CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,016,352
|
|
|
$
|
2,508,362
|
|
Accounts receivable, net
|
|
|
3,345,880
|
|
|
|
2,272,011
|
|
Inventories, net
|
|
|
11,322,782
|
|
|
|
9,796,984
|
|
Prepaid expenses and other current assets
|
|
|
1,874,874
|
|
|
|
981,017
|
|
Advances to related parties
|
|
|
16,665,703
|
|
|
|
14,852,083
|
|
Total current assets
|
|
|
34,225,591
|
|
|
|
30,410,457
|
|
Property and equipment, net
|
|
|
10,008,894
|
|
|
|
9,290,674
|
|
Intangible assets, net
|
|
|
1,233,335
|
|
|
|
1,300,001
|
|
Security deposits
|
|
|
1,089,777
|
|
|
|
912,346
|
|
Deferred income taxes
|
|
|
350,373
|
|
|
|
86,799
|
|
Total assets
|
|
$
|
46,907,970
|
|
|
$
|
42,000,277
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
14,101,997
|
|
|
|
12,364,071
|
|
Deferred revenue
|
|
|
201,470
|
|
|
|
206,737
|
|
Borrowings against term loan -current, net
|
|
|
1,167,764
|
|
|
|
1,144,568
|
|
Notes payable, current
|
|
|
241,434
|
|
|
|
262,578
|
|
Capital lease obligations, current
|
|
|
48,581
|
|
|
|
51,376
|
|
Accrued expenses
|
|
|
802,993
|
|
|
|
730,392
|
|
Taxes payable
|
|
|
1,507,106
|
|
|
|
1,769,398
|
|
Other payables, current
|
|
|
481,653
|
|
|
|
501,213
|
|
Total current liabilities
|
|
|
18,552,998
|
|
|
|
17,030,333
|
|
Borrowings against lines of credit & term loan-non-current, net
|
|
|
15,745,693
|
|
|
|
12,779,838
|
|
Notes payable, non-current
|
|
|
380,784
|
|
|
|
379,376
|
|
Capital lease obligations, non-current
|
|
|
82,013
|
|
|
|
59,907
|
|
Deferred rent
|
|
|
5,893,684
|
|
|
|
5,424,134
|
|
Other payables, non-current
|
|
|
67,800
|
|
|
|
34,800
|
|
Total liabilities
|
|
|
40,722,972
|
|
|
|
35,708,388
|
|
|
|
|
|
|
|
|
|
|
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, 14,173,033
and 14,103,033 shares issued and outstanding as of September 30, 2017 and March 31, 2017, respectively
|
|
|
1,417
|
|
|
|
1,410
|
|
Additional paid-in capital
|
|
|
9,211,426
|
|
|
|
9,075,025
|
|
Accumulated deficit
|
|
|
(3,027,845
|
)
|
|
|
(2,784,546
|
)
|
Total shareholders’ equity
|
|
|
6,184,998
|
|
|
|
6,291,889
|
|
Total liabilities and shareholders’ equity
|
|
$
|
46,907,970
|
|
|
|
42,000,277
|
|
See accompanying notes to the unaudited
condensed consolidated financial statements
iFRESH
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net sales
|
|
$
|
30,764,800
|
|
|
$
|
29,862,331
|
|
|
$
|
60,892,655
|
|
|
$
|
58,547,631
|
|
Net sales-related parties
|
|
|
2,575,092
|
|
|
|
2,024,569
|
|
|
|
4,975,763
|
|
|
|
3,629,161
|
|
Total net sales
|
|
|
33,339,892
|
|
|
|
31,886,900
|
|
|
|
65,868,418
|
|
|
|
62,176,792
|
|
Cost of sales
|
|
|
22,765,456
|
|
|
|
22,376,055
|
|
|
|
44,468,196
|
|
|
|
43,154,963
|
|
Cost of sales-related parties
|
|
|
1,960,566
|
|
|
|
1,354,187
|
|
|
|
3,952,496
|
|
|
|
2,685,579
|
|
Occupancy costs
|
|
|
1,893,762
|
|
|
|
1,765,386
|
|
|
|
3,836,604
|
|
|
|
3,605,453
|
|
Gross profit
|
|
|
6,720,108
|
|
|
|
6,391,272
|
|
|
|
13,611,122
|
|
|
|
12,730,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
7,476,204
|
|
|
|
6,130,117
|
|
|
|
14,961,027
|
|
|
|
12,356,026
|
|
Income (Loss) from operations
|
|
|
(756,096
|
)
|
|
|
261,155
|
|
|
|
(1,349,905
|
)
|
|
|
374,771
|
|
Interest expense, net
|
|
|
(208,844
|
)
|
|
|
(46,718
|
)
|
|
|
(376,383
|
)
|
|
|
(90,292
|
)
|
Other income
|
|
|
1,017,510
|
|
|
|
263,203
|
|
|
|
1,219,415
|
|
|
|
508,441
|
|
Income(Loss) before income taxes
|
|
|
52,570
|
|
|
|
477,640
|
|
|
|
(506,873
|
)
|
|
|
792,920
|
|
Income tax provision (benefit)
|
|
|
27,336
|
|
|
|
219,279
|
|
|
|
(263,574
|
)
|
|
|
356,814
|
|
Net income (Loss)
|
|
$
|
25,234
|
|
|
$
|
258,361
|
|
|
$
|
(243,299
|
)
|
|
$
|
436,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.002
|
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.04
|
|
Diluted
|
|
$
|
0.002
|
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.04
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,166,440
|
|
|
|
12,000,000
|
|
|
|
14,141,549
|
|
|
|
12,000,000
|
|
Diluted
|
|
|
14,166,440
|
|
|
|
12,000,000
|
|
|
|
14,141,549
|
|
|
|
12,000,000
|
|
See accompanying notes to the unaudited
condensed consolidated financial statements
iFRESH INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(UNAUDITED)
|
|
For the Six months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(243,299
|
)
|
|
$
|
436,106
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
832,667
|
|
|
|
778,508
|
|
Amortization expense
|
|
|
157,916
|
|
|
|
66,666
|
|
Share based compensation
|
|
|
267,400
|
|
|
|
-
|
|
Inventory provision
|
|
|
-
|
|
|
|
14,339
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (benefit)
|
|
|
(263,574
|
)
|
|
|
130,396
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,073,869
|
)
|
|
|
(170,849
|
)
|
Inventories
|
|
|
(1,525,798
|
)
|
|
|
(546,362
|
)
|
Prepaid expenses and other current assets
|
|
|
(893,856
|
)
|
|
|
(103,643
|
)
|
Security deposits
|
|
|
(98,013
|
)
|
|
|
168,695
|
|
Accounts payable
|
|
|
1,737,926
|
|
|
|
1,809,871
|
|
Deferred revenue
|
|
|
(5,268
|
)
|
|
|
66,424
|
|
Accrued expenses
|
|
|
72,601
|
|
|
|
24,108
|
|
Taxes payable
|
|
|
(262,292
|
)
|
|
|
(93,126
|
)
|
Deferred rent
|
|
|
290,653
|
|
|
|
296,116
|
|
Other liabilities
|
|
|
13,439
|
|
|
|
40,199
|
|
Net cash provided by (used in) operating activities
|
|
|
(993,367
|
)
|
|
|
2,917,448
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Advances made to related parties
|
|
|
(1,943,197
|
)
|
|
|
(2,445,980
|
)
|
Acquisition of property and equipment
|
|
|
(1,241,261
|
)
|
|
|
(607,533
|
)
|
Cash proceeds received from acquisition of Glen Cove
|
|
|
5,631
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(3,178,827
|
)
|
|
|
(3,053,513
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from borrowings against lines of credit
|
|
|
2,500,000
|
|
|
|
200,000
|
|
Proceeds from borrowings against term loan
|
|
|
1,050,000
|
|
|
|
-
|
|
Repayments on lines of credit borrowings
|
|
|
(652,199
|
)
|
|
|
(82,000
|
)
|
Proceeds from borrowings on notes payable
|
|
|
-
|
|
|
|
288,129
|
|
Repayments on notes payable
|
|
|
(187,401
|
)
|
|
|
(116,857
|
)
|
Payments on capital lease obligations
|
|
|
(30,216
|
)
|
|
|
(26,345
|
)
|
Net cash provided by financing activities
|
|
|
2,680,184
|
|
|
|
262,927
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,492,010
|
)
|
|
|
126,862
|
|
Cash and cash equivalents at beginning of the period
|
|
|
2,508,362
|
|
|
|
551,782
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
1,016,352
|
|
|
$
|
678,644
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
327,900
|
|
|
$
|
90,649
|
|
Cash paid for income taxes
|
|
$
|
296,067
|
|
|
$
|
592,325
|
|
Supplemental disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Capital expenditures funded by capital lease obligations and notes payable
|
|
$
|
217,193
|
|
|
$
|
288,129
|
|
Stock issued for Glen Cove Acquisition
|
|
$
|
645,500
|
|
|
$
|
-
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
iFRESH
INC. AND SUBSIDIARIES
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 repurchase 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 is 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 is 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 are reflected in the iFresh financial statements after consummation of the transaction are those of NYM and are recorded at
the historical cost basis of NYM. NYM’s assets, liabilities and results of operations have been 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, 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.
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 September 30, 2017 and for the three and six months ended September 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 September 30, 2017, its results of operations and its cash flows for the three and six months ended September 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 September 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 September 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 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 (“ASU 2017-05”) to provide guidance for recognizing gains and losses from the transfer of nonfinancial assets
and in-substance nonfinancial assets in contracts with non-customers, unless other specific guidance applies. The standard requires
a company to derecognize nonfinancial assets once it transfers control of a distinct nonfinancial asset or distinct in substance
nonfinancial asset. Additionally, when a company transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling
ownership interest, the company is required to measure any noncontrolling interest it receives or retains at fair value. The guidance
requires companies to recognize a full gain or loss on the transaction. ASU 2017-05 is effective for annual periods beginning after
December 15, 2017, including interim periods within that reporting period. The effective date of this guidance coincides with revenue
recognition guidance. The Company does not expect that the adoption of this guidance will have a material impact on its unaudited
condensed consolidated financial statements.
No
other new accounting pronouncements issued or effective had, or are expected to have, a material impact on the Company’s
consolidated financial statements.
4.
Acquisitions
iFresh Glen Cove Acquisition
On July 13, 2017, the Company acquired from
Long Deng, the Company’s largest shareholder, 100% of the ownership interests of iFresh Glen Cove Inc. (“Glen Cove”).
Glen Cove is a 22,859 square-foot brand new grocery store being set up in Garden City, New York located at 192 Glen Cove Road,
within the Roosevelt Field Mall business district. Subsequent to the closing of the Glen Cove Acquisition, Glen Cove became a
wholly owned subsidiary of iFresh.
The Company issued 50,000 shares of
its common stock to Long Deng for the acquisition of Glen Cove. The Company accounted for this acquisition as a
business combination 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, since the acquisition took place between entities under common
control.
The
total purchase consideration and the costs of the assets and liabilities at the acquisition date were as follows:
|
|
Fair value allocation
|
|
Fair value of stock issued
|
|
|
645,500
|
|
Cash acquired
|
|
|
(5,631
|
)
|
Advanced made to Glen Cove
|
|
|
139,577
|
|
Net consideration
|
|
$
|
779,446
|
|
The
following table summarizes the final amounts recognized for assets acquired and liabilities assumed as of the acquisition date.
Assets acquired:
|
|
|
Cost allocation
|
|
Property and equipment
|
|
|
92,433
|
|
Security deposit
|
|
|
79,417
|
|
Due from related parties
|
|
|
10,000
|
|
Subtotal
|
|
$
|
181,850
|
|
Liability assumed:
|
|
|
|
|
Deferred rent liability
|
|
|
178
,897
|
|
Historical cost of net assets
acquired
|
|
$
|
2,953
|
|
The difference
between the net consideration paid and historical cost of net assets acquired was debited to additional paid-in capital
account. The Company’s unaudited condensed consolidated financial statements for the three and six months
ended September 30, 2017 include the results of operations of the Glen Cove whereas the same periods
in 2016 do not include the results of operations of Glen Cove. On an unaudited pro forma basis, the revenues and
net income of the Company assuming the acquisition had occurred on January 1, 2016 are immaterial.
iFresh
E. Colonial Asset Purchase
On July 13, 2017, the Company’s wholly-owned
subsidiary, iFresh E. Colonial, completed the acquisition of the Mia Supermarket in Orlando FL, a 20,370 square-foot grocery store
located at 2415 E. Colonial Drive, from Michael Farmers Supermarket, LLC, including inventory, property and equipment. This acquisition
expands the Company’s footprint in the State of Florida and expects to increase its revenue base.
The aggregate purchase price paid for the iFresh
E. Colonial acquisition was $1,050,000. The fair value of the assets acquired approximates the consideration paid. The Company
did not assume any liability. The consideration for the transaction was funded by the Company with $1.05 million in proceeds
from the delayed term loan withdrawn under Key Bank credit facility. The Company accounted for the iFresh E. Colonial acquisition
as an assets acquisition under ASC 805-10-55 because the workforce retained from Mia Supermarket does not include key management members,
and is not difficult to replace. Thus, the management concluded that the acquisition did not include both an input and substantive
processes that together significantly contribute to the ability to create outputs.
5.
Accounts Receivable
A
summary of accounts receivable, net is as follows:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Customer purchases
|
|
$
|
2,864,817
|
|
|
$
|
2,133,689
|
|
Credit card receivables
|
|
|
357,487
|
|
|
|
134,177
|
|
Food stamps
|
|
|
136,698
|
|
|
|
62,900
|
|
Others
|
|
|
74,883
|
|
|
|
29,250
|
|
Total accounts receivable
|
|
|
3,433,885
|
|
|
|
2,360,016
|
|
Allowance for bad debt
|
|
|
(88,005
|
)
|
|
|
(88,005
|
)
|
Accounts receivable, net
|
|
$
|
3,345,880
|
|
|
$
|
2,272,011
|
|
6.
Inventories
A
summary of inventories, net is as follows:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Non-perishables
|
|
$
|
9,745,390
|
|
|
$
|
8,339,787
|
|
Perishables
|
|
|
1,679,405
|
|
|
|
1,535,777
|
|
Inventories
|
|
|
11,424,795
|
|
|
|
9,875,564
|
|
Allowance for slow moving or defective inventories
|
|
|
(102,013
|
)
|
|
|
(78,580
|
)
|
Inventories, net
|
|
$
|
11,322,782
|
|
|
$
|
9,796,984
|
|
7.
Advances and receivables - related parties
A
summary of advances and receivables - related parties is as follows:
|
|
September 30,
|
|
|
March 31,
|
|
Entities
|
|
2017
|
|
|
2017
|
|
New York Mart, Inc.
|
|
$
|
1,153,497
|
|
|
$
|
142,791
|
|
New York Mart N. Miami Inc.
|
|
|
5,711,427
|
|
|
|
6,511,427
|
|
Pacific Supermarkets Inc.
|
|
|
879,694
|
|
|
|
591,404
|
|
NY Mart MD Inc.
|
|
|
3,603,697
|
|
|
|
4,165,339
|
|
New York Mart CT Inc.
|
|
|
1,210,826
|
|
|
|
871,966
|
|
iFresh Harwin Inc
|
|
|
495,647
|
|
|
|
-
|
|
Advances - related parties
|
|
$
|
13,054,788
|
|
|
$
|
12,282,927
|
|
|
|
|
|
|
|
|
|
|
New York Mart, Inc.
|
|
|
723,891
|
|
|
|
476,884
|
|
Pacific Supermarkets Inc.
|
|
|
650,493
|
|
|
|
604,469
|
|
NY Mart MD Inc.
|
|
|
2,083,599
|
|
|
|
1,426,303
|
|
Ifresh Harwin Inc
|
|
|
96,932
|
|
|
|
-
|
|
New York Mart CT Inc.
|
|
|
56,000
|
|
|
|
61,500
|
|
Receivables – related parties
|
|
|
3,610,915
|
|
|
|
2,569,156
|
|
Total advances and receivables – related parties
|
|
$
|
16,665,703
|
|
|
$
|
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 15). 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. As of the date of these financial
statements, the Company completed the acquisition of New York Mart N. Miami Inc. and New York Mart CT Inc.
8.
Property and Equipment
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Furniture, fixtures and equipment
|
|
$
|
13,265,686
|
|
|
$
|
12,112,418
|
|
Automobiles
|
|
|
2,289,510
|
|
|
|
2,226,746
|
|
Leasehold improvements
|
|
|
2,361,175
|
|
|
|
2,082,214
|
|
Software
|
|
|
6,735
|
|
|
|
6,734
|
|
Total property and equipment
|
|
|
17,923,106
|
|
|
|
16,428,112
|
|
Accumulated depreciation and amortization
|
|
|
(
7,914,212
|
)
|
|
|
(7,137,438
|
)
|
Property and equipment, net
|
|
$
|
10,008,894
|
|
|
$
|
9,290,674
|
|
Depreciation expense for the six months
ended September 30, 2017 and 2016 was $832,667 and $778,508, respectively. For the three months ended September 30, 2017 and 2016,
the depreciation expense was $429,606 and $398,951 respectively.
9.
Intangible Assets
A
summary of the activities and balances of intangible assets are as follows:
|
|
Balance at
March 31,
|
|
|
|
|
|
Balance at
September 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
|
)
|
|
$
|
(66,666
|
)
|
|
$
|
(1,266,665
|
)
|
Intangible assets, net
|
|
$
|
1,300,001
|
|
|
$
|
(66,666
|
)
|
|
$
|
1,233,335
|
|
Amortization expense was $
66,666
and $66,666 for the six months ended September 30, 2017 and 2016, respectively and for the three months ended September 30, 2017
and 2016 was $33,333 and $33,333. Future amortization associated with the net carrying amount of definite-lived intangible assets
is as follows:
Year Ending September 30,
|
|
|
|
2018
|
|
$
|
133,333
|
|
2019
|
|
|
133,333
|
|
2020
|
|
|
133,333
|
|
2021
|
|
|
133,333
|
|
2022
|
|
|
133,333
|
|
Thereafter
|
|
|
566,670
|
|
Total
|
|
$
|
1,233,335
|
|
10.
Debt
A
summary of the Company’s debt is as follows:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Revolving Line of Credit-KeyBank National Association
|
|
$
|
2,500,000
|
|
|
|
-
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
Borrowings against Revolving Line of Credit, non-current
|
|
$
|
2,500,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Delayed Term Loan-KeyBank National Association
|
|
|
1,032,500
|
|
|
|
-
|
|
Less: current portion
|
|
|
(105,000
|
)
|
|
|
-
|
|
Bank Loan-Term Loan, non-current
|
|
$
|
927,500
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Term Loan-KeyBank National Association
|
|
|
14,156,582
|
|
|
|
14,791,281
|
|
Less: Deferred financing cost
|
|
|
(775,625
|
)
|
|
|
(866,875
|
)
|
Less: current portion
|
|
|
(1,062,764
|
)
|
|
|
(1,144,568
|
)
|
Bank Loan-Term Loan, non-current
|
|
$
|
12,318,193
|
|
|
$
|
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. $2,500,000 of the revolving credit was used as of September
30, 2017.
$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. A withdrawal of $1.05 million
under the Delayed Draw Term Loan has been made as of September 30, 2017 to acquire iFresh E. Colonial, Inc.
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 September 30,
|
|
|
|
2018
|
|
$
|
1,450,285
|
|
2019
|
|
|
1,487,475
|
|
2020
|
|
|
1,525,692
|
|
2021
|
|
|
1,564,966
|
|
2022
|
|
|
11,660,664
|
|
Total
|
|
$
|
17,689,082
|
|
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.
11.
Notes Payable
Notes
payables consist of the following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Expressway Motors Inc.
|
|
|
|
|
|
|
Secured by vehicle, 0%, principal of $490 due monthly through April 9, 2019
|
|
$
|
9,308
|
|
|
$
|
12,247
|
|
Secured by vehicle, 2.99%, principal and interest of $593 due monthly through February 1, 2021
|
|
|
23,062
|
|
|
|
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
|
|
|
-
|
|
|
|
57,927
|
|
Secured by vehicle, 7.35%, principal and interest of $2,219 due monthly through November 7, 2017
|
|
|
2,205
|
|
|
|
17,269
|
|
Secured by vehicle, 7.10%, principal and interest of $2,094 due monthly through March 28, 2018
|
|
|
12,307
|
|
|
|
24,186
|
|
Secured by vehicle, 6.99%, principal and interest of $2,170 due monthly through March 10,2019
|
|
|
36,984
|
|
|
|
48,478
|
|
Triangle Auto Center, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.02%, principal and interest of $890 due monthly through January 28, 2021
|
|
|
33,198
|
|
|
|
37,810
|
|
Colonial Buick GMC
|
|
|
|
|
|
|
|
|
Secured by vehicle, 8.64%, principal and interest of $736 due monthly through February 1, 2020
|
|
|
19,178
|
|
|
|
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
|
|
|
82,816
|
|
|
|
103,276
|
|
Secured by vehicle, 4.36%, principal and interest of $1,558 due monthly through February 20, 2018
|
|
|
7,704
|
|
|
|
16,768
|
|
Isuzu Finance of America, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 6.99%, principal and interest of $2,200 due monthly through October 1, 2018
|
|
|
27,463
|
|
|
|
39,455
|
|
Koeppel Nissan, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 3.99%, principal and interest of $612 due monthly through January 18, 2021
|
|
|
22,837
|
|
|
|
25,790
|
|
Secured by vehicle, 0.9%, principal and interest of $739 due monthly through March 14, 2020
|
|
|
21,916
|
|
|
|
26,310
|
|
Secured by vehicle, 7.86%, principal and interest of $758 due monthly through September 1, 2022
|
|
|
35,422
|
|
|
|
39,025
|
|
Lee’s Autors, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 0.9%, principal and interest of $832 due monthly through July 22, 2017
|
|
|
-
|
|
|
|
3,321
|
|
Silver Star Motors
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.22%,
principal and interest of $916 due monthly through June 1, 2021
|
|
|
38,829
|
|
|
|
42,684
|
|
BMO
|
|
|
|
|
|
|
|
|
Secured by vehicle, 5.99%, principal and interest of $1,924 due monthly through July 1, 2020
|
|
|
78,922
|
|
|
|
87,687
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.01%,
principal and interest of $420 due monthly through December 1, 2021
|
|
|
19,655
|
|
|
|
-
|
|
Toyota Finance
|
|
|
|
|
|
|
|
|
Secured by vehicle, 0%, principal and interest of $632 due monthly through August, 2022
|
|
|
37,311
|
|
|
|
-
|
|
Secured by vehicle, 4.87%, principal and interest of $761 due monthly through July, 2021
|
|
|
31,755
|
|
|
|
-
|
|
Secured by
vehicle, 0%, principal and interest of $1,265 due monthly through April 1, 2022
|
|
|
69,566
|
|
|
|
-
|
|
Total Notes Payable
|
|
$
|
622,218
|
|
|
$
|
641,954
|
|
Current maturities
|
|
|
(241,434
|
)
|
|
|
(262,578
|
)
|
Long-term debt, net of current maturities
|
|
$
|
380,784
|
|
|
$
|
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 September 30,
|
|
|
|
2018
|
|
$
|
241,434
|
|
2019
|
|
|
170,401
|
|
2020
|
|
|
107,638
|
|
2021
|
|
|
79,606
|
|
2022
|
|
|
23,139
|
|
Total
|
|
$
|
622,218
|
|
12.
Capital lease obligations
The
following capital lease obligations are included in the condensed consolidated balance sheets:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Capital lease obligations:
|
|
|
|
|
|
|
Current
|
|
$
|
48,581
|
|
|
$
|
51,376
|
|
Long-term
|
|
|
82,013
|
|
|
|
59,907
|
|
Total obligations
|
|
$
|
130,594
|
|
|
$
|
111,283
|
|
Interest expense on capital lease obligations
for the six months ended September 30, 2017 and 2016 amounted to $3,959 and $1,404, and $2,420 and $631 for the three months ended
September 30, 2017 and 2016, respectively.
Future
minimum lease payments under the capital leases are as follows:
Year Ending September 30,
|
|
|
|
2018
|
|
$
|
65,065
|
|
2019
|
|
|
44,062
|
|
2020
|
|
|
26,829
|
|
2021
|
|
|
8,654
|
|
Total minimum lease payments
|
|
|
144,610
|
|
Less: Amount representing interest
|
|
|
(14,016
|
)
|
Total
|
|
$
|
130,594
|
|
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 six months ended September 30, 2017 and 2016, respectively:
|
|
Six months ended September 30, 2017
|
|
|
Wholesale
|
|
Retail
|
|
Total
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
12,756,700
|
|
|
$
|
53,111,718
|
|
|
$
|
65,868,418
|
|
Cost of sales
|
|
|
9,797,526
|
|
|
|
38,623,166
|
|
|
|
48,420,692
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
3,836,604
|
|
|
|
3,836,604
|
|
Gross profit
|
|
$
|
2,959,174
|
|
|
$
|
10,651,948
|
|
|
$
|
13,611,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(18,158
|
)
|
|
$
|
(358,225
|
)
|
|
$
|
(376,383
|
)
|
Depreciation and amortization
|
|
$
|
130,834
|
|
|
$
|
859,749
|
|
|
$
|
990,583
|
|
Capital expenditure
|
|
$
|
22,595
|
|
|
$
|
1,435,859
|
|
|
$
|
1,458,454
|
|
Segment income before income tax provision
|
|
$
|
429,569
|
|
|
$
|
(936,442
|
)
|
|
$
|
(506,873
|
)
|
Income tax provision (benefit)
|
|
$
|
223,376
|
|
|
$
|
(486,950
|
)
|
|
$
|
(263,574
|
)
|
Segment assets
|
|
$
|
11,578,328
|
|
|
$
|
35,329,642
|
|
|
$
|
46,907,970
|
|
|
|
Six months ended September 30, 2016
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
10,411,053
|
|
|
$
|
51,765,739
|
|
|
$
|
62,176,792
|
|
Cost of sales
|
|
|
7,850,731
|
|
|
|
37,989,811
|
|
|
|
45,840,542
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
3,605,453
|
|
|
|
3,605,453
|
|
Gross profit
|
|
$
|
2,560,322
|
|
|
$
|
10,170,475
|
|
|
$
|
12,730,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(86,556
|
)
|
|
$
|
(3,736
|
)
|
|
$
|
(90,292
|
)
|
Depreciation and amortization
|
|
$
|
111,219
|
|
|
$
|
733,955
|
|
|
$
|
845,174
|
|
Capital expenditure
|
|
$
|
327,096
|
|
|
$
|
280,437
|
|
|
$
|
607,533
|
|
Segment income before income tax provision
|
|
$
|
338,109
|
|
|
$
|
454,811
|
|
|
$
|
792,920
|
|
Income tax provision
|
|
$
|
12,462
|
|
|
$
|
344,352
|
|
|
$
|
356,814
|
|
Segment assets
|
|
$
|
8,627,249
|
|
|
$
|
22,883,447
|
|
|
$
|
31,510,696
|
|
The following table presents summary information
by segment for the three months ended September 30, 2017 and 2016, respectively:
|
|
Three months ended September 30, 2017
|
|
|
Wholesale
|
|
Retail
|
|
Total
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
6,587,593
|
|
|
$
|
26,752,299
|
|
|
$
|
33,339,892
|
|
Cost of sales
|
|
|
5,002,638
|
|
|
|
19,723,384
|
|
|
|
24,726,022
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
1,893,762
|
|
|
|
1,893,762
|
|
Gross profit
|
|
$
|
1,584,955
|
|
|
$
|
5,135,153
|
|
|
$
|
6,720,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(8,814
|
)
|
|
$
|
(200,030
|
)
|
|
$
|
(208,844
|
)
|
Depreciation and amortization
|
|
$
|
63,029
|
|
|
$
|
445,535
|
|
|
$
|
508,564
|
|
Capital expenditure
|
|
$
|
9,569
|
|
|
$
|
1,146,424
|
|
|
$
|
1,155,993
|
|
Segment income before income tax provision
|
|
$
|
269,382
|
|
|
$
|
(216,812
|
)
|
|
$
|
52,570
|
|
Income tax provision
|
|
$
|
140,079
|
|
|
$
|
(112,743
|
)
|
|
$
|
27,336
|
|
Segment assets
|
|
$
|
11,578,328
|
|
|
$
|
35,329,642
|
|
|
$
|
46,907,970
|
|
|
|
Three months ended September 30, 2016
|
|
|
Wholesale
|
|
Retail
|
|
Total
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,899,043
|
|
|
$
|
25,987,857
|
|
|
$
|
31,886,900
|
|
Cost of sales
|
|
|
4,502,746
|
|
|
|
19,227,496
|
|
|
|
23,730,242
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
1,765,386
|
|
|
|
1,765,386
|
|
Gross profit
|
|
$
|
1,396,297
|
|
|
$
|
4,994,975
|
|
|
$
|
6,391,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(44,854
|
)
|
|
$
|
(1,864
|
)
|
|
$
|
(46,718
|
)
|
Depreciation and amortization
|
|
$
|
59,307
|
|
|
$
|
372,977
|
|
|
$
|
432,284
|
|
Capital expenditure
|
|
$
|
141,131
|
|
|
$
|
30,240
|
|
|
$
|
171,371
|
|
Segment income before income tax provision
|
|
$
|
238,325
|
|
|
$
|
239,315
|
|
|
$
|
477,640
|
|
Income tax provision
|
|
$
|
7,658
|
|
|
$
|
211,621
|
|
|
$
|
219,279
|
|
Segment assets
|
|
$
|
8,627,249
|
|
|
|
22,883,447
|
|
|
$
|
31,510,696
|
|
14.
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 September 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 September 30, 2017 and March 31, 2017, respectively. For income tax purpose, those NOLs will expire in the year
2030 through 2034.
Income Tax Provision (Benefit)
The provision (benefit) for income taxes
consists of the following components:
|
|
Six months ended
|
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
127,316
|
|
State
|
|
|
-
|
|
|
|
99,101
|
|
|
|
|
-
|
|
|
|
226,418
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(169,919
|
)
|
|
|
115,875
|
|
State
|
|
|
(93,655
|
)
|
|
|
14,521
|
|
|
|
|
(263,574
|
)
|
|
|
130,396
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(263,574
|
)
|
|
$
|
356,814
|
|
Tax
Rate Reconciliation
Following
is a reconciliation of the Company’s effective income tax rate to the United State federal statutory tax rate:
|
|
Six months ended
September 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
|
%
|
|
|
(2
|
%)
|
Effective tax rate
|
|
|
52
|
%
|
|
|
45
|
%
|
Deferred
Taxes
The
effect of temporary differences included in the deferred tax accounts as follows:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Deferred Tax Assets/ (Liabilities):
|
|
|
|
|
|
|
Deferred expenses
|
|
$
|
135,961
|
|
|
$
|
123,260
|
|
Sec 263A Inventory Cap
|
|
|
248,222
|
|
|
|
215,248
|
|
Deferred rent
|
|
|
2,662,409
|
|
|
|
2,467,259
|
|
Depreciation and amortization
|
|
|
(2,829,483
|
)
|
|
|
(2,718,968
|
)
|
Net operating losses
|
|
|
921,303
|
|
|
|
788,039
|
|
Valuation allowance
|
|
|
(788,039
|
)
|
|
|
(788,039
|
)
|
Net Deferred Tax Assets
|
|
$
|
350,373
|
|
|
$
|
86,799
|
|
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 six and three months ended September 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 September 30, 2017 and 2016 were included in advances and receivables – related parties (see Note 7).
Six months ended September 30, 2017
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable &
Perishable
Sales
|
|
New York Mart, Inc.
|
|
$
|
26,911
|
|
|
$
|
22,258
|
|
|
$
|
1,091,046
|
|
Pacific Supermarkets Inc.
|
|
|
40,203
|
|
|
|
23,818
|
|
|
|
1,857,100
|
|
NY Mart MD Inc.
|
|
|
27,017
|
|
|
|
5,091
|
|
|
|
1,686,839
|
|
El Monte
|
|
|
3,293
|
|
|
|
-
|
|
|
|
87,504
|
|
iFresh Harwin Inc
|
|
|
-
|
|
|
|
-
|
|
|
|
96,932
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
4,191
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
52,627
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
99,524
|
|
|
|
$
|
97,424
|
|
|
$
|
51,167
|
|
|
$
|
4,975,763
|
|
Six months ended September 30, 2016
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable &
Perishable Sales
|
|
New York Mart, Inc.
|
|
$
|
24,147
|
|
|
$
|
8,646
|
|
|
$
|
826,501
|
|
Pacific Supermarkets Inc.
|
|
|
29,202
|
|
|
|
10,327
|
|
|
|
1,622,829
|
|
NY Mart MD Inc.
|
|
|
23,715
|
|
|
|
-
|
|
|
|
1,037,419
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
5,414
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
51,820
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
85,178
|
|
|
|
$
|
77,064
|
|
|
$
|
18,973
|
|
|
$
|
3,629,161
|
|
Three months ended September 30, 2017
|
Related Parties
|
|
Management
Fees
|
|
Advertising
Fees
|
|
Non-
Perishable &
Perishable
Sales
|
New York Mart, Inc.
|
|
$
|
13,282
|
|
|
$
|
13,831
|
|
|
$
|
566,022
|
|
Pacific Supermarkets Inc.
|
|
|
19,830
|
|
|
|
14,611
|
|
|
|
939,476
|
|
NY Mart MD Inc.
|
|
|
13,411
|
|
|
|
2,081
|
|
|
|
808,125
|
|
El Monte
|
|
|
3293
|
|
|
|
-
|
|
|
|
87,504
|
|
iFresh Harwin Inc
|
|
|
-
|
|
|
|
-
|
|
|
|
96,932
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
2,999
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
26,271
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
47,762
|
|
|
|
$
|
49,816
|
|
|
$
|
30,523
|
|
|
$
|
2,575,091
|
|
Three months ended September 30, 2016
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable
& Perishable
Sales
|
|
New York Mart, Inc.
|
|
$
|
12,057
|
|
|
$
|
6,406
|
|
|
$
|
470,049
|
|
Pacific Supermarkets Inc
|
|
|
14,536
|
|
|
|
7,247
|
|
|
|
852,705
|
|
NY Mart MD Inc
|
|
|
12,130
|
|
|
|
-
|
|
|
|
629,494
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
3,306
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
24,828
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
44,187
|
|
|
|
$
|
38,723
|
|
|
$
|
13,653
|
|
|
$
|
2,024,569
|
|
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 $354,000 and $334,000 for the six months ended on September 30, 2017 and 2016, and $177,000 and $167,000
for the three months ended on September 30, 2017 and 2016, respectively.
16.
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 September 30, 2017.
Rent expense charged to operations under
operating leases in the six months ended September 30, 2017 and 2016 amounted to $3,256,250 and $3,118,909 and $1,572,134 and
$1,530,003 for the three months ended September 30, 2017 and 2016, respectively.
Future
minimum lease obligations for operating leases with initial terms in excess of one year at September 30, 2017 are as follows:
|
|
Non-related
parties
|
|
|
Related
party
|
|
|
Total
|
|
2018
|
|
$
|
7,022,887
|
|
|
$
|
708,000
|
|
|
$
|
7,730,887
|
|
2019
|
|
|
7,227,475
|
|
|
|
708,000
|
|
|
|
7,935,475
|
|
2020
|
|
|
7,418,004
|
|
|
|
708,000
|
|
|
|
8,126,004
|
|
2021
|
|
|
7,203,448
|
|
|
|
708,000
|
|
|
|
7,911,448
|
|
2022
|
|
|
6,550,116
|
|
|
|
708,000
|
|
|
|
7,258,116
|
|
Thereafter
|
|
|
52,195,641
|
|
|
|
2,537,000
|
|
|
|
54,732,641
|
|
Total payments
|
|
$
|
87,617,571
|
|
|
$
|
6,077,000
|
|
|
$
|
93,694,571
|
|
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.
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 was necessary to resolve this matter. The case was trialed on August 21, 2017 and
concluded on August 29, 2017 with a jury verdict in favor of the Company. The JURY VERDICT FORM issued on August 31, 2017
affirmed that the landlord breached the lease by failing to make the necessary structural repairs to the Premises and take
responsibility to recover Ming’s damages from the breach. After the jury verdict, the landlord filed an appeal
immediately. The new verdict of this case was issued in the Company’s favor on September 29, 2017. The judge awarded us
double damages and attorney’s fees in this case. That will result in a total judgment of $1,590,000 including $795,000
for damage compensation plus the attorneys’ fees and interest and costs. In addition, the landlord was ordered to
make repairs to the building with additional damaged of $2,250 for each month until completed.
However, the landlord is planning to file
another appeal shortly after the verdict based on our acknowledgement. No guaranties or predications can be made at this time
as to ultimate final outcome of this case. 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.
18.
Subsequent Event
On October 2, 2017, the Company
acquired 100% equity interest of New York Mart CT, Inc. (“NYM CT”) from Long Deng, the Company’s Chairman
and Chief Executive Officer, for $3,500,000. The transaction was duly approved by the Company’s Board of Directors. The
purchase price was agreed to based upon a review of the assets and financial statements of NYM CT. The purchase included the
business, lease and equipment of the store. The store is currently under renovation and the Company expects the Connecticut
store to open in December 2017.
On October 2, 2017, the Company
acquired 100% equity interest of New York Mart N. Miami Inc. (“NYM N. Miami”) from Long Deng, the Company’s
Chairman and Chief Executive Officer, and Yang Yu Gao for $3,500,000 and 45,000 shares of the Company’s common stock.
The transaction was duly approved by the Company’s Board of Directors. The purchase price was agreed to based upon a
review of the assets and financial statements of NYM N. Miami. The purchase included the business, lease and equipment the
store. The store is also currently under construction, and, once finished, will be one of the largest Asian supermarkets in
South Florida. The Company expects the Miami store to open in November 2017.
For
purpose of preparing these consolidated financial statements, the Company considered events through November 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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes
forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future
events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may
cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels
of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as “may,” “should,” “could,” “would,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,”
or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include,
but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings. References
to “we”, “us”, “our,” “iFresh” or the “Company” are to iFresh Inc.,
except where the context requires otherwise. The following discussion should be read in conjunction with our unaudited
condensed financial statements and related notes thereto included elsewhere in this report.
Overview
iFresh Inc. (“we,” “us,”
“our,” or “iFresh” or the “Company”) is a Delaware company incorporated in July 2016 in order
to reincorporate E-Compass Acquisition Corp. (“E-Compass”) to Delaware pursuant to the Merger Agreement (as defined
below). Immediately following the reincorporation, we acquired NYM Holding, Inc. (“NYM”). E-Compass was a blank check
company formed for the purpose of entering into a share exchange, asset acquisition, share purchase, recapitalization, reorganization
or other similar business combination with one or more businesses or entities. NYM is a fast growing Asian/Chinese grocery supermarket
chain in the north-eastern U.S. providing food and other merchandise hard to find in mainstream grocery stores. Since NYM was formed
in 1995, NYM has been targeting the Chinese and other Asian population in the U.S. with its in-depth cultural understanding of
its target customer’s unique consumption habits. iFresh currently has nine retail supermarkets across New York, Massachusetts
and Florida. 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.
On July 25, 2016, iFresh entered into a merger
agreement (the “Merger Agreement”) with E-Compass Acquisition Corp., a Cayman Islands company and parent of iFresh,
iFresh Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of iFresh, or “Merger Sub,” NYM, the stockholders
of NYM, and Long Deng, as representative of the stockholders of NYM. Pursuant to the terms of the Merger, on February 10, 2017,
E-Compass merged with and into iFresh in order to redomesticate the Company into Delaware. After the redomestication, Merger Sub
merged with and into NYM, resulting in NYM being a wholly owned subsidiary of iFresh. 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.
At closing on February
10, 2017, iFresh issued iFresh’s stockholders an aggregate of: (i) $5 million in cash, plus, (ii) 12,000,000 shares of our
common stock. In addition, iFresh executed an option agreement to acquire up to an additional four supermarkets prior to March
31, 2017 for aggregate consideration of $10 million in cash. In connection with the closing, holders of 1,937,967 of E-Compass’s
ordinary shares elected to redeem their shares and the Company paid $20,154,857 in connection with such redemption. The option
agreement subsequently expired unexercised.
On July 13, 2017, the Company acquired Mia
Supermarket in Orlando FL, 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 acquired the supermarket for $1,050,000 in cash. The purchase included property and equipment, and inventory of
the old 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 Board of Directors and the price was agreed to be based upon a review of the assets and financial statements
of Glen Cove. Glen Cove is setting up a 22,859 square-foot brand new grocery store being setting up 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 the sixth in New York. The Company expects iFresh Glen Cove to open in the first quarter of 2018.
Recent Developments
On October 2, 2017, the Company acquired
all of the shares of New York Mart CT, Inc. (“NYM CT”) from Long Deng, the Company’s Chairman and Chief Executive
Officer, for $3,500,000. The store is currently under renovation and the Company expects the Connecticut store to open in December
2017.
Also on October 2, 2017, the Company acquired all of the shares of New York Mart N. Miami Inc. (“NYM N. Miami”)
from Long Deng, the Company’s Chairman and Chief Executive Officer, and Yang Yu Gao for $3,500,000 and 45,000 shares of
the Company’s common stock. . The store is currently under construction, and, once finished, will be one of the biggest
Asian supermarkets in South Florida. The Company expects the Miami store to open in November 2017.
Both transactions were approved by the Company’s
Board of Directors and the price was agreed to based upon reviews of the assets and financial statements of NYM CT and NYM N.
Miami. The purchase included the business, lease and equipment of the store. The store is currently under renovation and the Company
expects the Connecticut store to open in December 2017.
Business Outlook
iFresh is an
Asian Chinese supermarket chain in the U.S. northeastern region with nine retail super markets and two wholesale facilities.
iFresh plans to strategically expand along the I-95 corridor and its goal is to cover most of the States on the east coast of
the United States, with focus in the area where there is a large Asian population. iFresh believes that the following are among
its advantages in the market:
|
a.
|
iFresh provides unique products to meet the demands of the Asian/Chinese American Market;
|
|
b.
|
iFresh has established a merchandising system backed by an in-house wholesale business and by long-standing relationships with farms;
|
|
c.
|
iFresh maintains an in-house cooling system with unique hibernation technology that has developed over 20 years to preserve perishables, especially produce and seafood;
|
|
d.
|
iFresh capitalizes on economies of scale, allowing strong negotiating power with upstream vendors and downstream customers; and
|
|
e.
|
iFresh has a proven and replicable track record of management, operation, acquisition and organic growth.
|
iFresh’s net sales were $65.9 million
and $62.2 million for the six months ended September 30, 2017 and 2016, respectively. In terms of sales by category, perishables
constituted approximately 60.5% of the total sales for the six months ended September 30, 2017. iFresh incurred a net loss of $0.24
million for the six months ended September 30, 2017, a decrease of $0.68 million, or 146%, from $0.44 million of net income for
the six months ended September 30, 2016. However, iFresh had net income of $25,234 for the three months ended September 30, 2017,
significantly improved from a net loss of $0.27 million for the three months ended June 30, 2017. Adjusted EBITDA was $0.9 million
for the six months ended September 30, 2017, a decrease of $1.3 million, or 61%, from $2.2 million for the six months ended September
30, 2016. For additional information on Adjusted EBITDA, See the section entitled “iFresh’s Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Adjusted EBITDA,” beginning on page 25.
Factors Affecting iFresh’s Operating Results
Seasonality
iFresh’s business shows seasonal fluctuations.
Sales in its first and second fiscal quarters (ending June 30 and September 30, respectively) are usually 5% to 10% lower than
in third and fourth quarters (ending December 31 and March 31, respectively). In iFresh’s third fiscal quarter, customers
make holiday purchases for Thanksgiving and Christmas. In iFresh’s fourth fiscal 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.
Competition
iFresh faces competition from smaller or dispersed
competitors focusing on the niche market of Chinese and other Asian consumers. However, with the rapid growth of the Chinese and
other Asian population and their consumption power, other competitors may also begin operating in this niche market in the future.
Those competitors include: (i) national conventional supermarkets, (ii) regional supermarkets, (iii) national superstores, (iv)
alternative food retailers, (v) local foods stores, (vi) small specialty stores, and (vii) farmers’ markets.
Payroll
Minimum wage rates in some states and cities
are scheduled to increase every year on December 31 until they reach $15.00 per hour. For example, the minimum wage rate is expected
to increase from $11 on December 31, 2016 to $13 per hour on December 31, 2017 in New York City. Payroll and related expenses increased
by $2 million, or 34% for the six months ended September 30, 2017 as compared to the same period of last year as a result of increase
of wages and head count, and the addition of its business operation and financial reporting department since iFresh became a public
company in February 2017. iFresh plans to implement ERP systems in the future to improve operating efficiency and reduce labor
costs. In addition, the Company is in the process of implementing ADP’s comprehensive personnel management system to enhance
the monitoring of employees’ worktime and reducing the cost of human resources.
Vendor and Supply Management
iFresh believes that a centralized and efficient
vendor and supply management system is the key to business success and profitability. iFresh operates its own wholesale facilities,
which supplied about 41% of its products as of September 30, 2017. iFresh recently 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.
Store Maintenance and Renovation
From time to time, iFresh conducts maintenance
on the fixtures and equipment for its stores. Any maintenance or renovations could interrupt the operation of our stores and result
in a decline of customer volume, and therefore sales volume, but will, in the opinion of management, boost sales after they are
completed. Significant maintenance or renovation would affect our operation and operating results.
Store Acquisitions and Openings
iFresh expects the new stores it acquires
or opens to be one of the primary drivers 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 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. iFresh may incur higher than normal employee costs associated
with set-up, 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. In October 2017, the Company acquired two additional stores, one of which is located
in Miami, Florida and the other is located in Connecticut.
How to Assess iFresh’s Performance
In assessing performance, iFresh’s
management considers a variety of performance and financial measures, including principal growth in net sales, gross profit and
Adjusted EBITDA. The key measures that we use to evaluate the performance of our business are set forth below:
Net Sales
iFresh’s net sales comprise gross sales
net of coupons and discounts. We do not record sales taxes as a component of retail revenues as we consider it a pass-through conduit
for collecting and remitting sales taxes.
Gross Profit
iFresh calculates gross profit as net sales
less cost of sales and occupancy costs. Gross margin represents gross profit as a percentage of its net sales. Occupancy costs
include store rental costs and property taxes. The components of our cost of sales and occupancy costs may not be identical to
those of its competitors. As a result, our gross profit and gross margin may not be comparable to similar data made available by
our competitors.
Cost of sales includes the cost of inventory
sold during the period, including the direct costs of purchased merchandise (net of discounts and allowances), distribution and
supply chain costs, buying costs and supplies. iFresh recognizes vendor allowances and merchandise volume related rebate allowances
as a reduction of inventories during the period when earned and reflects the allowances as a component of cost of sales as the
inventory is sold. Shipping and handling for inventories purchased are included in cost of goods sold.
Selling, General and Administrative Expenses
Selling, general and administrative expenses
primarily consist of retail operational expenses, administrative salaries and benefits costs, marketing, advertising and corporate
overhead.
Adjusted EBITDA
iFresh believes that Adjusted EBITDA is a
useful performance measure and can be used to facilitate a comparison of NYM’s operating performance on a consistent basis
from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than GAAP measures
alone can provide. iFresh also uses Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected
performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation
metric in determining achievement of certain compensation programs and plans for employees, including senior executives. Other
companies in the industry may calculate Adjusted EBITDA differently than iFresh does, limiting its usefulness as a comparative
measure.
iFresh’s management defines Adjusted
EBITDA as earnings before interest expense, income taxes, depreciation and amortization expense, store opening costs, and non-recurring
expenses. All of the omitted items are either (i) non-cash items or (ii) items that we do not consider in assessing its on-going
operating performance. Because it omits non-cash items, iFresh’s management believes that Adjusted EBITDA is less susceptible
to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of
factors that affect its operating performance. iFresh’s management believes that the use of these non-GAAP financial measures
provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the company’s
financial measures with other specialty retailers, many of which present similar non-GAAP financial measures to investors.
Results of Operations for the six months ended September
30, 2017 and 2016
|
|
For the six months ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Net sales-third parties
|
|
$
|
60,892,655
|
|
|
$
|
58,547,631
|
|
|
$
|
2,345,024
|
|
|
|
4
|
%
|
Net sales-related parties
|
|
|
4,975,763
|
|
|
|
3,629,161
|
|
|
|
1,346,602
|
|
|
|
37
|
%
|
Total Sales
|
|
|
65,868,418
|
|
|
|
62,176,792
|
|
|
|
3,691,626
|
|
|
|
6
|
%
|
Cost of sales-third parties
|
|
|
44,468,196
|
|
|
|
43,154,963
|
|
|
|
1,313,233
|
|
|
|
3
|
%
|
Cost of sales-related parties
|
|
|
3,952,496
|
|
|
|
2,685,579
|
|
|
|
1,266,917
|
|
|
|
47
|
%
|
Occupancy costs
|
|
|
3,836,604
|
|
|
|
3,605,453
|
|
|
|
231,152
|
|
|
|
6
|
%
|
Gross Profit
|
|
|
13,611,122
|
|
|
|
12,730,797
|
|
|
|
880,325
|
|
|
|
7
|
%
|
Selling, general and administrative expenses
|
|
|
14,961,027
|
|
|
|
12,356,026
|
|
|
|
2,605,001
|
|
|
|
21
|
%
|
Income (Loss) from operations
|
|
|
(1,349,905
|
)
|
|
|
374,771
|
|
|
|
(1,724,676
|
)
|
|
|
-460
|
%
|
Interest expense
|
|
|
(376,383
|
)
|
|
|
(90,292
|
)
|
|
|
(286,091
|
)
|
|
|
317
|
%
|
Other income
|
|
|
1,219,415
|
|
|
|
508,441
|
|
|
|
710,974
|
|
|
|
140
|
%
|
Income (Loss) before income tax provision
|
|
|
(506,873
|
)
|
|
|
792,920
|
|
|
|
(1,299,793
|
)
|
|
|
-164
|
%
|
Income tax (benefit) provision
|
|
|
(263,574
|
)
|
|
|
356,814
|
|
|
|
(620,388
|
)
|
|
|
-174
|
%
|
Net income (loss)
|
|
$
|
(243,299
|
)
|
|
$
|
436,106
|
|
|
$
|
(679,405
|
)
|
|
|
-156
|
%
|
Net income (loss) attributable to common shareholders
|
|
$
|
(243,299
|
)
|
|
$
|
436,106
|
|
|
$
|
(679,405
|
)
|
|
|
-156
|
%
|
Net Sales
|
|
For the six months ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Net sales of retail
|
|
$
|
53,111,718
|
|
|
$
|
51,765,739
|
|
|
$
|
1,345,979
|
|
|
|
3
|
%
|
Net sales of wholesale-third parties
|
|
|
7,780,937
|
|
|
|
6,781,892
|
|
|
|
999,045
|
|
|
|
15
|
%
|
Net sales of wholesale-related parties
|
|
|
4,975,763
|
|
|
|
3,629,161
|
|
|
|
1,346,602
|
|
|
|
37
|
%
|
Total Net Sales
|
|
$
|
65,868,418
|
|
|
$
|
62,176,792
|
|
|
$
|
3,691,626
|
|
|
|
6
|
%
|
iFresh’s net sales were $65.9 million
for the six months ended September 30, 2017, an increase of $3.7 million, or 5.9%, from $62.2 million for the six months ended
September 30, 2016.
Net retail sales increased by $1.3 million,
or 3%, from $51.8 million for the six months ended September 30, 2016, to $53.1 million for the six months ended September 30,
2017. The increase resulted mainly from better product offering at stores and more effective marketing to promote the “iFresh”
brand compared to the same period of 2016. Our total net wholesale sales increased by $2.4 million, from $10.4 million for the
six months ended September 30, 2016 to $12.8 million for the six months ended September 30, 2017, which was attributable to an
increase of $1.4 million in sales to related parties and $1 million to third party due to iFresh focusing on improving its central
procurement system through its wholesale facilities.
Cost of sales, Occupancy costs and Gross Profit
Retail Segment
|
|
For the six months ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Cost of sales
|
|
$
|
38,623,166
|
|
|
$
|
37,989,811
|
|
|
$
|
633,355
|
|
|
|
1.7
|
%
|
Occupancy costs
|
|
|
3,836,604
|
|
|
|
3,605,453
|
|
|
|
231,151
|
|
|
|
6.4
|
%
|
Gross profit
|
|
|
10,651,948
|
|
|
|
10,170,475
|
|
|
|
481,473
|
|
|
|
4.7
|
%
|
Gross margin
|
|
|
20.1
|
%
|
|
|
19.6
|
%
|
|
|
0.5
|
%
|
|
|
-
|
|
For the retail segment, gross profit
was $10.7 million and $10.2 million for the six months ended September 30, 2017 and 2016, respectively. Gross margin was
20.1% and 19.6% for the six months ended September 30, 2017 and 2016, respectively. The gross profit increased mainly due to
the increase in sales, and the minor fluctuation in gross margin is in the normal range.
Cost of sales increased by $0.6 million,
or 1.7%, from $38.0 million for the six months ended September 30, 2016 to $38.6 million for the six months ended September 30,
2017. The increase was in line with the increased sales for the six months.
Occupancy costs consist of
store-level expenses such as rental expense, property taxes and other store specific costs. Occupancy costs increased by
approximately 6.4 %, from $3.6 million for the six months ended September 30, 2016 to $3.8 million for the six months ended
September 30, 2017, which was mainly attributable to increased taxes and store specific costs and the additional rent paid
for the newly acquired E. Colonial Store.
Wholesale Segment
|
|
For the six months ended
September 30,
|
|
Changes
|
|
|
2017
|
|
2016
|
|
$
|
|
%
|
Cost of sales
|
|
$
|
9,797,526
|
|
|
$
|
7,850,731
|
|
|
$
|
1,946,795
|
|
|
|
24.8
|
%
|
Gross profit
|
|
$
|
2,959,174
|
|
|
|
2,560,322
|
|
|
|
398,852
|
|
|
|
15.6
|
%
|
Gross margin
|
|
|
23.2
|
%
|
|
|
24.6
|
%
|
|
|
-1.4
|
%
|
|
|
|
|
For the wholesale segment, cost of sales
increased by $1.9 million or 24.8% from $7.9 million for the six months ended September 30, 2016 to $9.8 million for the six months
ended September 30, 2017. The increase was attributable to continuingly increasing wholesale costs under current economic environment.
Gross profit increased by $0.4 million,
or 15.6% from $2.6 million for the six months ended September 30, 2016 to $3.0 million for the six months ended September 30,
2017. Gross margin decreased by 1.4% from 24.6% to 23.2%. The decrease of gross margin was due to tougher market competition
we are facing resulting in the Company being unable to transfer all of the increase in costs to customers.
Selling, General and Administrative Expenses
Selling, general and administrative expenses
was $15 million for the six months ended September 30, 2017, an increase of $2.6 million, or 21%, compared to $12.4 million for
the six months ended September 30, 2016, which was mainly attributable to $0.3 million of professional service fees, increased
payroll expenses of approximate $0.7 million and the additional expenses of $0.5 million related to two stores newly acquired on
July 13, 2017, one of which is in the process of being renovated and has no revenue.
Interest Expense
Interest expense was $376,383 for the six
months ended September 30, 2017, an increase of $286,091, or 317%, from $90,292 for the six months ended September 30, 2016, primarily
attributable to the increased $1.5 million line of credit and the $1.05 million of delayed term loan to acquire E. Colonial.
Other income
Other income was $1,219,415 for the six months
ended September 30, 2017, an increase of $710,974, or 140%, from $508,441 for the six months ended September 30, 2016, primarily
attributable to the insurance reimbursement for Ming’s fire damage occurred in March for 0.5 million and the settlement
gain of the lease dispute from U2.
Income Taxes Provision (Benefit)
iFresh is subject to U.S.
federal and state income taxes. We utilized income tax benefit of $0.26 million for the six months ended September 30, 2017,
a decrease of $0.62 million, or 174%, compared to $0.36 million of income tax provision for the six months ended September
30, 2016, which was mainly attributable to the decrease in taxable income. For the six months ended September 30, 2017, the
Company had a loss before tax and the income tax benefit represents the deferred income tax benefit derived from
net operating loss.
Net Income
|
|
For the six months ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Net income
|
|
$
|
(243,299
|
)
|
|
$
|
436,106
|
|
|
$
|
(679,405)
|
)
|
|
|
-156
|
%
|
Net Profit Margin
|
|
|
-0.4
|
%
|
|
|
0.7
|
%
|
|
|
-1.1
|
%
|
|
|
|
|
Net loss was $0.24 million for the
six months ended September 30, 2017, a decrease of $0.68 million, or 156%, from $0.44 million of net income for the six months ended
September 30, 2016, mainly attributable to the increase of selling, general and administrative expenses and higher interest expenses
as stated above.
Adjusted EBITDA
|
|
For the six months ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Net income (loss)
|
|
$
|
(243,299
|
)
|
|
$
|
436,106
|
|
|
$
|
(679,405
|
)
|
|
|
-156
|
%
|
Interest expenses
|
|
|
376,383
|
|
|
|
90,292
|
|
|
|
286,091
|
|
|
|
317
|
%
|
Income tax provision (benefit)
|
|
|
(263,574
|
)
|
|
|
356,814
|
|
|
|
(620,388
|
)
|
|
|
-174
|
%
|
Depreciation
|
|
|
832,667
|
|
|
|
778,508
|
|
|
|
54,159
|
|
|
|
7
|
%
|
Amortization
|
|
|
157,916
|
|
|
|
66,666
|
|
|
|
91,250
|
|
|
|
137
|
%
|
Merger expenses
(1)
|
|
|
-
|
|
|
|
490,000
|
|
|
|
(490,000
|
)
|
|
|
-100
|
%
|
Adjusted EBITDA
|
|
$
|
860,093
|
|
|
$
|
2,218,386
|
|
|
$
|
(1,358,293
|
)
|
|
|
-61
|
%
|
Percentage of sales
|
|
|
1.3
|
%
|
|
|
3.6
|
%
|
|
|
-2.3
|
%
|
|
|
|
|
|
(1)
|
Merger expenses were professional fees paid to a financial advisor, legal counsel and auditors in connection with the business combination transaction with E-Compass, which are non-recurring expenses and added back for adjusted EBITDA.
|
Adjusted EBITDA was $860,093
for the six months ended September 30, 2017, a decrease of $1,358,293 or 61%, as compared to $2.2 million for the six months
ended September 30, 2016, mainly attributable to the decreased of net income of $0.7 million and decrease of merger expenses
of $0.5 million. The ratio of Adjusted EBITDA to sales was 1.3% and 3.6% for the six months ended September 30, 2017 and
2016, respectively.
Results
of Operations for the three months ended September 30, 2017 and 2016
|
|
For the three months ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Net sales-third parties
|
|
$
|
30,764,800
|
|
|
$
|
29,862,331
|
|
|
$
|
902,469
|
|
|
|
3
|
%
|
Net sales-related parties
|
|
|
2,575,092
|
|
|
|
2,024,569
|
|
|
|
550,523
|
|
|
|
27
|
%
|
Total Sales
|
|
|
33,339,892
|
|
|
|
31,886,900
|
|
|
|
1,452,992
|
|
|
|
5
|
%
|
Cost of sales-third parties
|
|
|
22,765,456
|
|
|
|
22,376,055
|
|
|
|
389,401
|
|
|
|
2
|
%
|
Cost of sales-related parties
|
|
|
1,960,566
|
|
|
|
1,354,187
|
|
|
|
606,379
|
|
|
|
45
|
%
|
Occupancy costs
|
|
|
1,893,762
|
|
|
|
1,765,386
|
|
|
|
128,376
|
|
|
|
7
|
%
|
Gross Profit
|
|
|
6,720,108
|
|
|
|
6,391,272
|
|
|
|
328,836
|
|
|
|
5
|
%
|
Selling, general and administrative expenses
|
|
|
7,476,204
|
|
|
|
6,130,117
|
|
|
|
1,346,087
|
|
|
|
22
|
%
|
Income (Loss) from operations
|
|
|
(756,096
|
)
|
|
|
261,155
|
|
|
|
(1,017,251
|
)
|
|
|
-390
|
%
|
Interest expense
|
|
|
(208,844
|
)
|
|
|
(46,718
|
)
|
|
|
(162,126
|
)
|
|
|
347
|
%
|
Other income
|
|
|
1,017,510
|
|
|
|
263,203
|
|
|
|
754,307
|
|
|
|
287
|
%
|
Income before income tax provision
|
|
|
52,570
|
|
|
|
477,640
|
|
|
|
(425,070
|
)
|
|
|
-89
|
%
|
Income tax provision
|
|
|
27,336
|
|
|
|
219,279
|
|
|
|
(191,943
|
)
|
|
|
-88
|
%
|
Net income
|
|
$
|
25,234
|
|
|
$
|
258,361
|
|
|
$
|
(233,127
|
)
|
|
|
-90
|
%
|
Net income attributable to common shareholders
|
|
$
|
25,234
|
|
|
$
|
258,361
|
|
|
$
|
(233,127
|
)
|
|
|
-90
|
%
|
Net
Sales
|
|
For the three months ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Net sales of retail
|
|
$
|
26,752,299
|
|
|
$
|
25,987,857
|
|
|
$
|
764,442
|
|
|
|
3
|
%
|
Net sales of wholesale-third parties
|
|
|
4,012,501
|
|
|
|
3,874,474
|
|
|
|
138,027
|
|
|
|
4
|
%
|
Net sales of wholesale-related parties
|
|
|
2,575,092
|
|
|
|
2,024,569
|
|
|
|
550,523
|
|
|
|
27
|
%
|
Total Net Sales
|
|
$
|
33,339,892
|
|
|
$
|
31,886,900
|
|
|
$
|
1,452,992
|
|
|
|
5
|
%
|
iFresh’s
net sales were $33.3 million for the three months ended September 30, 2017, an increase of $1.5 million, or 5%, from $31.9 million
for the three months ended September 30, 2016.
Net retail sales increased by $0.8 million,
or 3%, from $26 million for the three months ended September 30, 2016, to $26.8 million for the three months ended September 30,
2017. The increase resulted mainly from the sales contributed from the newly opened E. Colonial store in Florida of $0.8 million.
Our total net wholesale sales increased by $0.7 million, from $5.9 million for the three months ended September 30, 2016 to $6.6
million for the three months ended September 30, 2017, which was attributable to an increase of $0.6 million in sales to related
parties and $0.1 million to third party due to iFresh focusing on improving its central procurement system through its wholesale
facilities.
Cost
of sales, Occupancy costs and Gross Profit
Retail Segment
|
|
For the three months ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Cost of sales
|
|
$
|
19,723,384
|
|
|
$
|
19,227,496
|
|
|
$
|
495,888
|
|
|
|
2.6
|
%
|
Occupancy costs
|
|
|
1,893,762
|
|
|
|
1,765,386
|
|
|
|
128,376
|
|
|
|
7.3
|
%
|
Gross profit
|
|
|
5,135,153
|
|
|
|
4,994,975
|
|
|
|
140,178
|
|
|
|
2.8
|
%
|
Gross margin
|
|
|
19.2
|
%
|
|
|
19.2
|
%
|
|
|
-
|
|
|
|
|
|
For the retail segment, gross profit
was $5.1 million and $5.0 million for the three months ended September 30, 2017 and 2016, respectively. Gross margin remained
stable at 19.2% for the three months ended September 30, 2017 and 2016. The increase in gross profit was due to an increase
in purchases through our central procurement system.
Cost of sales increased by $0.5 million,
or 2.5%, from $19.2 million for the three months ended September 30, 2016 to $19.7 million for the three months ended September
30, 2017. The increase was in line with the increase in sales for the three months.
Occupancy costs consist of store-level
expenses such as rental expense, property taxes and other store specific costs. Occupancy costs increased by approximately
$0.1 million, or 7.2 %, from $1.8 million for the three months ended September 30, 2016 to $1.9 million for the three months
ended September 30, 2017, which was mainly attributable to increased taxes and store specific costs and the rent of the newly
acquired E. Colonial store.
Wholesale Segment
|
|
For the three months ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Cost of sales
|
|
$
|
5,002,638
|
|
|
$
|
4,502,746
|
|
|
$
|
499,892
|
|
|
|
11.1
|
%
|
Gross profit
|
|
$
|
1,584,955
|
|
|
|
1,396,297
|
|
|
|
188,658
|
|
|
|
13.5
|
%
|
Gross margin
|
|
|
24.1
|
%
|
|
|
23.7
|
%
|
|
|
0.4
|
%
|
|
|
|
|
For the wholesale segment, cost of sales
increased by $0.5 million, or 11%, from $4.5 million for the three months ended September 30, 2016 to $5.0 million for the three
months ended September 30, 2017. The increase in cost of sales was in par with the increased sales.
Gross profit increased by $0.2 million, or 13.5%
from $1.4 million for the three months ended September 30, 2016 to $1.6 million for the three months ended September 30, 2017.
Gross margin increased by 0.4% from 23.7% to 24.1%. The increase in gross profit was minimal and we consider
the gross margin variation to be within normal business fluctuations.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses
was $7.5 million for the three months ended September 30, 2017, an increase of $1.3 million, or 22%, compared to $6.1 million for
the three months ended September 30, 2016, which was mainly attributable to increased payroll expenses and the additional expenses
related to two stores newly acquired on July 13, 2017, one of which is in the process of being renovated and has no revenue.
Interest
Expense
Interest expense was $208,844 for the three
months ended September 30, 2017, an increase of $162,126, or 347%, from $46,718 for the three months ended September 30, 2016, primarily
attributable to the increased $1.5 million line of credit and the $1.05 million of delayed term loan to acquire E. Colonial.
Other
income
Other
income was $1.1 million for the three months ended September 30, 2017, an increase of $0.75 million, or 287%, from
$0.3 million for the three months ended September 30, 2016, primarily as a result of the insurance
payout for Ming’s fire damage occurred in March for $0.5 million, and the settlement gain of the lease dispute
from U2.
Income
Taxes Provision
iFresh is subject to U.S. federal and state
income taxes. Income tax was $27,336 for the three months ended September 30, 2017, a decrease of $0.2 million, or 88%, compared
to $0.2 million of tax for the three months ended September 30, 2016, which was mainly attributable to the decrease in taxable
income. For the three months ended September 30, 2017, the Company had a small gain before tax of $52,570.
Net
Income
|
|
For the three months ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Net income (loss)
|
|
$
|
25,234
|
|
|
$
|
258,361
|
|
|
$
|
(233,127
|
)
|
|
|
-90
|
%
|
Net Profit Margin
|
|
|
0.08
|
%
|
|
|
0.8
|
%
|
|
|
-0.72
|
%
|
|
|
|
|
Net income was $25,234 for the three
months ended September 30, 2017, a decrease of $0.23 million, or 90%, from $0.26 million of net income for the three months ended
September 30, 2016, mainly attributable to the increase of selling, general and administrative expenses and higher interest expenses
as stated above.
Adjusted
EBITDA
|
|
For the three month ended
September 30,
|
|
|
Changes
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Net income
|
|
$
|
25,234
|
|
|
$
|
258,361
|
|
|
$
|
(233,127
|
)
|
|
|
-90
|
%
|
Interest expenses
|
|
|
208,844
|
|
|
|
46,718
|
|
|
|
162,126
|
|
|
|
347
|
%
|
Income tax provision
|
|
|
27,336
|
|
|
|
219,279
|
|
|
|
(191,943
|
)
|
|
|
-88
|
%
|
Depreciation
|
|
|
429,606
|
|
|
|
398,951
|
|
|
|
30,655
|
|
|
|
8
|
%
|
Amortization
|
|
|
78,958
|
|
|
|
33,333
|
|
|
|
45,625
|
|
|
|
137
|
%
|
Merger expenses
(1)
|
|
|
-
|
|
|
|
490,000
|
|
|
|
(490,000
|
)
|
|
|
-100
|
%
|
Adjusted EBITDA
|
|
$
|
769,978
|
|
|
$
|
1,446,642
|
|
|
$
|
(676,664
|
)
|
|
|
-47
|
%
|
Percentage of sales
|
|
|
2.3
|
%
|
|
|
4.5
|
%
|
|
|
-2.2
|
%
|
|
|
|
|
(1)
|
Merger expenses were professional fees paid
to a financial advisor, legal counsel and auditors in connection with the business combination transaction with E-Compass,
which are non-recurring expenses and added back for adjusted EBITDA.
|
Adjusted EBITDA was
$769,978 for the three months ended September 30, 2017, a decrease of $676,664 or 47%, as compared to $1.4 million for the
three months ended September 30, 2016, mainly attributable to the decreased net income of approximately $230,000 and decrease
of merger expenses of approximately $490,000. The ratio of Adjusted EBITDA to sales was 2.3% and 4.5% for the three months
ended September 30, 2017 and 2016, respectively.
Liquidity and Capital Resources
As of September 30, 2017, iFresh had cash and
cash equivalents of approximately $1.0 million. iFresh has 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. Although iFresh’s
management believes that the cash generated from operations will be sufficient to meet its normal working capital needs for at
least the next twelve months, its 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 September 30, 2017. 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 and the quick inventory turnover.
We had $16.7 million of advances to and receivables
from the related parties we intend to acquire, which will be used to offset part of the acquisition consideration. In addition,
we had $6.45 million of unused credit line from Key Bank, which includes a revolving credit of $2.5 million for making advances
and the issuance of letters of credit, and $3.95 million of a delayed draw term loan. 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. If we are not able to turn
over our inventory and collect our receivables in time as we have done in the past, Mr. Long Deng, the majority shareholder and
Chief Executive Officer of iFresh, has indicated that he will personally fund iFresh’s operations as needed. 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 six months ended September 30, 2017 and 2016.
|
|
For the six months ended
September 30,
|
|
|
2017
|
|
2016
|
Net cash provided by (used in) operating activities
|
|
$
|
(993,367
|
)
|
|
$
|
2,917,448
|
|
Net cash used in investing activities
|
|
|
(3,178,827
|
)
|
|
|
(3,053,513
|
)
|
Net cash provided by financing activities
|
|
|
2,680,184
|
|
|
|
262,927
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(1,492,010
|
)
|
|
$
|
126,862
|
|
Operating Activities
Net cash used in operating activities consists
primarily of net income adjusted for non-cash items, including depreciation and amortization, changes in deferred income taxes,
and the effect of working capital changes. Net cash used in operating activities was approximately $ 1.0 million for the six months
ended September 30, 2017, a decrease of $3.9 million, or 134%, compared to $2.9 million of cash provided by operating activities
for the six months ended September 30, 2016. The decrease in our cash from operating activities was mainly because we collected
less account accounts, spent more on inventory and prepaid expenses and paid more in accounts payable for the six months ended
September 30, 2016 than for the six months ended September 30, 2016.
Investing Activities
Net cash used in investing activities
was approximately $3.2 million for the six months ended September 30, 2017, an increase of $0.1 million, compared to $3.1
million for the six months ended September 30, 2016. The increase in our investment spending was primarily attributable to
the acquisition of two new stores occurred in July 2017.
Financing Activities
Net cash provided by
financing activities was approximately $2.7 million for the six months ended September 30, 2017, which mainly consisted of
net cash flow from borrowing against bank loans and lines of credit of $3.5 million. Net cash provided by financing
activities was $0.3 million for the six months ended September 30, 2016, which mainly consisted of $ 0.2 million from
borrowings against lines of credit, notes payable, offsetting the repayment of credit lines and notes payable
correspondingly.
Commitments and Contractual Obligations
The following table presents the Company’s
material contractual obligations as of September 30, 2017:
Contractual Obligations (unaudited)
|
|
Total
|
|
|
Less than 1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than 5 years
|
|
Bank Loans
|
|
$
|
17,689,082
|
|
|
$
|
1,450,285
|
|
|
$
|
3,013,167
|
|
|
$
|
13,225,630
|
|
|
|
-
|
|
Estimated interest payments on bank loans
|
|
|
1,503,625
|
|
|
|
420,003
|
|
|
|
711,032
|
|
|
|
372,590
|
|
|
|
-
|
|
Notes payable
|
|
|
622,218
|
|
|
|
241,434
|
|
|
|
278,039
|
|
|
|
102,745
|
|
|
|
-
|
|
Capital lease obligations
|
|
|
143,514
|
|
|
|
65,065
|
|
|
|
70,891
|
|
|
|
7,558
|
|
|
|
-
|
|
Operating Lease Obligations
(1)
|
|
|
93,694,571
|
|
|
|
7,730,887
|
|
|
|
16,061,479
|
|
|
|
15,169,564
|
|
|
|
54,732,641
|
|
|
|
$
|
113,653,010
|
|
|
$
|
9,907,674
|
|
|
$
|
20,134,608
|
|
|
$
|
28,878,087
|
|
|
$
|
54,732,641
|
|
(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
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.
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 apply the provisions of the authoritative
guidance on accounting for uncertainty in income taxes that was issued by the Financial Accounting Standards Board, or FASB. Pursuant
to this guidance, and may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the
tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax
benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit
that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative guidance also addresses other
items related to uncertainty in income taxes, including derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition.
Recently Issued Accounting Pronouncements
In 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 (“ASU 2017-05”) to provide guidance for recognizing
gains and losses from the transfer of nonfinancial assets and in-substance nonfinancial assets in contracts with non-customers,
unless other specific guidance applies. The standard requires a company to derecognize nonfinancial assets once it transfers control
of a distinct nonfinancial asset or distinct in substancenon financial asset. Additionally, when a company transfers its controlling
interest in a nonfinancial asset, but retains a noncontrolling ownership interest, the company is required to measure any noncontrolling
interest it receives or retains at fair value. The guidance requires companies to recognize a full gain or loss on the transaction.
ASU 2017-05 is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting
period. The effective date of this guidance coincides with revenue recognition guidance. The Company does not expect that the
adoption of this guidance will have a material impact on its unaudited condensed consolidated financial statements.
No other new
accounting pronouncements issued or effective had, or are expected to have, a material impact on the Company’s consolidated
financial statements.