ITEM
1 Business
We
were formerly a special purpose company incorporated under the laws of the Cayman Islands on September 23, 2014 under the
name E-Compass Acquisition Corp. (“E-Compass”) in order to serve as a vehicle for the acquisition of an operating
business in the e-commerce and consumer retail industry. On February 10, 2017, pursuant to the terms of a merger agreement,
dated as of July 25, 2016 (the “Merger Agreement”), through a series of transactions, we merged with our wholly
owned subsidiary to reincorporate into Delaware and then acquired NYM Holding, Inc.(“NYM”), and as a result, NYM
became our direct wholly-owned subsidiary (the “Transactions”). As a result of the Transactions, as of
immediately after the Transactions, the former stockholders of NYM own approximately 83.9% of our outstanding common stock
and the former stockholders of E-Compass own the remaining 16.1%.
The
Merger Agreement is described more fully in the sections entitled “
The Business Combination Proposal
” and “
The
Acquisition Agreement
” beginning at pages 38 and 60, respectively, of the final prospectus contained in the Registration
Statement on Form S-4 and definitive proxy statement (the “Proxy Statement/Prospectus”) filed with the Securities
and Exchange Commission (the “Commission”) on December 16, 2016 by iFresh and E-Compass, and such description is incorporated
herein by reference.
Upon
the closing of the Transactions, E-Compass’s common stock, rights and units ceased trading and our common stock began trading
on the NASDAQ Capital Market under the symbol “IFMK”.
Overview
and History
iFresh, through its wholly owned
subsidiary, 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, it has targeted the Chinese and other
Asian populations (collectively, the “Asian Americans”) in the U.S. with a deep cultural understanding of its
consumers’ unique consumption habits. iFresh currently has eight retail supermarkets across New York, Massachusetts and
Florida, with over 6,862,000 sales transactions in the fiscal year ended March 31, 2017. In addition to retail supermarkets,
iFresh operates two in-house wholesale businesses, Strong America Inc. (“Strong America”) and New York Mart Group
(“NYMG”), that offer more than 6,000 wholesale products and service to iFresh retail supermarkets and over 1,000
external customers including wholesale stores, retail supermarkets and restaurants. iFresh has a stable supply of food from
farms in New Jersey and Florida, ensuring reliable supplies of popular vegetables, fruits and seafood. iFresh’s
wholesale businesses and long term relationships with various farms insulate iFresh from supply interruptions, allowing it
remain competitive even during difficult markets.
Based on management’s cultural
understanding of the Asian American market, iFresh aims to satisfy the increasing demands of Asian Americans, whose
purchasing power has been growing rapidly, for fresh and unique produce, seafood and other groceries that are not found in
mainstream supermarkets, such as produce like Shanghai baby bok choy, snap bean, winter gourd, baby Chinese kale, longyan and
lychee; a variety of live seafood such as shrimp, clams, lobster, geoduck, and Alaska king crab; and Chinese special
groceries like soy sauce, sesame oil, oyster sauce, bean paste, Sriracha, tofu, noodles and dried mushroom. With an in-house
logistics team and strong relationships with farms, iFresh is capable of offering high quality specialty perishables at
competitive prices. Specialty produce, live seafood and other perishables constituted 60.2% of iFresh’s total sales
during the fiscal year ended March 31, 2017.
iFresh’s
business began as Strong America, a wholesale business founded in 1995 in Long Island City, New York. Strong America imported
food and groceries from China and other East Asian countries and sold them to various types of retailers in the New York area.
Witnessing the rapid growth of Chinese immigrants and the potential of this niche market, iFresh opened its first retail supermarket
in Chinatown in downtown Manhattan in August 2001. From 2001 to 2014, iFresh expanded steadily, hired a bilingual team that grew
into midlevel managers, and reshaped itself into a retail supermarket chain featuring exotic Asian food and other items. Since
2001, iFresh opened five stores in Brooklyn, Flushing, Elmhurst and Manhattan’s Chinatown, where the Asian and Chinese population
is highly concentrated. In 2009, iFresh acquired Ming’s supermarket in Boston, Massachusetts. Observing that the Chinese
and Asian population was growing quickly in Florida, iFresh opened its first store in Sunrise, Florida in 2012. In 2013, it acquired
Zen Supermarket in Quincy, Massachusetts to better cater to the growing demand in the Greater Boston Area.
iFresh
currently operates eight retail super markets and two wholesales facilities. iFresh plans to strategically expand along the I-95
corridor and eventually operate super markets in all states on the east coast.
iFresh
believes that the following characteristics of its business shapes its leadership and success in its industry:
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iFresh
provides unique products to meet the demands of the Asian American Market;
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iFresh
has established a merchandising system backed by an in-house wholesale business and by
long-standing relationships with farms;
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iFresh
maintains an in-house cooling system with unique hibernation technology that is has developed
over 20 years to preserve perishables, especially produce and seafood;
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iFresh
capitalizes on economies of scale, allowing strong negotiating power with upstream vendors,
downstream customers and sizable competitors; and
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iFresh
has a proven and replicable track record of management, operation, acquisition and
organic growth.
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iFresh’s
net sales were $130.9 million and $131.2 million for the years ended March 31, 2017 and 2016, respectively.
iFresh’s net income was $1.6 million for the year ended March 31, 2017, a decrease of $2.0 million, or 57.4%, from $3.6
million for the year ended March 31, 2016. Adjusted EBITDA was $6.2 million for the year ended March 31, 2017, a decrease of
$2.2 million, or 25.7%, from $8.4 million for the year ended March 31, 2016. For additional information on Adjusted EBITDA,
See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Adjusted EBITDA,” beginning on page 35.
In terms of sales by category, perishables,
including vegetables, seafood, meat, fruit and hot food (collectively, the “Perishables”), constituted approximately
64% of iFresh’s total annual sales during the fiscal year 2017. Within this category, vegetables and seafood constituted
37.3% of overall annual sales and 58.6% of the sales attributed to Perishables.
The
table and graph below depicts sales of iFresh by category of iFresh for the fiscal year ended March 31, 2017:
Figure
1 Sales by Category
Industry
and Market Analysis
Grocery
Shopping Habits of Target Market
Buy Fresh
— Asian Americans,
of which Chinese Americans constitute a significant percentage, typically purchase fresh, perishable food, according to
Nielsen’s
Asian-American Consumer 2015 Report
1
.
Unique cooking styles of Asian Americans, such as steaming, wokking and shared hot-pot cooking, require fresh ingredients not commonly
found in the U.S. Asian Americans purchase Perishables that are all over-index compared with that of general U.S. population. For
example, Asian Americans purchase fresh seafood 50% more frequently than the general market and spend 147% more on the category
than non-Asian Americans in the total U.S. population. Asian Americans purchase fresh vegetables 26% more frequently than non-Asian
American consumers and spend 62% more than the total U.S. population. Additionally, Asian Americans purchase fresh fruit 11% more
frequently than non-Asian Americans and spend 27% more than the total U.S. population. Consistent with the foregoing, iFresh’s
fresh seafood, fresh vegetables and fresh fruit in the aggregate contributed 38% to iFresh’s total sale as of March 31, 2017.
Table
1 Asian-American Consumption of Perishables
2
Asian-American
Fresh Category Consumption (Index vs. Total Population of 100)
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$
Volume
Index
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Purchasing
Frequency
Index
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Fresh
Fruits
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127
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111
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Fresh
Meats
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106
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103
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Prepared
Foods
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143
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115
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Takeout
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121
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102
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Fresh
Vegetables
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162
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126
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Fresh
Poultry
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108
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103
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Fresh
Seafood
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247
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150
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1
Culturally
Connected and Forging the Future: The Asian-American Consumer 2015 Report. The Nielsen Company.
2
Id.
at 10.
Unique
Species and Cuisines
— Asian cuisines incorporate many Perishables that are hard to find in traditional U.S. supermarkets.
Many cuisines require vegetables not commonly planted in the U.S. or meat not widely used by mass market consumers. The following
two examples illustrate the uniqueness in food species and in Asian cuisines:
Example
1: Unique vegetables species
Vegetables
make up the bulk of daily consumption by Asian Americans. Asian American consumers usually buy a variety of vegetables in large
quantities. More importantly, Asian American consumers use unique vegetable species such as bitter melons, Chinese yams, vine
spinaches, Chinese cabbages and winter melon. Asian Americans therefore value supermarkets that provide fresh vegetable offerings
at affordable prices.
Example
2: Unique fish species and cooking styles
Asian
American consumers consume fish not commonly sold in mainstream supermarkets. Unlike many mainstream supermarkets, iFresh offers
consumers live fish in fish tanks and has fish experts readily available to provide fish cleaning services free of charge.
In
addition, Asian American consumers use many more parts of the fish than do non-Asian American consumers. For example, fish head
soup and fish tail soup are two popular dishes that require only the fish head or fish tail as ingredients. Asian Americans also
buy live fish and ask fish experts to cut them in thin slices as an ingredient of boiled fish in hot sauce or fish hot pot. iFresh
organizes the seafood section according to the needs of its customers, which iFresh believes not only attracts customers, but
effectively boosts sales of seafood.
In
addition to vegetables and fish, Asian Americans look for the following additional specialty products:
Fruits
— Mainstream supermarkets rarely have pitaya, longyan, lychee and star fruit available. Such unavailability motivates
Asian Americans to shop at Chinese and Asian grocery stores on a regular basis to purchase such specialty fruits.
Meat
—
Mainstream supermarkets generally offer meats in cuts such as cubes, steaks, slices and ribs. However, such
supermarkets rarely offer super-thinly sliced hot-pot meat, organ meat or chicken feet. Chinese and Asian cuisines use
various kinds of meat for different purposes. Asian specialty supermarkets such as iFresh understand such Asian cuisines and
dietary needs, and fill the market gap in offering hot-pot meat, organ meat, chicken feet and other rare cuts of meat on a
regular basis.
Snacks,
Seasonings and Other
— Asian specialty supermarkets offer various snacks, seasonings, cooking utensils and other
items not generally found in mainstream U.S. supermarkets. Chinese and Asian seasonings and spices include peanut oil, cooking
wine, vinegars, dark soy source, black bean sauce, pepper oil and chilly oil. More specifically, some seasoning or spice can include
sub-types, each of which has its own target customers. For example, people from the north and south part of China usually shop
for different type of vinegars.
Consequently,
we believe that the uniqueness in the shopping habits of iFresh’s target customers evidences the importance of Asian American
specialty supermarkets such as iFresh. iFresh’s understanding of Asian American culture and eating habits fill a market
gap and distinguishes Asian supermarkets from mainstream competitors.
Growth
Potential and Features of Asian/Chinese Americans
Fast
growing population
— According to the Nielsen Asian American 2015 Report, the Asian-American population grew 46%
from 2002 to 20.3 million people as of 2014. Beginning in 2013, China replaced Mexico as the number one country for recent
immigration.
3
According to the U.S. census bureau, as of 2014, the Chinese population was the largest Asian group
in the United States with a population of 4.52 million people, almost 1 million over the Asian-Indian population and accounts
for 21.4% of the total Asian-American population
4
. We believe Chinese Americans will be an increasingly
significant part of the multicultural majority U.S. population.
Fast
growing purchasing power
— The Nielsen report points that Asian-American population is not only the fastest growing
population demographic in the U.S., but the Asian American demographic is the demographic with the largest percentage increase
in buying power. The buying power of Asian-Americans was $770 billion in 2014 and is estimated to increase to $1 trillion by 2018.
5
In terms of household income for Chinese Americans, they recorded a median household income of $67,396,
6
which
was 31% higher than the U.S. national average of $53,250
7
, possibly due to their high education level and cultural
emphasis on education. With respect to shopping habits, Asian-Americans are 31% more likely than non-Asian Americans to spend
more than $200 a week at the grocery store
8
, and spend 19% more on food than general market consumers.
9
Online
prone —
According to the Nielsen report, the Asian-American population is young, tech savvy and frequently shops online.
Asian Americans visit digital stores 37% more frequently and spend 22% more monthly than their non-Hispanic white peers.
10
We believe that Asian Americans’ avid use and adoption of technology illustrates the importance of an online platform,
social Media and mobile apps when promoting brand to this specific customer group.
Concentrated
but on the move —
Asian and Chinese Americans are most highly concentrated in west and east coast metropolitan areas,
but as the need for a highly educated high-technology workforce increases, suburbs with better work and living environments and
schools are attracting a large numbers of skilled Asian-Americans which encourages “ethnoburbs” of various scales
nationwide dominated by non-white ethnic groups.
Current
Industry Landscape
Highly
Fragmented and unsophisticated competitors —
We consider the markets we participate in to be highly fragmented.
There is no recognized industry leader nationwide. Most market participants are small players with a single store run by family
members catering to the local market
11
, meaning that the bulk of competitors are unsophisticated. Because of this,
iFresh believes that most of its competitors are unable to take advantage of economies of scale, modern management, in-house wholesales
facilities and logistics which distinguishes iFresh from its competitive peers. Currently a leader on the east coast, iFresh is
setting its short term goal to achieve the scale of HMart, the Korean specialty grocery chain operating 51 stores with over $1.5
billion annual revenue as of 2015. The reality of low market concentration and unsophisticated competitors gives iFresh the opportunity
to consolidate the market and cement its dominant market position.
3
P6,
Culturally Connected and Forging the Future: The Asian-American Consumer 2015 Report. The Nielsen Company
4
US
Census Bureau, 2010 – 2014 American Community Survey, 1 year estimates
5
P7,
Culturally Connected and Forging the Future: The Asian-American Consumer 2015 Report. The Nielsen Company
6
P39,
Culturally Connected and Forging the Future: The Asian-American Consumer 2015 Report. The Nielsen Company
7
P33,
Culturally Connected and Forging the Future: The Asian-American Consumer 2015 Report. The Nielsen Company
8
P13,
Culturally Connected and Forging the Future: The Asian-American Consumer 2015 Report. The Nielsen Company
9
P8,
Culturally Connected and Forging the Future: The Asian-American Consumer 2015 Report. The Nielsen Company
10
P24,
Culturally Connected and Forging the Future: The Asian-American Consumer 2015 Report. The Nielsen Company
11
P19
IBISWorld Industry Report OD4333: Ethnic Supermarkets
, by Andrew Alvarez, November 2015
Unsatisfied
Customers
— As previously mentioned, there are an increasing number of younger Chinese that choose to reside out
of traditional Chinese communities for better working, educational and environmental opportunities. However, large-scale comprehensive
Chinese groceries tend to exist only in Chinatowns. The weekly shopping for this group of Asian Americans involves either long
distance travel or a compromise at local small grocery stores with limited selections and high prices. iFresh will try to meet
their demand as well as reshape the market by increasing the number of stores and via its online-shopping initiatives.
Limited
Vendors —
Many of the products that stock iFresh’s shelves can rarely be sourced from the typical U.S. vendors.
Most vendors of U.S. Chinese and Asian supermarkets are individually owned and small in size. Securing a sufficient and stable
supply of core perishables, therefore, is a recognized challenge in this niche market. Observing the challenge and through years
of effort, iFresh has established long-standing relationships with several large farms. We believe that the relationships with
these farms is symbiotic — on one hand, cooperative farms provide iFresh with priority when supplying core produce popular
with Asian American customers; on the other hand, iFresh communicates the latest market trends and customer preference to cooperating
farms, ensuring the farms’ produce selection and activities closely target the market demand.
Fast
Growing Market —
The growing population and increasing purchasing power cultivate a promising market prospect
in good momentum
.
According to The US Census Bureau — American Community Survey 2011 – 2015,
Chinese population had a growth rate of 17.43% from 2011 to 2015, far beyond the 3.07% growth rate of US population and even
the 8.77% Hispanic population growth rate. New York, New Jersey, Pennsylvania, Florida and Maryland alone have a total
Chinese population of 1,139136, making up more than 27.56% of total Chinese American population nationwide.
In
sum, we see a great opportunity for market consolidation and significant potential for improvement in this market. We believe
iFresh has all the right ingredients to address the current market imperfections and we are ready to catch the wave to make iFresh
a national leader in the niche market.
iFresh’s
Business Model
iFresh’s business model features
a vertically integrated structure covering upstream supply and downstream retail supermarkets. iFresh has its own
wholesale businesses, Strong America and New York Mart Group (“NYMG”), which supply 31% of the items sold in its
retail supermarkets with seven self-owned brands, including Family Elephant, Feiyan and Green Acre, and an
exclusive distributorship for nine famous foreign brands such as Shuang Deng, A-Sha, Bai Lu and Gu Yue Long Shan. For many
years, iFresh has worked with farms that mainly grow Chinese specialty vegetables and fruits and supply the most popular yet
hard-to-source vegetables and fruits directly to iFresh supermarkets and maintains long-term and stable relationships with
them. iFresh centralizes purchases through one of its wholesale facilities by making quarterly purchase plans and placing
weekly order with farms. The long-term relationships with farms and the central purchase management system secure its supply
of the most popular vegetables and fruits, even though iFresh doesn’t have any long-term contractual relationships with
its farm suppliers. Working with its vendors, iFresh can respond to market trends to avoid supply interruption in high
seasons. iFresh has a diversified vendor base and has established sustainable relationships during its 20-year history in
this niche market sector.
iFresh’s
two wholesale businesses, Strong America and NYMG, collectively provide more than 6,000 wholesale products and services
to iFresh’s retail supermarkets and over 1,000 external customers throughout the United States. Such external
customers include, but are not limited to, wholesale stores, retail supermarkets and restaurants. The two wholesale arms have
distinct focuses: Strong America mainly provides grocery products and services to iFresh retail store and external
supermarkets, while NYMG focuses on supplying fresh perishable items to retail supermarkets. Strong America owns the nine exclusive distributorship rights
and iFresh’s ten self-owned brands. Strong America acquired its self-owned brands from third parties and integrated
them into its wholesale catalog. The ten self-owned brands cover rice, noodles, seasonings (including Chinese spices),
frozen vegetables, frozen seafood, and frozen dumplings, which are all popular daily staples for Chinese and other Asian
consumers in the United States. Strong America imports over 2,000 items from all over Asia, with products from mainland
China, Thailand and Taiwan making up 95% of its total imports. NYMG serves as an important connection to farms in New Jersey
and Florida, which ensures reliable supplies of popular vegetables, fruits and seafood to iFresh’s retail stores. The
two in-house wholesale arms of iFresh not only secure the supply of products for iFresh’s retail business, but also
offer significant synergies in iFresh’s operations.
Produce
and groceries are delivered to iFresh supermarkets in New York, Massachusetts and Florida on a daily basis from iFresh’s
wholesale facilities, farm partners and external vendors as directed by iFresh’s in-house logistics system. iFresh has an
80,000 square foot warehouse in Long Island City, New York, which serves as its regional distribution center for imported and
frozen products. For live seafood or produce, the in-house logistics team uses hibernation technology and the cold-chain network
to best ensure freshness from farm to shelf.
With
8 retail supermarkets in New York, Massachusetts and Florida, mainly in Chinatowns or city centers, and average store sizes
over 10,000 square feet, iFresh has over 6.8 million annual sales transactions. At the same time, iFresh continues to reach
out to the growing Asian American population living in suburban areas through its online shopping and delivery initiative.
iFresh also has successfully exported live lobsters to China, which bears the potential to ignite the demand of a large
market.
The
graph below depicts iFresh’s business model and its vertically integrated structure:
Figure
2 Business Model of iFresh
iFresh’s
Competitive Strengths
Well
Recognized Brand in Niche Market
iFresh
capitalizes on its established brand and reputation in the following respects:
i.
Benefit from cost efficiency and economies of scale:
Unlike
many of its direct competitors which are family-owned single stores, iFresh has 8 retail supermarkets. With larger supplies and
strong sales, iFresh is often approached by third party vendors and capable of getting competitive prices for a wide range of
items. This corporate structure coupled with its wholesale facilities further enables iFresh to best deploy its experienced staff
to coordinate stock and to make most use of its infrastructure and distribution network.
ii.
Strong negotiation power with vendors and competitors
iFresh
is often approached by third party vendors and capable of getting competitive price due to its chain store structure and
sustainably strong sale performance. iFresh’s two in-house wholesale facilities are influential in Chinese and Asian
goods importing and wholesale industries. At least five of iFresh’s largest direct competitors are also its clients
for imported goods, frozen seafood and other frozen products. Additionally, iFresh’s long-standing relationship with
farms in New Jersey and Florida reduce its reliance on external vendors. We believe the iFresh brand, scale, in-house
wholesale facilities and long-standing relationship with farm partners shaped its negotiation power with vendors and
competitors.
iii.
Developed Infrastructure
Unlike
many of its competitors, iFresh has its own wholesale channel, Strong America, which has been in the business of importing and
exporting Chinese and Asian specialty food and groceries for over 20 years. Apart from channel advantages, Strong America specializes
in identifying products that are popular among Asian American consumers but rarely found in mainstream stores. Without multi-layer
intermediates, iFresh retail supermarkets set such products at competitive prices, not only securing the supply of popular products,
but boosting its operation profitability as well. Furthermore, for most commonly needed ingredients like rice, noodles, frozen
Chinese and Asian convenience foods, imported snacks and Chinese and Asian seasonings and spices, Strong America established 7
self-owned brands and obtained the exclusive distributorship for 9 famous Chinese brands, as listed in Table 3 and Table 2, respectively.
In addition, iFresh has built and maintained relationships with retailers of various sizes. In other words, iFresh’s advantages
in market familiarity, established infrastructure, scale, sourcing management capability and well-recognized brand reputation
shape a high barrier protecting it from immediate impact of new entrants.
Track
Record in Operation and Expansion
i.
Record of acquisitions in different locations
Since
2009, iFresh successfully acquired three stores, one in New York and two in Massachusetts. iFresh targeted stores in desirable
locations, especially under-performers that iFresh could acquire at an advantageous cost. iFresh then utilized its well-developed
in-house distribution networks, corporate infrastructure and long-term relationship with farm partners and third party vendors
to boost performance. All three acquired stores realized enhanced and stabilized profit the first year after acquisition.
ii.
Adoption of scalable small-box format
iFresh
brands itself as a player in the specialty store sector and adopts the small-box format generally adopted in this sector. We believe
the small-box format fits into iFresh’s business model and enables it to boost profitability from structural synergy and
efficiency.
Compared with iFresh’s mainstream
competitors whose average store size normally ranges from 40,000 — 60,000 square feet, the average store size of iFresh is
approximately 19,000 square feet with average selling space of approximately 14,000 square feet. iFresh’s adoption of small-box
model is rooted on its understanding that customers shop with iFresh mainly for unique produce, seafood and groceries that are
difficult to find elsewhere. The small-box format forces iFresh to focus on products that cover the target customer’s unique
needs. In addition, the small-box format ensures flexibility, makes it easier for iFresh to discontinue individual products and
react quickly to market changes.
Strong
Vendor Management
i.
Capability to source globally
iFresh
has global sourcing capability mainly through Strong America and NYMG. In the aggregate, Strong America and NYMG import
over 2,000 items from all over Asia. The top three importing countries are China, Thailand and Taiwan, making up 95% of
total imports. iFresh’s wholesale businesses together supply 23% of total goods, in which 6% are imported goods, sold
in iFresh retail supermarkets at attractive prices.
Strong
America is also the exclusive distributor of nine famous overseas brands, covering cooking wine, yellow wine, rice noodles,
seasonings and spices and snacks. They are all famous daily food staple brands in China and are familiar to iFresh’s
target customers. We believe that the exclusive distributorship strengthens iFresh brand and its negotiation power among
current competitors, new market entrants and consumers. The table below lists the details of iFresh’s exclusive
distributorship:
Table
2 Exclusive Distributorship
Company
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Name
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Trademark
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Products
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Exclusive
Region
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Strong
America
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ShuangDeng
(1)
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Cooking
Wine
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East
America, Central and South America
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Strong
America
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Gu
Yue Long Shan
(2)
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Yellow
Wine
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North
America
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Strong
America
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Bai
Lu
(1)
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Rice
Noodles
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East
America, Central and South America
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Strong
America
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Igagoe
(3)
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Soy
Sauce
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East
America, Central and South America
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Strong
America
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A-Sha
(4)
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Snacks,
Noodles
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The
following states: Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts,
Mississippi, New Hampshire, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Texas, Vermont, Virginia, and West Virginia
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Strong
America
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You
Joy
(5)
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Seasonings
and spices
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East
Coast of the U.S., Midwestern U.S. and Central and South America
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Strong
America
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Hao
Ren Jia
(6)
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Seasonings
and spices
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U.S.
East Coast
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Strong
America
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Da
Hong Pao
(6)
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Seasonings
and spices
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U.S.
East Coast
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Strong
America
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Bei
Da Huang
(7)
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Beans
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U.S.
East Coast
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(1)
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Strong America has an exclusive distribution agreement with Fujian International Trade Development Company, Ltd., which granted
Strong America exclusive distribution rights for the products registered under the brands of “Shuang Deng” and “Bai
Lu” for East America, Central America and South America for a period of five years from October 1, 2015 to September 30,
2020. The agreement can be renewed six months before expiration with the consent of both parties.
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(2)
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Strong America entered an exclusive distribution agreement with Zhejiang Gu Yue Long Shan Wine Co., Ltd. since January 1, 2015,
which granted Strong America exclusive distribution rights for the products registered under the brand of “Gu Yue Long Shan”
for North America. Under the consent of both parties, Strong America is currently the sole distributor of “Gu Yue Long Shan”
within the North America Region.
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(3)
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Strong America entered into an exclusive distribution agreement with Igagoe Co., Ltd., which granted Strong America exclusive
distribution rights for the products registered under the brand of “Igagoe” for East America, Central America and South
America for a period of five years from October 1, 2015 to December 31, 2019. The agreement can be renewed six months before expiration
with consents of both parties.
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(4)
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Strong America has an exclusive distribution agreement with A-Sha Foods USA Co. Inc., which granted Strong America exclusive
distribution rights for the products registered under the brand of “A-Sha” for the following states: Alabama, Arkansas,
Connecticut, Delaware, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New
York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, and West Virginia.
Both parties entered the agreement September 8, 2016. As explicated in the agreement, the current term will end until November
7, 2017.
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(5)
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Strong America has an exclusive distribution agreement with Sichuan Youjia Foodstuffs Co., Ltd., which granted Strong America
exclusive distribution right for the products registered under the brand of “You Joy” for the East Coast of the U.S.,
Midwestern U.S. and Central and South America for a period of five years, from January 1, 2015 till December 31, 2019. The agreement
can be renewed six months before expiration with consents of both parties. Strong America agreed to make annual purchase of over
RMB 2,200,000 under this agreement.
|
(6)
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Strong America has an exclusive distribution
agreement with Sichuan Teway Food Group Co., Ltd., which granted Strong America exclusive
distribution rights for the products registered under the brands of “Hao Ren Jia”
and “Da Hong Pao” for the region of East Coast of America for
a
period of three years from July 1, 2014 to July 31, 2019. The agreement can be renewed
six months before expiration with consents of both parties.
|
(7)
|
Strong
America has an exclusive distribution agreement with Beidahuang (Dalian) Ouya International
Trade Co., Ltd. (CHINA), which granted Strong America exclusive distribution rights for
the products registered under the brands of “Bei Da Huang” for the East Coast
of America for a period of one year from August 1, 2016 to July 31, 2017.
|
ii.
Self-owned brands for target customers at competitive prices
Since
2011, Strong America, one of iFresh’s wholesale facilities, established
eight
brands, covering items such as rice, noodles, Chinese spices and seasonings, frozen vegetables, frozen seafood, and frozen
dumplings. They are all popular sellers because they are staples for iFresh’s target customers. iFresh believes that
these self-owned brands enable it to enjoy competitive sourcing price, protect it from source and sale interruption, and
enhance its negotiating power with existing competitors and new entrants. Also, iFresh Inc. registered its own name as the
brand of the supermarket chain stores. The table below provides details regarding iFresh’s self-owned
brands.
Table
3 Self-owned brands
Company
|
|
Name
|
|
Trademark
|
|
Products
|
|
Registration
Number
|
|
Registered
Time
|
Strong
America
|
|
Family
elephant
|
|
|
|
Rice
and rice products
|
|
4839414
|
|
10/27/2015
|
Strong
America
|
|
Feiyan
|
|
|
|
Chinese
noodles, Chinese rice noodles, noodles vermicelli
|
|
3945424
|
|
4/12/2011
|
Strong
America
|
|
Green
Acre
|
|
|
|
Dried
beans, dried fruit and vegetables, frozen vegetables
|
|
4933029
|
|
4/5/2016
|
Strong
America
|
|
Golden
Smell
|
|
|
|
Processed
vegetables and fruits; Noodles, seasoning, edible oil and flavoring combined in unitary packages; Beauty beverages, namely,
fruit juices and energy drinks
|
|
5035326
|
|
12/31/2015
|
Strong
America
|
|
Redolent
|
|
|
|
Rice
porridge, namely, congee
|
|
N/A
|
|
Pending
|
Strong
America
|
|
ShuangDeng/
Double
Lantern Brand
|
|
|
|
Cooking
wine
|
|
N/A
|
|
Pending
|
Strong
America
|
|
Seastar
|
|
|
|
Frozen
seafood and frozen seafood products
|
|
N/A
|
|
Pending
|
Strong
America
|
|
Huang
Duan Xiang 1987
|
|
|
|
Rice
noodles; Chinese rice noodles (bifun, uncooked)
|
|
N/A
|
|
Pending
|
iFresh
Inc.
|
|
I
FRESH
|
|
|
|
Supermarkets
|
|
N/A
|
|
Pending
|
iFresh
Inc.
|
|
I FRESH
|
|
|
|
Supermarkets
|
|
N/A
|
|
Pending
|
Online
Grocery Pioneer
To satisfy the needs of the growing
suburban Chinese population, iFresh started its online shopping and delivery service in January 2016 and has achieved good
growth momentum since then. In May 2016, iFresh launched its mobile App, NYMart, to further enhance the shopping experience
for its customers. The online shopping and delivery service currently covers New York, New Jersey and Connecticut. The orders
placed and sales have witnessed 7.9 times and 11.9 times growth, respectively, during its fifteen months of operation. With
capital support and experienced personnel in place, iFresh believes that online shopping and delivery will be a crucial part
in iFresh’s future growth strategy. iFresh’s online grocery initiative witnesses an accumulated transaction
volume of 7,964 and accumulated sales of approximately $675,460 from its commencement of operation to March 31, 2017.
Proprietary
and in-house Cold Chain System
Since
Mr. Long Deng established Strong America in 1995, iFresh has strived to build a proprietary cold-chain logistics system which
evolved with the expansion of iFresh. Based on years of experience, iFresh’s logistics team is now capable of
delivering frozen goods to more than 20 states in the Eastern U.S. using its unique packing and temperature control
technology.
Live
Seafood
— All live seafood is collected daily from wharfs or markets at midnight, and immediately distributed via
in-house logistics to all retail supermarkets. For different species, iFresh maintains different water temperatures and oxygen
density in its tanks and containers. Hibernation technology is widely used in the in-house cold-chain system for long distance
distribution to best ensure freshness and quality. The hibernation technology even enables iFresh to deliver live lobsters to
China with an over 95% survival rate.
Fruit
& Vegetables
— iFresh adopts different storage technologies based on characteristics of different fruits
and vegetables, the knowledge only obtained from years of experience. All vegetables and fruits are delivered and sold on a
daily basis, to lower worn rate, lower human cost and keep up the high quality.
Growth
Strategy
Historical
Growth strategy
iFresh
grew via two major paths in the past 20-year operation: organic growth and acquisition. The vertically integrated network, steadily
growing new stores and online shopping initiative constituted the 3 pillars for organic growth. As of acquisitions, iFresh was
highly selective in its past acquisitions and had ensured its expansion path was coordinated with its infrastructure construction.
Acquisition
Record
— iFresh has strategically targeted only those locations compatible with its infrastructure.
iFresh
was able to build its brand within the local Asian and Chinese community and quickly turned distressed stores into profitable
assets despite different geographic locations and market conditions. Based on its understanding of the market, iFresh quickly
identified the weakness of acquired stores and took specific actions. For example, prior to acquisition, Ming’s
Supermarkets sold mainly imports from China, had high sourcing and operation costs and offered limited live seafood and
produce. After taking it over, iFresh immediately increased its produce and live seafood offerings thanks to its in-house
logistics system and partnership with farms. iFresh’s wholesale subsidiaries also enable iFresh to offer diversified
selections, attracting customers not only from China, but from Korea, Japan, Thailand and other East and Southeast Asian
countries. For the Brooklyn store, iFresh identified that high worn-out rate and lack of standardized operation hindered
store profitability. After taking it over, iFresh started a 3-month personnel training course for live product management and
equipment procedures, which led a significant reduction in wear-and-tear rate from 6% to 1% and an equivalent 5% increase in
profitability. A performance related pay system and internal promotion was also introduced to and encouraged in the Brooklyn
store to best stimulate staff performance in the store.
iFresh
has a record of successful acquisitions. For example:
|
●
|
In
2009, iFresh acquired Ming’s Supermarket in Boston, Massachusetts and turned Ming’s
Supermarket into a subsidiary retailer under iFresh management. The initial acquisition
investment and renovation cost was about $2.7 million. NYM increased sales from $8.2
million to $17.0 million, or 107.3%, one year after the acquisition. For the year ended
March 31, 2017, Ming’s Supermarket recorded net sales of $17.7 million and Adjusted
EBITDA of $1.5 million.
|
|
|
|
|
●
|
In
2011, iFresh acquired a store in Brooklyn, New York and operates it as New York Mart
8
th
Ave, Inc (8
th
Ave). The initial investment was about $1.3 million.
After one year under iFresh operation, the store’s annual sales increased from
$11.0 million to 18.0 million, or 63.6%. For the year ended March 31, 2017, New York
Mart 8
th
Ave, Inc. realized net sales of $18.5 million and Adjusted EBITDA
of $1.0 million.
|
|
|
|
|
●
|
In
2013, iFresh acquired Zen Mkt Quincy, Inc. (“Zen”) in Quincy, Massachusetts.
The acquisition and renovation cost was $0.7 million. Prior to the Acquisition, the store
realized $3.0 million in sales per year and made no profit. After the acquisition, iFresh
improved its annual sales and profitability. Zen’s sales and adjusted EBITDA for
the year ended March 31, 2017 were $10.6 million and $0.8 million, respectively.
|
For additional information on Adjusted EBITDA,
see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Adjusted EBITDA,” beginning on page 31.
Stores
Site Selection
— For new stores, iFresh has an established procedure to select new stores sites. First, iFresh contacts
local real estate brokers and appraisers for demographic reports for a group of locations it is interested in. After reading the
reports carefully, it narrows down the alternatives for further study. Next, it interviews with a diverse selection of influential
local groups, including but not limited to, local Chinese associations, Chinese schools and local WeChat
12
groups,
to better understand local preference in food and grocery shopping. After further narrowing down the alternative sites, the iFresh
team visits the target sites and conducts a field survey on the distribution, density and purchasing preferences of the local
Chinese community. The team then runs systematic comparisons through acquiring cost and return analysis and investment feasibility
evaluation on target alternatives, and reaches a conclusion on where to open the new store.
Figure
3 Procedure of Store Site Selection
Future
Growth Prospects
iFresh
plans to continue its vertically-integrated model and cultivate future growth by opening new stores, acquisition and
developing online business. Geographically, iFresh plans to first expand along I-95 corridor based on its established
logistics system and industry leadership, and then gradually go nationwide. For new stores, iFresh has already been
approached by or has approached some targets for the purpose of possible acquisitions. Although it has no definitive
agreements in place, iFresh has a detailed expansion plan in place. The current logistics network will also be coordinated to
cover the new stores in the most efficient and economical way. In addition, iFresh stores in new locations will serve as
distribution centers for its online shopping and delivery services to capture the growing Chinese population in large
suburban areas.
12
WeChat
is a popular social media among Chinese speaking communities.
Figure
4 Future Expansion Plan
iFresh will continue targeting stores
averaging over 10,000 square feet. Based on its experience, iFresh expects that the average investment per store will be $2 million
to $3.0 million and that the conversion period will be about 2 years, which means it will take about 2 years on average for newly
acquired stores to enter into normal sales scale and profitability. In the aggregate, iFresh will need approximately $50 million
of capital in addition to its cash flow in place for the year ended March 31, 2018 to fully execute the physical acquisitions,
online platform development and new-store openings in the future.
Stores
and Operation
iFresh
offers well-assorted, high-quality and globally-sourced food products in its stores, with a special focus on perishable categories
and hard-to-find products important to its target customers.
Store
Layout
We
believe that iFresh’s cultural advantage is unique in comparison with its mainstream peers. iFresh’s ability to identify,
source, merchandise and market differentiated Asian and Chinese products that sharply meet the need of its target customers are
critical to its success. Its centralized merchandising team rigorously rotates, updates and re-evaluates its existing merchandise
offerings and regularly tests new products in retailing stores to excite its customers and to better understand customer preference.
iFresh maintains a consistent flow of new products in its stores and keeps its product assortment fresh and relevant.
iFresh plans to use consistent decoration
across all stores to emphasis iFresh’s brand and evoke a feeling of trustworthiness and consistent high-quality. It puts
special focus on seafood and produce because their price and quality are key determining factors of Chinese or Asian customers’
shopping experience. Perishables in aggregate make up approximately 60% of store selling space on average. To optimize usage of
available space, iFresh places popular items such as bok choy, lychee, longyan in most noticeable areas, and prices them competitively
to attract customer traffic. The idea is to adopt a standardized product display with flexible arrangements customized to the shopping
habits of local consumers.
iFresh has a significant focus on perishable
product categories which include vegetables, seafood, fruit, meat and prepared foods. In fiscal year ended on March 31, 2017, the
perishable categories contributed approximately 64% to iFresh’s total net sales, similar to 60.2% for the year ended March
31, 2016, in alignment with the space occupancy of perishables. The top three sales generators are vegetables, seafood and meat
as shown in Table 4 below. iFresh’s focus on perishables came from its years of research and analysis of target customer’s
shopping preferences. This also echoed well with conclusions given in Nielsen report that Asian and Chinese Americans prefer to
buy fresh and shop for seafood and vegetables most often.
With respect to non-perishables, iFresh
has over 6,600 grocery products on shelf ranging from cooking utensils, canned foods, Chinese and Asian seasonings and spices,
to domestic and imported snacks. With a small-box format, iFresh is highly selective in its grocery offerings and is flexible enough
to remove unprofitable or poor-selling items quickly. 95% of iFresh’s imported groceries are sourced from China, Thailand
and Taiwan to meet the diverse demand of not only Chinese Americans but targeted customers originated from east and south-east
Asia. In fiscal year ended on March 31, 2017, the non-perishable grocery category contributed approximately 36% to iFresh’s
total Net Sales and realized a markup of 29% on average for the year ended March 31, 2017.
The
table below depicts the components of net sales and gross margin in detail as of March 31, 2017:
Table 4 Contribution of Categories
Category
|
|
Net Sales
%
|
|
|
Markup
%
|
|
Vegetables
|
|
|
21
|
%
|
|
|
30
|
%
|
Seafood
|
|
|
17
|
%
|
|
|
21
|
%
|
Meat
|
|
|
14
|
%
|
|
|
29
|
%
|
Fruit
|
|
|
10
|
%
|
|
|
25
|
%
|
Hot Food
|
|
|
3
|
%
|
|
|
30
|
%
|
Perishable Total/Average
|
|
|
64
|
%
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
Grocery
|
|
|
36
|
%
|
|
|
29
|
%
|
Management
and sale of Perishables
Vegetables
— All iFresh stores receive deliveries of vegetables every day and are required to sell out all vegetables on daily
basis. iFresh discounts its vegetables after 7:00 p.m., which significantly lowers the storage cost and worn-and-torn rate and
improves profitability. In addition, to lower the worn-out rate of green-leaf vegetables due to customer rummage, iFresh usually
packs and sells such vegetables in bags. iFresh also displays and sells different kinds of vegetables according to their characteristics.
For example, Chinese yams need to be displayed on wood shreds to keep them fresh, while winter melons are typically sold in pieces
due to their large size.
Seafood
—
As an established procedure, in-house merchants of iFresh collect live seafood from wharfs and markets at midnight
on a daily basis. The purchases are immediately distributed to all retailing stores via iFresh’s in-house cold chain systems
in which hibernation technology keeps seafood alive and ensures their freshness and high-quality. iFresh discounts remaining stock
after 7pm, to make space for new deliveries, reduce storage costs and maintain its standard for freshness and quality.
Meat
—
Since iFresh can sell more body parts of an animal than a mainstream grocery store, the sales it generates from a whole pig,
chicken or cattle are much higher than that of mainstream groceries, which leads to higher margin in meat and meat products sales.
Fruit
—
Almost all of the iFresh’s unique fruit species are seasonal offerings and the quality and price are decisive to customer
traffic during high season. Financially, the unique fruit species are sold at higher unit prices and generally offer higher profit
margins. iFresh benefits from its long-standing relationship with farm vendors to stay competitive in high seasons and enjoy better
sourcing price and higher profit margin from fruit sales.
Hot
Food
— Hot food options vary among iFresh’s different store locations. iFresh provides prepared Chinese cuisines
which require specific cooking utensils and are thus not easily made at home by customers, such as Char Siu, qingtuan, roasted
duck, roasted goose, as well as an assortment of dim sums. In addition, iFresh adjusts its hot food offerings periodically based
on the responses from customers. As a commitment to freshness and quality, all prepared food in iFresh are made and sold on a
daily basis. Leftovers are sold at a discount after 7:00 p.m.
Pricing
Strategy
In
general, iFresh’s pricing strategy is to provide premium products at reasonable prices. iFresh believes pricing should be
based on the quality of products and the shopping experience rather than promotional pricing to drive sales. Its goal is to deliver
a sense of value to and foster a relationship of trust with its target and loyal customers.
iFresh
adopts different pricing strategies for different food categories. For best sellers such as seafood and core produce such as
swimming shrimp and bok choy, iFresh prices competitively and aims to attract consumer traffic. For groceries and dry foods
which are usually imported and have a long shelf life, iFresh prices at a premium (average markup of 40%). Due to changes in
market conditions and seasonal supply, iFresh’s pricing for seafood and produce are more volatile when compared with
other categories. Despite the effects of seasonality, iFresh is able to maintain competitive pricing even in high seasons
thanks to its long-standing relationship with its farm partners.
Marketing
and advertising
iFresh believes its unique offerings,
competitive price of popular produce, and word-of–mouth are major drivers of store sales. Apart from word-of-mouth, iFresh
advertises using in-store tastings, in-store weekly promotion signage, cooking demonstrations and product sampling. iFresh also
promotes its stores on its official website, uses an electronic newsletter, and/or inserts sales flyers in local Chinese newspapers
or magazines on a monthly or weekly basis. iFresh’s online business is marketed mainly on its official website and on WeChat,
the most widely-used mobile social app among Chinese immigrations. As of the fiscal years ended March 31, 2017and 2016, iFresh
recognized $533,536 and $572,885 for marketing and advertising expenses, respectively. Overall, iFresh utilized a mixed marketing
and advertising methods to enhance iFresh brand and sales, to regularly communicate with its target customers and to strengthen
its ability to market new and differentiated products.
Store
Staffing and Operations
iFresh
adopts a systematic approach to support operations and the sustainable development of stores. The comprehensive support includes,
but is not limited to, employee training and scheduling, store design, layout, product sourcing and inventory management systems,
especially focusing on perishables. The support enables iFresh to lower worn-and-tear rate, to enhance operating margins and profit
and to help build iFresh’s image of a Chinese supermarket chain committed to freshness and high-quality.
Each
iFresh retail supermarket is operated with high autonomy. A store manager oversees the general operation and an assistant manager
is also appointed to assist the supervision. To ensure expertise in management and high quality of offerings, department managers
are also appointed by category at each store. The department managers in each store generally include a vegetable manager, a fruit
manager, a seafood manager, a meat manager, a grocery manager and a hot food manager. Since a department manager shoulders the
detailed management for the specific category he or she is in charge of, he or she is commonly experienced in this category or
has been with iFresh for years and exhibited superior performance. As a group, the store manager and store department managers
help to ensure the quality of iFresh’s offerings.
Competition
Food
retail is a large and highly competitive industry, but we believe that the market participants in the Chinese supermarket industry,
a niche market are highly fragmented and immature. Currently, 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.
The
national and regional supermarket chains are experienced in operating multiple store locations, expansion management and have
greater marketing or financial resources than iFresh does. Even though currently they offer only a limited selection of Chinese
and Asian specialty foods, they may be able to devote greater resources to sourcing, promoting and selling their products if they
choose to do so. The local food stores and markets are small in size with a deep understanding of local preferences. Their lack
of scale results in high risk and limited growth potential.
Trademarks
and Other Intellectual Property
iFresh owns ten self-owned
Trademarks: (i) Family Elephant; (ii) Feiyan; (iii) Green Acre; (iv) Golden Smell; (v) Redolent; (vi) Shuangdeng/Double
Lantern Brand; (vii) SeaStar; (viii) Huang Duan Xiang 1987; (ix)
I
FRESH; and (x) I FRESH.
The first four trademarks have been registered with the United Stated Patent and Trademark
Office, the latter six were filed throughout 2015 and 2017 and are awaiting approval. iFresh’s self-owned trademarks
cover rice and rice products and seasonings and spices, as well as assortment of noodles, frozen vegetables, frozen dumplings
and frozen seafood. Trademarks are generally renewed for a 10-year period. We consider iFresh’s trademarks to be
valuable assets that diversify customer’s value alternatives, a useful strategy to enhance profit margins and an
important way to establish and protect iFresh brand in a competitive environment.
iFresh
plans to acquire more brands or even develop NYM-branded products in the near future. iFresh will evaluate the acquisition opportunities
on a case by case basis, considering the timing, impact to current products and the product quality. iFresh is not currently in
any trademark disputes with any third party.
Insurance
iFresh
uses insuranc to provide coverage for potential liability for worker’s compensation, automobile and general liability, product
liability, director and officers’ liability, employee health care benefits and other casualty and property risks. Changes
in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit
level changes due to changes in applicable laws, insolvency or insurance carriers, and changes in discount rates could all affect
ultimate settlements of claims. iFresh evaluates its insurance requirements on an ongoing basis to ensure it maintains adequate
levels of coverage.
ITEM
1 A. Risk Factors
An
investment in our Common Stock is speculative and involves a high degree of risk and uncertainty. You should carefully consider
the risks described below, together with the other information contained in this report, including the consolidated financial
statements and notes thereto, before deciding to invest in our Common Stock. Any of the risk factors described below could significantly
and adversely affect iFresh’s business, prospects, sales, revenues, gross profit, cash flows, financial condition, and results
of operations.
iFresh’s
continued growth depends on new store acquisitions and openings and on increasing same store sales, and iFresh’s failure
to achieve these goals could negatively impact its results of operations and financial condition.
Our
growth strategy depends, in large part, on acquiring and opening new stores in existing and new areas and operating those stores
successfully. Successful implementation of this strategy is dependent on sufficient capital support from financing, finding suitable
stores to acquire, identifying suitable locations and negotiating acceptable lease terms for store sites, as it faces competition
from other retailers for such sites. There can be no assurance that we will continue to grow through new store acquisitions and
openings. We may not be able to obtain sufficient capital support for the expansion plan, or successfully implement the plan to
acquire or open new stores timely or within budget or operate them successfully, and there can be no assurance that store acquisition
or opening costs for, net sales of, contribution margin of and average payback period on initial investment for new stores will
conform to our operating model discussed elsewhere in this report. Lower contribution margins from new stores, along with the
impact of related store acquisition, opening and store management relocation costs, may have an adverse effect on our financial
condition and operating results. In addition, if we acquire stores in the future, it may not be able to successfully integrate
those stores into its existing store base and those stores may not be as profitable as its existing stores.
Also,
we may not be able to successfully hire, train and retain new store employees or integrate those employees into the
programs, policies and culture of us. We or our third party vendors may not be able to adapt our distribution, management and
other operating systems to adequately supply products to new stores at competitive prices so that we can operate the stores
in a successful and profitable manner. We may not have the level of cash flow or financing necessary to support our growth
strategy.
Additionally,
our acquisition and opening of new stores will place increased demands on our operational, managerial and administrative resources.
These increased demands could cause the Company to operate its existing business less effectively, which in turn could cause
deterioration in the financial performance of our existing stores. If the Company experiences a decline in performance, it may
slow or discontinue store openings, or may decide to close stores that it is unable to operate in a profitable manner.
Additionally,
some of our new stores may be located in areas where the Company has little experience or a lack of brand recognition. Those markets
may have different competitive conditions, market conditions, consumer tastes and discretionary spending patterns than our existing
markets, which may cause these new stores to be less successful than stores in our existing markets.
Our
operating results and stock price will be adversely affected if we fail to implement our growth strategy or if we invest resources
in a growth strategy that ultimately proves unsuccessful.
Our
newly opened stores may negatively impact our financial results in the short-term and may not achieve sales and operating levels
consistent with our mature store base on a timely basis or at all.
The
Company has actively pursued new store growth and plans to continue doing so in the future. The Company cannot assure you
that its new store acquisitions or openings will be successful or result in greater sales and profitability. New store
openings may negatively impact our financial results in the short-term due to the effect of store opening costs and lower
sales and contribution margin during the initial period following opening. New stores build their sales volume and their
customer base over time and, as a result, generally have lower margins and higher operating expenses, as a percentage of net
sales, than our more mature stores. A new store can take more than a year to achieve a level of operating performance
comparable to our similarly existing stores. Further, we have experienced in the past, and expect to experience in the
future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to
new, closer locations. As a result, part of the increase of the overall sales to us arising from a new store opening or a
store acquisition may be offset by the “sales volume transfer” phenomena.
The
competition from competitors may increase intensively in the future.
Food
retail is a large and highly competitive industry. However, iFresh believes that the market participants in the Chinese
supermarket industry are highly fragmented and immature. Currently, iFresh faces competition from smaller or dispersed
competitors focusing on the niche market of Chinese 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.
The
national and regional supermarket chains are experienced in operating multiple stores locations, expanding management and they
have greater marketing or financial resources than iFresh does. Even though they currently offer only a limited selection of Chinese
and Asian specialty foods, they may be able to devote greater resources to sourcing, promoting and selling their products if they
choose to do so. On the contrary, the local food stores and markets are small in size with a deep understanding of local preferences,
but their lack of scale results in high risk and limited growth potential.
If
more and more competitors devote into this market segment aiming to serve Chinese and other Asian customers in the future, the
competition will increase. Our operating results may be negatively impacted through a loss of sales, reduction in margin from
competitive price changes and/or greater operating costs such as marketing, due to the increase of competition.
iFresh
relies on a combination of product offerings, customer service, store format, location and pricing to compete.
iFresh
competes with other food retailers on a combination of factors, primarily product selection and quality, customer service, store
layout and decoration, location and price. Our success depends on its ability to offer products that appeal to its customers’
preferences. Failure to offer such products, or to accurately forecast changing customer preferences, could lead to a decrease
in the number of customer transactions at Our stores and in the amount customers spend at our stores.
Pricing
in particular is a significant driver of consumer choice in Our industry and iFresh expects competitors to continue to apply pricing
and other competitive pressures. To the extent that Ourcompetitors lower prices, its ability to maintain gross profit margins
and sales levels may be negatively impacted. Some of Our competitors may have greater resources than it does. These competitors
could use these advantages to take measures, including reducing prices, which could adversely affect Our competitive position,
financial condition and results of operations.
If
iFresh does not succeed in offering attractively priced products that consumers intend to purchase or are unable to provide a
convenient and appealing shopping experience, Our sales, operating margins and market share may decrease, resulting in reduced
profitability.
Economic
conditions that impact consumer spending could materially affect Our business.
Ongoing
economic uncertainty continues to negatively affect consumer confidence and discretionary spending. iFresh’s operating results
may be materially affected by changes in economic conditions nationwide or in the regions in which iFresh operates that impact
consumer confidence and spending, including discretionary spending. This risk may be exacerbated if customers choose lower-cost
alternatives to iFresh’s product offerings in response to economic conditions. In particular, a decrease in discretionary
spending could adversely impact sales of certain of iFresh’s higher margin product offerings. Future economic conditions
affecting disposable consumer income, such as employment levels, business conditions, changes in housing market conditions, the
availability of consumer credit, interest rates, tax rates and fuel and energy costs, could reduce overall consumer spending or
cause consumers to shift their spending to lower-priced competitors. In addition, inflation or deflation can impact iFresh’s
business. Food deflation could reduce sales growth and earnings, while food inflation, combined with reduced consumer spending,
could reduce gross profit margins. As a result, iFresh’s results of operations could be materially adversely affected.
iFresh’s
existing stores are mainly located in Northeastern American metropolitan areas. The geographic concentration of its stores creates
an exposure to the economy of the Northeastern United States and any downturn in this region could materially adversely affect
iFresh’s financial condition and results of operations.
Perishable
products make up a significant portion of iFresh’s sales, and ordering errors or product supply disruptions may have an
adverse effect on iFresh’s profitability and operating results.
iFresh has a significant focus on perishable
products. Sales of perishable products accounted for approximately 64% of iFresh’s net sales in fiscal year ended March
31, 2017. iFresh has self-owned wholesale facilities and stable supply relationship with farm partners, which significantly reduces
ordering errors and product disruption. However, iFresh still relies on various suppliers and vendors to provide and deliver its
product inventory on a continuous basis. iFresh could suffer significant perishable product inventory losses in the event of the
loss of a major supplier or vendor, disruption of its supply chain, extended power outages, natural disasters or other catastrophic
occurrences. While iFresh has implemented certain systems to ensure that its ordering is in line with demand, it cannot assure
you that its ordering systems will always work efficiently, in particular in connection with the new additional stores, which have
no, or a limited, ordering history. If iFresh were to over-order, it could suffer inventory losses, which would negatively impact
its operating results.
Interruption
of exclusive distribution of brands or imports relating to iFresh’s wholesale operations may adversely impact iFresh’s
financial conditions and operating results.
iFresh
conducts wholesale business through its two subsidiaries, Strong America and NYMG, which enables iFresh to have stronger negotiating
power with vendors as well as a way to source products from China, Thailand and Taiwan to its own retail stores. Strong America
is also the exclusive distributor of nine famous oversea brands. If iFresh can’t renew its exclusive distribution contracts
relating to those brands, iFresh’s sales, both retail and wholesale, may be adversely affected. Furthermore, importing products
from other countries is subject to the impact of various international factors, including international trading polices, shipping
costs, currency fluctuations, tariffs and customs procedures for imports, which may affect the supply and purchase prices of the
products to be imported by iFresh’s wholesale distributors and sold by them to iFresh. If iFresh fails to obtain or maintain
a sustainable supply of these products from its vendors, its financial conditions and operating results will be adversely impacted.
The
operation of new stores and online sales may cannibalize sales in iFresh’s stores and its financial results can be affected
by economic and competitive conditions in this area.
All
of iFresh’s existing stores are located in the Northeastern United States and it intends to grow its store base in this
area. New stores are expected to be opened in the Greater New York City and Boston metropolitan areas. As iFresh opens new
stores in closer proximity to its customers who currently travel longer distances to shop at iFresh’s stores, iFresh
expects some of these customers to take advantage of the convenience of iFresh’s new locations. Simultaneously, iFresh
will develop online sales to cover the customers living in a 2.5-hour drive radius, which may satisfy the demand from those
Chinese customers living in the suburbs.
Some
sales volume may transfer from iFresh’s existing stores to its new stores as some of its existing customers switch to these
new, closer locations, or convenient online shopping. Consequently, iFresh’s new stores and online sales may adversely impact
sales at iFresh’s existing stores.
Disruption
of relationships with vendors could negatively affect iFresh’s business.
iFresh
purchases vegetables and fruits directly from farms and other vendors and maintains stable relationships with the vendors to
ensure reliable supplies of popular seasonal Chinese specialty of vegetables and fruits. iFresh also depends on third-party
suppliers for exclusive third-party brands. The cancellation of iFresh’s supply arrangement with any of its suppliers
or the disruption, delay or inability in supply from its suppliers could adversely affect iFresh’s sales. If
iFresh’s suppliers fail to comply with food safety or other laws and regulations, or face allegations of
non-compliance, their operations may be disrupted. iFresh cannot assure you that it would be able to find replacement
suppliers on commercially reasonable terms.
iFresh
may be unable to protect or maintain its intellectual property, which could result in customer confusion, a negative perception
of its brand and adversely affect its business.
iFresh
believes that its intellectual property has substantial value and has contributed significantly to the success of iFresh’s
business. In particular, iFresh’s trademarks, including New York Mart, are valuable assets that reinforce iFresh’s
customers’ favorable perception of its stores.
From
time to time, third parties have used names similar to iFresh’s, have applied to register trademarks similar to
iFresh’s and, as iFresh believes, have infringed or misappropriated iFresh’s intellectual property rights. iFresh
responds to these actions on a case-by-case basis, including, where appropriate, by sending cease and desist letters and
commencing opposition actions and litigation. The outcomes of these actions have included both negotiated out-of-court
settlements as well as litigation. iFresh cannot assure you that the steps it has taken to protect its intellectual property
rights are adequate, that its intellectual property rights can be successfully defended and asserted in the future or that
third parties will not infringe upon or misappropriate any such rights. In addition, iFresh’s trademark rights and
related registrations may be challenged in the future and could be canceled or narrowed. Failure to protect iFresh’s
trademark rights could prevent iFresh in the future from challenging third parties who use names and logos similar
to iFresh’s trademarks, which may in turn cause consumer confusion or negatively affect consumers’ perception of
iFresh’s brand and products, and eventually adversely affect iFresh’s sales and profitability. Moreover,
intellectual property disputes and proceedings and infringement claims may result in a significant distraction for management
and significant expense, which may not be recoverable regardless of whether iFresh is successful. Such proceedings may be
protracted with no certainty of success, and an adverse outcome could subject iFresh to liabilities, force iFresh to cease
use of certain trademarks or other intellectual property or force iFresh to enter into licenses with others. Any one of these
occurrences may have a material adverse effect on iFresh’s business, results of operations and financial
condition.
If
iFresh experiences a data security breach and confidential customer information is disclosed, iFresh may be subject to penalties
and experience negative publicity, which could affect iFresh’s customer relationships and have a material adverse effect
on its business.
iFresh
and its customers could suffer harm if customer information was accessed by third parties due to a security failure in iFresh’s
systems. The collection of data and processing of transactions requires iFresh to receive, transmit and store a large amount of
personally identifiable and transaction related data. This type of data is subject to legislation and regulation in various jurisdictions.
Recently, data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media
attention, prompting state and federal legislative proposals addressing data privacy and security. If some of the current proposals
are adopted, iFresh may be subject to more extensive requirements to protect the customer information that it processes in connection
with the purchases of iFresh’s products. iFresh may become exposed to potential liability with respect to the data that
it collects, manages and processes, and may incur legal costs if its information security policies and procedures are not effective
or if it is required to defend its methods of collection, processing and storage of personal data. Future investigations, lawsuits
or adverse publicity relating to iFresh’s methods of handling personal data could adversely affect its business, results
of operations, financial condition and cash flows due to the costs and negative market reaction relating to such developments.
Additionally, if iFresh suffers data breaches, one or more of the credit card processing companies that it relies on may refuse
to allow it to continue to participate in their network, which would limit iFresh’s ability to accept credit cards at its
stores and could adversely affect its business, results of operations, financial condition and cash flows.
Data
theft, information espionage or other criminal activity directed at the retail industry or computer or communications systems
may materially adversely affect iFresh’s business by causing iFresh to implement costly security measures in recognition
of actual or potential threats, by requiring iFresh to expend significant time and expense developing, maintaining or upgrading
its information technology systems and by causing it to incur significant costs to reimburse third parties for damages. Such activities
may also materially adversely affect iFresh’s financial condition, results of operations and cash flows by reducing consumer
confidence in the marketplace and by modifying consumer spending habits.
If
iFresh is unable to renew or replace current store leases or if it is unable to enter into leases for additional stores on favorable
terms, or if one or more of its current leases are terminated prior to expiration of their stated term, and it cannot find suitable
alternate locations, iFresh’s growth and profitability could be negatively impacted.
iFresh
currently leases all of its store locations. Many of iFresh’s current leases provide unilateral option to renew for several
additional rental periods at specific rental rates. iFresh’s ability to re-negotiate favorable terms on an expiring lease
or to negotiate favorable terms for a suitable alternate location, and iFresh’s ability to negotiate favorable lease terms
for additional store locations, could depend on conditions in the real estate market, competition for desirable properties, its
relationships with current and prospective landlords, or other factors that are not within iFresh’s control. Any or all
of these factors and conditions could negatively impact iFresh’s growth and profitability.
iFresh
leases certain of its stores and related properties from related parties.
Long Deng, one of iFresh’s directors
and executive officers, owns 50% of Dragon Development LLC, which leases to iFresh the premises at which Strong America, one of
iFresh’s wholesale subsidiaries, is located. During fiscal year ended March 31, 2017, rental payments (excluding maintenance
and taxes that iFresh is obligated to pay) under the leases from Dragon Development LLC were $637,273. The leases with Dragon
Development LLC renewed on May 1, 2016, and their remaining terms are 10 years. iFresh has no assurance that these related parties
will renew the lease agreements with it after expiration. If iFresh cannot renew the leases, it will have to move its stores and
warehouses locations, which increases the uncertainty of finding suitable locations for those stores and the reputation recognition
in new locations, which may adversely affect iFresh’s sales, expenses, profit and financial position.
Failure
to retain iFresh’s senior management and other key personnel may adversely affect its operations.
iFresh’s
success is substantially dependent on the continued service of its senior management and other key personnel. These executives,
and in particular Long Deng, iFresh’s Executive Chairman and Chief Executive Officer and Chief Operating Officer, have been
primarily responsible for determining the strategic direction of iFresh’s business and for executing its growth strategy
and are integral to its brand and culture, and the reputation iFresh enjoys with suppliers and consumers. The loss of the services
of any of these executives and other key personnel could have a material adverse effect on iFresh’s business and prospects,
as iFresh may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure
could be viewed in a negative light by investors and analysts, which may cause iFresh’s stock price to decline. The loss
of key employees could negatively affect iFresh’s business.
If
iFresh is unable to attract, train and retain employees, it may not be able to grow or successfully operate its business.
The
retail store industry is labor intensive, and iFresh’s success depends in part upon its ability to attract, train and retain
a sufficient number of employees who understand and appreciate iFresh’s culture and are able to represent its brand effectively
and establish credibility with its business partners and consumers. iFresh’s ability to meet its labor needs, while controlling
wage and labor-related costs, is subject to numerous external factors, including the availability of a sufficient number of qualified
persons in the work force in the markets in which iFresh is located, unemployment levels within those markets, prevailing wage
rates, changing demographics, health and other insurance costs and changes in employment legislation. In the event of increasing
wage rates, if iFresh fails to increase its wages competitively, the quality of its workforce could decline, causing its customer
service to suffer, while increasing its wages could cause its earnings to decrease. If iFresh is unable to hire and retain employees
capable of meeting its business needs and expectations, its business and brand image may be impaired. Any failure to meet iFresh’s
staffing needs or any material increase in turnover rates of iFresh’s employees may adversely affect its business, results
of operations and financial condition.
Changes
in and enforcement of immigration laws could increase iFresh’s costs and adversely affect iFresh’s ability to attract
and retain qualified store-level employees.
Federal
and state governments from time to time implement immigration laws, regulations or programs that regulate iFresh’s ability
to attract or retain qualified foreign employees. Some of these changes may increase iFresh’s obligations for compliance
and oversight, which could subject iFresh to additional costs and make iFresh’s hiring process more cumbersome, or reduce
the availability of potential employees. Although iFresh has implemented, and is in the process of enhancing, procedures to ensure
its compliance with the employment eligibility verification requirements, there can be no assurance that these procedures are
adequate and some of its employees may, without iFresh’s knowledge, be unauthorized workers. The employment of unauthorized
workers may subject iFresh to fines or civil or criminal penalties, and if any of iFresh’s workers are found to be unauthorized,
iFresh could experience adverse publicity that negatively impacts its brand and makes it more difficult to hire and keep qualified
employees. iFresh may be required to terminate the employment of certain of its employees who were determined to be unauthorized
workers. The termination of a significant number of employees may disrupt iFresh’s operations, cause temporary increases
in iFresh’s labor costs as it trains new employees and result in additional adverse publicity. iFresh’s financial
performance could be materially harmed as a result of any of these factors.
Prolonged
labor disputes with employees and increases in labor costs could adversely affect iFresh’s business.
A
considerable amount of iFresh’s operating costs is attributable to labor costs and, therefore, its financial performance
is greatly influenced by increases in wage and benefit costs, including pension and health care costs. As a result, iFresh is
exposed to risks associated with a competitive labor market. Rising health care and pension costs and the nature and structure
of work rules will be important issues. Any work stoppages or labor disturbances as a result of employees’ dissatisfaction
of their current employment terms could have a material adverse effect on iFresh’s financial condition, results of operations
and cash flows. iFresh also expects that in the event of a work stoppage or labor disturbance, it could incur additional costs
and face increased competition.
Various
aspects of iFresh’s business are subject to federal, state and local laws and regulations. iFresh’s compliance with
these regulations may require additional capital expenditures and could materially adversely affect its ability to conduct its
business as planned.
iFresh
is subject to federal, state and local laws and regulations relating to zoning, land use, environmental protection, workplace
safety, food safety, public health, community right-to-know and alcoholic beverage and tobacco sales. In particular, the states
in which iFresh operates and several local jurisdictions regulate the licensing of supermarkets and the sale of alcoholic beverages.
In addition, certain local regulations may limit iFresh’s ability to sell alcoholic beverages at certain times. iFresh is
also subject to laws governing its relationship with employees, including minimum wage requirements, overtime, working conditions,
immigration, disabled access and work permit requirements. Compliance with new laws in these areas, or with new or stricter interpretations
of existing requirements, could reduce the revenue and profitability of iFresh’s stores and could otherwise materially adversely
affect iFresh’s business, financial condition or results of operations. iFresh’s new store openings could be delayed
or prevented or its existing stores could be impacted by difficulties or failures in iFresh’s ability to obtain or maintain
required approvals or licenses. iFresh’s stores are subject to unscheduled inspections on a regular basis, which, if violations
are found, could result in the assessment of fines, suspension of one or more needed licenses and, in the case of repeated “critical”
violations, closure of the store until a re-inspection demonstrates that iFresh has remediated the problem. Certain of iFresh’s
parking lots and warehouses either have only temporary certificates of occupancy or are awaiting a certificate of occupancy which,
if not granted, would require iFresh to stop using such property. Additionally, a number of federal, state and local laws impose
requirements or restrictions on business owners with respect to access by disabled persons. iFresh’s compliance with these
laws may result in modifications to iFresh’s properties, or prevent iFresh from performing certain further renovations.
iFresh cannot predict the nature of future laws, regulations, interpretations or applications, or determine what effect either
additional government regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory
schemes would have on iFresh’s business in the future.
iFresh’s
plans to acquire and open new stores requires iFresh to spend capital. Failure to use its capital efficiently could have an adverse
effect on iFresh’s profitability.
iFresh’s
growth strategy depends on its acquisition of and opening new stores, which will require iFresh to use cash generated by its operations
and a portion of the net proceeds of future equity or debt financing and borrowing under bank credit line. iFresh cannot assure
you that cash generated by its operations, the net proceeds of future equity or debt financing and borrowing under bank credit
line will be sufficient to allow iFresh to implement its growth strategy. If any of these initiatives prove to be unsuccessful,
iFresh may experience reduced profitability and it could be required to delay, significantly curtail or eliminate planned store
openings, which could have a material adverse effect on its financial condition and future operating performance and the price
of its common stock.
Litigation
may materially adversely affect iFresh’s business, financial condition and results of operations.
iFresh’s
operations are characterized by a high volume of customer traffic and by transactions involving a wide variety of product
selections. These operations carry a higher exposure to consumer litigation risk when compared to the operations of companies
operating in many other industries. Consequently, iFresh may be a party to individual personal injury, product liability and
other legal actions in the ordinary course of its business, including litigation arising from food-related illness. The
outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify.
Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the
potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future
litigation may be significant. There may also be adverse publicity associated with litigation that may decrease consumer
confidence in iFresh’s businesses, regardless of whether the allegations are valid or whether iFresh is ultimately
found liable. As a result, litigation may materially adversely affect iFresh’s businesses, financial condition, results
of operations and cash flows.
Increased
commodity prices and availability may impact profitability.
Many
of iFresh’s products include ingredients such as wheat, corn, oils, milk, sugar, cocoa and other commodities. Commodity
prices worldwide have been increasing. While commodity price inputs do not typically represent the substantial majority of iFresh’s
product costs, any increase in commodity prices may cause its vendors to seek price increases from iFresh. Although iFresh is
typically able to mitigate vendor efforts to increase its costs, it may be unable to continue to do so, either in whole or in
part. In the event iFresh is unable to continue mitigating potential vendor price increases, it may in turn consider raising its
prices, and its customers may be deterred by any such price increases. iFresh’s profitability may be impacted through increased
costs to it which may impact gross margins, or through reduced revenue as a result of a decline in the number and average size
of customer transactions.
Severe
weather, natural disasters and adverse climate changes may materially adversely affect iFresh’s financial condition and
results of operations.
Severe
weather conditions and other natural disasters in areas where iFresh has stores or from which iFresh obtains the products it sells
may materially adversely affect its retail operations or its product offerings and, therefore, its results of operations. Such
conditions may result in physical damage to, or temporary or permanent closure of, one or more of iFresh’s stores, an insufficient
work force in iFresh’s markets and/or temporary disruption in the supply of products, including delays in the delivery of
goods to iFresh’s stores or a reduction in the availability of products in its stores. In addition, adverse climate conditions
and adverse weather patterns, such as drought or flood, that impact growing conditions and the quantity and quality of crops may
materially adversely affect the availability or cost of certain products within its supply chain. Any of these factors may disrupt
iFresh’s businesses and materially adversely affect its financial condition, results of operations and cash flows.
The
occurrence of a widespread health epidemic may materially adversely affect iFresh’s financial condition and results of operations.
iFresh’s
business may be severely impacted by wartime activities, threats or acts of terror or a widespread regional, national or global
health epidemic, such as pandemic flu. Such activities, threats or epidemics may materially adversely impact iFresh’s business
by disrupting production and delivery of products to iFresh’s stores, by affecting iFresh’s ability to appropriately
staff its stores or by causing customers to avoid public gathering places or otherwise change their shopping behaviors.
iFresh needs approximately $50 million for the
year ended March 31, 2018 in order to achieve its planned growth for that year and if it cannot successfully obtain sufficient
capital, the financial results and stock price of iFresh after the business combination will be adversely affected.
iFresh believes that it needs
approximately $50 million for the year ended March 31, 2018 mainly for the purpose of acquiring additional stores to achieve
its planned growth for that year. If it is not able to obtain financing on commercially reasonable terms in connection with
the Business Combination, as is contemplated by the parties, it may not be able to implement its growth plan. If it is unable
to effect its growth plan, iFresh’s financial results will be significantly worse than anticipated and its stock price
may decline as a result.
iFresh
is an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may
make its securities less attractive to investors.
iFresh
is an “emerging growth company,” as defined in the JOBS Act. It may remain an “emerging growth company”
until the fiscal year ended December 31, 2020. However, if its non-convertible debt issued within a three-year period or revenues
exceeds $1 billion, or the market value of its common stock that are held by non-affiliates exceeds $700 million on the last day
of the second fiscal quarter of any given fiscal year, iFresh would cease to be an emerging growth company as of the following
fiscal year. As an emerging growth company, iFresh is not required to comply with the auditor attestation requirements of section
404 of the Sarbanes-Oxley Act, has reduced disclosure obligations regarding executive compensation in its periodic reports and
proxy statements, and is exempt from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, iFresh has elected
to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies
until those standards apply to private companies. As such, iFresh’s financial statements may not be comparable to companies
that comply with public company effective dates. As a result, potential investors may be less likely to invest in our securities.