See accompanying notes to the unaudited
condensed consolidated financial statements
See accompanying notes to the unaudited
condensed consolidated financial statements
The accompanying notes are an
integral part of these condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. Organization and Description of Business
Organization and General
iFresh Inc. (“iFresh”) is a
Delaware company incorporated in July 2016 in order to reincorporate E-Compass Acquisition Corp. (“E-Compass”) to Delaware
pursuant to the Merger Agreement (as defined below under “Redomestication”). E-Compass was incorporated in Cayman Islands
on September 23, 2014 as a blank check company whose objective is to enter into a merger, share exchange, asset acquisition, share
purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities, or entering
into contractual arrangements that gives E-Compass control over such a target business (a “Business Combination”).
Redomestication
On July 25, 2016, iFresh entered into the
Merger Agreement with E-Compass, iFresh Merger Sub Inc. (“Merger Sub”), a Delaware corporation and wholly owned subsidiary
of iFresh, and NYM Holding, Inc. (“NYM”), the stockholders of NYM, and Long Deng, as representative of the stockholders
of NYM. Pursuant to the terms of the Merger Agreement, on February 10, 2017, E-Compass would merge with and into iFresh in order
to redomesticate E-Compass into Delaware (the “Redomestication Merger”). At the time of the Redomestication, each E-Compass
ordinary share was converted into one share of common stock of iFresh and each E-Compass Right was converted into one substantially
equivalent right (“iFresh Right”) to receive one-tenth (1/10) of a share of iFresh common stock on the consummation
of the Business Combination. In connection with the Redomestication, E-Compass ceased to exist and iFresh is the surviving corporation
and successor registrant that will continue to file reports under Section 12(b) of the Securities Exchange Act of 1934.
Business Combination
On February 10, 2017, after the Redomestication
Merger, Merger Sub merged with and into NYM, resulting in NMY being a wholly owned subsidiary of iFresh (the “Merger”).
The transaction constituted a business combination. iFresh closed the business combination by paying NYM’s stockholders an
aggregate of: (i) $5 million in cash, plus, (ii) 12,000,000 shares of iFresh’s common stock (the deemed value of the shares
in the Merger Agreement) as consideration. At closing, iFresh also executed an option agreement to acquire up to additional four
supermarkets prior to March 31, 2017 for aggregate consideration of $10 million in cash, less any advances or receivables owed
to the Company (see Note 6). The option agreement subsequently expired unexercised.
In connection with the closing, holders
of 1,937,967 of the Company’s ordinary shares elected to redeem their shares and iFresh paid $20,154,857 ($10.40 per share
in accordance with Redemption Clause) in connection with such redemption. Also on February 10, 2017, iFresh repurchased 1,500,000
of such non-redeemable shares promptly at a purchase price of $10.00 per share according to an agreement with Handy Global Limited
signed on January 11, 2017. On February 10, 2017, iFresh entered into an agreement to 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 was 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 condensed
consolidated financial information as of December 31, 2017 and for the three and nine months ended December 31, 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 December 31, 2017, its results of operations and its cash flows for the three and nine months ended December 31, 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.
Restricted Cash
Restricted cash represents cash held by
depository banks in order to comply with the provisions of certain debt agreements.
Accounts Receivable
Accounts receivable consist primarily
of uncollected amounts from customer purchases (primarily from the Company’s two distribution operations), credit card receivables,
and food stamp vouchers, and are presented net of an allowance for estimated uncollectible amounts.
The Company periodically assesses its accounts
receivable for collectability on a specific identification basis. If collectability of an account becomes unlikely, an allowance
is recorded for that doubtful account. Once collection efforts have been exhausted, the account receivable is written off against
the allowance.
Inventories
Inventories consist of merchandise purchased
for resale, which are stated at the lower of cost or market. The cost method is used for wholesale and retail perishable inventories
by assigning costs to each of these items based on a first-in, first-out (FIFO) basis (net of vendor discounts).
The Company’s wholesale and retail
non-perishable inventory is valued at the lower of cost or market using weighted average method.
Operating Leases
The Company leases retail stores, warehouse
facilities and administrative offices under operating leases. Incentives received from lessors are deferred and recorded as a reduction
of rental expense over the lease term using the straight-line method. Store lease agreements generally include rent escalation
provisions. The Company recognizes escalations of minimum rents as deferred rent and amortizes these balances on a straight-line
basis over the term of the lease.
Capital Lease Obligations
The Company has recorded capital lease obligations
for equipment leases at both December 31, 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 December 31, 2017 and March 31, 2017, respectively. The Company’s estimates of the fair value of line of credit
and other liabilities (including current maturities) were classified as Level 2 in the fair value hierarchy.
Revenue Recognition
For retail sales, revenue is recognized
at the point of sale. Discounts provided to customers at the time of sale are recognized as a reduction in sales as the discounted
products are sold. Sales taxes are not included in revenue. Proceeds from the sale of coupons are recorded as a liability at the
time of sale, and recognized as sales when they are redeemed by customers. For wholesales sales, revenue is recognized at the date
of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, the Company
has no other obligations and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue
recognition are recorded as customer deposits.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards
Board (the “FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts
with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue
to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing
revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative
effect transition method. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of
revenue and cash flows arising from customer contracts. For public entities, the guidance in ASU 2014-09 will be effective for
annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods), and for
all other entities, ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2018, and interim reporting
periods within annual reporting periods beginning after December 15, 2019. The Company does not expect the adoption of this guidance
will have a material impact on its unaudited condensed consolidated financial statements.
In February 2016, the FASB issued Accounting
Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires a lessee to record a right-of-use asset and
a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases
with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. ASU 2016-02 requires
recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the
lease term. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash flows.
Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective
transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02
is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application
is permitted. The Company does not expect the adoption of this guidance will have a material impact on its unaudited condensed
consolidated financial statements.
In January 2017, the FASB issued ASU No.
2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments in this ASU clarify
the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should
be accounted for as acquisitions (or disposals) of assets or businesses. Basically these amendments provide a screen to determine
when a set is not a business. If the screen is not met, the amendments in this ASU first, require that to be considered a business,
a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create
output and second, remove the evaluation of whether a market participant could replace missing elements. These amendments take
effect for public businesses for fiscal years beginning after December 15, 2017 and interim periods within those periods, and all
other entities should apply these amendments for fiscal years beginning after December 15, 2018, and interim periods within annual
periods beginning after December 15, 2019. The Company does not expect the adoption of this guidance will have a material impact
on its unaudited condensed consolidated financial statements.
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 nine months
ended December 31, 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 April 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 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 asset 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, management concluded that the acquisition did not include both an
input and substantive processes that together significantly contribute to the ability to create outputs.
New York Mart CT, Inc. (“NYM CT”) Acquisition
On October 2, 2017, the Company acquired
100% equity interest of NYM CT from Long Deng, the Company’s Chairman and Chief Executive Officer, for $3,500,000. 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 the first quarter of 2018.
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
|
|
Advances made to NYM CT
|
|
|
3,5000,000
|
|
Cash acquired
|
|
|
(2,988
|
)
|
Net consideration
|
|
$
|
3,497,012
|
|
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
|
|
|
3,695,834
|
|
Due from related parties
|
|
|
820
|
|
Subtotal
|
|
$
|
3,696,654
|
|
Liability assumed:
|
|
|
|
|
Due to related parties
|
|
|
87,741
|
|
Account payable
|
|
|
122,555
|
|
Deferred rent liability
|
|
|
95,792
|
|
Subtotal
|
|
$
|
306,088
|
|
Historical cost of net assets acquired
|
|
$
|
3,390,564
|
|
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 nine months ended December 31, 2017 include the results
of operations of NYM CT whereas the same periods in 2016 do not include the results of operations of NYM CT. On an unaudited
pro forma basis, the revenues and net income of the Company assuming the acquisition had occurred on April 1, 2016 are immaterial.
New York Mart N. Miami Inc. (“NYM N. Miami”)
Acquisition
On October 2, 2017, the Company acquired
100% equity interest of 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 purchase included the business, lease and equipment
of the store. The store is also currently under construction, and, once finished, will be one of the largest Asian supermarkets
in South Florida. NYM N. Miami will open in the first quarter of 2018.
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
|
|
Advances made to NYM N. Miami
|
|
|
3,5000,000
|
|
Fair value of stocks issued
|
|
|
549,450
|
|
Cash acquired
|
|
|
(5,217
|
)
|
Net consideration
|
|
$
|
4,044,233
|
|
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
|
|
|
3,179,647
|
|
Security deposit
|
|
|
100,000
|
|
Due from related parties
|
|
|
244,308
|
|
Subtotal
|
|
$
|
3,523,955
|
|
Liability assumed:
|
|
|
|
|
Due to related parties
|
|
|
455,101
|
|
Account payable
|
|
|
41,300
|
|
Deferred rent liability
|
|
|
65,199
|
|
Subtotal
|
|
$
|
561,600
|
|
Historical cost of net assets acquired
|
|
$
|
2,962,355
|
|
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 nine months ended December 31, 2017 include the results
of operations of NYM N. Miami whereas the same periods in 2016 do not include the results of operations of NYM N. Miami.
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 since NYM N. On an unaudited pro forma basis, the revenues and net income of the Company assuming the acquisition had
occurred on
April 1, 2016 are immaterial.
5. Accounts Receivable
A summary of accounts receivable, net is
as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Customer purchases
|
|
$
|
4,196,164
|
|
|
$
|
2,133,689
|
|
Credit card receivables
|
|
|
585,633
|
|
|
|
134,177
|
|
Food stamps
|
|
|
167,330
|
|
|
|
62,900
|
|
Others
|
|
|
37,618
|
|
|
|
29,250
|
|
Total accounts receivable
|
|
|
4,986,745
|
|
|
|
2,360,016
|
|
Allowance for bad debt
|
|
|
(88,005
|
)
|
|
|
(88,005
|
)
|
Accounts receivable, net
|
|
$
|
4,898,740
|
|
|
$
|
2,272,011
|
|
6. Inventories
A summary of inventories, net is as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Non-perishables
|
|
$
|
9,869,578
|
|
|
$
|
8,339,787
|
|
Perishables
|
|
|
1,720,797
|
|
|
|
1,535,777
|
|
Inventories
|
|
|
11,590,375
|
|
|
|
9,875,564
|
|
Allowance for slow moving or defective inventories
|
|
|
(70,759
|
)
|
|
|
(78,580
|
)
|
Inventories, net
|
|
$
|
11,519,616
|
|
|
$
|
9,796,984
|
|
7. Advances and receivables - related parties
A summary of advances and receivables -
related parties is as follows:
|
|
December 31,
|
|
|
March 31,
|
|
Entities
|
|
2017
|
|
|
2017
|
|
New York Mart, Inc.
|
|
$
|
1,124,919
|
|
|
$
|
142,791
|
|
New York Mart N. Miami Inc.
|
|
|
-
|
|
|
|
6,511,427
|
|
Pacific Supermarkets Inc.
|
|
|
1,032,091
|
|
|
|
591,404
|
|
NY Mart MD Inc.
|
|
|
3,380,982
|
|
|
|
4,165,339
|
|
New York Mart CT Inc.
|
|
|
-
|
|
|
|
871,966
|
|
iFresh Harwin Inc
|
|
|
430,335
|
|
|
|
-
|
|
Advances - related parties
|
|
$
|
5,968,327
|
|
|
$
|
12,282,927
|
|
|
|
|
|
|
|
|
|
|
New York Mart, Inc.
|
|
|
667,004
|
|
|
|
476,884
|
|
Pacific Supermarkets Inc.
|
|
|
521,899
|
|
|
|
604,469
|
|
NY Mart MD Inc.
|
|
|
2,172,855
|
|
|
|
1,426,303
|
|
iFresh Harwin Inc
|
|
|
222,449
|
|
|
|
-
|
|
New York Mart CT Inc.
|
|
|
-
|
|
|
|
61,500
|
|
Receivables – related parties
|
|
|
3,584,207
|
|
|
|
2,569,156
|
|
Total advances and receivables – related parties
|
|
$
|
9,552,534
|
|
|
$
|
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 some of these entities, which are directly or indirectly owned,
in whole or in part, by Mr. Long Deng, the majority shareholder and the Chief Executive Officer of the Company. Accounts receivable
due from related parties relate to the sales to these related parties (see Note 15). The advances and receivables are interest
free, repayable on demand, and guaranteed by Mr. Long Deng. 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
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Furniture, fixtures and equipment
|
|
$
|
16,404,615
|
|
|
$
|
12,112,418
|
|
Automobiles
|
|
|
2,121,148
|
|
|
|
2,226,746
|
|
Leasehold improvements
|
|
|
6,629,230
|
|
|
|
2,082,214
|
|
Software
|
|
|
6,735
|
|
|
|
6,734
|
|
Total property and equipment
|
|
|
25,161,728
|
|
|
|
16,428,112
|
|
Accumulated depreciation and amortization
|
|
|
(8,287,366
|
)
|
|
|
(7,137,438
|
)
|
Property and equipment, net
|
|
$
|
16,874,362
|
|
|
$
|
9,290,674
|
|
Depreciation expense for the nine months
ended December 31, 2017 and 2016 was $1,277,863 and $1,165,643, respectively. For the three months ended December 31, 2017 and
2016, depreciation expense was $445,196 and $387,135 respectively.
9. Intangible Assets
A summary of the activities and balances
of intangible assets are as follows:
|
|
Balance at
March 31,
|
|
|
|
|
|
Balance at
December 31,
|
|
|
|
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
|
)
|
|
$
|
(99,999
|
)
|
|
$
|
(1,299,998
|
)
|
Intangible assets, net
|
|
$
|
1,300,001
|
|
|
$
|
(99,999
|
)
|
|
$
|
1,200,002
|
|
Amortization expense was $99,999 and $99,999
for the nine months ended December 31, 2017 and 2016, respectively and for the three months ended December 31, 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 December 31,
|
|
|
|
2018
|
|
$
|
133,333
|
|
2019
|
|
|
133,333
|
|
2020
|
|
|
133,333
|
|
2021
|
|
|
133,333
|
|
2022
|
|
|
133,333
|
|
Thereafter
|
|
|
533,337
|
|
Total
|
|
$
|
1,200,002
|
|
10. Debt
A summary of the Company’s debt is
as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Revolving Line of Credit-KeyBank National Association
|
|
$
|
3,200,000
|
|
|
|
-
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
Borrowings against Revolving Line of Credit, non-current
|
|
$
|
3,200,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Delayed Term Loan-KeyBank National Association
|
|
|
1,006,250
|
|
|
|
-
|
|
Less: current portion
|
|
|
(105,000
|
)
|
|
|
-
|
|
Bank Loan-Term Loan, non-current
|
|
$
|
901,250
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Term Loan-KeyBank National Association
|
|
|
13,841,196
|
|
|
|
14,791,281
|
|
Less: Deferred financing cost
|
|
|
(730,000
|
)
|
|
|
(866,875
|
)
|
Less: current portion
|
|
|
(1,086,224
|
)
|
|
|
(1,144,568
|
)
|
Bank Loan-Term Loan, non-current
|
|
$
|
12,024,972
|
|
|
$
|
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. $3,200,000 of the revolving credit was used as of December 31, 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 December 31,
|
|
|
|
2018
|
|
$
|
1,373,724
|
|
2019
|
|
|
1,496,932
|
|
2020
|
|
|
1,535,410
|
|
2021
|
|
|
1,574,953
|
|
2022
|
|
|
12,066,427
|
|
Total
|
|
$
|
18,047,446
|
|
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:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Expressway Motors Inc.
|
|
|
|
|
|
|
Secured by vehicle, 0%, principal of $490 due monthly through April 9, 2019
|
|
$
|
-
|
|
|
$
|
12,247
|
|
Secured by vehicle, 2.99%, principal and interest of $593 due monthly through February 1, 2021
|
|
|
-
|
|
|
|
25,281
|
|
Secured by vehicle, 0%, principal of $515 due monthly through April 24, 2019
|
|
|
-
|
|
|
|
11,780
|
|
Hitachi Capital America Corp.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 6.95%, principal and interest of $2,109 due monthly through September 18, 2019, paid off in December 2017
|
|
|
-
|
|
|
|
57,927
|
|
Secured by vehicle, 7.35%, principal and interest of $2,219 due monthly through November 7, 2017
|
|
|
-
|
|
|
|
17,269
|
|
Secured by vehicle, 7.10%, principal and interest of $2,094 due monthly through March 28, 2018
|
|
|
6,208
|
|
|
|
24,186
|
|
Secured by vehicle, 6.99%, principal and interest of $2,170 due monthly through March 10,2019
|
|
|
31,086
|
|
|
|
48,478
|
|
Triangle Auto Center, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.02%, principal and interest of $890 due monthly through January 28, 2021
|
|
|
30,871
|
|
|
|
37,810
|
|
Colonial Buick GMC
|
|
|
|
|
|
|
|
|
Secured by vehicle, 8.64%, principal and interest of $736 due monthly through February 1, 2020
|
|
|
17,375
|
|
|
|
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, paid off in December 2017
|
|
|
-
|
|
|
|
103,276
|
|
Secured by vehicle, 4.36%, principal and interest of $1,558 due monthly through February 20, 2018
|
|
|
3,098
|
|
|
|
16,768
|
|
Isuzu Finance of America, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 6.99%, principal and interest of $2,200 due monthly through October 1, 2018
|
|
|
21,308
|
|
|
|
39,455
|
|
Koeppel Nissan, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 3.99%, principal and interest of $612 due monthly through January 18, 2021
|
|
|
21,226
|
|
|
|
25,790
|
|
Secured by vehicle, 0.9%, principal and interest of $739 due monthly through March 14, 2020
|
|
|
19,747
|
|
|
|
26,310
|
|
Secured by vehicle, 7.86%, principal and interest of $758 due monthly through September 1, 2022
|
|
|
33,835
|
|
|
|
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
|
|
|
36,483
|
|
|
|
42,684
|
|
BMO
|
|
|
|
|
|
|
|
|
Secured by vehicle, 5.99%, principal and interest of $1,924 due monthly through July 1, 2020
|
|
|
74,307
|
|
|
|
87,687
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.01%, principal and interest of $420 due monthly through December 1, 2021
|
|
|
18,589
|
|
|
|
-
|
|
Toyota Finance
|
|
|
|
|
|
|
|
|
Secured by vehicle, 0%, principal and interest of $632 due monthly through August, 2022
|
|
|
35,414
|
|
|
|
-
|
|
Secured by vehicle, 4.87%, principal and interest of $761 due monthly through July, 2021
|
|
|
29,853
|
|
|
|
-
|
|
Secured by vehicle, 0%, principal and interest of $633 due monthly through April 1, 2022
|
|
|
32,88
4
|
|
|
|
-
|
|
Total Notes Payable
|
|
$
|
412,284
|
|
|
$
|
641,954
|
|
Current maturities
|
|
|
(
143,056
|
)
|
|
|
(262,578
|
)
|
Long-term debt, net of current maturities
|
|
$
|
269,228
|
|
|
$
|
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 December 31,
|
|
|
|
2018
|
|
$
|
143,056
|
|
2019
|
|
|
105,973
|
|
2020
|
|
|
89,661
|
|
2021
|
|
|
54,503
|
|
2022
|
|
|
19,0
91
|
|
Total
|
|
$
|
412,284
|
|
12. Capital lease obligations
The following capital lease obligations
are included in the condensed consolidated balance sheets:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Capital lease obligations:
|
|
|
|
|
|
|
Current
|
|
$
|
60,498
|
|
|
$
|
51,376
|
|
Long-term
|
|
|
83,410
|
|
|
|
59,907
|
|
Total obligations
|
|
$
|
143,908
|
|
|
$
|
111,283
|
|
Interest expense on capital lease obligations for the nine months ended December 31, 2017 and 2016 amounted
to $6,213 and $1,942 and $2,254and $538 for the three months ended December 31, 2017 and 2016, respectively.
Future minimum lease payments under the
capital leases are as follows:
Year Ending December 31,
|
|
|
|
2018
|
|
$
|
71,059
|
|
2019
|
|
|
52,038
|
|
2020
|
|
|
29,054
|
|
2021
|
|
|
3,802
|
|
Total minimum lease payments
|
|
|
155,953
|
|
Less: Amount representing interest
|
|
|
(12,045
|
)
|
Total
|
|
$
|
143,908
|
|
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 nine months ended December 31, 2017 and 2016, respectively:
|
|
Nine months ended December 31, 2017
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
20,426,869
|
|
|
$
|
81,304,740
|
|
|
$
|
101,731,609
|
|
Cost of sales
|
|
|
15,600,495
|
|
|
|
59,327,757
|
|
|
|
74,928,252
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
5,670,852
|
|
|
|
5,670,852
|
|
Gross profit
|
|
$
|
4,826,374
|
|
|
$
|
16,306,131
|
|
|
$
|
21,132,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
20,490
|
|
|
$
|
570,345
|
|
|
$
|
590,835
|
|
Depreciation and amortization
|
|
$
|
189,396
|
|
|
$
|
1,325,341
|
|
|
$
|
1,514,737
|
|
Capital expenditure
|
|
$
|
60,712
|
|
|
$
|
1,853,329
|
|
|
$
|
1,914,041
|
|
Segment income before income tax provision
|
|
$
|
665,940
|
|
|
$
|
(1,492,925
|
)
|
|
$
|
(826,984
|
)
|
Income tax provision (benefit)
|
|
$
|
243,701
|
|
|
$
|
(546,336
|
)
|
|
$
|
(302,635
|
)
|
Segment assets
|
|
$
|
12,605,082
|
|
|
$
|
36,404,816
|
|
|
$
|
49,009,898
|
|
|
|
Nine months ended December 31, 2016
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
17,430,676
|
|
|
$
|
79,663,230
|
|
|
$
|
97,093,906
|
|
Cost of sales
|
|
|
13,743,782
|
|
|
|
57,818,437
|
|
|
|
71,562,219
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
5,396,778
|
|
|
|
5,396,778
|
|
Gross profit
|
|
$
|
3,686,894
|
|
|
$
|
16,448,015
|
|
|
$
|
20,134,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
145,051
|
|
|
$
|
7,500
|
|
|
$
|
152,551
|
|
Depreciation and amortization
|
|
$
|
173,657
|
|
|
$
|
1,091,985
|
|
|
$
|
1,265,642
|
|
Capital expenditure
|
|
$
|
327,096
|
|
|
$
|
405,233
|
|
|
$
|
732,329
|
|
Segment income before income tax provision
|
|
$
|
306,231
|
|
|
$
|
1,593,184
|
|
|
$
|
1,899,415
|
|
Income tax provision
|
|
$
|
29,853
|
|
|
$
|
824,890
|
|
|
$
|
854,743
|
|
Segment assets
|
|
$
|
6,764,786
|
|
|
$
|
38,614,581
|
|
|
$
|
45,379,367
|
|
The following table presents summary information
by segment for the three months ended December 31, 2017 and 2016, respectively:
|
|
Three months ended December 31, 2017
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
7,670,169
|
|
|
$
|
28,193,022
|
|
|
$
|
35,863,191
|
|
Cost of sales
|
|
|
5,802,969
|
|
|
|
20,704,592
|
|
|
|
26,507,561
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
1,834,247
|
|
|
|
1,834,247
|
|
Gross profit
|
|
$
|
1,867,200
|
|
|
$
|
5,654,183
|
|
|
$
|
7,521,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
2,332
|
|
|
$
|
212,120
|
|
|
$
|
214,452
|
|
Depreciation and amortization
|
|
$
|
58,562
|
|
|
$
|
465,592
|
|
|
$
|
524,154
|
|
Capital expenditure
|
|
$
|
38,117
|
|
|
$
|
417,469
|
|
|
$
|
455,586
|
|
Segment income before income tax provision
|
|
$
|
236,372
|
|
|
$
|
(556,483
|
)
|
|
$
|
(320,111
|
)
|
Income tax provision
|
|
$
|
20,325
|
|
|
$
|
(59,386
|
)
|
|
$
|
(39,061
|
)
|
Segment assets
|
|
$
|
12,605,082
|
|
|
$
|
36,404,816
|
|
|
$
|
49,009,898
|
|
|
|
Three months ended December 31, 2016
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
7,019,624
|
|
|
$
|
27,897,490
|
|
|
$
|
34,917,114
|
|
Cost of sales
|
|
|
5,893,051
|
|
|
|
19,828,626
|
|
|
|
25,721,677
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
1,791,325
|
|
|
|
1,791,325
|
|
Gross profit
|
|
$
|
1,126,573
|
|
|
$
|
6,277,539
|
|
|
$
|
7,404,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
58,495
|
|
|
$
|
3,765
|
|
|
$
|
62,260
|
|
Depreciation and amortization
|
|
$
|
62,438
|
|
|
$
|
358,030
|
|
|
$
|
420,468
|
|
Capital expenditure
|
|
$
|
-
|
|
|
$
|
124,796
|
|
|
$
|
124,796
|
|
Segment income before income tax provision
|
|
$
|
(31,878
|
)
|
|
$
|
1,138,373
|
|
|
$
|
1,106,495
|
|
Income tax provision
|
|
$
|
17,391
|
|
|
$
|
480,538
|
|
|
$
|
497,929
|
|
Segment assets
|
|
$
|
6,764,786
|
|
|
|
38,614,581
|
|
|
$
|
45,379,367
|
|
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 $805,721 as of December 31, 2017 and
$788,039 as of March 31, 2017.
The Company has approximately $3,145,000
and $2,318,000 of US NOL carry forward of which approximately $3,145,000 and $2,318,000 are SRLY NOL as of December 31, 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:
|
|
Nine months ended
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
304,983
|
|
State
|
|
|
-
|
|
|
|
237,394
|
|
|
|
|
-
|
|
|
|
542,377
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(195,102
|
)
|
|
|
277,575
|
|
State
|
|
|
(107,533
|
)
|
|
|
34,791
|
|
|
|
|
(302,635
|
)
|
|
|
312,366
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(302,365
|
)
|
|
$
|
854,743
|
|
Tax Rate Reconciliation
Following is a reconciliation of the Company’s
effective income tax rate to the United State federal statutory tax rate:
|
|
Nine months ended
December 31,
|
|
|
|
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
|
%
|
Impact of change of federal income tax rate on deferred tax
|
|
|
(13
|
%)
|
|
|
-
|
|
Other
|
|
|
1
|
%
|
|
|
(2
|
%)
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
37
|
%
|
|
|
45
|
%
|
Deferred Taxes
The effect of temporary differences included
in the deferred tax accounts as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Deferred Tax Assets/ (Liabilities):
|
|
|
|
|
|
|
Deferred expenses
|
|
$
|
97,662
|
|
|
$
|
123,260
|
|
Sec 263A Inventory Cap
|
|
|
190,286
|
|
|
|
215,248
|
|
Deferred rent
|
|
|
2,189,871
|
|
|
|
2,467,259
|
|
Depreciation and amortization
|
|
|
(2,088,384
|
)
|
|
|
(2,718,968
|
)
|
Net operating losses
|
|
|
805,721
|
|
|
|
788,039
|
|
Valuation allowance
|
|
|
(805,721
|
)
|
|
|
(788,039
|
)
|
Net Deferred Tax Assets
|
|
$
|
389,435
|
|
|
$
|
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 nine and three months ended December 31, 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 December 31, 2017 and 2016 were included in advances and receivables – related parties (see Note 7).
Nine months ended December 31, 2017
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable & Perishable
Sales
|
|
New York Mart, Inc.
|
|
$
|
42,756
|
|
|
$
|
28,028
|
|
|
$
|
1,656,862
|
|
Pacific Supermarkets Inc.
|
|
|
62,440
|
|
|
|
30,368
|
|
|
|
2,606,133
|
|
NY Mart MD Inc.
|
|
|
43,721
|
|
|
|
7,171
|
|
|
|
2,442,017
|
|
El Monte
|
|
|
8,868
|
|
|
|
800
|
|
|
|
105,177
|
|
iFresh Harwin Inc
|
|
|
4,240
|
|
|
|
800
|
|
|
|
141,377
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
4,798
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
59,395
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
120,252
|
|
|
|
$
|
162,025
|
|
|
$
|
67,167
|
|
|
$
|
7,136,011
|
|
Nine months ended December 31, 2016
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable & Perishable Sales
|
|
New York Mart, Inc.
|
|
$
|
36,503
|
|
|
$
|
20,852
|
|
|
$
|
1,419,441
|
|
Pacific Supermarkets Inc.
|
|
|
44,026
|
|
|
|
23,014
|
|
|
|
2,629,879
|
|
NY Mart MD Inc.
|
|
|
36,182
|
|
|
|
-
|
|
|
|
1,966,086
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
6,806
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
77,203
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
119,612
|
|
|
|
$
|
116,711
|
|
|
$
|
43,866
|
|
|
$
|
6,219,027
|
|
Three months ended December 31, 2017
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable
& Perishable
Sales
|
|
New York Mart, Inc.
|
|
$
|
15,845
|
|
|
$
|
5,770
|
|
|
$
|
565,816
|
|
Pacific Supermarkets Inc.
|
|
|
22,237
|
|
|
|
6,550
|
|
|
|
749,033
|
|
NY Mart MD Inc.
|
|
|
16,704
|
|
|
|
2,080
|
|
|
|
755,178
|
|
El Monte
|
|
|
5,575
|
|
|
|
800
|
|
|
|
17,673
|
|
iFresh Harwin Inc
|
|
|
4,240
|
|
|
|
800
|
|
|
|
44,445
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
607
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
6,768
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
20,728
|
|
|
|
$
|
64,601
|
|
|
$
|
16,000
|
|
|
$
|
2,160,248
|
|
Three months ended December 31, 2016
|
Related Parties
|
|
Management
Fees
|
|
|
Advertising
Fees
|
|
|
Non-Perishable
& Perishable
Sales
|
|
New York Mart, Inc.
|
|
$
|
12,356
|
|
|
$
|
12,206
|
|
|
$
|
592,939
|
|
Pacific Supermarkets Inc
|
|
|
14,824
|
|
|
|
12,687
|
|
|
|
1,007,051
|
|
NY Mart MD Inc
|
|
|
12,467
|
|
|
|
-
|
|
|
|
928,667
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
1,392
|
|
Spicy Bubbles, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
25,383
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
34,434
|
|
|
|
$
|
39,647
|
|
|
$
|
24,893
|
|
|
$
|
2,589,866
|
|
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 $877,381 and $521,000 for the nine months ended on December 31, 2017 and 2016, and $523,381 and $177,000
for the three months ended on December 31, 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 December 31,
2017.
Rent expense charged to operations under
operating leases in the nine months ended December 31, 2017 and 2016 amounted to $6,160,596 and $4,662,132 and $2,904,346 and $1,543,223
for the three months ended December 31, 2017 and 2016, respectively.
Future minimum lease obligations for operating
leases with initial terms in excess of one year at December 31, 2017 are as follows:
|
|
Non-related
parties
|
|
|
Related
party
|
|
|
Total
|
|
2018
|
|
$
|
7,417,778
|
|
|
$
|
1,120,524
|
|
|
$
|
8,538,302
|
|
2019
|
|
|
7,584,322
|
|
|
|
1,132,883
|
|
|
|
8,717,205
|
|
2020
|
|
|
7,738,634
|
|
|
|
1,147,340
|
|
|
|
8,885,974
|
|
2021
|
|
|
7,479,802
|
|
|
|
1,159,680
|
|
|
|
8,639,482
|
|
2022
|
|
|
7,513,984
|
|
|
|
1,174,080
|
|
|
|
8,688,064
|
|
Thereafter
|
|
|
60,038,858
|
|
|
|
4,448,525
|
|
|
|
64,487,383
|
|
Total payments
|
|
$
|
97,773,378
|
|
|
$
|
10,183,032
|
|
|
$
|
107,956,10
|
|
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 went to trial 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, which 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. A new verdict of this case was issued in the Company’s favor on September 29, 2017.
The judge awarded the Company 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 damages of $2,250 for each month until completed. The jury verdict
waived claims for breach of contract against Ming.
However, it is the Company’s understanding that the landlord is planning to file another appeal.
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. 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
For purpose of preparing these consolidated
financial statements, the Company considered events through February 14, 2018, which is the date the consolidated financial statements
were available for issuance. There were no material subsequent events that required recognition or additional disclosure in these
consolidated financial statements.