NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Description of Business
Organization
and General
iFresh
(herein referred to collectively with its subsidiaries as the “Company”) is an Asian/Chinese supermarket chain with
multiple retail locations and its own distribution operations, currently all located along the East Coast of the United States.
The Company offers seafood, vegetables, meat, fruit, frozen goods, groceries, and bakery products through its retail stores.
On
June 7, 2019, the Company entered into a certain Share Exchange Agreement (“Exchange Agreement”) with Xiaotai International
Investment Inc. (“Xiaotai”), a Cayman Island Company, and certain shareholders of Xiaotai (collectively with Xiaotai,
“Seller”), pursuant to which, among other things and subject to the terms and conditions contained therein, the Company
was to acquire all of the outstanding issued shares and other equity interests in Xiaotai from certain shareholders of Xiaotai
(such transactions, collectively, the “Acquisition”). This Exchange Agreement was terminated and the proposed acquisition
was cancelled in November 2019 after Zhejiang Xiao’s business activities were found in violation of China’s laws and
regulations.
In
April 2020, the Company acquired Hubei Rongentang Wine Co., Ltd and Hubei Rongentang Herbal Wine Co., Ltd., (“RET”)
and Xiamen DL Medical Technology Co, Ltd., (“DL Medical”) which are incorporated and located in China to expand its
business. RET is engaged in the business of manufacturing and selling rice liquor products and herbal rice wine products. DL Medical’s
core business includes engineering and technical research and experimental development in and production of medical protective
masks, non-medical daily protective masks, and cotton spinning processing.
In
August 2020.The company acquired 100% equity interest of Jiuxiang Blue Sky Technology (Beijing) Co., Ltd. (“Jiuxiang”)
incorporated and located in China to enhance its online grocery business. Jiuxiang develops supply chain financial services, integrated
payment systems, and prepaid card marketing systems.
(Refer
to Note 5 for the detail of these acquisitions).
2.
Liquidity and Going Concern
As
reflected in the Company’s consolidated financial statements, the Company had negative working capital of $18.8 million
and $28.6 million as of September 30, 2020 and March 31, 2020, respectively. The Company had equity of $18.6 million and deficit
of $2.6 million as of September 30, 2020 and March 31, 2020, respectively. For the six months ended September 30, 2020 and the
year ended March 31, 2020, the Company had operating income of $0.4 million and operating losses of $8.3 million respectively.
The Company did not meet certain financial covenants required in its credit agreement with KeyBank National Association (“KeyBank”).
As of September 30, 2020, the Company has outstanding loan facilities of approximately $20.5 million due to KeyBank. Failure to
maintain these loan facilities will have a significant impact on the Company’s operations.
In
assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient
revenue sources in the future and its operating and capital expenditure commitments. iFresh had funded working capital and other
capital requirements in the past primarily by equity contribution from shareholders, cash flow from operations, and bank loans.
As of September 30, 2020, the Company also has $6.6 million of advances and receivable from the related parties we intend to collect.
In April and May 2020, the Company received a Paycheck Protection Program loan (“PPP loan”) of approximately $1.77
million. During the quarter ended September 30, 2020, the Company had a net operating loss of $3.8 million mainly due to the acquisition
of Jiuxiang which had a net operating loss of $2.2 Million.
The
Company was in default under the Credit Agreement as of September 30, 2020 and March 31, 2020. Specifically, the financial covenants
of the Credit Agreement require the Company to maintain a senior funded debt to earnings before interest, tax, depreciation and
amortization (“EBITDA”) ratio for the trailing 12 months period of less than 3.00 to 1.00 at the last day of each
fiscal quarter. As of September 30, 2020 and March 31, 2020, this ratio was greater than 3.00 to 1.00, and the Company was therefore
not in compliance with the financial covenants of the KeyBank loan. In addition, the Company violated the loan covenant when Mr.
Long Deng, CEO and shareholder of the Company sold an aggregate of 8,294,989 restricted shares to HK Xu Ding Co., Limited, representing
51% of the total issued and outstanding shares of the Company as of December 31, 2018. The Company failed to obtain a written
consent for the occurrence of the change of ownership. KeyBank notified the Company in February that it has not waived the default
and reserves all of its rights, power, privileges, and remedies under the Credit Agreement. effective as of March 1, 2019, interest
was accrued on all loans at the default rate.
On
May 20, 2019 (the “Effective Date”), the Company entered into a forbearance agreement (the “Forbearance Agreement”)
with KeyBank, pursuant to which KeyBank has agreed to delay the exercise of its rights and remedies under the Loan agreement based
on the existence of the event of share transfer defaults for six months. The Forbearance Agreement contained customary forbearance
covenants and other forbearance covenants and defined certain events of defaults.
From
January to September 2020, non-payment of the amount due by the Company was $1,866,292. Also, the Company is not in compliance
with certain loan covenants. On August 6, 2020 the Company received 3rd forbearance agreement from KeyBank, which includes the
following terms:
|
●
|
All
delinquent regular interest paid at or before settlement.
|
|
●
|
August
and September required payments will be regular interest amounts
|
|
●
|
Default
interest will be deferred until September 25, 2020
|
|
●
|
Store
valuations will be ordered by the lender.
|
|
●
|
Continue
to provide weekly cash flow reports
|
|
●
|
Provide
quarterly financial statements of NYM Holding and subsidiaries (“NYM”), iFresh and newly acquired businesses.
|
|
●
|
Monthly
financial projections
|
|
●
|
Cost/work
detail on the completion of the CT store
|
|
●
|
Pledge
of the equity and guarantee of newly acquired businesses.
|
|
●
|
File
a UCC-1 financing statement for iFresh Inc.
|
If
agreement cannot be reached, KeyBank is fully prepared to pursue legal remedies. As of the date of this filing, the Forbearance
Agreement is still under negotiation.
The
Company was impacted by the COVID-19 outbreak as it operates in areas under stay-at-home orders since mid-March 2020. The Company
had to operate under reduced hours including temporary closure of the stores located in Brooklyn, Manhattan and in Flushing, New
York, where there are with high populations and a high risk of infection during the end of March and April peak periods. Sales
decreased by $0.8 million due to the lockdown for the six months ended September 30, 2020.
The
Company’s principal liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure
obligations. The Company’s ability to fund these needs will depend on its future performance, which will be subject in part
to general economic, competitive and other factors beyond its control. These conditions raise substantial doubt as to the Company’s
ability to remain a going concern.
The
management has been putting effort in reaching out to external investors and are now in the process of contacting several potential
investors. The store operation has grown very mature over the last twenty years. With the fast development of the online shopping
and fresh delivery sectors, the management has input in related industries and seeking opportunities to further strengthen its
own supply chain and customers’ service quality in the company's online shopping platform- onlineiFresh. The management
is also filing an S-1 to help raise capital for the Company.
3.
Basis of Presentation and Principles of Consolidation
The
Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all
of the information and footnotes required by U.S. GAAP for a completed financial statement. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three and six months ended September 30, 2020 and 2019 are not necessarily indicative of the results that may
be expected for the full year. The information included in this Form 10-Q should be read in conjunction with Management’s
Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included
in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed with the SEC on August 13, 2020.
The
Company has four reportable and operating segments. The Company’s Chief Executive Officer is the Chief Operating Decision
Maker (“CODM”). The CODM bears ultimate responsibility for, and is actively engaged in, the allocation of resources
and the evaluation of the Company’s operating and financial results based on the financial information for these operating
segments.
4.
Summary of Significant Accounting Policies
Significant
Accounting Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. Such estimates
and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s
critical accounting estimates include, but are not limited to: allowance for estimated uncollectible receivables, inventory valuations,
lease assumptions, impairment of long-lived assets, impairment of intangible assets, and income taxes. Actual results could differ
from those estimates.
Accounts
Receivable
Accounts
receivable consist primarily of uncollected amounts from customer purchases (primarily from the Company’s two distribution
operations), credit card receivables, and food stamp vouchers, and are presented net of an allowance for estimated uncollectible
amounts.
The
Company periodically assesses its accounts receivable for collectability on a specific identification basis. If collectability
of an account becomes unlikely, an allowance is recorded for that doubtful account. Once collection efforts have been exhausted,
the account receivable is written off against the allowance.
Inventories
Inventories
in our supermarket consist of merchandise purchased for resale, which are stated at the lower of cost or net realizable value.
The cost method is used for wholesale and retail perishable inventories by assigning costs to each of these items based on a first-in,
first-out (FIFO) basis (net of vendor discounts). Inventories in our hot food, liquor and mask businesses consist of raw materials,
work in progress and finished products. Cost includes the cost of raw materials, freight in, direct labor and related production
overhead. The cost of these inventories is calculated using the weighted average method.
Any
excess of the cost over the net realizable value of each item of inventory is recognized as a provision for diminution in the
value of inventories. Net realizable value is the estimated at the selling price in the normal course of business less any costs
to complete and sell products. Allowances for obsolescence are also assessed based on expiration dates, as applicable, taking
into consideration historical and expected future product sales.
Leases
On
April 1, 2019 the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)
2016-02. For all leases that were entered into prior to the effective date of ASC 842, we elected to apply the package of practical
expedients. Based on this guidance we did not reassess the following: (1) whether any expired or existing contracts are or contain
leases; (2) the lease classification for any expired or existing leases; and (3) initial direct costs for any existing leases.
The adoption of Topic 842 resulted in the recognition of $65.6 million of operating lease assets and $72.3 operating lease liabilities
on the consolidated balance sheet as of April 1, 2019 (See Note 13 for additional information).
The
Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on the Company’s
consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of obligations under
capital leases, and obligations under capital leases, non-current on our consolidated balance sheets.
Operating
lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments
over the lease term at commencement date, adjusted by the deferred rent liabilities at the adoption date. As most of the Company’s
leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at
the lease commencement date in determining the present value of future payments. The operating lease ROU asset also includes any
lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s terms may include options
to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum
lease payments is recognized on a straight-line basis over the lease term.
Fair
Value Measurements
The
Company records its financial assets and liabilities in accordance with the framework for measuring fair value in accordance with
U.S GAAP.
This
framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:
Level
1: Quoted prices for identical instruments in active markets.
Level
2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that
are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active
markets.
Level
3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Fair
value measurements of nonfinancial assets and non-financial liabilities are primarily used in the impairment analysis of intangible
assets and long-lived assets.
Cash
and cash equivalents, accounts receivable, prepaid expenses and other current assets, advances to related parties, accounts payable,
deferred revenue and accrued expenses approximate fair value because of the short maturity of those instruments. Based on comparable
open market transactions, the fair value of the lines of credit, PPP loans and other liabilities, including current maturities,
approximated their carrying value as of September 30, 2020 and March 31, 2020, respectively due to their short term nature. The
Company’s estimates of the fair value of the line of credit and other liabilities (including current maturities) were classified
as Level 2 in the fair value hierarchy.
Paycheck
Protection Program Loans (PPP) Loans
The
Company’s policy is to account for the PPP loan (See Note 11) as debt. The Company will continue to record the loan as debt
until either (1) the loan is partially or entirely forgiven and the Company has been legally released, at which point the amount
forgiven will be recorded as income or (2) the Company pays off the loan.
Revenue
Recognition
In
accordance with FASB ASU- Topic 606 revenue is recognized at the time the sale is made, at which time our walk-in customers take
immediate possession of the merchandise or delivery is made to our wholesale customers. Payment terms are established for our
wholesale customers based on the Company’s pre-established credit requirements. Payment terms vary depending on the customer.
Based on the nature of receivables, no significant financing components exist. Sales are recorded net of discounts, sales incentives
and rebates, sales taxes and estimated returns and allowances. We estimate the reduction to sales and cost of sales for returns
based on current sales levels and our historical return experience.
Topic
606 defines a performance obligation as a promise in a contract to transfer a distinct good or service to the customer and is
considered the unit of account. The majority of our contracts have one single performance obligation as the promise to transfer
the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct.
We
had no material contract assets, contract liabilities, or costs to obtain and fulfil contracts recorded on the Consolidated Balance
Sheet as of September 30, 2020 and March 31, 2020. For the Six months ended September 30, 2020 and 2019, revenue recognized from
performance obligations related to prior periods was insignificant.
Revenue
expected to be recognized in any future periods related to remaining performance obligations is insignificant.
Below
is a description of the revenue recognition of the three China subsidiaries:
DL
Medical:
The
revenue is mainly from the sales of medical protective masks and non-medical daily protective masks. For sales in China, revenues
are recognized when invoice is sent and payment is received. There is no sales discount on the sales amount as of September 30,
2020. For sales to the U.S., after the order is confirmed, the company will ship out the goods. Revenue is recognized after the
goods arrive at the designated port, usually New York or Los Angeles.
RET
Wine Co.:
The
revenue is mainly from the sales of wine and herbal wine. Revenues are recognized after invoicing. There is no sales discount
on the sales amount.
Jiuxiang:
The
revenue is mainly direct from the sale of the company's inventory, including daily necessities, tobacco and alcohol, and all revenue
is recognized at the sales price. At the same time, in 2020, a part of the company's revenues comes from membership card sales,
and this part will be recognized at the e-commerce membership card price. Specifically, the revenue can be recognized as described
below:
1.
Offline sales of regular products. When a client makes payment to the company, the company will record as advance payments. Revenues
are confirmed and recorded after the company received confirmation from the client that the delivery of the goods was complete
and correct.
2.
Online sales of regular products. When the customer places the order and makes the payment, the company will record as advance
payments. After the company ships out the goods, and passes the return period of seven days with no claim of returning the goods,
revenues will be confirmed and recorded.
3.
Online sales of membership cards (“Gift Bag”). After the customer purchases the Gift Bag, the company will record
as advance payments. Revenues are confirmed after the customer redeems the goods.
The
following table summarizes disaggregated revenue from contracts with customers by geographical group:
|
|
For the Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
The United States
|
|
$
|
43,790,365
|
|
|
$
|
45,689,284
|
|
China
|
|
|
1,965,047
|
|
|
|
-
|
|
Total
|
|
$
|
45,755,412
|
|
|
$
|
45,689,284
|
|
|
|
For Three Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
The United States
|
|
$
|
22,473,502
|
|
|
$
|
21,861,502
|
|
China
|
|
|
1,747,995
|
|
|
|
-
|
|
Total
|
|
$
|
24,221,497
|
|
|
$
|
21,861,502
|
|
Cash
and Cash Equivalents
Cash
and Cash Equivalents include highly liquid investments with an original maturity of three months or less from the time of purchase.
Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions. These
receivables typically settle in three days or less.
Business
Combinations
The
Company accounts for its business combinations using the purchase method of accounting in accordance with FASB Accounting Standards
Codification (“ASC”) ASC 805 (“ASC 805”), “Business Combinations”. The purchase method of
accounting requires that the consideration transferred be allocated to the assets, including separately identifiable assets and
liabilities the Company acquired, based on their estimated fair values. The consideration transferred in an acquisition is measured
as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments
issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. Identifiable assets,
liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date,
irrespective of the extent of any non-controlling interests. The excess of (i) the total cost of acquisition, fair value of the
noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree, (ii) the fair
value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair
value of the net assets of the subsidiary acquired, the difference is recognized directly in earnings as a bargain purchase gain.
The
Company uses an independent valuations company to estimate the fair value of assets acquired and liabilities assumed in a business
combination. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed
at the acquisition date, its estimates are inherently uncertain and subject to refinement. Significant estimates in valuing certain
intangible assets include, but are not limited to future expected revenues and cash flows, useful lives, discount rates, and selection
of comparable companies. Although the Company believes the assumptions and estimates it has made in the past have been reasonable
and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies
and are inherently uncertain. During the measurement period, which may be up to one year from the acquisition date, the Company
records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. On the conclusion
of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first,
any subsequent adjustments are recorded in the Company’s consolidated statements of operations.
Goodwill
The
Company early adopted ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
The standard simplifies the subsequent measurement of goodwill by removing Step 2 of the current goodwill impairment test, which
requires a hypothetical purchase price allocation. Under the new standard, an impairment loss will be recognized in the amount
by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Goodwill
represents the excess of the purchase price over the fair value of net assets acquired in a business combination. The Company
tests goodwill for impairment at least annually, in the fourth quarter, or whenever events or changes in circumstances indicate
that goodwill might be impaired.
The
Company reviews the carrying values of goodwill and identifiable intangibles whenever events or changes in circumstances indicate
that such carrying value may not be recoverable and annually for goodwill and indefinite lived intangible assets as required by
ASC Topic 350, Intangibles — Goodwill and Others. This guidance provides the option to first assess qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based
on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying
value, the Company performs a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting
unit exceeds its fair value, the Company measures any goodwill impairment losses as the amount by which the carrying amount of
a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
Intangible
Assets
Intangible
assets are carried at cost and amortized on a straight-line basis over their estimated useful lives. The Company determines the
appropriate useful life of its intangible assets by measuring the expected cash flows of acquired assets. The estimated useful
lives of intangible assets are as follows:
|
|
Estimated
|
|
|
useful
lives
|
|
|
(years)
|
Business
license
|
|
15
|
Land
use right
|
|
46
|
Trademark
|
|
10
|
Backlog
|
|
1
|
Technology
|
|
5
|
Recently
Issued Accounting Pronouncements
In
June 2018, the FASB issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies
the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on
such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The changes
take effect for public companies for fiscal years starting after December. 15, 2018, including interim periods within that fiscal
year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption
date of Topic 606. On April 1, 2019, the Company adopted this ASU and the adoption did not have a material impact on the Company’s
unaudited condensed consolidated financial statements.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require
a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected
to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate
for assets measured either collectively or individually. The use of forecasted information incorporates more timely information
in the estimate of expected credit loss, which will be more decision- useful to users of the financial statements. This ASU is
effective for annual and interim periods beginning after December 15, 2019 for issuers and December 15, 2020 for non-issuers.
Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. This
update adds optional transition relief for entities to elect the fair value option for certain financial assets previously measured
at amortized cost basis to increase comparability of similar financial assets. The updates should be applied through a cumulative-effect
adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is,
a modified retrospective approach). In November 19, 2019, the FASB issued ASU 2019-10 to amend the effective date for ASU 2016-13
to be fiscal years beginning after December 15, 2022 and interim periods therein. The Company does not believe this guidance will
have a material impact on its consolidated financial statements.
In
December 2019, the FASB issued ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes, which is intended to simplify various aspects related to managerial accounting for income taxes. ASU 2019-12 removes
certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent
application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2020, with early adoption permitted. The Company is currently assessing the impact of adopting this standard, and does not
believe this guidance will have a material impact on its consolidated financial statements.
No
other new accounting pronouncements issued or effective had, or are expected to have, a material impact on the Company’s
condensed consolidated financial statements.
Earnings
(loss) per share
The
Company reports earnings (loss) per share in accordance with U.S. GAAP, which requires presentation of basic and diluted earnings
(loss) per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings
(loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average common shares
outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities
or other contracts, such as warrants, options, restricted stock based grants and convertible preferred stock, to issue common
stock were exercised and converted into common stock. Common stock equivalents having an anti-dilutive effect on earnings per
share are excluded from the calculation of diluted earnings per share.
Dilution
is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the
beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common
stock at the average market price during the period. When the Company has a loss, no potential dilutive items are included since
they would be antidilutive.
Stock
dividends or stock splits are accounted for retroactively as if the stock dividends or stock splits occur during the beginning
of the earliest period presented and if the stock dividends or stock splits occur after the end of the period but before the release
of the financial statements, by considering it effective as of the beginning of each period presented.
Functional
currency and foreign currency translation
An
entity’s functional currency is the currency of the primary economic environment in which it operates. Normally that is
the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential
to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing
and inter-company transactions and arrangements. The functional currency of the Company’s three China subsidiaries is the
RMB. The reporting currency of these consolidated financial statements is in US Dollars.
The
financial statements of the China subsidiaries, which are prepared using the RMB, are translated into the Company’s reporting
currency, the US Dollar. Assets and liabilities are translated using the exchange rate at each reporting period end date. Revenue
and expenses are translated using average rates prevailing during each reporting period, and shareholders’ equity is translated
at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other
comprehensive income or loss.
Transactions
denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates
prevailing at the dates of the transactions. Foreign currency exchange gains and losses resulting from these transactions are
included in operations.
The
exchange rates used for foreign currency translation are as follows:
|
|
|
|
For
the Three Months Ended
|
|
|
|
|
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
March 31,
2020
|
|
|
|
|
(RMB
to USD)
|
|
|
(RMB
to USD)
|
|
(RMB
to USD)
|
Assets
and liabilities
|
|
period
end exchange rate
|
|
|
6.81684
|
|
|
N/A
|
|
N/A
|
Revenue
and expenses
|
|
period
average
|
|
|
7.00117
|
|
|
N/A
|
|
N/A
|
|
|
|
|
For
the Six Months Ended
September 30,
|
|
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
2020
|
Assets
and liabilities
|
|
period
end exchange rate
|
|
|
6.81684
|
|
|
N/A
|
|
N/A
|
Revenue
and expenses
|
|
period
average
|
|
|
6.92089
|
|
|
N/A
|
|
N/A
|
Concentration
of credit risk
The
Company maintains cash balances in ten banks in China. In China, the insurance coverage of each bank is RMB500,000 (approximately
USD$73,000). As of September 30, 2020, the Company had approximately RMB31,384,897 (approximately USD$4,604,000) in excess of
the insurance amounts.
The
Company maintains cash balances in six financial institutions, which are insured by the Federal Deposit Insurance Corporation
(FDIC) for up to $250,000 per institution. From time to time, the Company’s balances may exceed these limits. As of September
30,2020, the Company had approximately $1,240,000 in excess of the insurance amounts.
5.
Acquisitions
Hubei
Rongentang Wine Co., Ltd and Hubei Rongentang Herbal Wine Co., Ltd. (“RET”)
On
March 26, 2020, the Company entered into an agreement (the “Acquisition Agreement”) with Kairui Tong and Hao Huang
(collectively, the “Sellers”) and Hubei Rongentang Wine Co., Ltd. and Hubei Rongentang Herbal Wine Co., Ltd., pursuant
to which the Company will purchase their 100% interest in Hubei Rongentang Wine Co., Ltd. and Hubei Rongentang Herbal Wine Co.,
Ltd. (collectively, the “Target Companies”) in exchange for 3,852,372 shares of the Company’s common stock and
1,000 shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”). Upon approval
of the Company’s shareholders, the 1,000 shares of Series B Preferred Stock will be converted into 3,834,796 shares of the
Company’s common stock. The Series B Preferred will rank on parity with the Series A Convertible Preferred Stock of the
Company.
On
April 22, 2020, the Company consummated the above purchase. The aggregate fair value of the consideration paid by the Company
is approximately $9.8 million and is based on the closing price of the Company’s common stock at the date of closing. The
excess of total cost of acquisition over the fair value of the identifiable net assets was recorded as goodwill.
The
transaction was accounted for as a business combination using the purchase method of accounting. The preliminary purchase price
allocation of the transaction was determined by the Company with the assistance of an independent appraisal firm based on the
estimated fair value of the assets acquired and liabilities assumed as of the acquisition date.
The
following table presents the preliminary purchase price allocation to the assets acquired and liabilities assumed at the date
of this acquisition:
Cash
|
|
$
|
371,310
|
|
Accounts
receivable, net
|
|
|
84,260
|
|
Inventories,
net
|
|
|
2,099,306
|
|
Advances
to suppliers, net
|
|
|
76,476
|
|
Other
current assets
|
|
|
910,435
|
|
Property and equipment, net
|
|
|
4,310,878
|
|
Total tangible assets acquired
|
|
$
|
7,852,665
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
9,260
|
|
Advance
from customers
|
|
|
386,119
|
|
Accrued
expenses and other payables
|
|
|
703,060
|
|
Deferred tax liability
|
|
|
954,173
|
|
Total
liability assumed
|
|
|
2,052,612
|
|
Net
tangible assets acquired
|
|
|
5,800,053
|
|
Intangible
assets
|
|
|
3,013,272
|
|
Goodwill
|
|
|
1,026,250
|
|
Total consideration
|
|
$
|
9,839,575
|
|
The
Company recorded acquisition of intangible assets of $3,013,272. These intangible assets include land use rights of $2,745,289
and a business license of $208,756. The associated goodwill and intangible assets are not deductible for tax purposes.
The
amounts of revenue and earnings of RET included in the Company’s condensed consolidated statement of operations and comprehensive
income (loss) from the acquisition date to September 30, 2020 are as follows:
|
|
From
acquisition
date to
September 30,
2020
|
|
|
|
(Unaudited)
|
|
Revenue
|
|
$
|
269,781
|
|
Net (Loss)
|
|
$
|
(176,412
|
)
|
Xiamen
DL Medical Technology Co, Ltd. (“DL Medical”)
On
March 17, 2020, the Company entered into a purchase agreement (the “Acquisition Agreement”) with Guo Hui Ji, a citizen
of the People’s Republic of China (the “Seller”) and Xiamen DL Medical Technology Co, Ltd., a People’s
Republic of China company, pursuant to which the Seller will sell his 70% equity interests in Xiamen DL Medical Technology Co,
Ltd. to the Company (the “Equity Interests”). In consideration, the Company paid $600,000 in cash and issued 900,000
shares of common stock of the Company to the Seller.
On
April 28, 2020, the Company consummated the above transactions. The aggregate fair value of the consideration paid by the Company
in the acquisition is approximately $1.7 million and is based on the cash paid and the closing price of the Company’s common
stock at the date of closing.
The
transaction was accounted for as a business combination using the purchase method of accounting. The preliminary purchase price
allocation of the transaction was determined by the Company with the assistance of an independent appraisal firm based on the
estimated fair value of the assets acquired and liabilities assumed as of the acquisition date.
The
following table presents the preliminary purchase price allocation to the assets acquired and liabilities assumed at the date
of this acquisition:
Cash
|
|
$
|
22,577
|
|
Inventories, net
|
|
|
28,975
|
|
Advances to suppliers, net
|
|
|
1,341,604
|
|
Property and equipment, net
|
|
|
69,780
|
|
Total tangible assets acquired
|
|
$
|
1,462,936
|
|
|
|
|
|
|
Advance from customers
|
|
$
|
703,321
|
|
Accrued expenses and other payables
|
|
|
59,880
|
|
Deferred tax liability
|
|
|
129,590
|
|
Total liability assumed
|
|
|
892,791
|
|
Net tangible assets acquired
|
|
|
570,145
|
|
Intangible assets
|
|
|
518,362
|
|
Goodwill
|
|
|
1,214,548
|
|
Net assets acquired
|
|
|
2,303,055
|
|
Noncontrolling interest
|
|
|
579,855
|
|
Total consideration
|
|
$
|
1,723,200
|
|
The
Company recorded acquired intangible assets of $518,362. These intangible assets consist of a backlog of $518,362. The associated
goodwill and intangible assets are not deductible for tax purposes.
The
amounts of revenue and earnings of DL included in the Company’s condensed consolidated statement of operations and comprehensive
income (loss) from the acquisition date to September 30, 2020 are as follows:
|
|
From
acquisition
date to
September 30,
2020
|
|
|
|
(Unaudited)
|
|
Revenue
|
|
$
|
596,927
|
|
Net (Loss)
|
|
$
|
(7,126
|
)
|
Income
attributed to non-controlling interest was $2,138 for the six months ended September 30, 2020.
Jiuxiang
Blue Sky Technology (Beijing) Co., Ltd. (“Jiuxiang”)
On
August 24, 2020, the Company entered into a purchase agreement (the “Acquisition Agreement”) with Zhang Fei and Liu
Meng, citizens of the People’s Republic of China (collectively, the “Sellers”) and Jiuxiang Blue Sky Technology
(Beijing) Co., Ltd.(“Jiuxiang”), pursuant to which the Seller will sell their 100% equity interests in Jiuxiang to
the Company (the “Equity Interests”). In consideration, the Company issued 5,036,28 shares of common stock and 1,000
shares of Series C convertible preferred stock of the Company to the Sellers.
On
April 24, 2020, the Company consummated the above transactions. The aggregate fair value of the consideration paid by the Company
in the acquisition is approximately $ 6.4 million and is based on the closing price of the Company’s common stock at the
date of closing.
The
transaction was accounted for as a business combination using the purchase method of accounting. The preliminary purchase price
allocation of the transaction was determined by the Company with the assistance of an independent appraisal firm based on the
estimated fair value of the assets acquired and liabilities assumed as of the acquisition date.
The
following table presents the preliminary purchase price allocation to the assets acquired and liabilities assumed at the date
of this acquisition:
Cash
|
|
$
|
6,326,526
|
|
Inventories, net
|
|
|
609,180
|
|
Advances to suppliers, net
|
|
|
2,141,077
|
|
AR, net
|
|
|
51,842
|
|
Other Current Assets
|
|
|
219,827
|
|
Long term deferred expense
|
|
|
111,579
|
|
Property and equipment, net
|
|
|
14,752
|
|
Total tangible assets acquired
|
|
$
|
9,474,783
|
|
|
|
|
|
|
Advance from customers
|
|
$
|
6,027,177
|
|
Accrued expenses and other payables
|
|
|
269,776
|
|
Total liability assumed
|
|
|
6,296,953
|
|
Net tangible assets acquired
|
|
|
3,177,830
|
|
Intangible assets
|
|
|
1,012,392
|
|
Goodwill
|
|
|
2,206,609
|
|
Total consideration
|
|
$
|
6,396,831
|
|
The
Company recorded acquired intangible assets of $1,012,392. These intangible assets consist of software, technology and a tradename.
The associated goodwill and intangible assets are not deductible for tax purposes. The estimated fair value of the non-controlling
interest was determined based on the preliminary purchase price allocation report prepared by an independent third-party appraiser
by using the discounted cash flow model.
The
amounts of revenue and earnings of Jiuxiang included in the Company’s condensed consolidated statement of operations and
comprehensive income (loss) from the acquisition date to September 30, 2020 are as follows:
|
|
From
acquisition
date to
September 30,
2020
|
|
|
|
(Unaudited)
|
|
Revenue
|
|
$
|
1,098,339
|
|
Net (Loss)
|
|
|
(2,178,712
|
)
|
The
following table presents the Company’s unaudited pro forma results for the six months ended September 30, 2020 and 2019,
respectively, as if the RET, DL, Jiuxiang Medical Acquisition had occurred on April 1, 2019. The unaudited pro forma financial
information presented includes the effects of adjustments related to the amortization of acquired intangible assets, and Statutory
rates were used to calculate income taxes.
|
|
For the Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Pro forma revenue
|
|
$
|
50,928,430
|
|
|
$
|
24,290,654
|
|
Pro forma net income (loss)
|
|
|
(11,171,401
|
)
|
|
|
(3,257,360
|
)
|
Pro forma earnings per common share-basic and diluted
|
|
|
(.40
|
)
|
|
|
(0.15
|
)
|
Weighted average shares-basic and diluted
|
|
|
28,098,937
|
|
|
|
21,894,114
|
|
6.
Accounts Receivable
A
summary of accounts receivable, net is as follows:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Customer purchases
|
|
$
|
3,862,165
|
|
|
$
|
3,975,414
|
|
Credit card receivables
|
|
|
218,819
|
|
|
|
143,851
|
|
Food stamps
|
|
|
28,667
|
|
|
|
26,407
|
|
Others
|
|
|
181,683
|
|
|
|
2,518
|
|
Total accounts receivable
|
|
|
4,291,334
|
|
|
|
4,148,190
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
(844,557
|
)
|
|
|
(742,849
|
)
|
Accounts receivable, net
|
|
$
|
3,446,777
|
|
|
$
|
3,405,341
|
|
7.
Inventories
A
summary of inventories, net is as follows:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Inventories in US entities
|
|
|
|
|
|
|
Non-perishables
|
|
$
|
8,150,252
|
|
|
$
|
5,396,152
|
|
Perishables
|
|
|
1,068,743
|
|
|
|
820,761
|
|
Subtotal
|
|
|
9,218,995
|
|
|
|
6,216,913
|
|
|
|
|
|
|
|
|
|
|
Inventories in Chinese entities
|
|
|
|
|
|
|
|
|
Raw material
|
|
|
1,206,867
|
|
|
|
-
|
|
Work-in-process
|
|
|
499,717
|
|
|
|
-
|
|
Finished goods
|
|
|
1,292,113
|
|
|
|
-
|
|
Subtotal
|
|
|
2,998,897
|
|
|
|
-
|
|
|
|
|
12,217,892
|
|
|
|
6,216,913
|
|
Allowance for slow moving or defective inventories
|
|
|
(45,018
|
)
|
|
|
(31,811
|
)
|
Inventories, net
|
|
$
|
12,172,874
|
|
|
$
|
6,185,102
|
|
8.
Advances and receivables - related parties
A
summary of advances and receivables - related parties is as follows:
|
|
September 30,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Entities
|
|
|
|
|
|
|
New York Mart, Inc.
|
|
$
|
2,092
|
|
|
$
|
2,092
|
|
New York Mart Elmhurst Inc.
|
|
|
777,671
|
|
|
|
-
|
|
NY Mart MD Inc.
|
|
|
1,221,803
|
|
|
|
363,296
|
|
Advances – related parties
|
|
|
2,001,566
|
|
|
|
365,388
|
|
|
|
|
|
|
|
|
|
|
New York Mart, Inc.
|
|
|
605,264
|
|
|
|
605,265
|
|
New York Mart Elmhurst Inc.
|
|
|
53,390
|
|
|
|
-
|
|
NY Mart MD Inc.
|
|
|
3,660,458
|
|
|
|
3,841,237
|
|
iFresh Harwin Inc.
|
|
|
248,481
|
|
|
|
248,480
|
|
Receivables – related parties
|
|
|
4,567,593
|
|
|
|
4,694,982
|
|
Total advances and receivables – related parties
|
|
$
|
6,569,159
|
|
|
$
|
5,060,370
|
|
The
Company has advanced funds to related parties and accounts receivable due from the related parties with the intention of converting
some of these advances and receivables into deposits towards the purchase price upon planned acquisitions of some of these entities,
which are directly or indirectly owned, in whole or in part, by Mr. Long Deng, a shareholder and the Chief Executive Officer of
the Company. Accounts receivable due from related parties relate to the sales to these related parties (see Note 17). The advances
and receivables are interest free, repayable on demand, and guaranteed by Mr. Long Deng.
9.
Property and Equipment
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Buildings and properties
|
|
$
|
4,459,609
|
|
|
$
|
-
|
|
Furniture, fixtures and equipment
|
|
|
23,381,985
|
|
|
|
21,023,715
|
|
Automobiles
|
|
|
2,097,292
|
|
|
|
1,997,925
|
|
Leasehold improvements
|
|
|
9,681,916
|
|
|
|
9,442,401
|
|
Software
|
|
|
11,435
|
|
|
|
6,735
|
|
Total property and equipment
|
|
|
39,632,237
|
|
|
|
32,470,776
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(15,728,339
|
)
|
|
|
(12,701,624
|
)
|
Property and equipment, net
|
|
$
|
23,903,898
|
|
|
$
|
19,769,152
|
|
In
connection with the Business Acquisitions as disclosed in Note 5 above, the Company acquired approximately $4.5 million buildings
and properties, of which the depreciation period is 15 years
Depreciation
expense for the six months ended September 30, 2020 and 2019 was $1,265,178 and $1,093,572, respectively. Depreciation expense
for the three months ended September 30, 2020 and 2019 was $691,306 and $531,928, respectively.
10.
Intangible Assets
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Acquired leasehold rights
|
|
$
|
2,500,000
|
|
|
$
|
2,500,000
|
|
Business license
|
|
|
208,756
|
|
|
|
-
|
|
Land use right
|
|
|
2,806,632
|
|
|
|
-
|
|
Tradename
|
|
|
794,867
|
|
|
|
-
|
|
Technology
|
|
|
217,719
|
|
|
|
-
|
|
Backlog
|
|
|
518,362
|
|
|
|
-
|
|
Total Intangible assets
|
|
|
7,046,336
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
(1,933,346
|
)
|
|
|
(1,599,995
|
)
|
Intangible assets, net
|
|
$
|
5,112,990
|
|
|
$
|
900,005
|
|
In
connection with the Business Acquisition as disclosed in Note 5, the Company acquired $4,546,336 of intangible assets. Business
license, land use right tradename, technology and backlog has an estimated weighted-average amortization period of approximately
15 years, 46 years, 10 years, 5 years and 1 year, respectively.
Amortization
expense was $424,601 and $249,166 for the six months ended September 30, 2020 and 2019, respectively. Amortization expense
was $287,968 and $33,333 for the three months ended September 30, 2020 and 2019, respectively. Future amortization associated
with the net carrying amount of definite-lived intangible assets is as follows:
Year Ending September 30,
|
|
|
|
2021
|
|
$
|
767,988
|
|
2022
|
|
|
234,763
|
|
2023
|
|
|
234,763
|
|
2024
|
|
|
234,763
|
|
2025
|
|
|
234,763
|
|
Thereafter
|
|
|
3,405,950
|
|
Total
|
|
$
|
5,112,990
|
|
11.
Debt
A
summary of the Company’s debt is as follows:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
PPP loans from government
|
|
$
|
1,768,212
|
|
|
$
|
-
|
|
Revolving Line of Credit-KeyBank National Association - in default
|
|
|
4,950,000
|
|
|
|
4,950,000
|
|
Delayed Term Loan-KeyBank National Association - in default
|
|
|
4,102,483
|
|
|
|
4,102,483
|
|
Term Loan-KeyBank National Association - in default
|
|
|
11,408,189
|
|
|
|
11,408,189
|
|
Less: Deferred financing cost
|
|
|
(228,125
|
)
|
|
|
(319,375
|
)
|
Total
|
|
$
|
22,000,759
|
|
|
$
|
20,141,297
|
|
PPP
Loans from government
In
April and May 2020, the Company applied for and received funding for a loan of $1,768,212 provided by US Small Business Administration
(“SBA”) Paycheck Protection Program, which is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES”),
enacted on March 27, 2020. Under the terms of the SBA PPP loan, up to 100% of the principal and accrued interest may be forgiven
if certain criteria are met and the loan proceeds are used for qualifying expenses such as payroll costs, benefits, rent, and
utilities as described in the CARES Act. These loans have an interest rate of 1% with a maturity of 2 years.
KeyBank
National Association (“KeyBank”) – Senior Secured Credit Facilities
On
December 23, 2016, NYM Holding, as borrower, entered into a $25 million senior secured Credit Agreement (the “Credit Agreement”)
with KeyBank National Association (“KeyBank” or “Lender”). The Credit Agreement provides for (1) a revolving
credit of $5,000,000 for making advance and issuance of letter of credit, (2) $15,000,000 of effective date term loan and (3)
$5,000,000 of delayed draw term loan. The interest rate is equal to (1) the Lender’s “prime rate” plus 0.95%,
or (b) the Adjusted LIBOR rate plus 1.95%. Both the termination date of the revolving credit and the maturity date of the term
loans are December 23, 2021. The Company will pay a commitment fee equal to 0.25% of the undrawn amount of the Revolving Credit
Facility and 0.25% of the unused Delayed Draw Term Loan Facility. $4,950,000 of the revolving credit was used as of September
30, 2020.
$15,000,000
of the term loan was fully funded by the lender in January 2017. The Company is required to make fifty-nine consecutive monthly
payments of principal and interest in the amount of $142,842 starting from February 1, 2017 and a final payment of the then entire
unpaid principal balance of the term loan, plus accrued interest on the maturity date. On December 23, 2016, the Company used
the proceeds from the loan term to pay off the outstanding balance under the Bank of America credit line agreement and HSBC line
of credit.
The
Delayed Draw Term Loan shall be advanced on the Delayed Draw Funding date, which is no later than December 23, 2021.
The
senior secured credit facility is secured by all assets of the Company and is jointly guaranteed by the Company and its subsidiaries
and contains financial and restrictive covenants. The financial covenants require NYM Holding Inc and its subsidiaries to deliver
audited consolidated financial statements within one hundred twenty days after each fiscal year end and to maintain a fixed charge
coverage ratio not less than 1.1 to 1.0 and senior funded debt to earnings before interest, tax, depreciation and amortization
(“EBITDA”) ratio less than 3.0 to 1.0 at the last day of each fiscal quarter, beginning with the fiscal quarter ending
March 31, 2017. As of September 30, 2020 and March 31, 2020, these ratios were not met, and the Company was therefore not in compliance
with the financial covenants of the KeyBank loan. Except as stated below, the senior secured credit facility is subject to customary
events of default. It will be an event of default if Mr. Long Deng resigns, is terminated, or is no longer actively involved in
the management of NYM and a replacement reasonably satisfactory to the Lender is not made within sixty (60) days after such event
takes place. The Company violated the loan covenant when Mr. Long Deng, CEO and shareholder of the Company sold an aggregate of
8,294,989 restricted shares to HK Xu Ding Co., Limited on January 23, 2019, representing 51% of the total issued and outstanding
shares of the Company as of December 31, 2018. The Company failed to obtain a written consent for the occurrence of the change
of ownership. As a result, effective as of March 1, 2019, interest was accrued on all loans at the default rate and the monthly
principal and interest payment due under the effective date term loan will be $155,872 instead of $142,842.
On
May 20, 2019 (the “Effective Date”), the Company entered into a forbearance agreement (the “Forbearance Agreement”)
with KeyBank, pursuant to which KeyBank has agreed to delay the exercise of its rights and remedies under the Loan agreement based
on the existence of the event of the share transfer default for 6 months. The Forbearance Agreement contains customary forbearance
covenants and defined certain events of defaults. Starting from May, 2019, the monthly payment decreased to $142,842 as originally
required per the credit facility agreements.
The
Company failed to meet its obligations under the Loan Agreements by the end of the First Forbearance Period. On October 17, 2019
(the “Effective Date”), the Company, Go Fresh 365, Inc. (“Go Fresh”), Mr. Long Deng and Keybank entered
into the second forbearance agreement (the “Second Forbearance Agreement”). Pursuant to certain Guaranty Agreement
dated as of December 26, 2016, as amended by several joinder agreements and the Second Forbearance Agreement, the Company, certain
subsidiaries of NYM Holding, Go Fresh and Mr. Long Deng (collectively, the “Guarantors”, and together with the Borrower,
the “Loan Parties”) have agreed to guarantee the payment and performance of the obligations of the Borrower under
the Credit Agreement (“Obligations”). KeyBank has agreed to delay the exercise of its rights and remedies under the
Loan Agreement based on the existence of certain events of default (the “Specified Events of Default”) until the earlier
to occur of: (a) 5:00 p.m. Eastern Time on the November 29, 2019; and (b) a Forbearance Event of Default.
From
Jan to September 2020, non-payment of the amount due by the Company was $1,866,292. Also, the Company has failed certain loan
covenants. On August 6, 2020 the Company received the 3rd forbearance agreement from KeyBank, which includes the following
terms:
|
●
|
All
delinquent regular interest paid at or before settlement.
|
|
●
|
August
and September required payments will be regular interest amounts.
|
|
●
|
Default
interest will be deferred until 9/25/2020
|
|
●
|
Store
valuations will be ordered by the lender.
|
|
●
|
Continue
to provide weekly cash flow reports.
|
|
●
|
Provide
quarterly financial statements of NYM Holding and subsidiaries, iFresh and newly acquired businesses.
|
|
●
|
Monthly
financial projections.
|
|
●
|
Cost/work
detail on the completion of the CT store.
|
|
●
|
Pledge
of the equity and guarantee of newly acquired businesses.
|
|
●
|
File
a UCC-1 financing statement for iFresh Inc.
|
If
agreement cannot be reached, KeyBank is fully prepared to pursue legal remedies. As of the date of this report, the Forbearance
Agreement is still under negotiation.
12.
Notes Payable
Notes
payables consist of the following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Triangle Auto Center, Inc.
|
|
|
|
|
|
|
Secured by vehicle, 4.02%, principal and interest of $890 due monthly through January 28, 2021
|
|
$
|
3,528
|
|
|
$
|
8,730
|
|
Koeppel Nissan, Inc.
|
|
|
|
|
|
|
|
|
Secured by vehicle, 7.86%, principal and interest of $758 due monthly through June 1, 2022
|
|
|
14,821
|
|
|
|
18,707
|
|
Silver Star Motors
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.22%, principal and interest of $916 due monthly through June 1, 2021
|
|
|
8,098
|
|
|
|
13,357
|
|
BMO
|
|
|
|
|
|
|
|
|
Secured by vehicle, 5.99%, principal and interest of $1,924 due monthly through July 1, 2021
|
|
|
18,727
|
|
|
|
29,532
|
|
Wells Fargo
|
|
|
|
|
|
|
|
|
Secured by vehicle, 4.01%, principal and interest of $420 due monthly through December 1, 2021
|
|
|
6,132
|
|
|
|
8,500
|
|
Toyota Finance
|
|
|
|
|
|
|
|
|
Secured by vehicle, 0%, principal and interest of $632 due monthly through August, 2022
|
|
|
14,545
|
|
|
|
18,340
|
|
Secured by vehicle, 4.87%, principal and interest of $761 due monthly through July, 2021
|
|
|
12,648
|
|
|
|
11,633
|
|
Secured by vehicle, 0%, principal and interest of $633 due monthly through April 1, 2022
|
|
|
7,307
|
|
|
|
15,810
|
|
Total notes payable
|
|
|
85,806
|
|
|
|
124,609
|
|
Less: current maturities of notes payable
|
|
|
(65,936
|
)
|
|
|
(77,903
|
)
|
|
|
|
|
|
|
|
|
|
Long-term notes payable, net of current maturities
|
|
$
|
19,870
|
|
|
$
|
46,706
|
|
All
notes payables are secured by the underlying financed vehicles.
Maturities
of the notes payable for each of the next five years are as follows:
Year Ending September 30,
|
|
|
|
2021
|
|
$
|
65,936
|
|
2022
|
|
|
19,239
|
|
2023
|
|
|
631
|
|
Total
|
|
$
|
85,806
|
|
13.
Leases
The
Company’s material leases consist of stores, warehouses, parking lots and its offices with expiration dates through 2027.
In general, the leases have remaining terms of 1-20 years, most of which include options to extend the leases. The lease term
is generally the minimum non-cancellable period of the lease. The Company does not include option periods unless the Company determines
that it is reasonably certain of exercising the option at inception or when a triggering event occurs.
Balance
sheet information related to the Company’s operating and finance leases (noting the financial statement caption each is
included with) as of September 30, 2020 was as follows:
|
|
As of
|
|
|
|
September 30,
2020
|
|
|
|
(Unaudited)
|
|
Operating Lease Assets:
|
|
|
|
Operating Lease
|
|
$
|
58,853,946
|
|
Total operating lease assets
|
|
$
|
58,853,946
|
|
|
|
|
|
|
Operating lease obligations:
|
|
|
|
|
Current operating lease liabilities
|
|
|
7,558,410
|
|
Non-current operating lease liabilities
|
|
|
59,727,918
|
|
Total Lease liabilities
|
|
$
|
67,286,328
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term Operating Lease
|
|
|
15.46 years
|
|
Weighted Average discount rate
|
|
|
4.3
|
%
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Finance lease Assets
|
|
|
|
|
|
|
Vehicles under finance lease
|
|
$
|
874,698
|
|
|
$
|
874,698
|
|
Accumulated depreciation
|
|
|
(249,549
|
)
|
|
|
(219,679
|
)
|
Finance lease assets, net
|
|
$
|
625,149
|
|
|
$
|
655,019
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Finance lease obligations:
|
|
|
|
|
|
|
Current
|
|
$
|
131,422
|
|
|
$
|
137,243
|
|
Long-term
|
|
|
213,973
|
|
|
|
277,350
|
|
Total obligations
|
|
$
|
345,395
|
|
|
$
|
414,593
|
|
Weighted
Average Remaining Lease Term Operating Lease
|
|
|
2.43
years
|
|
Weighted
Average discount rate
|
|
|
7.1
|
%
|
Supplemental
cash flow information related to leases was as follows:
|
|
As of
|
|
|
|
September 30,
|
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating Lease
|
|
$
|
2,234,477
|
|
Finance lease
|
|
$
|
69,198
|
|
The
estimated future lease payments under the operating and finance leases are as follows:
|
|
Capital
|
|
|
Operating,
|
|
Twelve Months Ending September 30,
|
|
Lease
|
|
|
lease
|
|
2021
|
|
$
|
157,405
|
|
|
$
|
8,497,562
|
|
2022
|
|
|
146,831
|
|
|
|
8,503,755
|
|
2023
|
|
|
83,351
|
|
|
|
8,719,744
|
|
2024
|
|
|
1,115
|
|
|
|
8,479,545
|
|
2025
|
|
|
-
|
|
|
|
7,491,973
|
|
Thereafter
|
|
|
-
|
|
|
|
44,290,460
|
|
Total minimum lease payments
|
|
|
388,702
|
|
|
|
85,983,039
|
|
Less: Amount representing interest
|
|
|
(43,307
|
)
|
|
|
(20,527,826
|
)
|
Total
|
|
$
|
345,395
|
|
|
$
|
65,455,213
|
|
14.
Segment Reporting
ASC
280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent
with the Company’s internal organizational structure as well as information about geographical areas, business segments
and major customers in financial statements for details on the Company’s business segments. The Company uses the “management
approach” in determining reportable operating segments. The management approach considers the internal organization and
reporting used by the Company’s CODM for making operating decisions and assessing performance as the source for determining
the Company’s reportable segments. Management, including the CODM, reviews operating results by the revenue of different
products or services. Based on management’s assessment, the Company has determined that it has four operating segments as
defined by ASC 280, consisting of wholesale, retail, liquor business and medical product business for the Six months ended September
30, 2020. For the Six months ended September 30, 2019, the Company determined it has two operation segments consisting of wholesale
and retail.
The
primary financial measures used by the Company to evaluate performance of individual operating segments are sales and income before
income tax provision.
The
following table presents summary information by segment for the Six months ended September 30, respectively:
|
|
|
|
|
|
|
|
Six Months Ended
September 30,
2020
(Unaudited)
|
|
|
|
|
|
|
|
|
|
US
|
|
|
|
|
|
Liquor
|
|
|
Mask
|
|
|
Daily
|
|
|
|
|
|
|
wholesale
|
|
|
US retail
|
|
|
Products
|
|
|
Products
|
|
|
Necessities
|
|
|
Total
|
|
Net sales
|
|
$
|
8,595,216
|
|
|
$
|
35,195,149
|
|
|
$
|
269,781
|
|
|
$
|
596,927
|
|
|
$
|
1,098,339
|
|
|
$
|
45,755,412
|
|
Cost of sales (including retail occupancy cost)
|
|
|
5,578,163
|
|
|
|
27,875,207
|
|
|
|
128,422
|
|
|
|
483,401
|
|
|
|
851,058
|
|
|
|
34,916,251
|
|
Gross profit
|
|
$
|
3,017,053
|
|
|
$
|
7,319,942
|
|
|
$
|
141,359
|
|
|
$
|
113,526
|
|
|
$
|
247,281
|
|
|
$
|
10,839,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
2,225
|
|
|
$
|
820,436
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
822,661
|
|
Depreciation and amortization
|
|
$
|
98,874
|
|
|
$
|
1,138,489
|
|
|
$
|
141,960
|
|
|
$
|
306,940
|
|
|
$
|
3,517
|
|
|
$
|
1,689,780
|
|
Segment income (loss) before income tax provision
|
|
$
|
463,295
|
|
|
$
|
1,990,129
|
|
|
$
|
(202,903
|
)
|
|
$
|
(257,035
|
)
|
|
$
|
(2,178,712
|
)
|
|
$
|
(185,226
|
)
|
Segment assets
|
|
$
|
17,252,315
|
|
|
$
|
88,922,738
|
|
|
$
|
11,006,185
|
|
|
$
|
3,525,773
|
|
|
$
|
10,141,382
|
|
|
$
|
130,848,393
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
328,508
|
|
|
$
|
7,763
|
|
|
$
|
519,614
|
|
|
$
|
(2,531
|
)
|
|
$
|
853,354
|
|
|
|
Six Months Ended
September 30,
2019
(Unaudited)
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
Net sales
|
|
$
|
8,423,151
|
|
|
$
|
37,266,133
|
|
|
$
|
45,689,284
|
|
Cost of sales
|
|
|
6,045,159
|
|
|
|
26,592,399
|
|
|
|
32,637,558
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
3,506,909
|
|
|
|
3,506,909
|
|
Gross profit
|
|
$
|
2,377,992
|
|
|
$
|
7,166,825
|
|
|
$
|
9,544,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(5,227
|
)
|
|
$
|
(953,993
|
)
|
|
$
|
(959,220
|
)
|
Depreciation and amortization
|
|
$
|
384,578
|
|
|
$
|
4,953,056
|
|
|
$
|
5,337,634
|
|
Segment income (loss) before income tax provision
|
|
$
|
687,519
|
|
|
$
|
(4,878,874
|
)
|
|
$
|
(4,191,355
|
)
|
Segment assets
|
|
$
|
15,351,959
|
|
|
$
|
89,435,740
|
|
|
$
|
104,787,699
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
780,519
|
|
|
$
|
780,519
|
|
The
following table presents summary information by segment for the three months ended September 30, respectively:
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
2020
(Unaudited)
|
|
|
|
|
|
|
|
|
|
US
|
|
|
|
|
|
Liquor
|
|
|
Mask
|
|
|
Daily
|
|
|
|
|
|
|
wholesale
|
|
|
US retail
|
|
|
Products
|
|
|
products
|
|
|
Necessities
|
|
|
Total
|
|
Net sales
|
|
$
|
4,367,905
|
|
|
$
|
18,105,597
|
|
|
$
|
77,032
|
|
|
$
|
572,624
|
|
|
$
|
1,098,339
|
|
|
$
|
24,221,497
|
|
Cost of sales (including retail occupancy cost)
|
|
|
2,816,298
|
|
|
|
15,229,652
|
|
|
|
57,868
|
|
|
|
471,118
|
|
|
|
851,058
|
|
|
|
19,425,994
|
|
Gross profit
|
|
$
|
1,551,607
|
|
|
$
|
2,875,945
|
|
|
$
|
19,164
|
|
|
$
|
101,506
|
|
|
$
|
247,281
|
|
|
$
|
4,795,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
1,315
|
|
|
$
|
460,120
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
461,435
|
|
Depreciation and amortization
|
|
$
|
48,561
|
|
|
$
|
657,885
|
|
|
$
|
63,529
|
|
|
$
|
205,783
|
|
|
$
|
-
|
|
|
$
|
975,758
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Segment income (loss) before income tax provision
|
|
$
|
109,881
|
|
|
$
|
(1,409,137
|
)
|
|
$
|
(153,815
|
)
|
|
$
|
(150,913
|
)
|
|
$
|
(2,178,712
|
)
|
|
$
|
(3,782,696
|
)
|
Segment assets
|
|
$
|
2,167,784
|
|
|
$
|
(2,905,334
|
)
|
|
$
|
148,715
|
|
|
$
|
(52,980
|
)
|
|
$
|
-
|
|
|
$
|
(641,815
|
)
|
|
|
Three Months Ended
September 30,
2019
(Unaudited)
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Total
|
|
Net sales
|
|
$
|
3,891,046
|
|
|
$
|
17,970,456
|
|
|
$
|
21,861,502
|
|
Cost of sales
|
|
|
2,851,504
|
|
|
|
12,687,386
|
|
|
|
15,538,890
|
|
Retail occupancy costs
|
|
|
-
|
|
|
|
1,576,290
|
|
|
|
1,576,290
|
|
Gross profit
|
|
$
|
1,039,542
|
|
|
$
|
3,706,780
|
|
|
$
|
4,746,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(2,187
|
)
|
|
$
|
(347,288
|
)
|
|
$
|
(349,475
|
)
|
Depreciation and amortization
|
|
$
|
57,735
|
|
|
$
|
2,360,412
|
|
|
$
|
2,418,147
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
301,123
|
|
|
$
|
301,123
|
|
Segment income (loss) before income tax provision
|
|
$
|
321,668
|
|
|
$
|
(1,046,961
|
)
|
|
$
|
(725,293
|
)
|
Segment assets
|
|
$
|
15,351,959
|
|
|
$
|
89,435,740
|
|
|
$
|
104,787,699
|
|
15.
Shareholder’s Equity
On
October 19, 2018, the Company and certain institutional investors entered into a securities purchase agreement (the “Purchase
Agreement”), pursuant to which the Company agreed to sell to such investors an aggregate of 1,275,000 shares of common stock
(the “Common Stock”) in a registered direct offering and warrants to purchase up to approximately 1,170,000 shares
of the Company’s Common Stock in a concurrent private placement, for gross proceeds of approximately $2.55 million (the
“Financing”). The warrants were exercisable immediately following the date of issuance and have an exercise price
of $2.25. The warrants will expire 5 years from the earlier of the date on which the shares of Common Stock issuable upon exercise
of the warrants may be sold pursuant to an effective registration statement or may be exercised on a cashless basis and be immediately
sold pursuant to Rule 144. The purchase price for each share of Common Stock and the corresponding warrant was $2.00. Each warrant
is subject to anti-dilution provisions that require adjustment of the number of shares of Common Stock that may be acquired upon
exercise of the warrant, or to the exercise price of such shares, or both, to reflect stock dividends and splits, subsequent rights
offerings, pro-rata distributions, and certain fundamental transactions.
Management
determined that these warrants are equity instruments because the warrants are both a) indexed to its own stock; and b) classified
in stockholders’ equity. The warrants were recorded at their fair value on the date of grant as a component of stockholders’
equity. On June 5, 2019, the Company agreed to issue to the Holders an aggregate of 1,170,000 shares (“Exchange Shares”)
of the Company’s common stock, par value $0.0001 per share and warrant to purchase an aggregate of 1,170,000 shares of Common
Stock (the “Exchange Warrants”) as the negotiated purchase price for the Existing Warrants based on the Black Scholes
Value as a result of a certain transaction which was deemed as a Fundamental Transaction as defined in the purchase agreement.
On March 23, 2020, 585,000 warrants were cashless exercised by the issuance of 287,049 shares of common stock.
On
December 11, 2019, iFresh Inc. (the “Company”) entered into an agreement (the “Conversion Agreement”)
between Mr. Deng and the Company, pursuant to which the Mr. Deng agreed to convert debt owed to him by the Company into 1,000
preferred shares of the Company. Upon receiving stockholder approval for the conversion, the 1,000 shares of preferred stock will
automatically convert into shares of the Company’s common stock.
On
January 13, 2020, the Company filed a Certificate of Designation creating the class of Preferred Stock required by the Conversion
Agreement, and $3,500,000 of capital Mr. Deng contributed to the Company were converted into 1,000 shares of Series A Convertible
Preferred Stock (the “Preferred Stock”). The Preferred Stock has no voting rights, no dividend, no redemption right
and will convert automatically into 9,210,526 shares of the Company’s common stock once the conversion is approved by the
Company’s stockholders. In the event of the liquidation of the Company, the Preferred Stock has a liquidation preference
equal to $3,500,000 over the Company’s common stock.
On
March 25, 2020, the Company entered into an agreement (the “Purchase Agreement”) with two third party individuals,
Dengrong Zhou and Qiang Ou (the “Investors”), pursuant to which the Investors agreed to purchase 1,783,167 shares
of the Company’s common stock in exchange for $2,500,000. Subsequently on April 9, 2020, these shares were issued and the
transaction was closed.
In
April 2020, the Company issued 3,852,372 shares of the Company’s common stock and 1,000 shares of the Company’s series
B convertible preferred stock, which will be converted to 3,834,796 shares of the Company’s common stock to acquire RET
and DL Medical. Upon approval by the purchaser’s shareholders, the preferred stock will be converted to common stock. The
Series B Preferred will rank on parity with the Series A Convertible Preferred Stock of the Company. See Note 5 for the details
of the transactions.
In
August 2020, the Company issued 5,036,298 shares of the Company’s common stock and 1,000 shares of the Company’s series
C convertible preferred stock, which will convert automatically into 1,916,781 shares of the Company’s common stock once
the conversion is approved by the Company’s stockholders.
16.
Income Taxes
The
Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each
entity is domiciled. iFresh is a Delaware holding company that is subject to U.S. income tax.
NYM
is taxed as a corporation for income tax purposes and as a result of the “Contribution Agreement” entered into on
December 31, 2014 NYM has elected to file a consolidated federal income tax return with its eleven subsidiaries. NYM and the shareholders
of the eleven entities, as parties to the Contribution Agreement, entered into a tax-free transaction under Section 351 of the
Internal Revenue Code of 1986 whereby the eleven entities became wholly owned subsidiaries of the Company. As a result of the
tax-free transaction and the creation of a consolidated group, the subsidiaries are required to adopt the tax year-end of its
parent, NYM. NYM was incorporated on December 30, 2014 and has adopted a tax-year end of March 31.
RET,
DL Medical and Jiuxiang are incorporated in the PRC and subject to PRC income tax which is computed according to the relevant
laws and regulations in the PRC. Under the Corporate Income Tax Law of PRC, the current corporate income tax rate of 25% is applicable
to all companies, including both domestic and foreign-invested companies.
Certain
of the subsidiaries have incurred net operating losses (“NOL”) in tax years ending prior to the Contribution Agreement.
The U.S. net operating losses are subject to the Separate Return Limitation Year (“SRLY”) rules which limit the utilization
of the losses to the subsidiaries who generated the losses. The SRLY losses are not available to offset taxable income generated
by members of the consolidated group.
Based
upon management’s assessment of all available evidence, the Company believes that it is more-likely-than-not that the deferred
tax assets, primarily for certain of the subsidiaries SRLY NOL carry-forwards will not be realizable; and therefore, a full valuation
allowance is established for SRLY NOL carry-forwards. Pursuant to The Coronavirus Aid, Relief, and Economic Security Act, also
known as the CARES Act, NOLs from the 2018, 2019, and 2020 tax years can be carried back to the previous five tax years (beginning
with the earliest year first) and suspends the 80% of taxable income limitation through the 2020 tax year. The NOL carry-backs
can result in an immediate refund of taxes paid in prior years. The valuation allowance for deferred tax assets was $6,429,264
and $7,643,963 as of September 30, 2020 and March 31, 2020, respectively.
The
Company has approximately $26,740,000 and $30,497,000 of US NOL carry forward of which approximately $3,270,000 and $3,136,000
are SRLY NOL as of September 30, 2020 and March 31, 2020, respectively. The Company also has $7,264,76 NOL from its Chinese entities,
which was fully reserved with a valuation allowance. For income tax purposes, those NOLs will expire in the year 2033 through
2037. NOLs from Chinese entities will expire through the year 2025.
Income
Tax Provision (Benefit)
The
(benefit) provision for income taxes consists of the following components:
|
|
For the Six months Ended
|
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(441,133
|
)
|
|
|
47,620
|
|
State
|
|
|
(148,617
|
)
|
|
|
15,873
|
|
|
|
|
(589,750
|
)
|
|
|
63,493
|
|
Total
|
|
$
|
(589,750
|
)
|
|
$
|
63,493
|
|
|
|
For Three Months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(441,133
|
)
|
|
|
121,073
|
|
State
|
|
|
(148,617
|
)
|
|
|
40,357
|
|
|
|
|
(589,750
|
)
|
|
|
161,430
|
|
Total
|
|
$
|
(589,750
|
)
|
|
$
|
161,430
|
|
Tax
Rate Reconciliation
Following
is a reconciliation of the Company’s effective income tax rate to the United State federal statutory tax rate:
|
|
For the Six Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Expected tax at U.S. statutory income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
State and local income taxes, net of federal income tax effect
|
|
|
7
|
%
|
|
|
7
|
%
|
Other non-deductible fees and expenses
|
|
|
-
|
%
|
|
|
(2.91
|
)%
|
Changes in deferred tax allowance
|
|
|
(31.2
|
)%
|
|
|
(26.59
|
)%
|
Effective tax rate
|
|
|
(3.2
|
)%
|
|
|
(1.5
|
)%
|
Deferred
Taxes
The
effect of temporary differences included in the deferred tax accounts in the two tax jurisdiction in US and China are as follows:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Deferred tax assets/ (liabilities) in US
|
|
|
|
|
|
|
Deferred expenses
|
|
$
|
253,867
|
|
|
$
|
164,434
|
|
Sec 263A Inventory Cap
|
|
|
158,659
|
|
|
|
38,207
|
|
Deferred rent/lease obligation
|
|
|
2,182,776
|
|
|
|
2,215,294
|
|
Depreciation and amortization
|
|
|
(3,395,021
|
)
|
|
|
(3,008,058
|
)
|
Net operating losses
|
|
|
4,590,335
|
|
|
|
8,877,202
|
|
Valuation allowance
|
|
|
(3,790,616
|
)
|
|
|
(7,643,963
|
)
|
Net deferred tax assets (liabilities) in US
|
|
$
|
-
|
|
|
$
|
643,116
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Property and equipment
|
|
$
|
(244,973
|
)
|
|
$
|
-
|
|
Intangible assets
|
|
$
|
(838,766
|
)
|
|
$
|
-
|
|
Deferred tax assets (liabilities in China)
|
|
$
|
2,638,648
|
|
|
$
|
-
|
|
Valuation allowance
|
|
$
|
(2,638,648
|
)
|
|
$
|
-
|
|
Net deferred tax asset /(liabilities ) in China
|
|
$
|
(1,083,739
|
)
|
|
$
|
-
|
|
17.
Related-Party Transactions
Management
Fees, Advertising Fees and Sale of Non-Perishable and Perishable Products to Related Parties
The
following is a detailed breakdown of significant management fees, advertising fees and sale of products for the six months ended
September 30, 2020 and 2019 to related parties, which are directly or indirectly owned, in whole or in part, by Mr. Long Deng,
a shareholder, and not eliminated in the consolidated financial statements. In addition, the outstanding receivables due from
these related parties as of September 30, 2020 and March 31, 2020 were included in advances and receivables – related parties
(see Note 8).
For
the Six Months Ended September 30, 2020
(Unaudited)
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Perishable
|
|
|
|
Management
|
|
|
Advertising
|
|
|
& Perishable
|
|
Related Parties
|
|
Fees
|
|
|
Fees
|
|
|
Sales
|
|
Tampa Seafood
|
|
$
|
2,000
|
|
|
$
|
-
|
|
|
$
|
105
|
|
NY Mart MD Inc.
|
|
|
28,750
|
|
|
|
1,700
|
|
|
|
333,884
|
|
NYM Elmhurst Inc.
|
|
|
6000
|
|
|
|
-
|
|
|
|
208,515
|
|
Spring Farm Inc.
|
|
|
2,750
|
|
|
|
-
|
|
|
|
733
|
|
|
|
$
|
39,500
|
|
|
$
|
1,700
|
|
|
$
|
543,237
|
|
For
the Six Months Ended September 30, 2019
(Unaudited)
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Perishable
|
|
|
|
Management
|
|
|
Advertising
|
|
|
& Perishable
|
|
Related Parties
|
|
Fees
|
|
|
Fees
|
|
|
Sales
|
|
Dragon Seeds Inc.
|
|
$
|
2,800
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NY Mart MD Inc.
|
|
|
44,300
|
|
|
|
6,320
|
|
|
|
640,914
|
|
NYM Elmhurst Inc.
|
|
|
47,158
|
|
|
|
3,290
|
|
|
|
485,698
|
|
Spring Farm Inc.
|
|
|
5,300
|
|
|
|
-
|
|
|
|
58,134
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
46,043
|
|
|
|
$
|
99,558
|
|
|
$
|
9,610
|
|
|
$
|
1,230,789
|
|
For
the Three Months Ended September 30, 2020
(Unaudited)
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Perishable
|
|
|
|
Management
|
|
|
Advertising
|
|
|
& Perishable
|
|
Related Parties
|
|
Fees
|
|
|
Fees
|
|
|
Sales
|
|
Tampa Seafood
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
105
|
|
NY Mart MD Inc.
|
|
|
12,000
|
|
|
|
1,700
|
|
|
|
166,881
|
|
NYM Elmhurst Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
110,197
|
|
Spring Farm Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
440
|
|
|
|
$
|
12,000
|
|
|
$
|
1,700
|
|
|
$
|
277,623
|
|
For
the Three months ended September 30, 2019
(Unaudited)
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Perishable
|
|
|
|
Management
|
|
|
Advertising
|
|
|
& Perishable
|
|
Related Parties
|
|
Fees
|
|
|
Fees
|
|
|
Sales
|
|
Dragon Seeds Inc.
|
|
|
1,150
|
|
|
|
-
|
|
|
|
-
|
|
NY Mart MD Inc.
|
|
|
15,000
|
|
|
|
2,640
|
|
|
|
185,537
|
|
NYM Elmhurst Inc.
|
|
|
22,546
|
|
|
|
1,080
|
|
|
|
206,694
|
|
Spring Farm Inc.
|
|
|
2,000
|
|
|
|
-
|
|
|
|
58,134
|
|
Pine Court Chinese Bistro
|
|
|
-
|
|
|
|
-
|
|
|
|
37,317
|
|
|
|
$
|
40,696
|
|
|
$
|
3,720
|
|
|
$
|
487,682
|
|
Long-Term Operating
Lease Agreement with a Related Party
The Company leases
warehouse and stores from related parties that are owned by Mr. Long Deng, a shareholder and the CEO of the Company, and will expire
on April 30, 2026. Rent incurred to the related party was $488,446.08 and $403,661 for the six months ended on September 30, 2020
and 2019, respectively. Rent incurred to the related party was $246,616 and $111,201 for the three months ended on September 30,
2020 and 2019, respectively.
18. Litigation
The Company is involved
with claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters
in a manner that the Company believes best serves the interests of its stakeholders. These matters have not resulted in any material
losses to date.
Leo J. Motsis,
as Trustee of the 140-148 East Berkeley Realty Trust v. Ming’s Supermarket, Inc.
This case relates
to a dispute between Ming’s Supermarket, Inc. (“Ming”), a subsidiary of the Company and the landlord of the building
located at 140-148 East Berkeley Street, Boston, MA (the “Property”), under a long-term operating lease (“Lease”).
Since February 2015, Ming was unable to use the property due to structural damage assessed by the Inspection Services Department
of the City of Boston (“ISD”), and stopped paying the rent since April 2015 after the landlord refused to make the
structural repairs. The landlord then sued Ming for breach of the Lease and unpaid rent, and Ming counterclaimed for constructive
eviction and for damages resulting from the landlord’s breach of its duty to make the structural repairs under the Lease.
The case was tried
before a jury in August 2017. The jury awarded Ming judgment against the landlord in the amount of $795,000, plus continuing damages
of $2,250 per month until the structural repairs are completed. The court found that the landlord’s actions violated the
Massachusetts unfair and deceptive acts and practices statute and therefore doubled the amount of damages to $1,590,000 and further
ruled that Ming should also recover costs and attorneys’ fees of approximately $250,000. The result is a judgment in favor
of Ming and against the landlord that will total approximately $1.85 million. The judgment requires the landlord to repair the
premises and obtain an occupancy permit. The landlord is responsible to Ming for damages in the amount of $2,250 per month until
an occupancy permit is issued. The judgment also accrues interest at the rate of 12% per year until paid.
The landlord filed
an appeal, the appeal hearing was held on July 12, 2019 and the judge concluded that the landlord should be required both to perform
the relevant obligations of the lease in the future and to pay damages caused by his previous failure to do so and for any period
of delay in completing his specific performance. On November 5, 2019, the Appeals Court issued a full decision affirming the judgment
was entered and transmitted a rescript of the affirmance of the judgment to the superior count.
The final judgment
was entered after rescript on May 7, 2020. On June 29, 2020, the landlord executed the final judgment and made the payment of $2,536,142
to Ming, which is included in other income.
Hartford Fire
Insurance Company v. New York Mart Group Inc.
On November 28, 2018,
a lawsuit was filed against New York Mart Group, Inc. by Hartford Fire Insurance Company (“Hartford”), who seeks contractual
indemnification from the Company and other defendants relating to certain supersedeas bonds issued by Hartford in connection with
the unsuccessful appeal of state court litigation by iFresh’s codefendant. Hartford alleges that iFresh guaranteed performance
of the bonds and therefore seeks to enforce the indemnification terms thereof against iFresh in addition to the other defendants.
On June 14, 2019, Hartford filed a motion for summary judgment against iFresh, arguing that Hartford is entitled to judgment as
a matter of law. On July 29, 2019, the Court granted judgment against iFresh in a consented amount of $458,498 for the alleged
loss. The Court is still having a hearing on Hartford’s entitlement to attorneys’ fees/costs. The Company has accrued
$500,000 for the potential loss and expense associated with this case on December 31, 2018.
Winking Group
LLC v. New York Supermarket E. Broadway Inc.
A subsidiary of the
Company, New York Supermarket E. Broadway Inc., entered into a lease with Winking Group LLC for the Company’s store located
at 75 East Broadway, NY, 10002. The landlord sued the Company for failing to pay rent and an additional fee of $450,867. The Company
is currently negotiating an agreement with the landlord to settle the case. On November 21, 2019, the Company consented to a final
judgement of possession in favor of Winking Group LLC in the amount of $400,000, with $50,867 being waived by the landlord. $400,000
was paid as of December 31, 2019.
JD Produce Maspeth
LLC v. iFresh, Inc. alt.
On September 16, 2019,
the JD Produce Maspeth (“plaintiff”) sued the Company seeking $178,953 for unpaid goods purchased by the Company. The
legal process was just initiated and interrupted by the outbreak of COVID-19. The Company has recorded the purchase and payable
on the financial statements in 2019.
Don Rick Associates
LLC. v. New York Mart Roosevelt Inc.
One of the subsidiaries
of the Company, New York Mart Roosevelt Inc., has failed to pay the rents on time. The landlord has sued the Company for nonpayment.
On May 31, 2019, a motion for summary Judgement was filed for unpaid rent in the amount of $102,792 and $14,984 for attorney fees.
These amounts have been fully accrued as of March 31, 2020.
ICR, LLC v.
iFresh, Inc.
On February 15, 2018,
ICR (the “Plaintiff”) filed a complaint seeking remedies for breach of contract. The court has scheduled a pretrial
settlement conference on Thursday, November 19, 2020.
SEC Subpoena
On March 6, 2020,
the Company announced that it has received a subpoena from the Securities and Exchange Commission (“SEC”) requesting
certain information. The subpoena sought various documents and information regarding, among other things, the Company’s financial
institution accounts, accounting practices, auditing practices, internal controls, payroll, and information furnished to auditors.
Although the Company is not currently the subject of any enforcement proceedings, the investigation could lead to enforcement proceedings
if SEC contends that the Company has not complied with securities laws. The Company is fully cooperating with the SEC’s request.
19. Subsequent Events
KeyBank Loans
From January to November
2020, the Company failed to make loan payments of $2,018,664. On August 6, 2020 the Company received the 3rd forbearance agreement
from KeyBank. Please refer to Note 11 for key terms. It’s still in negotiations with KeyBank.
On October 9, 2020,
Keybank executed a “Deposit Account Control Agreement” remitting any funds on deposit in the Deposit Account to the
Secured Party. According to the company deposit account, there is $674,000 in the listed accounts being reserved, and was withdrawn
by Key Bank and applied to the interest and principal in arrears.
Covid 19
Under the potential
resurgence of Covid-19 in the winter of 2020, the Company may experience loss in sales in its retail locations. Since the stores
are mainly located in New York and Florida, which are greatly impacted by the pandemic, related government departments such as
DOH and CDC have directly given safety plans and guidelines to the Company. Regulations social distancing, controlling in-store
customer traffic, and curfew orders have impacted the sales in stores significantly, and such impact will possibly continue. On
the other side, the supply chain as well as the wholesale section are also expecting potential challenges caused by Covid-19. The
Company’s online sales may increase due to customers ordering grocery delivery instead of shopping in stores. Sales slightly
increased (3%) in Oct 2020, compared to sales in Oct 2019.
Nasdaq Stock Market Notice
On October 5, 2020, we received a letter
from Nasdaq, which stated that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), which requires an issuer to maintain
a minimum closing bid price of $1.00 per share (the “Minimum Bid Price Rule”). In accordance with the Nasdaq Listing
Rules, we were provided with a 180-day grace period to regain compliance with the Minimum Bid Price Rule, through April 5, 2021.
The notice has no immediate impact on the listing or trading of our securities on Nasdaq. We intend to monitor the closing bid
price of our common stock and consider available options to regain compliance with the Minimum Bid Price Rule.