The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Description of Business
Organization
and General
iFresh
Inc. (“iFresh”) 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 under “Redomestication”).
E-Compass was incorporated in Cayman Islands on September 23, 2014 as a blank check company whose objective is to enter into a
merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination
with one or more businesses or entities, or entering into contractual arrangements that gives E-Compass control over such a target
business (a “Business Combination”).
Redomestication
On
July 25, 2016, iFresh entered into the Merger Agreement with E-Compass , iFresh Merger Sub Inc. (“Merger Sub”), a
Delaware corporation and wholly owned subsidiary of iFresh, and NYM Holding, Inc. (“NYM”), the stockholders of NYM,
and Long Deng, as representative of the stockholders of NYM. Pursuant to the terms of the Merger Agreement, on February 10, 2017,
E-Compass would merge with and into iFresh in order to redomesticate E-Compass into Delaware (the “Redomestication Merger”).
At the time of the Redomestication, each E-Compass ordinary share was converted into one share of common stock of iFresh and each
E-Compass Right was converted into one substantially equivalent right (“iFresh Right”) to receive one-tenth (1/10)
of a share of iFresh common stock on the consummation of the Business Combination. In connection with the Redomestication, E-Compass
ceased to exist and iFresh is the surviving corporation and successor registrant that will continue to file reports under Section
12(b) of the Securities Exchange Act of 1934.
Business
Combination
On February 10, 2017, after the Redomestication
Merger, Merger Sub merged with and into NYM, resulting in NMY being a wholly owned subsidiary of iFresh (the “Merger”).
The transaction constituted a business combination. iFresh closed the business combination by paying NYM’s stockholders
an aggregate of: (i) $5 million in cash, plus, (ii) 12,000,000 shares of iFresh’s common stock (the deemed value of the
shares in the Merger Agreement) as consideration. At closing, iFresh also executed an option agreement to acquire up to additional
four supermarkets prior to March 31, 2017 for aggregate consideration of $10 million in cash, less any advances or receivables
owed to the Company (see Note 6). The option agreement subsequently expired unexercised.
In connection with the closing, holders
of 1,937,967 of the Company’s ordinary shares elected to redeem their shares and iFresh paid $20,154,857 ($10.40 per share
in accordance with Redemption Clause) in connection with such redemption. Also on February 10, 2017, iFresh repurchased 1,500,000
of such non-redeemable shares promptly at a purchase price of $10.00 per share according to an agreement with Handy Global Limited
signed on January 11, 2017. On February 10, 2017, iFresh entered into an agreement to repurchasee 200,000 shares of its common
stock from Lodestar Investment Holdings Corporation for $200.00. At the closing of the Redomestication Merger: (i) one share of
iFresh common stock for each share of E-Compass common stock, resulting in 1,872,033 non-redeeming E-Compass common stock being
converted into iFresh common stock; (ii) each ten E-Compass rights were converted into one share of common stock of iFresh, resulting
in 4,310,010 E-Compass rights automatically converting into 431,000 shares of the iFresh’s common stock.
Prior to the closing of the Redomestication
Merger and Business Combination, there were 5,310,000 E-Compass shares issued and outstanding. After the redemption of 1,937,967
shares, the repurchase of 1,700,000 shares and the conversion of 4,310,010 E-Compass rights into 431,000 shares, there were 2,103,033
shares of E-Compass’s common stock being re-domesticated into the iFresh’s common stock. With the new issuance of
the 12,000,000 shares of iFresh’s common stock in connection with the Business Combination, there were a total of 14,103,033
shares of iFresh’s common stock issued and outstanding after the business combination.
The
above-mentioned business combination with NYM will be accounted for as a reverse acquisition at the date of the consummation of
the transaction since the shareholders of NYM own at least 83.9% of the outstanding ordinary shares of iFresh immediately following
the completion of the transaction. Accordingly, NYM will be deemed to be the accounting acquirer in the transaction and, consequently,
the transaction is treated as a recapitalization of NYM. As a result, following the Business Combination, the historical financial
statements of NYM and its subsidiaries are treated as the historical financial statements of the combined company. Accordingly,
the assets and liabilities and the historical operations that will be reflected in the iFresh financial statements after consummation
of the transaction will be those of NYM and will be recorded at the historical cost basis of NYM. NYM’s assets, liabilities
and results of operations will be consolidated with the assets, liabilities and results of operations of iFresh upon consummation
of the transaction.
iFresh,
NYM and its subsidiaries (herein collectively referred to as the “Company” ) is an Asian/Chinese supermarket chain
with multiple retail locations and its own distribution operations, 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.
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, NYM and its subsidiaries
. All material intercompany accounts and transactions have
been eliminated in consolidation.
The
unaudited interim financial information as of June 30, 2017 and for the three months ended June 30, 2017 and 2016 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,
2017.
In
the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair presentation
of the Company’s financial position as of June 30, 2017, its results of operations and its cash flows for the three months
ended June 30, 2017 and 2016, as applicable, have been made. The unaudited interim results of operations are not necessarily indicative
of the operating results for the full fiscal year or any future periods.
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.
3.
Summary of Significant Accounting Policies
Significant
Accounting Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. Such estimates
and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s
critical accounting estimates included, but are not limited to: allowance for estimated uncollectible receivables, inventory valuations,
lease assumptions, impairment of long-lived assets, impairment of intangible assets, and income taxes. Actual results could differ
from those estimates.
Reclassification
Certain
prior period amounts have been reclassified to confirm the current period presentation.
Restricted
Cash
Restricted
cash represents cash held by depository banks in order to comply with the provisions of certain debt agreements.
Accounts
Receivable
Accounts
receivables consist primarily of uncollected amounts from customer purchases (primarily from the Company’s two distribution
operations), credit card receivables, and food stamp vouchers and are presented net of an allowance for estimated uncollectible
amounts.
The
Company periodically assesses its accounts receivable for collectability on a specific identification basis. If collectability
of an account becomes unlikely, an allowance is recorded for that doubtful account. Once collection efforts have been exhausted,
the account receivable is written off against the allowance.
Inventories
Inventories
consist of merchandise purchased for resale, which are stated at the lower of cost or market. The cost method is used for wholesale
and retail perishable inventories by assigning costs to each of these items based on a first-in, first-out (FIFO) basis (net of
vendor discounts).
The
Company’s wholesale and retail non-perishable inventory is valued at the lower of cost or market using weighted average
method.
Operating
Leases
The
Company leases retail stores, warehouse facilities and administrative offices under operating leases. Incentives received from
lessors are deferred and recorded as a reduction of rental expense over the lease term using the straight-line method. Store lease
agreements generally include rent escalation provisions. The Company recognizes escalations of minimum rents as deferred rent
and amortizes these balances on a straight-line basis over the term of the lease.
Capital
Lease Obligations
The Company has recorded capital lease obligations
for equipment leases at both June 30, 2017 and March 31, 2017. 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 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 nonfinancial 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, 2017 and March 31, 2017, 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
For
retail sales, revenue is recognized at the point of sale. Discounts provided to customers at the time of sale are recognized as
a reduction in sales as the discounted products are sold. Sales taxes are not included in revenue. Proceeds from the sale of coupons
are recorded as a liability at the time of sale, and recognized as sales when they are redeemed by customers. For wholesales sales,
revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, the Company has no other obligations and collectability is reasonably assured. Payments received before
all of the relevant criteria for revenue recognition are recorded as customer deposits.
Recently
Issued Accounting Pronouncements
In
May 2016, the FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission
of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016
EITF Meeting”, The amendments rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging
Issues Task Force (EITF) meeting. Specifically, registrants should not rely on the following SEC Staff Observer comments upon
adoption of Topic 606: 1) Revenue and Expense Recognition for Freight Services in Process, which is codified in paragraph 605-20-S99-2;
2) Accounting for Shipping and Handling Fees and Costs, which is codified in paragraph 605-45-S99-1; 3) Accounting for Consideration
Given by a Vendor to a Customer (including Reseller of the Vendor’s Products), which is codified in paragraph 605-50-S99-1;
4) Accounting for Gas-Balancing Arrangements (i.e., use of the “entitlements method”), which is codified in paragraph
932-10-S99-5, which is effective upon adoption of ASU 2014-09. The Company expects that the adoption of this ASU would not have
a material impact on the Company’s consolidated financial statements.
In
August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments" ("ASU 2016-15"), which reduces the existing diversity in practice in how certain cash receipts
and cash payments are presented and classified in the statement of cash flows under Topic 230. ASU 2016-15 is effective for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. The Company expects that the adoption of this ASU would not have a material impact on the Company’s
consolidated financial statements.
In
October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory”,
which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when
the transfer occurs. For public business entities, the amendments in this ASU are effective for annual reporting periods beginning
after December 15, 2017, including interim reporting periods within those annual reporting periods. For all other entities, the
amendments in this ASU are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods
within annual periods beginning after December 15, 2019. Early adoption is permitted. The amendments in this ASU should be adopted
on a modified retrospective basis. The Company does not expect that adoption of this guidance will have a material impact on its
consolidated financial statements.
In
October 2016, the FASB issued ASU No. 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are
under Common Control”. The amendments affect reporting entities that are required to evaluate whether they should consolidate
a variable interest entity in certain situations involving entities under common control. Specifically, the amendments change
the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting
entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related
parties that are under common control with the reporting entity. The amendments are effective for public business entities for
fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2016, and interim reporting periods within fiscal years
beginning after December 15, 2017. Early adoption is permitted. The Company does not expect that adoption of this guidance will
have a material impact on its consolidated financial statements and related disclosures.
In
November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows: Restricted Cash". The amendments address diversity
in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The
amendment is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within
those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and
interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including an adoption in an
interim period. The amendments in this update should be applied using a retrospective transition method to each period presented.
The adoption of this ASU on the statement of cash flows will increase cash and cash equivalents by the amount of the restricted
cash on the Company’s consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business".
The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Basically these
amendments provide a screen to determine when a set is not a business. If the screen is not met, the amendments in this ASU first,
require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly
contribute to the ability to create output and second, remove the evaluation of whether a market participant could replace missing
elements. These amendments take effect for public businesses for fiscal years beginning after December 15, 2017 and interim periods
within those periods, and all other entities should apply these amendments for fiscal years beginning after December 15, 2018,
and interim periods within annual periods beginning after December 15, 2019. The Company does not expect that adoption of this
guidance will have a material impact on its 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.
4.
Accounts Receivable
A
summary of accounts receivable, net is as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Customer purchases
|
|
$
|
2,352,195
|
|
|
$
|
2,133,689
|
|
Credit card receivables
|
|
|
145,749
|
|
|
|
134,177
|
|
Food stamps
|
|
|
81,478
|
|
|
|
62,900
|
|
Others
|
|
|
35,821
|
|
|
|
29,250
|
|
Total accounts receivable
|
|
|
2,615,243
|
|
|
|
2,360,016
|
|
Allowance for bad debt
|
|
|
(88,005
|
)
|
|
|
(88,005
|
)
|
Accounts receivable, net
|
|
$
|
2,527,238
|
|
|
$
|
2,272,011
|
|
5.
Inventories
A
summary of inventories, net is as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Non-perishables
|
|
$
|
9,518,537
|
|
|
$
|
8,339,787
|
|
Perishables
|
|
|
1,652,147
|
|
|
|
1,535,777
|
|
Inventories
|
|
|
11,170,684
|
|
|
|
9,875,564
|
|
Allowance for slow moving or defective inventories
|
|
|
(85,957
|
)
|
|
|
(78,580
|
)
|
Inventories, net
|
|
$
|
11,084,727
|
|
|
$
|
9,796,984
|
|
6.
Advances and receivables - related parties
A
summary of advances and receivables - related parties is as follows:
Entities
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
New York Mart, Inc.
|
|
$
|
1,394,366
|
|
|
$
|
142,791
|
|
New York Mart N. Miami Inc.
|
|
|
5,711,427
|
|
|
|
6,511,427
|
|
Pacific Supermarkets Inc.
|
|
|
727,210
|
|
|
|
591,404
|
|
NY Mart MD Inc.
|
|
|
3,736,166
|
|
|
|
4,165,339
|
|
New York Mart CT Inc.
|
|
|
1,126,006
|
|
|
|
871,966
|
|
iFresh Glen Cove
|
|
|
141,577
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Advances - related parties
|
|
$
|
12,836,752
|
|
|
$
|
12,282,927
|
|
|
|
|
|
|
|
|
|
|
New York Mart, Inc.
|
|
|
482,447
|
|
|
|
476,884
|
|
Pacific Supermarkets Inc.
|
|
|
544,981
|
|
|
|
604,469
|
|
NY Mart MD Inc.
|
|
|
1,786,428
|
|
|
|
1,426,303
|
|
New York Mart CT Inc.
|
|
|
61,500
|
|
|
|
61,500
|
|
Receivables – related parties
|
|
|
2,875,356
|
|
|
|
2,569,156
|
|
Total advances and receivables – related parties
|
|
$
|
15,712,108
|
|
|
$
|
14,852,083
|
|
The Company has advanced funds to related parties
and accounts receivable due from the related parties with the intention of converting these advances and receivables into deposits
towards the purchase price upon planned acquisitions 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. The accounts receivable due from
the related parties relate to the sales to these related parties (see Note 14). The advances and receivables are interest free,
repayable on demand, and guaranteed by Mr. Long Deng. Most of these entities are newly established and have limited or no operations
since their inception. The Company originally expected to complete acquisitions of these entities prior to March 31, 2017. As
of the date of these financial statements, although the Company has not entered into definitive agreements, the Company is expecting
to complete the acquisition of New York Mart N. Miami Inc., New York Mart CT Inc. and NY Mart MD Inc. in 2017. The Company has already completed the acquisition of iFresh Glen Cove from Mr. Long Deng in July 2017. The
Company does not have current plans to acquire any other entities listed above.
7.
Property and Equipment
|
|
June
30,
|
|
|
March
31,
|
|
|
|
2017
|
|
|
2017
|
|
Furniture,
fixtures and equipment
|
|
$
|
12,218,750
|
|
|
$
|
12,112,418
|
|
Automobiles
|
|
|
2,321,696
|
|
|
|
2,226,746
|
|
Leasehold
improvements
|
|
|
2,178,665
|
|
|
|
2,082,214
|
|
Software
|
|
|
6,734
|
|
|
|
6,734
|
|
Total
property and equipment
|
|
|
16,725,845
|
|
|
|
16,428,112
|
|
Accumulated
depreciation and amortization
|
|
|
(7,535,770
|
)
|
|
|
(7,137,438
|
)
|
Property
and equipment, net
|
|
$
|
9,190,075
|
|
|
$
|
9,290,674
|
|
Depreciation
expense for the three months ended June 30, 2017 and 2016 was $403,061 and $379,557, respectively.
8.
Intangible Assets
A
summary of the activities and balances of intangible assets are as follows:
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
March 31,
|
|
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
Additions
|
|
|
2017
|
|
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
|
|
$
|
(1,199,999
|
)
|
|
$
|
(33,333
|
)
|
|
$
|
(1,233,332
|
)
|
Intangible assets, net
|
|
$
|
1,300,001
|
|
|
$
|
(33,333
|
)
|
|
$
|
1,266,668
|
|
Amortization
expense was $33,333 and $ 33,333 for the three months ended June 30, 2017 and 2016, respectively. Future amortization associated
with the net carrying amount of definite-lived intangible assets is as follows:
Year Ending March 31,
|
|
|
|
|
|
|
|
2018
|
|
$
|
133,333
|
|
2019
|
|
|
133,333
|
|
2020
|
|
|
133,333
|
|
2021
|
|
|
133,333
|
|
2022
|
|
|
133,333
|
|
Thereafter
|
|
|
600,003
|
|
Total
|
|
$
|
1,266,668
|
|
9.
Debt
A
summary of the Company’s debt is as follows:
|
|
June
30,
|
|
|
March
31,
|
|
|
|
2017
|
|
|
2017
|
|
Revolving Line of Credit-KeyBank National
Association
|
|
$
|
1,000,000
|
|
|
|
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
Borrowings against Revolving
Line of Credit, non-current
|
|
$
|
1,000,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Term Loan-KeyBank National Association
|
|
|
14,470,291
|
|
|
|
14,791,281
|
|
Less: Deferred financing cost
|
|
|
(821,250
|
)
|
|
|
(866,875
|
)
|
Less: current portion
|
|
|
(1,088,024
|
)
|
|
|
(1,144,568
|
)
|
Bank Loan-Term Loan, non-current
|
|
$
|
12,561,017
|
|
|
$
|
12,779,838
|
|
KeyBank
National Association (“KeyBank”) – Senior Secured Credit Facilities
On December 23, 2016, NYM, as borrower,
entered into a $25 million senior secured Credit Agreement (the “Credit Agreement”) with Key Bank National Association
(“Key Bank” or “Lender”). The Credit Agreement provides for (1) a revolving credit of $5,000,000 for making
advance and issuance of letter of credit, (2) $15,000,000 of effective date term loan and (3) $5,000,000 of delayed draw term
loan. The interest rate is equal to (1) the Lender’s “prime rate” plus 0.95%, or (b) the Adjusted LIBOR rate
plus 1.95%. Both the termination date of the revolving credit and the maturity date of the term loans are December 23, 2021. The
Company will pay a commitment fee equal to 0.25% of the undrawn amount of the Revolving Credit Facility and 0.25% of the unused
Delayed Draw Term Loan Facility. $1,000,000 of the revolving credit was used as of June 30, 2017.
$15,000,000 of the term loan has been 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 discussed below.
The Delayed Draw Term Loan shall be advanced
on the Delayed Draw Funding date, which is no later than December 23, 2021. No withdrawal under the Delayed Draw Term Loan has
been made as of June 30, 2017.
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:
Year Ending June 30,
|
|
|
|
|
|
|
|
2018
|
|
$
|
1,088,024
|
|
2019
|
|
|
1,208,832
|
|
2020
|
|
|
1,246,790
|
|
2021
|
|
|
1,285,797
|
|
2022
|
|
|
8,819,598
|
|
Total
|
|
$
|
13,649,041
|
|
Simultaneously,
the Company entered into an escrow agreement with Carnelian Bay Capital Inc. (“CBC”), a stockholder of E-Compass,
and Loeb & Loeb LLP, acting as the escrow agent, pursuant to which, the Company agreed to set aside $1,030,000 (the “Escrow
Fund”) from the proceeds received from the effective date term loan to pay for certain expenses associated with the Merger.
As of March 31, 2017, the escrow account has been fully withdrawn for merger expense payments.
10.
Notes Payable
Notes
payables consist of the following:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Expressway Motors Inc.
|
|
|
|
|
|
|
Secured by vehicle,
0%, principal of $490 due monthly through April 9, 2019
|
|
$
|
10,777
|
|
|
$
|
12,247
|
|
Secured by vehicle, 2.99%, principal
and interest of $593 due monthly through February 1, 2021
|
|
|
24,658
|
|
|
|
25,281
|
|
Secured by vehicle, 0%, principal
of $515 due monthly through April 24, 2019
|
|
|
11,780
|
|
|
|
11,780
|
|
Southeast Toyota Finance
|
|
|
|
|
|
|
|
|
Secured by vehicle, 6.84%, principal
and interest of $777 due monthly through July 26, 2016
|
|
|
-
|
|
|
|
-
|
|
Hitachi Capital America
Corp.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 6.95%, principal
and interest of $2,109 due monthly through September 18, 2019
|
|
|
52,576
|
|
|
|
57,927
|
|
Secured by vehicle, 7.35%, principal
and interest of $2,219 due monthly through November 7, 2017
|
|
|
10,892
|
|
|
|
17,269
|
|
Secured by vehicle, 7.10%, principal
and interest of $2,094 due monthly through March 28, 2018
|
|
|
18,299
|
|
|
|
24,186
|
|
Secured by vehicle, 6.99%, principal
and interest of $2,170 due monthly through March 10,2019
|
|
|
42,781
|
|
|
|
48,478
|
|
Triangle Auto Center,
Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.02%, principal
and interest of $890 due monthly through January 28, 2021
|
|
|
35,514
|
|
|
|
37,810
|
|
Colonial Buick GMC
|
|
|
|
|
|
|
|
|
Secured by vehicle, 8.64%, principal
and interest of $736 due monthly through February 1, 2020
|
|
|
20,936
|
|
|
|
22,660
|
|
Milea Truck Sales of
Queens Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 8.42%, principal
and interest of $4,076 due monthly through July 1, 2019
|
|
|
93,153
|
|
|
|
103,276
|
|
Secured by vehicle, 4.36%, principal
and interest of $1,558 due monthly through February 20, 2018
|
|
|
12,260
|
|
|
|
16,768
|
|
Isuzu Finance of America,
Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 6.99%, principal
and interest of $2,200 due monthly through October 1, 2018
|
|
|
33,511
|
|
|
|
39,455
|
|
Koeppel Nissan, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 3.99%, principal
and interest of $612 due monthly through January 18, 2021
|
|
|
24,437
|
|
|
|
25,790
|
|
Secured by vehicle, 0.9%, principal
and interest of $739 due monthly through March 14, 2020
|
|
|
24,080
|
|
|
|
26,310
|
|
Secured by vehicle, 7.86%, principal
and interest of $758 due monthly through June 1, 2022
|
|
|
37,490
|
|
|
|
39,025
|
|
Lee's Autors, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 0.9%, principal
and interest of $832 due monthly through July 22, 2017
|
|
|
831
|
|
|
|
3,321
|
|
Silver Star Motors
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.22%, principal
and interest of $916 due monthly through June 1, 2021
|
|
|
41,150
|
|
|
|
42,684
|
|
BMO
|
|
|
|
|
|
|
|
|
Secured by vehicle, 5.99%, principal
and interest of $1,924 due monthly through July 1, 2020
|
|
|
83,468
|
|
|
|
87,687
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.01%, principal
and interest of $420 due monthly through December1, 2021
|
|
|
20,710
|
|
|
|
-
|
|
Toyota Finance
|
|
|
|
|
|
|
|
|
Secured
by vehicle, 0%, principal and interest of $1,265 due monthly through April1, 2022
|
|
|
73,358
|
|
|
|
-
|
|
Total Notes Payable
|
|
$
|
672,661
|
|
|
$
|
641,954
|
|
Current
maturities
|
|
|
(265,828
|
)
|
|
|
(262,578
|
)
|
Long-term debt, net of current
maturities
|
|
$
|
406,833
|
|
|
$
|
379,376
|
|
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 March 31,
|
|
|
|
|
|
|
|
2018
|
|
$
|
265,828
|
|
2019
|
|
|
198,985
|
|
2020
|
|
|
105,243
|
|
2021
|
|
|
76,898
|
|
2022
|
|
|
25,707
|
|
Total
|
|
$
|
672,661
|
|
11.
Capital lease obligations
The
following capital lease obligations are included in the condensed consolidated balance sheets:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Capital lease obligations:
|
|
|
|
|
|
|
Current
|
|
$
|
58,413
|
|
|
$
|
51,376
|
|
Long-term
|
|
|
81,180
|
|
|
|
59,907
|
|
Total obligations
|
|
$
|
139,593
|
|
|
$
|
111,283
|
|
Interest
expense on capital lease obligations for the three months ended June 30, 2017 and 2016 amounted to $1,539 and $773, respectively.
Future
minimum lease payments under the capital leases are as follows:
Year Ending March 31,
|
|
|
|
|
|
|
|
2018
|
|
$
|
66,140
|
|
2019
|
|
|
43,372
|
|
2020
|
|
|
33,060
|
|
2021
|
|
|
11,849
|
|
Total minimum lease payments
|
|
|
154,421
|
|
Less: Amount representing interest
|
|
|
(14,828
|
)
|
Total
|
|
$
|
139,593
|
|
12.
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, 2017 and 2016, respectively:
|
|
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
|
)
|
|
$
|
(158,195
|
)
|
|
$
|
(167,539
|
)
|
Depreciation and amortization
|
|
$
|
67,805
|
|
|
$
|
414,214
|
|
|
$
|
482,019
|
|
Capital expenditure
|
|
$
|
13,026
|
|
|
$
|
289,435
|
|
|
$
|
302,461
|
|
Segment income before income tax provision
|
|
$
|
160,187
|
|
|
$
|
(719,630
|
)
|
|
$
|
(559,443
|
)
|
Income tax provision (benefit)
|
|
$
|
83,297
|
|
|
$
|
(374,207
|
)
|
|
$
|
(290,910
|
)
|
Segment assets
|
|
$
|
10,874,119
|
|
|
$
|
32,589,496
|
|
|
$
|
43,463,615
|
|
|
|
Three
months ended June 30, 2016
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
4,512,010
|
|
|
$
|
25,777,882
|
|
|
$
|
30,289,892
|
|
Cost of sales
|
|
|
3,347,985
|
|
|
|
18,762,315
|
|
|
|
22,110,300
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
1,840,067
|
|
|
|
1,840,067
|
|
Gross profit
|
|
$
|
1,164,025
|
|
|
$
|
5,175,500
|
|
|
$
|
6,339,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
41,702
|
|
|
$
|
1,872
|
|
|
$
|
43,574
|
|
Depreciation and amortization
|
|
$
|
51,912
|
|
|
$
|
360,978
|
|
|
$
|
412,890
|
|
Capital expenditure
|
|
$
|
185,965
|
|
|
$
|
250,197
|
|
|
$
|
436,162
|
|
Segment income before income tax provision
|
|
$
|
(109,230
|
)
|
|
$
|
424,510
|
|
|
$
|
315,280
|
|
Income tax provision
|
|
$
|
4,804
|
|
|
$
|
132,731
|
|
|
$
|
137,535
|
|
Segment assets
|
|
$
|
10,671,583
|
|
|
$
|
20,380,045
|
|
|
$
|
31,051,628
|
|
13.
Income Taxes
iFresh
is a Delaware holding company who is subject to the U.S. income tax.
NYM
is taxed as a corporation for income tax purposes and as a result of the “Contribution Agreement” entered into in
December 31, 2014 NYM has elected to file a consolidated federal income tax return with its eleven subsidiaries. NYM and the shareholders
of the eleven entities, as parties to the Contribution Agreement, entered into a tax-free transaction under Section 351 of the
Internal Revenue Code of 1986 whereby the eleven entities became wholly owned subsidiaries of the Company. As a result of the
tax-free transaction and the creation of a consolidated group, the subsidiaries are required to adopt the tax year-end of its
parent, NYM. NYM was incorporated on December 30, 2014 and has adopted a tax-year end of March 31.
Certain
of the subsidiaries have incurred net operating losses (“NOL”) in tax years ending prior to the Contribution Agreement.
The net operating losses are subject to the Separate Return Limitation Year (“SRLY”) rules which limit the utilization
of the losses to the subsidiaries who generated the losses. The SRLY losses are not available to offset taxable income generated
by members of the consolidated group.
Based
upon management’s assessment of all available evidence, the Company believes that it is more-likely-than-not that the deferred
tax assets, primarily for certain of the subsidiaries SRLY NOL carry-forwards will not be realizable; and therefore, a full valuation
allowance is established for SRLY NOL carry-forwards. The valuation allowance for deferred tax assets was approximately $788,039
as of June 30, 2017 and $788,039 as of March 31, 2017.
The Company has approximately $2,815,000
and $2,318,000 of US NOL carry forward of which approximately $2,815,000 and $2,318,000 are SRLY NOL as of June 30, 2017 and March
31, 2017, respectively. For income tax purpose, those NOLs will expire in the year 2030 through 2034.
Income
Tax Provision
The
provision for income taxes consists of the following components:
|
|
Three months ended
|
|
|
|
June
30,
|
|
|
|
2017
|
|
|
2016
|
|
Current:
|
|
.
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
46,282
|
|
State
|
|
|
-
|
|
|
|
39,405
|
|
|
|
|
-
|
|
|
|
85,687
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(187,542
|
)
|
|
|
46,074
|
|
State
|
|
|
(103,368
|
)
|
|
|
5,774
|
|
|
|
|
(290,910
|
)
|
|
|
51,848
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(290,910
|
)
|
|
$
|
137,535
|
|
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,
|
|
|
|
2017
|
|
|
2016
|
|
Expected tax at U.S. statutory income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
State and local income taxes, net of federal income tax effect
|
|
|
14
|
%
|
|
|
12
|
%
|
Other non-deductible fees and expenses
|
|
|
1
|
%
|
|
|
1
|
%
|
Other
|
|
|
3
|
%
|
|
|
(3
|
%)
|
Effective tax rate
|
|
|
52
|
%
|
|
|
44
|
%
|
Deferred
Taxes
The
effect of temporary differences included in the deferred tax accounts as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Deferred Tax Asset/ (Liability):
|
|
|
|
|
|
|
Deferred expenses
|
|
$
|
129,610
|
|
|
$
|
123,260
|
|
Sec 263A Inventory Cap
|
|
|
243,541
|
|
|
|
215,248
|
|
Deferred rent
|
|
|
2,550,379
|
|
|
|
2,467,259
|
|
Depreciation and amortization
|
|
|
(2,804,303
|
)
|
|
|
(2,718,968
|
)
|
Net operating losses
|
|
|
1,046,366
|
|
|
|
788,039
|
|
Valuation allowance
|
|
|
(788,039
|
)
|
|
|
(788,039
|
)
|
Net Deferred Tax Asset (Liability)
|
|
$
|
377,554
|
|
|
$
|
86,799
|
|
14.
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, 2017 and 2016 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 consolidated
financial statements. In addition, the outstanding receivables due from these related parties as of June 30, 2017 and 2016 were
included in advances and receivables – related parties (see Note 6).
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
|
|
Three months ended June 30,
2016
|
Related Parties
|
|
Management Fees
|
|
|
Advertising Fees
|
|
|
Non-Perishable & Perishable
Sales
|
|
New York Mart, Inc.
|
|
$
|
12,090
|
|
|
$
|
2,240
|
|
|
$
|
356,452
|
|
Pacific Supermarkets Inc.
|
|
|
14,666
|
|
|
|
3,080
|
|
|
|
770,124
|
|
NY Mart MD Inc.
|
|
|
11,585
|
|
|
|
-
|
|
|
|
407,925
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
2,108
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
26,992
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
40,991
|
|
|
|
$
|
38,341
|
|
|
$
|
5,320
|
|
|
$
|
1,604,592
|
|
Long-Term
Operating Lease Agreement with a Related Party
The
Company leases a warehouse from a related party 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 $177,000 and $167,000 for the three months ended on June 30,
2017 and 2016, respectively.
15.
Operating Lease Commitments
The
Company’s leases include stores, office and warehouse buildings. These leases have an average remaining lease term of approximately
10 years as of June 30, 2017.
Rent
expense charged to operations under operating leases in the three months ended June 30, 2017 and 2016 totaled $1,684,116 and $1,588,906,
respectively.
Future
minimum lease obligations for operating leases with initial terms in excess of one year at June 30, 2017 are as follows:
|
|
Non-related
parties
|
|
|
Related
party
|
|
|
Total
|
|
2018
|
|
$
|
6,508,400
|
|
|
$
|
708,000
|
|
|
$
|
7,216,400
|
|
2019
|
|
|
6,912,916
|
|
|
|
708,000
|
|
|
|
7,620,916
|
|
2020
|
|
|
7,072,229
|
|
|
|
708,000
|
|
|
|
7,780,229
|
|
2021
|
|
|
6,999,030
|
|
|
|
708,000
|
|
|
|
7,707,030
|
|
2022
|
|
|
6,859,699
|
|
|
|
708,000
|
|
|
|
7,567,699
|
|
Thereafter
|
|
|
54,594,073
|
|
|
|
2,714,000
|
|
|
|
57,308,073
|
|
Total payments
|
|
$
|
88,946,347
|
|
|
$
|
6,254,000
|
|
|
$
|
95,200,347
|
|
16.
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.
Rent
Dispute
Ming's
Supermarket, Inc. (“Ming”), the subsidiary of the Company, is a tenant at a building located at 140-148 East Berkeley
Street, Boston, MA (the "Property"), pursuant to a lease dated September 24, 1999 (the “Lease”). The Lease
had a 10-year initial term, followed by an option for two additional 10 year terms. Ming has exercised that first option and the
Lease has approximately 15 years remaining to run if the second option is also exercised. The Lease also gives Ming a right of
first refusal on any sale of the building.
On
February 22, 2015, a sprinkler pipe burst in the Property. This caused the Inspectional Services Department of the City of Boston
(“ISD”) to inspect the Property. The ISD found a number of problems which have prevented further use of the Property.
The ISD notified both landlord and tenant that the Property was only permitted for use as an elevator garage and that its use
as a warehouse was never permitted and that a conditional use permit must be obtained from the City of Boston to make such use
lawful. Moreover, the Property was found to have major structural issues requiring repair, as well as issues with the elevator
and outside glass. The result of the ISD's findings are that Ming was ordered not to use the Property for any purpose unless and
until the structural and other repairs are completed and its use as a warehouse is permitted by the Boston Zoning Board.
While
the Lease provides that the elevator (approximate cost $400,000) and glass repairs (approximate cost $30,000) are the responsibility
of the tenant, the structural repairs (approximate cost $500,000) are the landlord's responsibility under the Lease, unless the
structural damage was caused by the tenant's misuse of the Property. In this regard Ming has retained an expert who will testify
the structural damage to the building was caused by long term water infiltration and is not the result of anything Ming did. Ming
initially sought for the landlord to perform the structural repairs and agreed that upon completion of those repairs, Ming would
repair the elevator and the broken glass. In addition, Ming asked the landlord to cooperate in permitting use of the Property
as a warehouse.
The
landlord refused to either perform structural repairs or to cooperate on the permitting. As a result, as of April 2015, Ming stopped
paying the landlord rent, since it 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.
It would appear the landlord wishes to use
the current circumstances to terminate the lease or to cause Ming to abandon it. The Lease is at considerably below market and
impairs the landlord’s ability to sell the Property for a high price. The landlord is claiming damages of approximately
$470,000 in unpaid rent and additional rent charges under the lease to date, plus for the cost of repairs. Ming is claiming damages
in the mount of lost profits of $20,000 to$30,000 per month resulting from the loss if its warehouse space and for the landlord’s
failure to undertake its responsibilities under the lease. Ming’s damages also include loss of the benefit of its below
market lease. Ming is also seeking an order of the Court directing the landlord to perform the structural repairs.
The parties have been unable to agree
on terms of a settlement and a trial will be needed to resolve this matter. A trial date of August 21, 2017 has been scheduled.
Given
the complicated fact pattern and myriad of claims and counterclaims, a reasonable and probable estimate as to the potential exposure,
if any, cannot be made at this time. While Ming is vigorously contesting any liability on its part for unpaid rent and believes
it will recover affirmative damages against the landlord due to Ming’s constructive eviction from the Property, the ultimate
outcome of this case is uncertain.
While
discovery is ongoing and no guaranties or predications can be made at this time as to ultimate outcome, the Company believes that
the facts and the law are favorable for Ming’s as to both its continuing liability for rent and its affirmative claim to
recover damages.
Trade
order dispute
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 in the amount of $116,878 representing the total amount
of invoices Plaintiff is claiming pass due, penalty of $256,000 for the past due invoices and attorney cost which was estimated
to be $80,000 to $90,000.
The
Plaintiff claimed that NYMG and New Sunshine failed to pay for a shrimp order. 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
corporation than NYMG or New Sunshine.
The
case went to trial on March 12 to15, 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 because it believes that there are new evidences and arguments
that NYMG should not be held responsible for these damages. 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 predications
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 trying to seize these funds as part of an
effort 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
this judgment, including attempting to seize any other funds in the TD Bank accounts, any other funds, 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.
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, and 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.
17.
Subsequent Event
On July 13, 2017, iFresh Inc. (the “Company”)
acquired Mia Supermarket in Orlando Florida, a 20,370 square-foot grocery store located at 2415 E. Colonial Drive, from Michael
Farmers Supermarket, LLC. The new store, which will be called iFresh East. Colonial, will be the first iFresh store in Orlando
and the second in Florida. iFresh purchased the supermarket for $1,050,000 in cash. The purchase included the business, lease,
equipment and inventory of the store.
Also on July 13, 2017, the Company acquired
all of the shares of iFresh Glen Cove Inc. (“Glen Cove”) from Long Deng, the Company’s Chairman and Chief Executive
Officer, for 50,000 shares of the Company’s common stock. The transaction was approved by the Company’s independent
audit committee and the price was agreed to be based upon a review of the assets and financial statements of Glen Cove. Glen Cove
is a 22,859 square foot brand new store being setting up a 22,859 square-foot grocery store in Garden City, New York. located at
192 Glen Cove Road, within the Roosevelt Field Mall business district, this will be the Company’s first store in Long Island
and its sixth in the State of New York. The Company expects iFresh Glen Cove to open in the first quarter of 2018.
For
purpose of preparing these consolidated financial statements, the Company considered events through August 14, 2017, which is
the date the consolidated financial statements were available for issuance. Except for those disclosed above, there were no material
subsequent events that required recognition or additional disclosure in these consolidated financial statements.