See accompanying notes to unaudited
condensed consolidated financial statements
See accompanying notes to unaudited
condensed consolidated financial statements
See accompanying notes to unaudited
condensed consolidated financial statements
See accompanying notes to unaudited
condensed consolidated financial statements
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.
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, 2019 and in fiscal year 2019 and had negative working capital of $26.9 million and $21.6 million as
of June 30, 2019 and March 31, 2019, respectively. The Company had deficiency of $1.4 million and $1.0 million as of June 30,
2019 and March 31, 2019, respectively. The Company did not meet certain financial covenants required in the credit agreement with
Keybank National Association (“Keybank”). As of June 30, 2019, the Company has outstanding loan facilities of approximately
$21.0 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, 2019, the Company also has $4.6 million of advances and receivable from the related parties we intend to collect.
On June 7, 2019, the Company entered into certain Share Exchange Agreement and Share Purchase Agreement to spin off its Asia supermarket
business and switch to internet lending business primarily located in China through the acquisition (refer to Note 1). The acquisition
is expected to improve the Company’s liquidity and cash flow.
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 June 30, 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 June 30 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’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, 2019 and for the three months ended June 30, 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 $64,881,376 of operating lease assets and $71,620,095 operating lease liabilities on the consolidated balance
sheet as of June 30, 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 June 30, 2019 and 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 June 30, 2019 and March 31, 2019. For the three months ended June 30, 2019 and 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, 2019
|
|
|
June 30, 2018
|
|
Grocery
|
|
$
|
10,568,993
|
|
|
$
|
12,462,416
|
|
Perishable goods
|
|
|
13,258,789
|
|
|
|
18,625,725
|
|
Total
|
|
$
|
23,827,782
|
|
|
$
|
31,088,141
|
|
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.
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:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Customer purchases
|
|
$
|
4,168,204
|
|
|
$
|
4,008,747
|
|
Credit card receivables
|
|
|
319,345
|
|
|
|
532,369
|
|
Food stamps
|
|
|
101,286
|
|
|
|
99,762
|
|
Others
|
|
|
2,518
|
|
|
|
2,518
|
|
Total accounts receivable
|
|
|
4,591,353
|
|
|
|
4,643,396
|
|
Allowance for bad debt
|
|
|
(615,487
|
)
|
|
|
(615,487
|
)
|
Accounts receivable, net
|
|
$
|
3,975,866
|
|
|
$
|
4,027,909
|
|
6.
Inventories
A
summary of inventories, net is as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Non-perishables
|
|
$
|
7,415,357
|
|
|
$
|
8,762,634
|
|
Perishables
|
|
|
1,455,389
|
|
|
|
1,723,882
|
|
Inventories
|
|
|
8,870,746
|
|
|
|
10,486,516
|
|
Allowance for slow moving or defective inventories
|
|
|
(55,381
|
)
|
|
|
(75,150
|
)
|
Inventories, net
|
|
$
|
8,815,365
|
|
|
$
|
10,411,366
|
|
7.
Advances and receivables - related parties
A
summary of advances and receivables - related parties is as follows:
|
|
June 30,
|
|
|
March 31,
|
|
Entities
|
|
2019
|
|
|
2019
|
|
New York Mart Elmhurst Inc
|
|
$
|
59,357
|
|
|
$
|
-
|
|
Pacific Supermarkets Inc.
|
|
|
-
|
|
|
|
437,863
|
|
NY Mart MD Inc.
|
|
|
244,932
|
|
|
|
335,374
|
|
Advances - related parties
|
|
$
|
304,289
|
|
|
$
|
773,237
|
|
|
|
|
|
|
|
|
|
|
New York Mart, Inc.
|
|
|
605,265
|
|
|
|
605,265
|
|
Pacific Supermarkets Inc.
|
|
|
273,873
|
|
|
|
428,237
|
|
NY Mart MD Inc.
|
|
|
3,197,344
|
|
|
|
3,181,011
|
|
iFresh Harwin Inc
|
|
|
229,039
|
|
|
|
232,797
|
|
Receivables – related parties
|
|
|
4,305,521
|
|
|
|
4,447,310
|
|
Total advances and receivables – related parties
|
|
$
|
4,609,810
|
|
|
$
|
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
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Furniture, fixtures and equipment
|
|
$
|
19,980,983
|
|
|
$
|
19,957,600
|
|
Automobiles
|
|
|
2,222,506
|
|
|
|
2,214,306
|
|
Leasehold improvements
|
|
|
9,099,328
|
|
|
|
8,849,422
|
|
Software
|
|
|
6,735
|
|
|
|
6,735
|
|
Total property and equipment
|
|
|
31,309,552
|
|
|
|
31,028,063
|
|
Accumulated depreciation
|
|
|
(11,302,521
|
)
|
|
|
(10,740,877
|
)
|
Property and equipment, net
|
|
$
|
20,007,031
|
|
|
$
|
20,287,186
|
|
Depreciation
expense for the three months ended June 30, 2019 and 2018 was $561,644 and $459,945, 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,
|
|
|
|
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
|
)
|
|
$
|
(33,333
|
)
|
|
$
|
(1,499,996
|
)
|
Intangible assets, net
|
|
$
|
1,033,337
|
|
|
$
|
(33,333
|
)
|
|
$
|
1,000,004
|
|
Amortization
expense was $33,333 and $33,333 for the three months ended June 30, 2019 and 2018, respectively. Future amortization associated
with the net carrying amount of definite-lived intangible assets is as follows:
Year Ending June 30,
|
|
|
|
2020
|
|
$
|
133,333
|
|
2021
|
|
|
133,333
|
|
2022
|
|
|
133,333
|
|
2023
|
|
|
133,333
|
|
2024
|
|
|
133,333
|
|
Thereafter
|
|
|
333,339
|
|
Total
|
|
$
|
1,000,004
|
|
10.
Debt
A
summary of the Company’s debt is as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Revolving Line of Credit-KeyBank National Association
|
|
$
|
4,950,000
|
|
|
|
4,950,000
|
|
Delayed Term Loan-KeyBank National Association
|
|
|
4,369,983
|
|
|
|
4,494,983
|
|
Term Loan-KeyBank National Association
|
|
|
12,096,482
|
|
|
|
12,342,206
|
|
Less: Deferred financing cost
|
|
|
(456,250
|
)
|
|
|
(501,875
|
)
|
Total
|
|
|
20,960,215
|
|
|
|
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 June 30, 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 June 30, 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.
Maturities
of borrowings against the term loan under this credit facility for each of the next five years are as follows:
Year Ending June 30
|
|
|
|
2020
|
|
$
|
1,521,862
|
|
2021
|
|
|
1,576,334
|
|
2022
|
|
|
17,862,019
|
|
Total
|
|
$
|
20,960,215
|
|
11.
Notes Payable
Notes
payables consist of the following:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Triangle Auto Center, Inc.
|
|
|
|
|
|
|
Secured by vehicle, 4.02%, principal and interest of $890 due monthly through January 28, 2021
|
|
|
16,338
|
|
|
|
18,823
|
|
Colonial Buick GMC
|
|
|
|
|
|
|
|
|
Secured by vehicle, 8.64%, principal and interest of $736 due monthly through February 1, 2020
|
|
|
4,248
|
|
|
|
6,350
|
|
Koeppel Nissan, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 3.99%, principal and interest of $612 due monthly through January 18, 2021
|
|
|
10,663
|
|
|
|
12,378
|
|
Secured by vehicle, 0.9%, principal and interest of $739 due monthly through March 14, 2020
|
|
|
6,628
|
|
|
|
8,826
|
|
Secured by vehicle, 7.86%, principal and interest of $758 due monthly through September 1, 2022
|
|
|
23,630
|
|
|
|
25,415
|
|
Silver Star Motors
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.22%, principal and interest of $916 due monthly through June 1, 2021
|
|
|
21,040
|
|
|
|
23,546
|
|
BMO
|
|
|
|
|
|
|
|
|
Secured by vehicle, 5.99%, principal and interest of $1,924 due monthly through July 1, 2020
|
|
|
45,125
|
|
|
|
50,172
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.01%, principal and interest of $420 due monthly through December 1, 2021
|
|
|
11,964
|
|
|
|
13,096
|
|
Toyota Finance
|
|
|
|
|
|
|
|
|
Secured by vehicle, 0%, principal and interest of $632 due monthly through August, 2022
|
|
|
24,031
|
|
|
|
25,928
|
|
Secured by vehicle, 4.87%, principal and interest of $761 due monthly through July, 2021
|
|
|
22,134
|
|
|
|
24,031
|
|
Secured by vehicle, 0%, principal and interest of $633 due monthly through April 1, 2022
|
|
|
17,928
|
|
|
|
19,978
|
|
Total Notes Payable
|
|
$
|
203,729
|
|
|
$
|
228,543
|
|
Current notes payable
|
|
|
(95,130
|
)
|
|
|
(98,475
|
)
|
Long-term notes payable, net of current maturities
|
|
$
|
108,599
|
|
|
$
|
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 June 30,
|
|
|
|
2020
|
|
$
|
95,130
|
|
2021
|
|
|
79,749
|
|
2022
|
|
|
27,585
|
|
2023
|
|
|
1,265
|
|
Total
|
|
$
|
203,729
|
|
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 June 30, 2019 was as follows:
|
|
As
of
June 30,
2019
|
|
Operating Lease Assets:
|
|
|
|
|
Operating Lease
|
|
$
|
64,881,376
|
|
Total operating lease assets
|
|
|
64,881,376
|
|
Operating lease obligations:
|
|
|
|
|
Current operating lease liabilities
|
|
|
5,767,554
|
|
Non-current operating lease liabilities
|
|
|
65,852,541
|
|
Total Lease liabilities
|
|
$
|
71,620,095
|
|
Weighted Average Remaining Lease Term Operating Lease
|
|
$
|
13.78 years
|
|
Weighted Average discount rate
|
|
$
|
4.3
|
%
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Finance lease Assets
|
|
|
|
|
|
|
Vehicles under finance lease
|
|
$
|
1,033,131
|
|
|
$
|
1,033,131
|
|
Accumulated depreciation
|
|
|
280,250
|
|
|
|
244,116
|
|
Finance lease assets, net
|
|
$
|
752,881
|
|
|
$
|
789,115
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Finance lease obligations:
|
|
|
|
|
|
|
Current
|
|
$
|
146,679
|
|
|
$
|
148,778
|
|
Long-term
|
|
|
380,901
|
|
|
|
413,225
|
|
Total obligations
|
|
$
|
527,580
|
|
|
$
|
562,003
|
|
Weighted Average Remaining Lease Term Operating Lease
|
|
2.63 years
|
|
Weighted Average discount rate
|
|
|
7.1
|
%
|
Supplemental
cash flow information related to leases was as follows:
|
|
As
of
June 30,
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating Lease
|
|
$
|
2,062,703
|
|
Finance lease
|
|
|
34,424
|
|
The
estimated future lease payments under the operating and finance leases are as follows:
|
|
Capital
|
|
|
Operating,
|
|
|
|
Lease
|
|
|
lease
|
|
2020
|
|
|
188,028
|
|
|
|
8,599,004
|
|
2021
|
|
|
163,061
|
|
|
|
8,757,803
|
|
2022
|
|
|
146,831
|
|
|
|
8,628,318
|
|
2023
|
|
|
120,645
|
|
|
|
8,604,784
|
|
2024
|
|
|
1,564
|
|
|
|
8,233,773
|
|
Thereafter
|
|
|
-
|
|
|
|
52,434,190
|
|
Total minimum lease payments
|
|
$
|
620,129
|
|
|
$
|
95,257,872
|
|
Less: Amount representing interest
|
|
|
(92,549
|
)
|
|
|
(23,637,775
|
)
|
Total
|
|
$
|
527,580
|
|
|
$
|
71,620,095
|
|
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, 2019 and 2018, respectively:
|
|
Three months ended
June 30, 2019
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
4,532,105
|
|
|
$
|
19,295,677
|
|
|
$
|
23,827,782
|
|
Cost of sales
|
|
|
3,193,655
|
|
|
|
13,905,013
|
|
|
|
17,098,668
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
1,930,619
|
|
|
|
1,930,619
|
|
Gross profit
|
|
$
|
1,338,450
|
|
|
$
|
3,460,045
|
|
|
$
|
4,798,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(3,040
|
)
|
|
$
|
(606,705
|
)
|
|
$
|
(609,745
|
)
|
Depreciation and amortization
|
|
$
|
326,843
|
|
|
$
|
2,592,644
|
|
|
$
|
2,354,881
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
479,396
|
|
|
$
|
479,396
|
|
Segment loss before income tax provision
|
|
$
|
365,856
|
|
|
$
|
(3,831,919
|
)
|
|
$
|
(3,466,063
|
)
|
Income tax provision (benefit)
|
|
$
|
10,338
|
|
|
$
|
(108,275
|
)
|
|
$
|
(97,937
|
)
|
Segment assets
|
|
$
|
17,638,285
|
|
|
$
|
91,914,715
|
|
|
$
|
109,553,000
|
|
|
|
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
|
|
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. As of June 30, 2019, all warrants have been exercised.
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 $5,099,925 and $4,166,595
as of June 30, 2019 and March 31, 2019.
The
Company has approximately $14,181,339 and $10,715,275 of US NOL carry forward as of June 30, 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 three months ended
|
|
|
|
June 30
|
|
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(73,453
|
)
|
|
|
235,375
|
|
State
|
|
|
(24,484
|
)
|
|
|
78,458
|
|
|
|
|
(97,937
|
)
|
|
|
313,833
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(97,937
|
)
|
|
$
|
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:
|
|
Three months ended
June 30,
|
|
|
|
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
|
|
|
(0.8
|
%)
|
|
|
3
|
%
|
Valuation allowance
|
|
|
(24.4
|
%)
|
|
|
(58
|
%)
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
2.8
|
%
|
|
|
(20
|
%)
|
Deferred
Taxes
The
effect of temporary differences included in the deferred tax accounts as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Deferred Tax Assets/ (Liabilities):
|
|
|
|
|
|
|
|
|
Deferred expenses
|
|
$
|
223,604
|
|
|
$
|
101,829
|
|
Sec 263A Inventory Cap
|
|
|
271,221
|
|
|
|
208,514
|
|
Leasing liabilities/Deferred rent
|
|
|
2,117,531
|
|
|
|
2,092,128
|
|
Depreciation and amortization
|
|
|
(2,398,831
|
)
|
|
|
(2,305,164
|
)
|
Net operating losses
|
|
|
4,869,241
|
|
|
|
3,898,744
|
|
163 (j) business interest
|
|
|
132,748
|
|
|
|
286,133
|
|
Valuation allowance
|
|
|
(5,001,988
|
)
|
|
|
(4,166,595
|
)
|
Net Deferred Tax Assets
|
|
$
|
213,526
|
|
|
$
|
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 three months ended
June 30, 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 June 30, 2019 and March 31, 2019 were included in advances and receivables – related
parties (see Note 8).
Three months ended June 30, 2019
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable & Perishable
Sales
|
|
Dragon Seeds Inc
|
|
|
1,650
|
|
|
|
-
|
|
|
|
-
|
|
NY Mart MD Inc.
|
|
|
29,300
|
|
|
|
3,680
|
|
|
|
455,377
|
|
NYM Elmhurst Inc.
|
|
|
24,612
|
|
|
|
2,210
|
|
|
|
279,004
|
|
Spring Farm Inc.
|
|
|
3,300
|
|
|
|
-
|
|
|
|
-
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
8,726
|
|
|
|
$
|
58,862
|
|
|
$
|
5,890
|
|
|
$
|
743,107
|
|
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
|
|
Tampa Seafood
|
|
|
550
|
|
|
|
|
|
|
|
-
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
24,524
|
|
|
|
$
|
66,242
|
|
|
$
|
14,630
|
|
|
$
|
1,416,318
|
|
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 $292,460and $292,460 for the three months ended on June 30, 2019 and
2018.
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”), 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
will testify 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 a decision is expected to be made within 90 days. No guaranties or predictions can be made at this time
as to ultimate final outcome of this case.
HDH,
LLC v. New York Mart Group Inc.
A
subsidiary of the Company, New York Mart Group, Inc., entered into a lease with HDH, LLC for a warehouse located at 55-01 2nd
Street, Long Island City, New York 11101 for the period March 15, 2011 through February 28, 2021. The landlord sued the tenant
for breaching the lease by altering the premises without the landlord’s permission and without obtaining necessary government
permits. The landlord also sued the tenant for failing to pay rent and additional fee. The trial court entered a judgment on September
28, 2018. The landlord claims it is entitled to $372,667 in damages and other related fees. On July 8, final stipulation was signed
and the petitioner agreed to waive $222,667 of the arrears, leaving a balance due of $150,000. The Company has previously accrued
$200,000 for the potential loss and expense associated with this case.
Voice
Road Plaza, LLC v. New York Mart Group Inc
A
subsidiary of the Company, New York Mart Group, Inc., entered into a lease with Voice Road Plaza, LLC for the Company’s
new store Glen Cov located at Carle Place, NY 11514. The landlord sued the Company for failing to pay rent and additional fee.
In April 2019, landlord was awarded money judgment of $207,975 and judgment of passion and warrant of eviction. The landlord has
also requested legal order to withhold the Company’s bank account for $415,950 on May 3, 2019. On June 19, 2019, the Company
signed Stipulation of Settlement with landlord to pay for the unpaid rent and execute warrant of eviction by July, 24, 2019. The
Company has accrued around $210,000 expense associated with this case. The Company is planning to file a notice of appeal to sue
the landlord not timely provide documents requested in order for the Company to obtain required license to operate.
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. The deadline for iFresh to respond to that motion has not yet occurred. In view of
the uncertainties inherent in litigation, we are unable to form a judgment as to the likelihood of an unfavorable outcome. If
the plaintiff was to prevail on the merit, it could obtained a judgment against iFresh in the amount of its alleged loss under
the bonds for the amount of $424,772, in addition to attorney’s fee, costs and interest. 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 around $355,000. The Company is currently negotiating
an agreement with the landlord to settle the case. A hearing will be held on August 20, 2019. All unpaid rent has been fully accrued
as of June 30, 2019.
18.
Subsequent Event
The
Company’s management reviewed all material events that have occurred after the balance sheet date through the date which
these financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would
have required adjustment or disclosure in the financial statements.