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MarketScreener Homepage  >  Equities  >  Nasdaq  >  IFresh Inc    IFMK

IFRESH INC

(IFMK)
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IFRESH : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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08/14/2019 | 05:11pm EDT

Forward-Looking Statements




This report includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to known and unknown
risks, uncertainties and assumptions about us that may cause our actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "should," "could,"
"would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or
the negative of such terms or other similar expressions. Factors that might
cause or contribute to such a discrepancy include, but are not limited to, those
described in our other Securities and Exchange Commission ("SEC")
filings. References to "we", "us", "our," "iFresh" or the "Company" are to
iFresh Inc., except where the context requires otherwise. The following
discussion should be read in conjunction with our unaudited condensed financial
statements and related notes thereto included elsewhere in this report.



Overview


iFresh Inc. ("we," "us," "our," or "iFresh" or the "Company") is a Delaware
company incorporated in July 2016 in order to reincorporate E-Compass
Acquisition Corp. ("E-Compass") to Delaware pursuant to the Merger Agreement (as
defined below). Immediately following the reincorporation, we acquired NYM
Holding, Inc ("NYM"). E-Compass was a blank check company formed for the purpose
of entering into a share exchange, asset acquisition, share purchase,
recapitalization, reorganization or other similar business combination with one
or more businesses or entities. NYM is a fast growing Asian/Chinese grocery
supermarket chain in the north-eastern U.S. providing food and other merchandise
hard to find in mainstream grocery stores. Since NYM was formed in 1995, NYM has
been targeting the Chinese and other Asian population in the U.S. with its
in-depth cultural understanding of its target customer's unique consumption
habits. iFresh currently has ten retail supermarkets across New York,
Massachusetts and Florida, with in excess of 6,224,500 sales transactions in its
stores in the fiscal year ended March 31, 2019. It currently has one in-house
wholesale businesses, Strong America Limited ("Strong America") covering more
than 6,000 wholesale products and servicing both NYM retail supermarkets and
over 1,000 external clients that range from wholesalers to retailing groceries
and restaurants. NYM has a stable supply of food from farms in New Jersey and
Florida, ensuring reliable supplies of the most popular vegetables, fruits and
seafood. Its wholesale business and long term relationships with farms insulate
NYM from supply interruptions and sales declines, allowing it to remain
competitive even during difficult markets.



Outlook



iFresh is an Asian Chinese supermarket chain in the U.S. northeastern region
with nine retail super markets and two wholesale facilities. iFresh plans to
strategically expand along the I-95 corridor and its goal is to cover all states
on the east coast.


a. iFresh provides unique products to meet the demands of the Asian/Chinese

American Market;

b. iFresh has established a merchandising system backed by an in-house wholesale

business and by long-standing relationships with farms;

c. iFresh maintains an in-house cooling system with unique hibernation

technology that is has developed over 20 years to preserve perishables,

especially produce and seafood;

d. iFresh capitalizes on economies of scale, allowing strong negotiating power

with upstream vendors, downstream customers and sizable competitors; and

e. iFresh has a proven and replicable track record of management, operation,

     acquisition and organic growth.




                                       21





iFresh's net sales were $23.8 million and $31.1 million for the three months
ended June 30, 2019 and 2018, respectively. In terms of sales by category,
Perishables constituted approximately 55.6% of the total sales for the three
months ended June 30, 2019. iFresh's net loss was $3.4 million for the three
months ended June 30, 2019, an increase of $1.5 million, or 80%, from $1.9
million of net loss for the three months ended June 30, 2018. Adjusted EBITDA
was $-2.3 million for the three months ended June 30, 2019, an decrease of $1.4
million, or 175%, from $-0.8 million for the three months ended June 30, 2018.



Factors Affecting iFresh's Operating Results



Seasonality



iFresh's business shows seasonal fluctuations. Sales in its first and second
fiscal quarters (ending June 30 and September 30, respectively) are usually 5%
to 10% lower than in third and fourth quarters (ending December 31 and March 31,
respectively). In its third fiscal quarter, customers make holiday purchases for
Thanksgiving and Christmas. In its fourth quarter, customers make purchases for
traditional Chinese holidays, such as the Spring Festival (Chinese New Year, in
January or February).



Competition


The Company faces competition from other Asian supermarkets. In the fiscal year
2019, two of our stores located in Boston and New York experienced significantly
decreased sales due to competition from newly opened grocery stores. In first
quarter of fiscal year 2020, the Company contracted these two stores to third
party to operate and are collecting contracting fees. The gross margin was low
in these stores since the Company's distribution center in New York area could
not lower the purchase cost of the stores in MA For the three months ended June
30, 2019, the Company's retail sales decreased significantly due to the change
of operations of these two stores.



Payroll


Minimum wage rates in some states increased. For example, the minimum wage rose
from $13 to $15 per hour in New York City. Payroll and related expenses
decreased by $1.2million, or 7.7% for the year ended March 31, 2019 and
decreased by $0.9 million or 22.9% for the three months ended June 30, 2019 as
compared to the same period of last year as a result of workforce reduction
to
reduce costs.



Vendor and Supply Management



iFresh believes that a centralized and efficient vendor and supply management
system are the keys to profitability. iFresh operates its own wholesale
facilities, which supplied about 19.6 % and 14.8% of its procurement for the
fiscal year ended March 31, 2019 and three months ended June 30, 2019,
respectively. iFresh believes that its centralized vendor management enhances
iFresh's negotiating power and improves its ability to turnover inventory and
vendor payables. Any changes to the vendor and supply management could affect
iFresh's purchasing costs and operating expenses. Starting from Q4 of fiscal
year 2019, the Company's wholesale business gradually slows down and the retail
stores are heavily relied on third party vendors for inventory supplies instead
of centralized supply system.


Store Maintenance and Renovation




From time to time, iFresh conducts maintenance on the fixtures and equipment for
its stores. Any maintenance or renovations could interrupt the operation of our
stores and result in a decline of customer volume, and therefore sales volume,
but will, in the opinion of management, boost sales after they are completed.
Significant maintenance or renovation would affect our operation and operating
results. As of June 30, 2019, two iFresh stores are under renovation and have
not opened yet. iFresh incurred $449,948 in expenses for these stores for the
year ended March 31, 2019. One store was under renovation for 10 months in the
year of 2019 and incurred $871,709 in expense. Because these stores are being
renovated, sales are affected.



                                       22




Store Acquisitions and Openings

iFresh expects the new stores it acquires or opens to be the primary driver of
its sales, operating profit and market share gains. iFresh's results will be
materially affected by the timing and number of new store additions and the
amount of new store opening costs. For example, iFresh would incur rental,
utilities and employee expenses during any period of renovation, which would be
recorded as expenses on the income statement and would decrease iFresh's profit
when a store opens. iFresh may incur higher than normal employee costs
associated with setup, hiring, training, and other costs related to opening a
new store. Operating margins are also affected by promotional discounts and
other marketing costs and strategies associated with new store openings,
primarily due to overstocking, and costs related to hiring and training new
employees. Additionally, promotional activities may result in higher than normal
net sales in the first several weeks following a new store opening. A new store
builds its sales volume and its customer base over time and, as a result,
generally has lower margins and higher operating expenses, as a percentage of
sales, than our more mature stores. A new store could take more than a year to
achieve a level of operating performance comparable to our existing stores. In
January 2019, one of our Glen Cove has been fully operated and started to
generate revenue.



How to Assess iFresh's Performance




In assessing performance, iFresh's management considers a variety of performance
and financial measures, including principal growth in net sales, gross profit
and Adjusted EBITDA. The key measures that we use to evaluate the performance of
our business are set forth below:



Net Sales

iFresh's net sales comprise gross sales net of coupons and discounts. We do not record sales taxes as a component of retail revenues as it considers it a pass-through conduit for collecting and remitting sales taxes.



Gross Profit



iFresh calculates gross profit as net sales less cost of sales and occupancy
costs. Gross margin represents gross profit as a percentage of its net sales.
Occupancy costs include store rental costs and property taxes. The components of
our cost of sales and occupancy costs may not be identical to those of its
competitors. As a result, our gross profit and gross margin may not be
comparable to similar data made available by our competitors.



Cost of sales includes the cost of inventory sold during the period, including
the direct costs of purchased merchandise (net of discounts and allowances),
distribution and supply chain costs, buying costs and supplies. iFresh
recognizes vendor allowances and merchandise volume related rebate allowances as
a reduction of inventories during the period when earned and reflects the
allowances as a component of cost of sales as the inventory is sold. Shipping
and handling for inventories purchased are included in cost of goods sold.

Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily consist of retail operational expenses, administrative salaries and benefits costs, marketing, advertising and corporate overhead.



Adjusted EBITDA



iFresh believes that Adjusted EBITDA is a useful performance measure and can be
used to facilitate a comparison of NYM's operating performance on a consistent
basis from period-to-period and to provide for a more complete understanding of
factors and trends affecting our business than GAAP measures alone can provide.
iFresh also uses Adjusted EBITDA as one of the primary methods for planning and
forecasting overall expected performance and for evaluating on a quarterly and
annual basis actual results against such expectations, and as a performance
evaluation metric in determining achievement of certain compensation programs
and plans for employees, including senior executives. Other companies in the
industry may calculate Adjusted EBITDA differently than iFresh does, limiting
its usefulness as a comparative measure.



                                       23





iFresh's management defines Adjusted EBITDA as earnings before interest expense,
income taxes, depreciation and amortization expense, store opening costs, and
non-recurring expenses. All of the omitted items are either (i) non-cash items
or (ii) items that we do not consider in assessing its ongoing operating
performance. Because it omits non-cash items, iFresh's management believes that
Adjusted EBITDA is less susceptible to variances in actual performance resulting
from depreciation, amortization and other non-cash charges and more reflective
of other factors that affect its operating performance. iFresh's management
believes that the use of these non-GAAP financial measures provides an
additional tool for investors to use in evaluating ongoing operating results and
trends and in comparing the company's financial measures with other specialty
retailers, many of which present similar non-GAAP financial measures to
investors.



Results of Operations for the three months ended June 30, 2019 and 2018



                                               For the three months
                                                  ended June 30,                      Changes
                                               2019             2018              $               %
Net sales-third parties                    $ 23,084,675$ 29,671,823$ (6,587,148 )       (22.2 )%
Net sales-related parties                       743,107        1,416,318         (673,211 )       (47.5 )%
Total Sales                                  23,827,782       31,088,141       (7,260,359 )       (23.4 )%
Cost of sales-third parties                  16,516,099       21,602,917       (5,086,818 )       (23.5 )%
Cost of sales-related parties                   582,569        1,228,404   
     (645,835 )       (52.6 )%
Occupancy costs                               1,930,619        1,831,074           99,545           5.4 %
Gross Profit                                  4,798,495        6,425,746       (1,627,251 )       (25.3 )%
Selling, general, and administrative
expenses                                      8,575,894        8,075,441          500,453           6.2 %
Income from operations                       (3,777,399 )     (1,649,695 )     (2,127,704 )         129 %
Interest expense                               (609,745 )       (245,703 )       (364,042 )       148.2 %
Other income                                    921,080          332,569          588,511           177 %
Income before income tax provision           (3,466,064 )     (1,562,829 )     (1,903,235 )       121.8 %
Income tax provision (benefit)                  (97,937 )        313,833         (411,770 )      (131.2 )%
Net income                                   (3,368,127 )     (1,876,662 )     (1,491,465 )        79.5 %
Net income attributable to common
shareholders                               $ (3,368,127 )$ (1,876,662 )$ (1,491,465 )        79.5 %




Net Sales



                                               For the three months
                                                  ended June 30,                      Changes
                                               2019             2018              $               %
Net sales of retail-third parties          $ 19,295,677$ 25,899,596$ (6,603,919 )       -25.5 %
Net sales of wholesale-third parties          3,788,998        3,772,227           16,771           0.4 %
Net sales of wholesale-related parties          743,107        1,416,318   
     (673,211 )       -47.5 %
Total Net Sales                            $ 23,827,782$ 31,088,141$ (7,260,359 )       -23.4 %




                                       24





iFresh's net sales were $23.8 million for the three months ended June 30, 2019,
a decrease of $7.3 million, or 23.4 %, from $ 31.1 million for the three months
ended June 30, 2018.



Net retail sales to third parties decreased by $6.6 million, or 25.5 %, from
$25.9 million for the three months ended June 30, 2018 to $19.3 million for the
three months ended June 30, 2019.  The decrease resulted mainly from our Quincy
(Zen Store) and Boston (Ming Store), Massachusetts stores. Ming and Zen
contributed $5.3 million of retail sales for the three months ended June 30,
2018. Starting from the fiscal year 2019, these two stores experienced
significantly decreased sales due to competition from newly opened grocery
stores. On April 1, 2019, the Company contracted the two stores to other company
to operate and is collecting management fees from these companies. Management
fees are $40,000 per months for the six months and $50,000 after six months, for
36 months. In addition, the Company bills the other party for rent and utilities
expense incurred and the other party will be responsible for payroll and
employee benefits. The Company sold all inventories at net book value of $1.5
million, but keep the ownership of all property and equipment. The depreciation
and amortization expense were approximately $140,000 for the three months ended
June 30, 2019 which could be covered by the management fee billed. In addition,
sales from our stores in NYC decreased by $1.9 million because we contracted
part of vegetables and fruits business to third parties in our store to improve
our margin.



Our total net wholesale sales decreased by $0.7 million from $5.2 million for
the three months ended June 30, 2018 to $4.5 million for the three months ended
June 30, 2019, attributable that our sales to related parties decreased by $0.7
million from the three months ended June 30, 2018 to the three months ended June
30, 2019, attributable to that New York Mart Group. Inc is going out of
business.



Cost of sales, Occupancy costs and Gross Profit



                      For the three months
Retail Segment           ended June 30,                     Changes
                      2019             2018              $              %
Cost of sales     $ 13,905,013$ 18,999,424$ (5,094,411 )     -26.8 %
Occupancy costs      1,930,619        1,831,074           99,545         5.4 %
Gross profit         3,460,045        5,069,098       (1,609,053 )     (31.7 )%
Gross margin              17.9 %           19.6 %           -1.7 %         -



For the retail segment, cost of sales decreased by $5.1 million, from $19.0
million for the three months ended June 30, 2018, to $14.0 million for the three
months ended June 30, 2019. The decrease was consistent with the sales decreased
and mainly due to changes we made to Ming and Zen store in MA mentioned above.
The cost decreased by 26.8%, compared to sales decrease of 25.5%, lead to higher
margin which was calculated before adding the occupancy cost in the total cost.
This is expected when the strategic decision was made to contract the stores to
others to operate.



Occupancy costs consist of store-level expenses such as rental expenses,
property taxes, and other store specific costs. Occupancy costs increased by
approximately $0.1million, which was mainly attributable to increased taxes and
store specific costs and the rent of the iFresh E. Colonial store which was
newly open in the end of fiscal year 2018.



Gross profit was $3.5 and $5.1 million for the three months ended June 30, 2019
and 2018, respectively. Gross margin was 17.9% and 19.6% for the three months
ended June 30, 2019 and 2018, respectively. The gross profit decreased due to
the increase of rent expense and decreased sales from stores operated by the
Company.



                       For the three months
Wholesale Segment         ended June 30,                   Changes
                       2019            2018             $             %
Cost of sales       $ 3,193,655$ 3,831,897$ (638,242 )     (16.7 )%
Gross profit          1,338,450       1,356,648        (18,198 )      (1.3 )%
Gross margin               29.5 %          26.1 %          3.4 %         -




                                       25





For our wholesale segment, the cost of sales for the three months ended June 30,
2019 decreased by $0.6 million, or 16.7%, from $3.8 million for the three months
ended June 30, 2018 to $3.2 million for the three months ended June 30, 2019.
The decrease is consistent with the significant decrease of sales from the
wholesale segment in 2019.



Gross profit for the three months ended June 30, 2019 decreased by around
$18,000, or 1.3%, from $1.36 million for the three months ended June 30, 2018 to
$1.34 million for the three months ended June 30, 2019. Gross margin increased
by 3.4% from 26.1% to 29.5%. The increase was due to the significant sales
decrease to its related parties, of which the margin is lower than sales made to
third parties.


Selling, General and Administrative Expenses




Selling, general, and administrative expenses were $8.6 million for the three
months ended June 30, 2019, an increase of $0.5 million, or 6.2%, compared to
$8.1 million for the three months ended June 30, 2018, which was mainly
attributable to the $0.5 million of stock compensation to employees and $1.5
million of expense associated with warrant exercise in this quarter, offsetting
of $0.8 million expense decrease was due to that we contracted two stores in MA
and we do not operate these two stores ourselves thus we are decreasing selling,
general and administrative expense from these two stores .  Due to the change of
majority shareholder from Mr. Long Deng to HK Xu Ding Co., Limited, which is
qualified as "fundamental transaction" defined in the warrant agreements dated
in October 23, 2018. The shareholders exercised its warrants at no cost



Interest Expense


Interest expense was $0.6 million for the three months ended June 30, 2019, an
increase of $0.4 million, or 148%, from $245,000 for the three months ended June
30, 2018, attributable to the increased average outstanding loan balance from
$19.7 from three months ended June 30, 2018 to $21.2 for the three months ended
June 30, 2019, as well as increased interest rate from 5.7% for the three months
ended June 30, 2018 to 6.45% for the three months ended June 30, 2019. In
addition, the Company paid approximately $150,000 of forbearance fee to Key Bank
in May due to the violation of covenant.



Other income



Other income was $0.9 million for the three months ended June 30, 2019, which
included management and advertising fee income, rental income, lottery sales,
and other miscellaneous income. Other income increased $0.6 million, 177%, from
$0.3 million for the three months ended June 30, 2018. For the three months
ended June 30, 2019, the Company collected $0.1 million of management fee from
contracting Ming and Zen in MA to third parties for operation. In addition, the
Company has subleased some spaces in its stores for small vendors to sell
prepared foods. Rental income increased by $0.3 million.



Income Taxes Provision



We are subject to U.S. federal and state income taxes. Income tax benefit was
around $98,000 for the three months ended June 30, 2019, compared to $313,000 of
income tax expense for the three months ended June 30, 2018. The effective
income tax rate was 2.8% and -20% for the three months ended June 30, 2019 and
2018, respectively. For the three months ended June 30, 2018, the Company made
reserve for deferred tax asset due to the significant loss incurred. For the
three months ended June 30, 2019, the Company recognized deferred tax result
from deferred expense, inventory cap and lease liabilities.



                                       26





Net Income (loss)



                      For the three months
                         ended June 30,                     Changes
                      2019             2018              $             %
Net income        $ (3,368,127 )$ (1,876,662 )$ (1,491,465 )     79.5 %
Net Loss Margin         -14.14 %          -6.04 %           -8.1 %




Net loss was $3.4 million for the three months ended June 30, 2019, an increase
of $1.5 million, or 79.5%, from $1.9 million of net loss for the three months
ended June 30, 2018, mainly attributable to the decreased gross margin and
increase in selling, general, and administrative expenses described above. Net
loss as a percentage of sales was -14.14% and -6.04% for the three months ended
June 30, 2019 and 2018, respectively.



Adjusted EBITDA



                           For the three months
                              ended June 30,                      Changes
                           2019             2018              $              %
Net income             $ (3,368,127 )$ (1,876,662 )$ (1,491,465 )       79.5 %
Interest expense            609,745          245,703          364,042        148.2 %
Income tax provision        (97,937 )        313,833         (411,770 )     -132.2 %
Depreciation                561,644          459,945          101,699         22.1 %
Amortization                 33,333           33,333                -            0 %
Adjusted EBITDA        $ (2,261,342 )$   (823,848 )$ (1,437,494 )      174.5 %
Percentage of sales            -9.5 %           -2.7 %           -6.8 %



Loss before income tax, depreciation, and amortization was $2.3 million for the
three months ended June 30, 2019, an increase of $1.4 million, as compared to
income before income tax, depreciation, and amortization of $0.8million for the
three months ended June 30, 2018, mainly attributable to the decrease in net
income resulting from decreased sales and increase in selling, general, and
administrative expenses described above.



Liquidity and Capital Resources

As of June 30, 2019, iFresh had cash and cash equivalents of approximately $1.3
million. iFresh had operating losses three months ended June 30, 2019 and had
negative working capital of $26.9 million and $21.6million as of June 30, 2019
and March 31, 2019, respectively. iFresh had negative equity of $1.4 million as
of June 30, 2019. The long-term KeyBank loan of $21 million has been presented
as short-term because the Company is not in compliance with the KeyBank loan
covenants and KeyBank has the option to accelerate payment at any time. The
Company did not meet certain financial covenants required in the credit
agreement with KeyBank National Association ("KeyBank"). As of June 30, 2019,
the Company has outstanding loan facilities of approximately $21.4 million due
to KeyBank. Failure to maintain these loan facilities will have a significant
impact on the Company's operations. 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. Cash is required to pay
purchase costs for inventory, rental, salaries, office rental expenses, income
taxes, other operating expenses and repay debts. iFresh's ability to repay its
current obligation will depend on the future realization of its current assets.
iFresh's management has considered the historical experience, the economy,
trends in the retail industry, the expected collectability of the accounts
receivables and the realization of the inventories as of June 30, 2019. iFresh's
ability to continue to fund these items may be affected by general economic,
competitive and other factors, many of which are outside of our control.



                                       27




We have $4.6 million of advances and receivables from related parties that we
intend to collect or acquire, and these advances and receivables will be used to
offset part of the acquisition consideration for such related parties.



The Company's principal liquidity needs are to meet its working capital
requirements, operating expenses, and capital expenditure obligations. As of
June 30, 2019, the Company remains in noncompliance with the financial covenants
of the KeyBank Loan. These conditions continue to raise doubt as to the
Company's ability to remain a going concern.



The following table summarizes iFresh's cash flow data for the three months ended June 30, 2019 and 2018.



                                                          For the three months
                                                             ended June 30,
                                                          2019            2018
Net cash used in operating activities                  $ (620,468 )$ (3,466,885 )
Net cash provided by (used in) investing activities       329,249       (1,808,660 )
Net cash provided by financing activities                 552,745        

5,192,868

Net increase (decrease) in cash and cash equivalents $ 261,526$ (82,677 )





Operating Activities



Net cash used in operating activities consists primarily of net income adjusted
for non-cash items, including depreciation, changes in deferred income taxes,
loss on early extinguishment of debt, and the effect of working capital changes.
Net cash used in operating activities was approximately $0.6 million for the
three months ended June 30, 2019, a decrease of $2.8 million, or 82%, compared
to $3.5million used in operating activities for the three months ended June 30,
2018. The increase was a result of an increase of $3 million from change of
working capital mainly resulting from decrease from inventory, offset by
decrease in net income of $1.5 million.



Investing Activities



Net cash provided by investing activities was approximately $330,000 for the
three months ended June 30, 2019, an increase of $2.1million, compared to $1.8
million used in investing activities for the three months ended June 30, 2018.
The increase was primarily attributable to the decrease of $2.5 million in
acquisition of property and equipment in 2019.



Financing Activities



Net cash provided by financing activities was approximately $0.55 million for
the three months ended June 30, 2019, which mainly consisted of net cash paid
for bank loans of $0.5 million, cash received from capital contribution of $1.1
million, offset by $60,000 cash paid notes payable, and capital leases. Net cash
provided from financing activities was $5.2 million for the three months ended
June 30, 2018, which mainly consisted of net cash flow from bank loans of $5.7
million, offset by $74,000 cash paid for notes payable and capital leases.


                                       28




KeyBank National Association - Senior Secured Credit Facilities




On December 23, 2016, NYM, as borrower, entered into a $25 million senior
secured Credit Agreement (the "Credit Agreement") with Key Bank National
Association ("Key Bank" or "Lender"). The Credit Agreement provides for (1) a
revolving credit of $5,000,000 for making advance and issuance of letter of
credit, (2) $15,000,000 of effective date term loan and (3) $5,000,000 of
delayed draw term loan. The interest rate is equal to (1) the Lender's "prime
rate" plus 0.95%, or (b) the Adjusted LIBOR rate plus 1.95%. Both the
termination date of the revolving credit and the maturity date of the term loans
are December 23, 2021. The Company will pay a commitment fee equal to 0.25% of
the undrawn amount of the Revolving Credit Facility and 0.25% of the unused
Delayed Draw Term Loan Facility. $4,950,000 of the revolving credit was used as
of December 31, 2018.



$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.



A Delayed Draw Term Loan was available and would be advanced on the Delayed Draw
Funding date (as defined in the Credit Agreement, which is no later than
December 23, 2021. A withdrawal of $5 million under the Delayed Draw Term Loan
was made as of June 30, 2019.


The senior secured credit facility is secured by all assets of the Company and
is jointly guaranteed by the Company and its subsidiaries and contains financial
and restrictive covenants. The financial covenants require NYM to deliver
audited consolidated financial statements within one hundred twenty days after
the fiscal year end and to maintain a fixed charge coverage ratio not less than
1.1 to 1.0 and senior funded debt to earnings before interest, tax, depreciation
and amortization ("EBITDA") ratio less than 3.0 to 1.0 at the last day of each
fiscal quarter, beginning with the fiscal quarter ending March 31, 2017. Except
as stated below, the senior secured credit facility is subject to customary
events of default. It will be an event of default if Mr. Long Deng resigns, is
terminated, or is no longer actively involved in the management of NYM and a
replacement reasonably satisfactory to the Lender is not made within sixty (60)
days after such event takes place. The Company violated the loan covenant when
Mr. Long Deng, CEO and major 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 events of defaults for certain period of
time.  The Forbearance Agreement contains customary forbearance covenants and
other 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 has been repaying this facility in accordance with its terms. 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-month period of less than 3.00
to 1.00 at the last day of each fiscal quarter. As of June 30, 2019 and March
31, 2019, the Company has negative EBITDA, thus the ratio was negative and the
Company was not in compliance with the financial covenants of the KeyBank loan.



While KeyBank has not yet acted to accelerate payment of the facility, KeyBank
considers the Company to be in default and will not make any further advances
under the Credit Facility until the Company comes into compliance with the
Credit Agreement.



                                       29




Commitments and Contractual Obligations




The following table presents the Company's material contractual obligations as
of June 30, 2019:



Contractual Obligations                              Less than                                          More than
(unaudited)                           Total            1 year         1-3 years        3-5 years         5 years
Bank Loans                        $  20,960,215$  1,521,862$ 19,438,353     $          -                -
Estimated interest payments on
bank loans                            1,204,458          509,744          694,714                -                -
Notes payable                           203,729           95,130          107,334            1,265                -
Capital lease obligations
including interest                      620,129          188,028          309,892          122,209                -
Operating Lease Obligations(1)       95,257,872        8,599,004       17,386,121       16,838,557       52,434,190
                                  $ 118,246,403$ 10,913,768$ 37,936,414$ 16,962,031$ 52,434,190

(1) Operating lease obligations do not include common area maintenance, utility

     and tax payments to which iFresh is obligated, which is estimated to be
     approximately 50% of operating lease obligation.



Off-balance Sheet Arrangements

iFresh is not a party to any off-balance sheet arrangements.

Critical Accounting Estimates

The discussion and analysis of iFresh's financial condition and results of
operations are based upon its financial statements, which have been prepared in
accordance with GAAP. These principles require iFresh's management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
sales and expenses, cash flow and related disclosure of contingent assets and
liabilities. The estimates include, but are not limited to, revenue recognition,
inventory valuation, impairment of long-lived assets, lease, and income taxes.
iFresh bases its estimates on historical experience and on various other
assumptions that it believes to be reasonable under the circumstances. Actual
results may differ from these estimates. To the extent that there are material
differences between these estimates and the actual results, future financial
statements will be affected.



iFresh's management believes that among their significant accounting policies,
which are described in Note 3 to the unaudited condensed consolidated financial
statements of iFresh included in this Form 10-Q, the following accounting
policies involve a greater degree of judgment and complexity. Accordingly,
iFresh's management believes these are the most critical to fully understand and
evaluate its financial condition and results of operations.



Revenue Recognition


In accordance with 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
fulfill contracts recorded on the Condensed Consolidated Balance Sheet as
of June 30, 2019. Revenue recognized from performance obligations related to
prior periods was insignificant.



                                       30





Inventories


Inventories consist of merchandise purchased for resale, which are stated at the lower of cost or market. The cost method is used for wholesale and retail perishable inventories by assigning costs to each of these items based on a first-in, first-out (FIFO) basis (net of vendor discounts).

The Company's wholesale and retail non-perishable inventory is valued at the lower of cost or market using weighted average method.

Impairment of Long-Lived Assets

iFresh assesses its long-lived assets, including property and equipment and
finite-lived intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset group may not be
recoverable. The Company groups and evaluates long-lived assets for impairment
at the individual store level, which is the lowest level at which independent
identifiable cash flows are available. Factors which may indicate potential
impairment include a significant underperformance relative to the historical or
projected future operating results of the store or a significant negative
industry or economic trend. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the future
undiscounted cash flows expected to be generated by that asset. If impairment is
indicated, a loss is recognized for any excess of the carrying value over the
estimated fair value of the asset group. The fair value is estimated based on
the discounted future cash flows or comparable market values, if available.


Leases



On April 1, 2019 the Company adopted 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 will 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 presentation of $64,881,376 of operating
lease assets and $71,620,095 operating lease liabilities on the consolidated
balance sheet as of June 30, 2019. See Note 12 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 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.



Income Taxes


iFresh must make certain estimates and judgments in determining income tax
expense for financial statement purposes. The amount of taxes currently payable
or refundable is accrued, and deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets are also recognized for
realizable loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the fiscal year
in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities for a change in income tax
rates is recognized in income in the period that includes the enactment date.



                                       31




iFresh apply the provisions of the authoritative guidance on accounting for
uncertainty in income taxes that was issued by the Financial Accounting
Standards Board, or FASB. Pursuant to this guidance, and may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities
based on the technical merits of the position. The tax benefits recognized in
the consolidated financial statements from such a position should be measured
based on the largest benefit that has a greater than 50% likelihood of being
realized upon ultimate settlement. The authoritative guidance also addresses
other items related to uncertainty in income taxes, including derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition.



Recently Issued Accounting Pronouncements




In 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 Dec. 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. The Company expects that the adoption of this ASU would not have a material
impact on the Company's consolidated financial statements.



                                       32

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Capitalization 42,0 M
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