|
|
$
|
12,462,416
|
|
|
$
|
12,477,871
|
|
Perishable goods
|
|
|
18,625,725
|
|
|
|
20,050,655
|
|
Total
|
|
$
|
31,088,141
|
|
|
$
|
32,528,526
|
|
Business combination involves entities under common control
The Company accounted for business acquisitions
involving entities under common control under ASC 805-50-30 whereby we recognize assets acquired and liabilities assumed in an
acquisition at their historical costs as of the date of acquisition. In additional, these transactions comply with the requirement
in ASC 805-50-45-1 through 45-5 whereby the financial statements of the receiving entity report results of operations for the period
in which the transfer occurs as though the transfer of net assets or exchange of equity interests had occurred at the beginning
of the period. Results of operations for that period will thus comprise those of the previously separate entities combined from
the beginning of the period to the date the transfer is completed and those of the combined operations from that date to the end
of the period.
Financial statements
and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.
Reclassification of Prior Year Presentation
Certain prior year amounts
have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported
results of operations. An adjustment has been made to the Consolidated Balance Sheets for fiscal year ended March 31, 2018, to
reclassify the long-term portion of bank loan of $15,740,733 to a short term loan due to the fact that the Company was not in compliance
with the loan covenant as of March 31, 2018. This change in classification does not affect the previously reported total liability
of the Company as of March 31, 2018.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued Accounting
Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires a lessee to record a right-of-use asset and
a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases
with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. ASU 2016-02 requires
recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over
the lease term. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash
flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective
transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02
is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application
is permitted. The Company does not expect the adoption of this guidance will have a material impact on its unaudited condensed
consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this ASU clarify the
definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be
accounted for as acquisitions (or disposals) of assets or businesses. Basically these amendments provide a screen to determine
when a set is not a business. If the screen is not met, the amendments in this ASU first, require that to be considered a business,
a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create
output and second, remove the evaluation of whether a market participant could replace missing elements. These amendments take
effect for public businesses for fiscal years beginning after December 15, 2017 and interim periods within those periods, and all
other entities should apply these amendments for fiscal years beginning after December 15, 2018, and interim periods within annual
periods beginning after December 15, 2019. The Company does not expect the adoption of this guidance will have a material impact
on its unaudited condensed consolidated financial statements.
In February 2017, the FASB issued ASU No.
2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets” to clarify the scope
of Subtopic 610-20 and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014
as a part of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses
from the transfer of nonfinancial assets in contracts with noncustomers. For public entities, the amendments are effective for
annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.
For all other entities, the amendments in this Update are effective for annual reporting periods beginning after December 15,
2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company does not expect
that adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09, “Scope
of Modification Accounting,” which amends the scope of modification accounting for share-based payment arrangements, provides
guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required
to apply modification accounting under ASC 718. For all entities, the ASU is effective for annual reporting periods, including
interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including
adoption in any interim period. The Company does not expect that adoption of this guidance will have a material impact on its consolidated
financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-01, which clarifies the definition of a
business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets
or businesses. The standard will be effective for us in the first quarter of our fiscal 2019. The adoption of this ASU does not
a material impact on the Company’s consolidated financial statements.
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. The Company expects that the adoption of this ASU
would not have a material impact on the Company’s consolidated financial statements.
No other new accounting pronouncements
issued or effective had, or are expected to have, a material impact on the Company’s consolidated financial statements.
5. Accounts Receivable
A summary of accounts receivable, net is
as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2018
|
|
Customer purchases
|
|
$
|
4,322,177
|
|
|
$
|
4,643,922
|
|
Credit card receivables
|
|
|
313,475
|
|
|
|
332,136
|
|
Food stamps
|
|
|
75,018
|
|
|
|
101,105
|
|
Others
|
|
|
40,815
|
|
|
|
30,945
|
|
Total accounts receivable
|
|
|
4,751,485
|
|
|
|
5,108,108
|
|
Allowance for bad debt
|
|
|
(204,768
|
)
|
|
|
(204,768
|
)
|
Accounts receivable, net
|
|
$
|
4,546,717
|
|
|
$
|
4,903,340
|
|
6. Inventories
A summary of inventories, net is as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2018
|
|
Non-perishables
|
|
$
|
9,772,698
|
|
|
$
|
9,206,442
|
|
Perishables
|
|
|
2,167,081
|
|
|
|
1,798,970
|
|
Inventories
|
|
|
11,939,779
|
|
|
|
11,005,412
|
|
Allowance for slow moving or defective inventories
|
|
|
(83,515
|
)
|
|
|
(99,928
|
)
|
Inventories, net
|
|
$
|
11,856,264
|
|
|
$
|
10,905,484
|
|
7. Advances and receivables - related parties
A summary of advances and receivables -
related parties is as follows:
|
|
June 30,
|
|
|
March 31,
|
|
Entities
|
|
2018
|
|
|
2018
|
|
New York Mart, Inc.
|
|
$
|
-
|
|
|
$
|
838,096
|
|
Pacific Supermarkets Inc.
|
|
|
1,070,296
|
|
|
|
1,151,338
|
|
NY Mart MD Inc.
|
|
|
3,617,777
|
|
|
|
3,709,493
|
|
iFresh Harwin Inc
|
|
|
596,168
|
|
|
|
557,262
|
|
Advances - related parties
|
|
$
|
5,284,241
|
|
|
$
|
6,256,189
|
|
|
|
|
|
|
|
|
|
|
New York Mart, Inc.
|
|
|
794,782
|
|
|
|
1,021,572
|
|
Pacific Supermarkets Inc.
|
|
|
277,526
|
|
|
|
210,450
|
|
NY Mart MD Inc.
|
|
|
2,435,473
|
|
|
|
2,290,197
|
|
iFresh Harwin Inc
|
|
|
260,002
|
|
|
|
241,280
|
|
Receivables – related parties
|
|
|
3,767,783
|
|
|
|
3,763,499
|
|
Total advances and receivables – related parties
|
|
$
|
9,052,024
|
|
|
$
|
10,019,688
|
|
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 majority shareholder and the Chief Executive Officer of the Company. Accounts
receivable due from related parties relate to the sales to these related parties (see Note 15). The advances and receivables are
interest free, repayable on demand, and guaranteed by Mr. Long Deng.
8. Property and Equipment
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2018
|
|
Furniture, fixtures and equipment
|
|
$
|
19,207,064
|
|
|
$
|
17,190,356
|
|
Automobiles
|
|
|
2,157,240
|
|
|
|
2,125,874
|
|
Leasehold improvements
|
|
|
8,061,556
|
|
|
|
7,234,484
|
|
Software
|
|
|
8,432
|
|
|
|
6,735
|
|
Total property and equipment
|
|
|
29,434,292
|
|
|
|
26,557,449
|
|
Accumulated depreciation and amortization
|
|
|
(9,197,297
|
)
|
|
|
(8,738,644
|
)
|
Property and equipment, net
|
|
$
|
20,236,995
|
|
|
$
|
17,818,805
|
|
Depreciation expense for the three months
ended June 30, 2018 and 2017 was $459,945 and $403,061, respectively.
9. Intangible Assets
A summary of the activities and balances
of intangible assets are as follows:
|
|
Balance at
March 31,
|
|
|
|
|
|
Balance at
June 30,
|
|
|
|
2018
|
|
|
Additions
|
|
|
2018
|
|
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
|
|
$
|
(1,333,331
|
)
|
|
$
|
(33,333
|
)
|
|
$
|
(1,366,664
|
)
|
Intangible assets, net
|
|
$
|
1,166,669
|
|
|
$
|
(33,333
|
)
|
|
$
|
1,133,336
|
|
Amortization expense was $33,333 and $33,333
for the three months ended June 30, 2018 and 2017, respectively. Future amortization associated with the net carrying amount of
definite-lived intangible assets is as follows:
Year Ending June 30,
|
|
|
|
2019
|
|
$
|
133,333
|
|
2020
|
|
|
133,333
|
|
2021
|
|
|
133,333
|
|
2022
|
|
|
133,333
|
|
2023
|
|
|
133,333
|
|
Thereafter
|
|
|
466,671
|
|
Total
|
|
$
|
1,133,336
|
|
10. Debt
A summary of the Company’s debt is
as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2018
|
|
Revolving Line of Credit- KeyBank National Association
|
|
$
|
4,950,000
|
|
|
|
3,200,000
|
|
Delayed Term Loan- KeyBank National Association
|
|
|
4,870,833
|
|
|
|
997,500
|
|
Term Loan-KeyBank National Association
|
|
|
13,186,778
|
|
|
|
13,531,361
|
|
Less: Deferred financing cost
|
|
|
(638,750
|
)
|
|
|
(684,375
|
)
|
Total (a)
|
|
|
22,368,861
|
|
|
|
17,044,486
|
|
(a)
|
Due to the fact that the Company is not in compliance with
the financial covenants of the KeyBank loans, the loan balance due after one year from balance
sheet date has been reclassified as short term liability.
|
KeyBank National Association (“KeyBank”)
– Senior Secured Credit Facilities
On December 23, 2016, NYM Holding, Inc. (“NYM”),
as borrower, entered into a $25 million senior secured Credit Agreement (the “Credit Agreement”) with KeyBank National
Association (“KeyBank” 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 June 30, 2018.
$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 $5 million Delayed Draw Term Loan has been fully
made to acquire iFresh E. Colonial, Inc. and support the Company’s daily operations.
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.
Maturities of borrowings against the term
loan under this credit facility for each of the next five years are as follows, assuming KeyBank does not act to accelerate payment
under this credit facility:
Year Ending June 30
|
|
|
|
2019
|
|
$
|
1,516,772
|
|
2020
|
|
|
1,728,543
|
|
2021
|
|
|
1,767,551
|
|
2022
|
|
|
17,355,995
|
|
|
|
|
|
|
Total
|
|
$
|
22,368,861
|
|
Although the Company has been repaying the KeyBank
facility in accordance with its terms, the Company failed to timely pay taxes in the aggregate principal amount of $1,187,693,
which resulted in a tax lien being imposed upon the Company by the IRS on June 11, 2018 in the amount of $1,236,831. Although the
Company had fully paid the tax liabilities in June 2018, due to the Company’s failure to timely pay federal taxes and the
IRS’s imposition of a tax lien, the Company was in default under the Credit Agreement as of March 31, 2018.
In addition, 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 3.00 to 1.00 at the last day of each fiscal quarter, beginning with the fiscal
quarter ending March 31, 2017. As of June 30, 2018 and March 31, 2018, the Company’s senior funded debt to EBITDA 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.
11. Notes Payable
Notes payables consist of the following:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2018
|
|
Hitachi Capital America Corp.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 6.99%, principal and
interest of $2,170 due monthly through March 10,2019
|
|
|
18,975
|
|
|
|
25,083
|
|
Triangle Auto Center, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.02%, principal and interest of
$890 due monthly through January 28, 2021
|
|
|
26,103
|
|
|
|
28,498
|
|
Colonial Buick GMC
|
|
|
|
|
|
|
|
|
Secured by vehicle, 8.64%, principal and interest of
$736 due monthly through February 1, 2020
|
|
|
13,653
|
|
|
|
15,535
|
|
Isuzu Finance of America, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 6.99%, principal and interest of
$2,200 due monthly through October 1, 2018
|
|
|
8,672
|
|
|
|
15,045
|
|
Koeppel Nissan, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 3.99%, principal and interest of
$612 due monthly through January 18, 2021
|
|
|
17,965
|
|
|
|
19,612
|
|
Secured by vehicle, 0.9%, principal and interest of $739
due monthly through March 14, 2020
|
|
|
15,394
|
|
|
|
17,573
|
|
Secured by vehicle, 7.86%, principal and interest of
$758 due monthly through September 1, 2022
|
|
|
30,566
|
|
|
|
32,216
|
|
Silver Star Motors
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.22%, principal and interest of
$916 due monthly through June 1, 2021
|
|
|
30,913
|
|
|
|
34,112
|
|
BMO
|
|
|
|
|
|
|
|
|
Secured by vehicle, 5.99%, principal and interest of
$1,924 due monthly through July 1, 2020
|
|
|
64,869
|
|
|
|
68,047
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.01%, principal and interest of
$420 due monthly through December 1, 2021
|
|
|
16,432
|
|
|
|
17,516
|
|
Toyota Finance
|
|
|
|
|
|
|
|
|
Secured by vehicle, 0%, principal and interest of $632
due monthly through August, 2022
|
|
|
31,620
|
|
|
|
33,517
|
|
Secured by vehicle, 4.87%, principal and interest of
$761 due monthly through July, 2021
|
|
|
29,723
|
|
|
|
31,621
|
|
Secured by vehicle, 0%, principal
and interest of $633 due monthly through April 1, 2022
|
|
|
25,963
|
|
|
|
27,924
|
|
Total Notes Payable
|
|
$
|
330,848
|
|
|
$
|
366,298
|
|
Current notes payable
|
|
|
(125,076
|
)
|
|
|
(135,203
|
)
|
Long-term notes payable, net of current maturities
|
|
$
|
205,772
|
|
|
$
|
231,095
|
|
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 June 30,
|
|
|
|
2018
|
|
$
|
125,077
|
|
2019
|
|
|
96,513
|
|
2020
|
|
|
80,265
|
|
2021
|
|
|
27,729
|
|
2022
|
|
|
1,264
|
|
Total
|
|
$
|
330,848
|
|
12. Capital lease obligations
The following capital lease obligations
are included in the consolidated balance sheets:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2018
|
|
Capital lease obligations:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
123,847
|
|
|
$
|
55,634
|
|
Long-term
|
|
|
362,826
|
|
|
|
70,724
|
|
Total obligations
|
|
$
|
486,673
|
|
|
$
|
126,358
|
|
Interest expense on capital lease obligations
for the three months ended June 30, 2018 and 2017 amounted to $11,514 and $1,539, respectively.
Future minimum lease payments under the
capital leases are as follows:
Year Ending June 30,
|
|
|
|
2019
|
|
$
|
157,456
|
|
2020
|
|
|
137,162
|
|
2021
|
|
|
112,459
|
|
2022
|
|
|
95,811
|
|
2023
|
|
|
70,317
|
|
Total minimum lease payments
|
|
|
573,205
|
|
Less: Amount representing interest
|
|
|
(86,532
|
)
|
Total
|
|
$
|
486,673
|
|
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 three months ended June 30, 2018 and 2017, respectively:
|
|
Three months ended June 30,
2018
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,188,545
|
|
|
$
|
25,899,596
|
|
|
$
|
31,088,141
|
|
Cost of sales
|
|
|
3,831,897
|
|
|
|
18,999,424
|
|
|
|
22,831,321
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
1,831,074
|
|
|
|
1,831,074
|
|
Gross profit
|
|
$
|
1,356,648
|
|
|
$
|
5,069,098
|
|
|
$
|
6,425,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(3,393
|
)
|
|
$
|
(242,310
|
)
|
|
$
|
(245,703
|
)
|
Depreciation and amortization
|
|
$
|
59,084
|
|
|
$
|
491,225
|
|
|
$
|
550,309
|
|
Capital expenditures
|
|
$
|
18,313
|
|
|
$
|
3,057,729
|
|
|
$
|
3,076,042
|
|
Segment income (loss) before income tax provision (benefit)
|
|
$
|
156,539
|
|
|
$
|
(1,719,368
|
)
|
|
$
|
(1,562,829
|
)
|
Income tax provision (benefit)
|
|
$
|
43,831
|
|
|
$
|
270,002
|
|
|
$
|
313,833
|
|
Segment assets
|
|
$
|
11,817,248
|
|
|
$
|
38,829,721
|
|
|
$
|
50,646,969
|
|
|
|
Three months ended June 30,
2017
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
6,169,107
|
|
|
$
|
26,359,419
|
|
|
$
|
32,528,526
|
|
Cost of sales
|
|
|
4,794,888
|
|
|
|
18,899,782
|
|
|
|
23,694,670
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
1,942,842
|
|
|
|
1,942,842
|
|
Gross profit
|
|
$
|
1,374,219
|
|
|
$
|
5,516,795
|
|
|
$
|
6,891,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(9,344
|
)
|
|
$
|
(158,326
|
)
|
|
$
|
(167,670
|
)
|
Depreciation and amortization
|
|
$
|
67,805
|
|
|
$
|
414,214
|
|
|
$
|
482,019
|
|
Capital expenditures
|
|
$
|
13,026
|
|
|
$
|
885,339
|
|
|
$
|
898,365
|
|
Segment income (loss) before income tax provision (benefit)
|
|
$
|
160,187
|
|
|
$
|
(766,007
|
)
|
|
$
|
(605,820
|
)
|
Income tax provision (benefit)
|
|
$
|
83,297
|
|
|
$
|
(374,207
|
)
|
|
$
|
(290,910
|
)
|
Segment assets
|
|
$
|
10,874,119
|
|
|
$
|
36,646,429
|
|
|
$
|
47,520,548
|
|
14. 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.
The Company has approximately $3,991,908
and $2,429,079 of US NOL carry forward as of June 30, 2018 and March 31, 2018, respectively. For income tax purpose, those NOLs
will expire in the year 2031 through 2036.
Based upon management’s assessment
of all available evidence, the Company believes that it is more-likely-than-not that some portion or all of the deferred tax assets
will not be realized, and therefore, a full valuation allowance is established for deferred tax assets. The valuation allowance
for deferred tax assets was $1,393,934 and $486,730 as of June 30, 2018 and March 31, 2018.
Income Tax Provision (Benefit)
The provision (benefit) for income taxes
consists of the following components:
|
|
For the three months ended
|
|
|
|
June 30
|
|
|
|
2018
|
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
235,375
|
|
|
|
(187,542
|
)
|
State
|
|
|
78,458
|
|
|
|
(103,368
|
)
|
|
|
|
313,833
|
|
|
|
(290,910
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
313,833
|
|
|
$
|
(290,910
|
)
|
Tax Rate Reconciliation
Following is a reconciliation of the Company’s
effective income tax rate to the United State federal statutory tax rate:
|
|
Three months ended
June
30,
|
|
|
|
2018
|
|
|
2017
|
|
Expected tax at U.S. statutory income tax rate
|
|
|
21
|
%
|
|
|
34
|
%
|
State and local income taxes, net of federal income tax effect
|
|
|
14
|
%
|
|
|
14
|
%
|
Other non-deductible fees and expenses
|
|
|
3
|
%
|
|
|
1
|
%
|
Change of deferred tax reserve
|
|
|
(58
|
%)
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-1
|
%
|
Effective tax rate
|
|
|
(20
|
%)
|
|
|
48
|
%
|
Deferred Taxes
The effect of temporary differences included
in the deferred tax accounts as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2018
|
|
Deferred Tax Assets/ (Liabilities):
|
|
|
|
|
|
|
Deferred expenses
|
|
$
|
65,869
|
|
|
$
|
68,124
|
|
Sec 263A Inventory Cap
|
|
|
166,673
|
|
|
|
189,100
|
|
Deferred rent
|
|
|
1,949,497
|
|
|
|
1,983,213
|
|
Depreciation and amortization
|
|
|
(1,757,068
|
)
|
|
|
(1,971,247
|
)
|
Net operating losses
|
|
|
968,963
|
|
|
|
531,372
|
|
Valuation allowance
|
|
|
(1,393,934
|
)
|
|
|
(486,730
|
)
|
Net Deferred Tax Assets
|
|
$
|
-
|
|
|
$
|
313,832
|
|
15. 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 three months ended June 30, 2018 and 2017 to related
parties, which are directly or indirectly owned, in whole or in part, by Mr. Long Deng, a majority shareholder, and not eliminated
in the unaudited condensed consolidated financial statements. In addition, the outstanding receivables due from these related
parties as of June 30, 2018 and March 31, 2018 were included in advances and receivables – related parties (see Note 7).
Three months ended June 30,
2018
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable & Perishable
Sales
|
|
New York Mart, Inc.
|
|
$
|
11,651
|
|
|
$
|
3,780
|
|
|
$
|
193,741
|
|
Pacific Supermarkets Inc.
|
|
|
28,057
|
|
|
|
5,770
|
|
|
|
660,284
|
|
NY Mart MD Inc.
|
|
|
18,761
|
|
|
|
880
|
|
|
|
526,734
|
|
El Monte
|
|
|
4,944
|
|
|
|
1,600
|
|
|
|
-
|
|
iFresh Harwin Inc
|
|
|
2,279
|
|
|
|
2,600
|
|
|
|
9,677
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
1,358
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Tampa Seafood
|
|
|
550
|
|
|
|
|
|
|
|
-
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
24,524
|
|
|
|
$
|
66,242
|
|
|
$
|
14,630
|
|
|
$
|
1,416,318
|
|
Three months ended June 30,
2017
|
Related Parties
|
|
Management Fees
|
|
|
Advertising Fees
|
|
|
Non-Perishable & Perishable
Sales
|
|
New York Mart, Inc.
|
|
$
|
13,629
|
|
|
$
|
8,427
|
|
|
$
|
525,023
|
|
Pacific Supermarkets Inc.
|
|
|
20,373
|
|
|
|
9,207
|
|
|
|
917,624
|
|
NY Mart MD Inc.
|
|
|
13,602
|
|
|
|
3,010
|
|
|
|
878,714
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
1,192
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
26,356
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
51,762
|
|
|
|
|
47,604
|
|
|
$
|
20,644
|
|
|
$
|
2,400,671
|
|
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 majority shareholder of the Company, and will expire on April 30, 2026.
Rent incurred to the related party was $292,460 and $177,000 for the three months ended on June 30, 2018 and 2017.
16. Operating Lease Commitments
The Company’s leases include stores, offices,
and warehouse buildings. These leases have an average remaining lease term of approximately 9 years as of June 30, 2018.
Rent expense charged to operations under
operating leases in the three months ended on June 30, 2018 and 2017 amounted to $1,831,074 and $1,942,843, respectively.
Future minimum lease obligations for operating
leases with initial terms in excess of one year at June 30, 2018 are as follows:
|
|
Non-related
parties
|
|
|
Related
party
|
|
|
Total
|
|
2019
|
|
$
|
7,244,729
|
|
|
$
|
1,388,265
|
|
|
$
|
8,632,994
|
|
2020
|
|
|
7,460,411
|
|
|
|
1,589,349
|
|
|
|
9,049,760
|
|
2021
|
|
|
7,382,824
|
|
|
|
1,605,252
|
|
|
|
8,988,076
|
|
2022
|
|
|
7,239,113
|
|
|
|
1,660,585
|
|
|
|
8,899,698
|
|
2023
|
|
|
7,175,770
|
|
|
|
1,672,540
|
|
|
|
8,848,310
|
|
Thereafter
|
|
|
50,282,264
|
|
|
|
10,992,362
|
|
|
|
61,274,626
|
|
Total payments
|
|
$
|
86,785,111
|
|
|
$
|
18,908,353
|
|
|
$
|
105,693,464
|
|
17. Contingent Liability
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”),
a 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 retained an expert who concluded the structural damage to the building was caused by
long-term water infiltration and was 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 were 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 judgment required the landlord to repair the premises
and obtain an occupancy permit. The landlord was responsible to Ming for damages in the amount of $2,250 per month until an occupancy
permit was 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. Ming paid rent for June 2018 to the landlord. The
result is a judgment in favor of Ming and against the landlord that will total approximately $1.85 million.
No guaranties or predictions can be made at
this time as to ultimate final outcome of this case.
SKK
R Trading LLC d/b/a
38 Live Bait v. New Sunshine Group LLC and New York Mart Group Inc.
A lawsuit has been filed against New York Mart
Group, Inc. (“NYMG”), a subsidiary of iFresh, and New Sunshine Group, LLC (“New Sunshine”), by SKKR Trading,
LLC (“Plaintiff”) for breach of contract and failure to pay. The plaintiff is seeking from NYMG and New Sunshine for
principal damages the amount of $116,878 for the total amount of invoices allegedly past due, a penalty of $256,000, and attorney’s
fees estimated to be $80,000 to $90,000.
The Plaintiff claimed that NYMG and New Sunshine
failed to pay for an order of shrimp. NYMG and New Sunshine have raised various defenses, most of which center on the arguments
that NYMG and New Sunshine abandoned the Distribution Agreement and did not order, receive, or benefit from the shrimp at issue.
Rather, the shrimp was ordered by a tenant of NYMG, Hong Hai, who was a completely separate entity than NYMG or New Sunshine.
The case went to trial on March 12 to 15, 2017.
On April 17, 2017, the Count ruled in favor of Plaintiff and against NYMG and New Sunshine in the amount of $385,492. NYMG hired
a new law firm to appeal the case. The appeal process will take approximately 1 year. During the appeal, NYMG will not be required
to pay the amount under the Final Judgment. While discovery is ongoing and no guaranties or predictions can be made at this
time as to ultimate outcome, the Company and its attorney believe a fair estimate of the chance the Company will prevail on the
appeal of the Final Judgment is approximately 50%.
Most recently, on August 11, 2017, approximately
$196,000 in funds held in one of New York Mart’s bank accounts at TD Bank was ordered by the Court to be frozen until the
appeal has been concluded, after Plaintiff tried to seize these funds to enforce the aforementioned judgement.
Once the appeal is concluded, the ownership
of the $196,000 will be determined. SKKR is not permitted to take any other action to enforce the judgment, including attempting
to seize any other funds in the TD Bank accounts, any other funds, or any assets owned by NYM. Accordingly, NYM is able to continue
to use all bank accounts at TD Bank (with the exception of the frozen $196,000 which has been set aside) without the threat of
those accounts being seized by SKKR.
The principal shareholder of the Company, Mr.
Long Deng, made a personal pledge to pay for the entire amount of the damage if the appeal is ruled against NYMG. The Company
did not accrue any of this potential liability.
Jendo Ermi, LP v iFresh Inc.; iFresh Inc.
v. Jendo Ermi LP
On October 20, 2017, Jendo Ermi, LP filed an
unlawful detainer action against iFresh, Inc. (Los Angeles Superior Court Case No.: KC069728). The case involved a dispute over
property leased to iFresh, Inc. to operate a grocery store in El Monte, California. Jendo Ermi, LP claimed that iFresh, Inc. had
not properly paid rents as required by the lease. On March 29, 2018, the court entered judgment in favor of Jendo and against iFresh
for possession of the Premises, forfeiture of the lease, and damages in the preliminary amount of $309,009, with the final amount
to be determined by the court. On April 23, 2018, iFresh filed a Notice of Appeal of the judgment. On April 26, 2018, the court
entered an amended judgment in favor of Jendo and against iFresh for possession of the Premises, forfeiture of the lease, and damages
in the amount of $952,692, with attorneys’ fees and costs to be determined by the court.
On August 27, 2017, iFresh, Inc. filed a complaint
against Jendo Ermi, LP for, among other things, fraud and breach of contract associated with the lease (Los Angeles Superior Court
Case No.: BC684617). iFresh, Inc. alleged that Jendo Ermi (1) overstated the square footage of the property to obtain higher rents;
(2) failed to provide certain furniture, fixtures, and equipment (FF&E) valued at approximately $300,000 that were promised
under the lease; and (3) failed to disclose that parts of the building were not habitable.
On
May 31, 2018, the Company entered into a settlement agreement with Jendo Ermi, LP whereby iFresh agreed to transfer
possession of the premises to Jendo and pay Jendo the total amount of $652,039 in satisfaction of all disputes between the
parties. The Company timely transferred possession of the premises to Jendo. A third party, timely paid the full settlement
amount on behalf of iFresh.
Pursuant to the
parties’ settlement agreement, iFresh dismissed with prejudice its action against Jendo and dismissed its appeal of the
unlawful detainer judgment. Pursuant to the parties’ settlement agreement, Jendo shall file an Acknowledgment
of Satisfaction of Judgment with respect to the unlawful detainer judgment on or around September 17, 2018.
18. Subsequent Event
For
purpose of preparing these condensed consolidated financial statements, the Company considered events through August 14, 2018,
which is the date the condensed consolidated financial statements were available for issuance.
There were no material subsequent events
that required recognition or additional disclosure in these condensed consolidated financial statements.