Liquidity and Going Concern

3 Months Ended

Jun. 30, 2020

Liquidity And Going Concern [Abstract]

Liquidity and Going Concern

2. Liquidity and Going Concern

As reflected in the Company’s consolidated financial statements, the Company had negative working capital of $19.1 million and $28.6 million as of June 30, 2020 and March 31, 2020, respectively. The Company had negative equity of $2.6 million as of March 31, 2020. For the year ended March 31, 2020, the Company had operating losses of $8.3 million. The Company did not meet certain financial covenants required in the credit agreement with KeyBank National Association (“KeyBank”). As of June 30, 2020, the Company has outstanding loan facilities of approximately $20.1 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 June 30, 2020, the Company also has $5.9 million of advances and receivable from the related parties we intend to collect. In April and May 2020, the Company received Paycheck Protection Program loan (“PPP loan”) of approximately $1.77 million. For the quarter ended June 30, 2020, the Company has net operating income of $3.6 million due to the effort of cutting expense, closing stores with low performance. In addition, the Company had positive net equity through the acquisition of two business in China.

The Company was in default under the Credit Agreement as of June 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 month period of less than 3.00 to 1.00 at the last day of each fiscal quarter. As of June 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 major 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 has 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 events of shares transfer 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.

From January to June 2020, non-payment of amount due by the Company was $1,194,878. Also, the Company is not incompliance with certain loan covenants. On August 6, 2020 the Company received 3rd forbearance agreement from Key Bank, 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, 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.

On December 17, 2019, the Company received a letter from the Listing Qualifications Staff (the “Staff’) of the Nasdaq Stock Market LLC (“Nasdaq”), which stated that the Company was 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 “Bid Price Rule”). In accordance with the Nasdaq Listing Rules, the Company was provided with a 180-day grace period to regain compliance with the Bid Price Rule, through June 15, 2020. The notice has no immediate impact on the listing or trading of the Company’s securities on Nasdaq. The Company has received a written notice from the Listing Qualifications Staff of Nasdaq on May 4, 2020, indicating that the Company has regained compliance with Nasdaq’s continued listing requirements and that its common stock will continue to be listed on Nasdaq Stock Market.

The Company was impacted by the COVID-19 outbreak as it operates in area 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 in Brooklyn, New York and in Flushing, New York, where are with high population and at high risk of infection during the end of March and April peak period. Sales decreased by $1.0 million due to the lockdown for the quarter ended June 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.