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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended June 30, 2018

 

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to                  

 

Commission file number: 001-38013

 

iFresh Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware   82-066764
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

2-39 54th Avenue
Long Island City, New York

(Address of principal executive offices)

 

(718) 628 6200

(Issuer’s telephone number)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐    No  ☒

 

As of August 14, 2018, 14,283,497 shares of the registrant’s Common Stock, par value $0.0001 per share, were issued and outstanding.

 

 

 

 

 

 

iFRESH, INC.

 

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2018

 

TABLE OF CONTENTS

 

    Page
Part I. Financial Information  
  Item 1. Financial Statements 1
  Condensed Balance Sheets 1
  Condensed Statements of Operations 2
  Condensed Statements of Cash Flows 3
  Notes to Unaudited Condensed Financial Statements 4
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
  Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk 32
  Item 4. Controls and Procedures 32
Part II. Other Information  
  Item 1. Legal Proceedings 33
  Item 1A. Risk Factors 35
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
  Item 3. Defaults Upon Senior Securities 35
  Item 4. Mine Safety Disclosure 35
  Item 5. Other Information 35
  Item 6. Exhibits 35
Signatures 36

 

i

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

  

iFRESH INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   June 30,   March 31, 
   2018   2018 
ASSETS        
Current assets:          
Cash and cash equivalents  $558,238   $640,915 
Accounts receivable, net   4,546,717    4,903,340 
Inventories, net   11,856,264    10,905,484 
Prepaid expenses and other current assets   1,998,903    1,925,893 
Total current assets   18,960,122    18,375,632 
Advances to related parties   9,052,024    10,019,688 
Property and equipment, net   20,236,995    17,818,805 
Intangible assets, net   1,133,336    1,166,669 
Security deposits   1,264,491    1,247,106 
Deferred income taxes   -    313,832 
Total assets  $50,646,968   $48,941,732 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $14,407,816    15,561,956 
Deferred revenue   378,939    326,459 
Borrowings against lines of credit, current,net   22,368,861    

17,044,486

 
Notes payable, current   125,076    135,203 
Capital lease obligations, current   123,847    55,634 
Accrued expenses   1,376,559    873,949 
Taxes payable   179,117    1,606,504 
Other payables, current   1,074,165    1,172,360 
Total current liabilities   40,034,380    

36,776,551

 
Notes payable, non-current   205,772    231,095 
Capital lease obligations, non-current   362,826    70,724 
Deferred rent   6,378,176    6,319,386 
Other payables, non-current   77,000    78,500 
Total liabilities   47,058,154    43,476,256 
           
Commitments and contingencies          
           
Shareholders’ equity          
Preferred shares, $.0001 par value, 1,000,000 shares authorized; none issued.   -    - 
Common stock, $0.0001 par value; 100,000,000 shares authorized, 14,220,548 shares issued and outstanding as of June 30, 2018 and  March 31, 2018   1,422    1,422 
Additional paid-in capital   9,428,093    9,428,093 
Accumulated deficit   (5,840,701)   (3,964,039)
Total shareholders’ equity   3,588,814    5,465,476 
Total liabilities and shareholders’ equity  $50,646,968    48,941,732 

 

See accompanying notes to consolidated financial statements

 

1

 

 

iFRESH INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

  

   For the three months ended 
   June 30   June 30 
   2018   2017 
         
Net sales  $29,671,823   $30,127,855 
Net sales-related parties   1,416,318    2,400,671 
Total net sales   31,088,141    32,528,526 
Cost of sales   21,602,917    21,702,740 
Cost of sales-related parties   1,228,404    1,991,930 
Retail occupancy costs   1,831,074    1,942,842 
Gross profit   6,425,746    6,891,014 
           
Selling, general and administrative expenses   8,075,441    7,531,069 
Income (Loss) from operations   (1,649,695)   (640,055)
Interest expense, net   (245,703)   (167,670)
Other income   332,569    201,905 
Income(Loss) before income taxes   (1,562,829)   (605,820)
Income tax provision (benefit)   313,833    (290,910)
Net income (Loss)  $(1,876,662)  $(314,910)
           
Net income (loss) per share:          
Basic  $(0.13)  $(0.02)
Diluted  $(0.13)  $(0.02)
Weighted average shares outstanding:          
Basic   14,220,548    14,116,589 
Diluted   14,220,548    14,116,589 

 

See accompanying notes to consolidated financial statements

 

2

 

 

iFRESH INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For the three months ended 
   June 30   June 30 
   2018   2017 
Cash flows from operating activities        
Net income (loss)  $(1,876,662)  $(314,909)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation expense   459,945    403,061 
Amortization expense   90,364    78,958 
Share based compensation   297,529    267,400 
Deferred income taxes   313,832    (290,755)
Changes in operating assets and liabilities:          
Accounts receivable   356,623    (255,227)
Inventories   (950,780)   (1,287,743)
Prepaid expenses and other current assets   (73,010)   (165,033)
Security deposits   (17,385)   (60,031)
Accounts payable   (1,154,137)   394,849 
Deferred revenue   52,480    650 
Accrued expenses   502,610    82,481 
Taxes payable   (1,427,387)   - 
Deferred rent   58,790    163,299 
Other liabilities   (99,697)   129,584 
Net cash provided by (used in) operating activities   (3,466,885)   (853,416)
Cash flows from investing activities          
Cash advances to related parties   (4,120,244)   (323,228)
Cash received from repayment of related party receivable   4,790,380    - 
Acquisition of property and equipment   (2,478,796)   (760,922)
Net cash used in investing activities   (1,808,660)   (1,084,150)
Cash flows from financing activities         
Borrowings against Term loan   3,950,000    - 
Borrowings against lines of credit   1,750,000    1,000,000 
Repayments on term loan   (432,656)   - 
Repayments on lines of credit borrowings   -    (320,990)
Repayments on notes payable   (35,450)   (65,887)
Payments on capital lease obligations   (39,026)   (13,962)
Net cash used in financing activities   5,192,868    599,161 
Net increase (decrease) in cash and cash equivalents   (82,677)   (1,338,405)
Cash and cash equivalents at beginning of the year   640,915    2,550,819 
Cash and cash equivalents at the end of the year  $558,238   $1,212,414 
Supplemental disclosure of cash flow information          
Cash paid for interest  $235,590   $120,446 
Cash paid for income taxes  $1,424,387   $- 
           
Supplemental disclosure of non-cash investing and financing activities          
Capital expenditures funded by capital lease obligations and notes payable  $597,246   $137,443 
Stock issued for business acquisition  $645,500   $- 

 

See accompanying notes to consolidated financial statements

 

3

 

 

iFRESH INC. AND SUBSIDIARIES

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.

 

4

 

 

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. 

 

5

 

 

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.

 

6

 

 

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.

 

7

 

 

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 

 

8

 

 

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.

 

9

 

 

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

 

 

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 

 

11

 

 

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 

 

12

 

 

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

 

 

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

 

 

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)

 

15

 

 

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 

  

16

 

 

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

 

 

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.

18

 

 

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.

  

19

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

This report includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings.  References to “we,” “us,” “our,” “iFresh” or the “Company” are to iFresh Inc., except where the context requires otherwise.  The following discussion should be read in conjunction with our unaudited condensed financial statements and related notes thereto included elsewhere in this report.

  

Overview

  

iFresh Inc. (“we,” “us,” “our,” or “iFresh” or the “Company”) is a Delaware company incorporated in July 2016 in order to reincorporate E-Compass Acquisition Corp. (“E-Compass”) to Delaware pursuant to the Merger Agreement (as defined below). Immediately following the reincorporation, we acquired NYM Holding, Inc. (“NYM”). E-Compass was a blank check company formed for the purpose of entering into a share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. NYM is an Asian/Chinese grocery supermarket chain in the north-eastern U.S. providing food and other merchandise hard to find in mainstream grocery stores. Since NYM was formed in 1995, NYM has been targeting the Chinese and other Asian population in the U.S. with its in-depth cultural understanding of its target customers’ unique consumption habits. iFresh currently has eight retail supermarkets across New York, Massachusetts and Florida, with in excess of 6,920,500 sales transactions in its stores in the fiscal year ended March 31, 2018. It also has two in-house wholesale businesses, Strong America Limited (“Strong America”) and New York Mart Group, Inc. (“NYMG”), covering more than 6,000 wholesale products and servicing both NYM retail supermarkets and over 1,000 external clients that range from wholesalers to retailing groceries and restaurants. NYM has a stable supply of food from farms in New Jersey and Florida, ensuring reliable supplies of the most popular vegetables, fruits and seafood. Its wholesale business and long-term relationships with farms insulate NYM from supply interruptions and sales declines, allowing it to remain competitive even during difficult markets.

 

 

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Outlook

 

iFresh’s net sales were $31.1 million and $32.5 million for the three months ended June 30, 2018 and 2017, respectively. In terms of sales by category, Perishables constituted approximately 59.9% of the total sales for the three months ended June 30, 2018. iFresh’s net loss was $1.8 million for the three months ended June 30, 2018, a decrease of $1.6 million, or 496%, from $315,000 of net loss for the three months ended June 30, 2018. Adjusted EBITDA was ($824,000) for the three months ended June 30, 2018, a decrease of $0.8 million, or 1,978%, from $43,000 for the three months ended June 30, 2017.

 

Factors Affecting iFresh’s Operating Results

 

Seasonality

 

iFresh’s business shows seasonal fluctuations. Sales in its first and second fiscal quarters (ending June 30 and September 31, respectively) are usually 5% to 10% lower than in third and fourth quarters (ending December 31 and March 31, respectively). In its third fiscal quarter, customers make holiday purchases for Thanksgiving and Christmas. In its fourth quarter, customers make purchases for traditional Chinese holidays, such as the Spring Festival (Chinese New Year) in January or February.

 

Parking

 

The availability of parking is important to iFresh’s sales volume, and changes in the availability of parking would affect iFresh’s sales volume. For example, one of the two parking lots serving iFresh’s Ming store in Boston was required to be temporarily leased to a farmers market on Sundays by the city of Boston from April to October 2016, which reduced sales at the store by about 10% during this period. The requirement to lease the parking lot to the farmers market expired on October 31, 2016.

 

Competition

 

Competitors opened two new stores in Brooklyn’s Chinatown in early 2016, which negatively impacted the sales of iFresh’s two stores located in the area for the year ended March 31, 2017. iFresh’s management believes that this impact is temporary and expects sales to rebound because the competitors are small, owner-operated stores and therefore lack iFresh’s sophisticated procurement process.

 

Payroll

 

Minimum wage rates in some states increased in 2016. For example, the minimum wage went from $10 to $11 per hour in Massachusetts. Payroll and related expenses increased by $1.3 million, or 10% for the year ended March 31, 2018 as compared to the same period of last year as a result of increase of headcount and addition of its business operation and financial reporting department in anticipation of becoming a public company. iFresh plans to implement systems in the future to improve operating efficiency and reduce labor costs.

 

Vendor and Supply Management 

 

iFresh believes that a centralized and efficient vendor and supply management system are the keys to profitability. iFresh operates its own wholesale facilities, which supplied about 37% of its procurement for the fiscal year ended March 31, 2018. iFresh centralized the management of its vendors and procurement. It believes that such centralized vendor management enhances iFresh’s negotiating power and improves its ability to turnover inventory and vendor payables. Any changes to the vendor and supply management could affect iFresh’s purchasing costs and operating expenses.

  

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Store Maintenance and Renovation

 

From time to time, iFresh conducts maintenance on the fixtures and equipment for its stores. Any maintenance or renovations could interrupt the operation of our stores and result in a decline of customer volume, and therefore sales volume, but will, in the opinion of management, boost sales after they are completed. Significant maintenance or renovation would affect our operations and operating results. As of June 30, 2018, three iFresh stores are under renovation and expected to open by the end of this year. iFresh incurred $737,000 in expenses for these three stores for the year ended March 31, 2018. Because these stores are being renovated, they have not yet generated any sales.

 

Store Acquisitions and Openings

 

iFresh expects the new stores it acquires or opens to be the primary driver of its sales, operating profit, and market share gains. iFresh’s results will be materially affected by the timing and number of new store additions and the amount of new store opening costs. For example, iFresh would incur rental, utilities and employee expenses during any period of renovation, which would be recorded as expenses on the income statement and would decrease iFresh’s profit when a store opens. iFresh may incur higher than normal employee costs associated with setup, hiring, training, and other costs related to opening a new store. Operating margins are also affected by promotional discounts and other marketing costs and strategies associated with new store openings, primarily due to overstocking, and costs related to hiring and training new employees. Additionally, promotional activities may result in higher than normal net sales in the first several weeks following a new store opening. A new store builds its sales volume and its customer base over time and, as a result, generally has lower margins and higher operating expenses, as a percentage of sales, than our more mature stores. A new store could take more than a year to achieve a level of operating performance comparable to our existing stores.

 

How to Assess iFresh’s Performance

 

In assessing performance, iFresh’s management considers a variety of performance and financial measures, including principal growth in net sales, gross profit, and Adjusted EBITDA. The key measures that we use to evaluate the performance of our business are set forth below:

 

Net Sales

 

iFresh’s net sales comprise gross sales net of coupons and discounts. We do not record sales tax as a component of retail revenues as we considers sales tax a pass-through conduit for collecting and remitting sales taxes.

 

Gross Profit

 

iFresh calculates gross profit as net sales less the cost of sales and occupancy costs. Gross margin represents gross profit as a percentage of net sales. Occupancy costs include store rental costs and property taxes. The components of our cost of sales and occupancy costs may not be identical to those of our competitors. As a result, our gross profit and gross margin may not be comparable to similar data made available by our competitors.

 

Cost of sales includes the cost of inventory sold during the period, including the direct costs of purchased merchandise (net of discounts and allowances), distribution and supply chain costs, buying costs and supplies. iFresh recognizes vendor allowances and merchandise volume-related rebate allowances as a reduction of inventories during the period when earned and reflects the allowances as a component of cost of sales as the inventory is sold. Shipping and handling for inventories purchased are included in cost of goods sold.

 

Selling, General, and Administrative Expenses

 

Selling, general, and administrative expenses primarily consist of retail operational expenses, administrative salaries and benefits costs, marketing, advertising and corporate overhead. 

 

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Adjusted EBITDA

 

iFresh believes that Adjusted EBITDA is a useful performance measure and can be used to facilitate a comparison of NYM’s operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone can provide. iFresh also uses Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including senior executives. Other companies in the industry may calculate Adjusted EBITDA differently than iFresh does, limiting its usefulness as a comparative measure.

 

iFresh’s management defines Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization expense, store opening costs, and non-recurring expenses. All of the omitted items are either (i) non-cash items or (ii) items that we do not consider in assessing the Company’s ongoing operating performance. Because Adjusted EBITDA omits non-cash items, iFresh’s management believes that Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization, and other non-cash charges and more reflective of other factors that affect its operating performance. iFresh’s management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the company’s financial measures with other specialty retailers, many of which present similar non-GAAP financial measures to investors.

 

In July and October 2017, iFresh acquired iFresh Glen Cove Inc. (“Glen Cove”), New York Mart CT, Inc. (“NYM CT”) and New York Mart N. Miami Inc. (“NYM N. Miami”) from Long Deng, the Company’s Chairman and Chief Executive Officer. The Company accounted for this acquisition as a business combination under ASC 805-50-30 whereby it recognizes assets acquired and liabilities assumed in an acquisition at their historical costs as of the date of acquisition, since the acquisition took place between entities under common control. Prior year financial statements were retrospectively adjusted to combine the financial information of these entities as if the acquisitions occurred at the beginning of the period of transfer. 

 

Results of Operations for the three months ended June 30, 2018 and 2017

 

   For the three months ended
June 30
   Changes 
   2018   2017   $   % 
Net sales-third parties  $29,671,823   $30,127,855   $(456,032)   (1.5)%
Net sales-related parties   1,416,318    2,400,671    (984,353)   (41)%
Total Sales   31,088,141    32,528,526    (1,440,385)   (4.4)%
Cost of sales-third parties   21,602,917    21,702,740    (99,823)   (0.5)%
Cost of sales-related parties   1,228,404    1,991,930    (763,526)   (38.3)%
Occupancy costs   1,831,074    1,942,842    (111,769)   (5.8)%
Gross Profit   6,425,746    6,891,014    (465,268)   (6.8)%
Selling, general, and administrative expenses   8,075,441    7,531,069    544,372    7.2%
Income from operations   (1,649,695)   (640,055)   (1,009,640)   157.7%
Interest expense   (245,703)   (167,670)   (78,033)   46.5%
Other income   332,569    201,905    130,664    64.7%
Income before income tax provision   (1,562,829)   (605,820)   (957,009)   158%
Income tax provision (benefit)   313,833    (290,910)   604,743    (208)%
Net income  $(1,876,662)  $(314,910)  $(1,561,752)   496%
Net income attributable to common shareholders   (1,876,662)  $(314,910)  $(1,561,752)   496%

 

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Net Sales

 

   For the three months ended 
June 30,
   Changes 
   2018   2017   $   % 
Net sales of retail-third parties  $25,899,596   $26,359,419   $(459,823)   (1.7)%
Net sales of wholesale-third parties   3,772,227    3,768,436    3,791    0%
Net sales of wholesale-related parties   1,416,318    2,400,671    (984,353)   (41)%
Total Net Sales  $31,088,141   $32,528,526   $(1,440,385)   (4.4)%

 

iFresh’s net sales were $31.1 million for the three months ended June 30, 2018, a decrease of $1.4 million, or 4.4%, from $ 32.5 million for the three months ended June 30, 2017.

 

Net retail sales to third parties decreased by $0.5 million, or 1.7%, from $26.4 million for the three months ended June 30, 2017, to $25.9 million for the three months ended June 30, 2018. The decrease resulted mainly from our Quincy, Massachusetts store. A new Asian supermarket opened near our Quincy store, and our store is partially under renovation. Due in part to the increased competition, sales from our Quincy store decreased by $1.1 million. Sales from other stores increased by $0.6 million mainly due to the opening of our new store in Orlando, Florida in September 2017. Our total net wholesale sales decreased by $1.0 million from $6.2 million for the three months ended June 30, 2017 to $5.2 million for the year ended March 31, 2018, which was attributable to decreases in sales to related parties. This summer, our stores purchased fruit and vegetables from local farmers to supply more fresh goods to our customers. We expect the decrease is seasonal and sales will increase in the next quarter.

  

Cost of sales, Occupancy costs and Gross Profit

 

Retail Segment  For the three months ended
June 30,
   Changes 
   2018   2017   $   % 
Cost of sales  $18,999,424   $18,899,782   $99,642    0.5%
Occupancy costs   1,831,074    1,942,842    (111,768)   (5.8)%
Gross profit   5,069,098    5,516,795    (447,697)   (8.1)%
Gross margin   19.6%   20.9%   -1.3%   - 

 

For the retail segment, cost of sales increased by $100,000, from $18.9 million for the three months ended June 30, 2017, to $19.0 million for the three months ended June 30, 2018. The increase was due to a change in our purchasing policy for stores outside of the New York area. To provide customers with fresh fruit and vegetables, we increased our purchases from local farms instead of purchasing directly from our central warehouse, which increased our cost of sales.

 

Occupancy costs consist of store-level expenses such as rental expenses, property taxes, and other store specific costs. Occupancy costs decreased by approximately 5.8%, from $1.9 million for the three months ended June 30, 2017 to $1.8 million for the three months ended June 30, 2018. The decrease was due to our Boston store renovation, which caused the decrease direct store expense.

 

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Gross profit was $5.1 and $5.5 million for the three months ended June 30, 2018 and 2017, respectively. Gross margin was 19.6% and 20.9% for the three months ended June 30, 2018 and 2017, respectively. The gross profit decreased due to decreased sales as well as the increased cost of sales discussed above.

 

Wholesale Segment  For the three months ended
June 30,
   Changes 
   2018   2017   $   % 
Cost of sales  $3,831,897   $4,794,888   $(962,991)   20.1%
Gross profit   1,356,648    1,374,219    (17,571)   1.3%
Gross margin   26.1%   22.3%   3.8%   -

 

For our wholesale segment, the cost of sales decreased by $1.0 million, or 20% from $4.8 million in 2017 to $3.8 million in 2018. The increase is consistent with the significant decrease of sales from the wholesale segment in 2017.

 

Gross profit decreased by $17,000, or 1.3%, from $1.37 million in 2017 to $1.36 million in 2018. Gross margin increased by 3.8% from 22.3% to 26.1%. The increase was due to the relative lower proportion of related parties sales to the total wholesale revenue, compared to 2017. Related party wholesale transactions had relatively lower gross profit.

 

Selling, General, and Administrative Expenses

 

Selling, general, and administrative expenses were $8.1 million for the three months ended June 30, 2018, an increase of $0.5 million, or 7.2%, compared to $7.5 million for the three months ended June 30, 2017, which was mainly attributable to the accrual of legal expenses of $0.6 million in a lawsuit that we settled after a judgment was entered against us.

 

Interest Expense

 

Interest expense was $0.25 million for the three months ended June 30, 2018, an increase of $78,000, or 46.5%, from $167,000 for the three months ended June 30, 2017, primarily attributable to the increased loan balance from KeyBank loan, which was borrowed in this quarter for $5.7 million.

 

Other income

 

Other income was $0.3 million for the three months ended June 30, 2018, which included management and advertising fee income, rental income, lottery sales, and other miscellaneous income. Other income increased $0.1 million, or 64.7%, from $202,000 for the three months ended June 30, primarily attributable to an increase of $0.1 million of management fee income and advertising fee income charged to non-related third-party stores based on sales volume.

 

Income Taxes Provision

 

NYM is subject to U.S. federal and state income taxes. Income tax expense was $0.3 million for the three months ended June 30, 2018, a decrease of $0.6 million, or 208%, compared to $291,000 of income tax expense for the three months ended June 30, 2017, which was mainly attributable to the decrease in taxable income. The effective income tax rate was -20% and 48% for the three months ended June 30, 2018 and 2017. The significant increase of income tax expense was due to the reserve made for deferred tax assets. Due to the Company’s continued operating losses, management estimates that the deferred tax assets should be fully reserved. 

 

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Net Income (loss)

 

   For the three months ended
June 30,
   Changes 
   2018   2017   $   % 
Net income (loss)  $(1,876,662)  $(314,910)  $(1,561,752)   -496%
Net Profit Margin   -6.04%   -0.97%   -5.07%     

 

Net loss was $1.8 million for the three months ended June 30, 2018, a decrease of $1.5 million, or 496%, from $315,000 of net loss for the three months ended June 30, 2017, mainly attributable to the decreased gross margin and increase of selling, general, and administrative expenses as described above. Net profit margin as a percentage of sales was -6.04% and -0.97% for the three months ended June 30, 2018 and 2017, respectively.

 

Adjusted EBITDA

 

   For the three months ended
June 30,
   Changes 
   2018   2017   $   % 
Net income  $(1,876,662)  $(314,910)  $(1,561,752)   496%
Interest expenses   245,703    167,670    78,033    47%
Income tax provision   313,833    (290,910)   604,743    -208%
Depreciation   459,945    403,061    56,884    14%
Amortization   33,333    33,333    -    - 
Adjusted EBITDA  $(823,848)  $(1,756)  $(822,092)   46816%
Percentage of sales   -2.7%   0%   -2.7%     

 

Loss before income tax, depreciation and amortization of was $0.8 million for the three months ended June 30, 2018, a decrease of $0.8 million, as compared to loss before income tax, depreciation and amortization of $1,756 for the three months ended June 30, 2017, mainly attributable to the decrease of net income resulting from decreased sales, increase of selling, general and administrative expenses and increased income tax expense as described above. The ratio of Adjusted EBITDA to sales was -2.7% and 0% for the three months ended June 30, 2018 and 2017, respectively.

 

Liquidity and Capital Resources

 

As of June 30, 2018, iFresh had cash and cash equivalents of approximately $0.6 million. iFresh had operating losses in fiscal year 2018 and had negative working capital of $21.1 million and $18.4 million as of June 30, 2018 and March 31, 2018, respectively. Since the Company has not been in compliance with the KeyBank loan covenants, the long term loan of $20.8 million has been reclassified as short term because KeyBank has the option to accelerate payment any time. The Company did not meet the financial covenant required in the credit agreement with KeyBank National Association (“KeyBank”). As of June, 2018, the Company has outstanding loan facilities of approximately $22.4 million due to KeyBank. Failure to maintain these loan facilities will have a significant impact on the Company’s operations. iFresh had funded working capital and other capital requirements in the past primarily by equity contribution from shareholders, cash flow from operations, and bank loans. Cash is required to pay purchase costs for inventory, rental, salaries, office rental expenses, income taxes, other operating expenses and repay debts. iFresh’s ability to repay its current obligation will depend on the future realization of its current assets. iFresh’s management has considered the historical experience, the economy, trends in the retail industry, the expected collectability of the accounts receivables and the realization of the inventories as of June 30, 2018. iFresh’s ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If the future cash flow from operations and other capital resources are insufficient to fund its liquidity needs, iFresh may be forced to reduce or delay its expected new store acquisition and openings, sell assets, obtain additional debt or equity capital or refinance all or a portion of its debt. Our working capital position benefits from the fact that it generally collects cash from sales to customers the same day or, in the case of credit or debit card transactions, within a few business days of the related sale.

  

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We have $9 million of advances and receivable from related parties that we intend to collect or acquire, which will be used to offset part of the acquisition consideration for such related parties. We also plan to issue additional stock in lieu of cash as part of the acquisition consideration and plan to raise additional capital through sales of our stock if necessary. We intend to use part of the cash generated from our operations to fund our online sales initiative. Based on the above considerations, iFresh’s management is of the opinion that iFresh has sufficient funds to meet its working capital requirements, capital expenditure, and debt obligations as they become due.

 

The following table summarizes iFresh’s cash flow data for the three months ended June 30, 2018 and 2017.

  

   For the three months ended
June 30,
 
   2018   2017 
Net cash provided by operating activities  $(3,466,885)  $(853,416)
Net cash used in investing activities   (1,808,660)   (1,084,150)
Net cash provided by (used in) financing activities   5,192,868    599,161 
Net (decrease) increase in cash and cash equivalents  $(82,677)  $(1,338,405)

 

Operating Activities

 

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation, changes in deferred income taxes, and loss on early extinguishment of debt, and the effect of working capital changes. Net cash used in operating activities was approximately $3.5 million for the three months ended June 30, 2018, an increase of $2.6 million, or 306%, compared to $853,000 used in operating activities for the three months ended June 30, 2017. The decrease was a result of a decrease of net income of $1.6 million, an increase of $1.7 million from change of working capital mainly resulting from decrease from accounts payable and tax payable.

 

Investing Activities

 

Net cash used in investing activities was approximately $1.8 million for the three months ended June 30, 2018, an increase of $0.7 million, compared to $1.1 million used in investing activities for the three months ended June 30, 2017. The increase was primarily attributable to the increase in acquisition of property and equipment of $1.7 million and offset by collection of advances made to related parties of $0.7 million, compared to cash paid for advances to related parties of $0.3 million.

 

Financing Activities

 

Net cash provided by financing activities was approximately $5.2 million for the three months ended June 30, 2018, which mainly consisted of net cash flow from borrowing bank loans of $5.7 million, offset by $0.5 million cash paid for loans, notes payable, and capital leases. Net cash provided from financing activities was $599,000 for the three months ended June 30, 2017, which mainly consisted of net cash flow from borrowing bank loans of $1 million, offset by $0.4 million cash paid for notes payable and capital leases.

 

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KeyBank National Association – Senior Secured Credit Facilities

 

On December 23, 2016, NYM, as borrower, entered into a $25 million senior secured Credit Agreement (the “Credit Agreement”) with 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.

 

A Delayed Draw Term Loan was available and would be advanced on the Delayed Draw Funding date (as defined in the Credit Agreement, which is no later than December 23, 2021. A withdrawal of $5 million under the Delayed Draw Term Loan was made as of June 30, 2018.

 

The senior secured credit facility is secured by all assets of the Company and is jointly guaranteed by the Company and its subsidiaries and contains financial and restrictive covenants. The financial covenants require NYM to deliver audited consolidated financial statements within one hundred twenty days after the fiscal year end and to maintain a fixed charge coverage ratio not less than 1.1 to 1.0 and senior funded debt to earnings before interest, tax, depreciation and amortization (“EBITDA”) ratio less than 3.0 to 1.0 at the last day of each fiscal quarter, beginning with the fiscal quarter ending March 31, 2017. Except as stated below, the senior secured credit facility is subject to customary events of default. It will be an event of default if Mr. Long Deng resigns, is terminated, or is no longer actively involved in the management of NYM and a replacement reasonably satisfactory to the Lender is not made within sixty (60) days after such event takes place.

 

The Company has been repaying this facility in accordance with its terms. However, 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.

 

Additionally, 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.

 

While KeyBank has not yet acted to accelerate payment of the facility, KeyBank considers the Company to be in default and will not make any further advances under the Credit Facility until the Company comes into compliance with the Credit Agreement.

 

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Commitments and Contractual Obligations

 

The following table presents the Company’s material contractual obligations as of June 30, 2018:

 

Contractual Obligations (unaudited)  Total   Less than
1 year
   1-3 years   3-5 years   More than
5 years
 
Bank Loans  $22,368,861   $1,516,772   $3,496,094   $17,355,995     
Estimated interest payments on bank loans   2,025,223    601,066    1,065,202    358,955     
Notes payable   330,848    125,077    176,778    28,993     
Capital lease obligations including interest   573,205    157,456    249,621    166,128     
Operating Lease Obligations(1)   105,693,464    8,632,994    18,037,836    17,748,008    61,274,626 
   $130,991,601   $11,033,365   $23,025,531   $35,685,079   $61,274,626 

  

(1) Operating lease obligations do not include common area maintenance, utility and tax payments to which iFresh is obligated, which is estimated to be approximately 50% of operating lease obligation.

  

Off-balance Sheet Arrangements

 

iFresh is not a party to any off-balance sheet arrangements.

 

Critical Accounting Estimates

 

The discussion and analysis of iFresh’s financial condition and results of operations are based upon its financial statements, which have been prepared in accordance with GAAP. These principles require iFresh’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, cash flow and related disclosure of contingent assets and liabilities. The estimates include, but are not limited to, revenue recognition, inventory valuation, impairment of long-lived assets, and income taxes. iFresh bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and the actual results, future financial statements will be affected.

 

iFresh’s management believes that among their significant accounting policies, which are described in Note 3 to the audited consolidated financial statements of iFresh included in this Form 10-K, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, iFresh’s management believes these are the most critical to fully understand and evaluate its financial condition and results of operations.

 

Revenue Recognition

 

In accordance with Topic 606 revenue is recognized at the time the sale is made, at which time our walk-in customers take immediate possession of the merchandise or delivery is made to our wholesale customers. Payment terms are established for our wholesale customers based on the Company’s pre-established credit requirements. Payment terms vary depending on the customer. Based on the nature of receivables no significant financing components exist. Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. We estimate the reduction to sales and cost of sales for returns based on current sales levels and our historical return experience.

 

Topic 606 defines a performance obligation as a promise in a contract to transfer a distinct good or service to the customer and is considered the unit of account. The majority of our contracts have one single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct.

 

We had no material contract assets, contract liabilities or costs to obtain and fulfill contracts recorded on the Condensed Consolidated Balance Sheet as of June 30, 2018. For the three months ended June 30, 2018, revenue recognized from performance obligations related to prior periods was insignificant.

 

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Inventories

 

Inventories consist of merchandise purchased for resale, which are stated at the lower of cost or market. The cost method is used for wholesale and retail perishable inventories by assigning costs to each of these items based on a first-in, first-out (FIFO) basis (net of vendor discounts).

 

The Company’s wholesale and retail non-perishable inventory is valued at the lower of cost or market using weighted average method.

 

Impairment of Long-Lived Assets

 

iFresh assesses its long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. The Company groups and evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which independent identifiable cash flows are available. Factors which may indicate potential impairment include a significant underperformance relative to the historical or projected future operating results of the store or a significant negative industry or economic trend. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by that asset. If impairment is indicated, a loss is recognized for any excess of the carrying value over the estimated fair value of the asset group. The fair value is estimated based on the discounted future cash flows or comparable market values, if available. 

  

Income Taxes

 

iFresh must make certain estimates and judgments in determining income tax expense for financial statement purposes. The amount of taxes currently payable or refundable is accrued, and deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for realizable loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the fiscal year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in income tax rates is recognized in income in the period that includes the enactment date.

 

iFresh applies the provisions of the authoritative guidance on accounting for uncertainty in income taxes that was issued by the Financial Accounting Standards Board, or FASB. Pursuant to this guidance, iFresh may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative guidance also addresses other items related to uncertainty in income taxes, including derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

 

Recently Issued Accounting Pronouncements

 

In 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. 

 

30

 

  

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 year 2019. The Company expects that the adoption of this ASU would not have 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.   

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As of June 30, 2018, we were not subject to material market or interest rate risk.     

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2018, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2018, due to our lack of experience being a public company and lack of professional staff with adequate knowledge of SEC’s rules and requirements.  

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings. 

 

In the ordinary course of our business, we are subject to periodic lawsuits, investigations and claims, including, but not limited to, contractual disputes, premises claims, and employment, environmental, health, safety and intellectual property matters. Although we cannot predict with certainty the ultimate resolution of any lawsuits, investigations, and claims asserted against the Company, we do not believe any currently pending legal proceedings to which the Company is a party will have a material adverse effect on the Company’s business, prospects, financial condition, cash flows, or results of operations other than the following:

 

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 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 total judgment in favor of Ming and against the landlord will total approximately $1.85 million.  

 

No guaranties or predictions can be made at this time as to ultimate final outcome of this case.

 

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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 is completely separate from 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 $952,691.56, 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 an amount of $652,038.73 in satisfaction of all disputes between the parties. The Company timely transferred possession of the premises to Jendo. New York Mart El Monte, Inc., 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.

 

The Company evaluates contingencies on an ongoing basis and will establish loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated. The Company is not currently a party to any legal proceeding that management believes could have a material adverse effect on the Company’s results of operations, cash flows, or balance sheet.

 

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Item 1A. Risk Factors.

 

There have been no changes with respect to risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended March 31, 2018. Investing in our common stock involves a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and in our Annual Report on Form 10-K for the year ended March 31, 2018, under the caption “Risk Factors,” our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this Quarterly Report on Form 10-Q, our consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes, as well as our Management’s Discussion and Analysis of Financial Condition and Results of Operations and the other information in our Annual Report on Form 10-K for the year ended March 31, 2018. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the SEC.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities.

 

None.   

 

Item 3. Defaults Upon Senior Securities.

 

On December 23, 2016, 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%. 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 the IRS imposing a tax lien on the Company by 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.

 

Additionally, the financial covenants 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 less than 3.0 to 1.0 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.

 

Due to the Company’s failure to timely pay federal taxes, the IRS’s imposition of a tax lien, and the Company’s failure to satisfy the financial covenants of the Credit Agreement, the Company is currently in default under the Credit Agreement. The Company has advised KeyBank of the default, and while KeyBank has not yet acted to accelerate payment of the facility, KeyBank does consider the Company to be in default and will not make any further advances under the Credit Facility until the Company complies with its obligations under the Credit Agreement. The Company’s inability to draw down amounts under the credit facility significantly impairs the Company’s growth plans and limits its liquidity. In addition, if KeyBank were to decide to accelerate repayment of the Credit Facility, the Company’s financial condition and results of operation would be negatively impacted. Although the Company anticipates being able to obtain a waiver from KeyBank regarding the Company’s default, there is no guarantee that we will be successful in doing so.  

 

Item 4. Mine Safety Disclosure.

 

Not applicable.

 

Item 5. Other Information.

 

None.   

 

Item 6.  Exhibits.

 

Exhibit No.   Description
     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
     
32   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
   
101.SCH   XBRL Taxonomy Extension Schema Document
   
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

  

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  iFresh, Inc.
     
  By: /s/ Long Deng
    Long Deng
    Chairman of the Board and
Chief Executive Officer
(Principal executive officer)
     
  By: /s/ Adam (Xin) He
    Adam (Xin) He
    Chief Financial Officer
(Principal financial and accounting officer)

 

Date: August 14, 2018 

 

 

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Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Long Deng, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of iFresh, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2018

 

  /s/ Long Deng
  Long Deng
  Chief Executive Officer
  (Principal executive officer)

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Adam (Xin) He, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of iFresh, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2018 

 

  /s/ Adam (Xin) He
  Adam (Xin) He
  Chief Financial Officer
  (Principal financial and accounting officer)

 

Exhibit 32

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of iFresh, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2018 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

 

Date: August 14, 2018 

 

  /s/ Long Deng
  Long Deng
  Chief Executive Officer
  (Principal executive officer)

 

Date: August 14, 2018

 

  /s/ Adam (Xin) He
  Adam (Xin) He
  Chief Financial Officer
  (Principal financial and accounting officer)