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Item 4.02
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Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim
Review.
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On July 19, 2021, the Audit Committee, in consultation
with management and the Registrant’s independent registered public accounting firm, Wei, Wei, & Co., LLP (“Wei”),
concluded that the Registrant’s consolidated financial statements for the three-, six-, and nine-month periods ended June 30, 2020,
September 30, 2020, and December 31, 2020, respectively, as filed with the U.S. Securities and Exchange Commission (the “SEC”)
via Forms 10-Q on August 20, 2020, November 23, 2020, and February 22, 2021, respectively, should no longer be relied upon due to what
management believes are errors in those financial statements.
The errors relate to the Registrant’s purchase
of controlling interests in two separate companies in April 2020 and August 2020, the execution of which the Registrant now believes were
fraudulently induced. The stock purchase agreements were to acquire controlling interests in two separate companies: (1) the RET Wine
Company (“RET”), and (2) Jiuxiang Blue Sky Technology (Beijing) Co. Ltd (“Jiuxiang”, and together with RET, the
“Subsidiaries”), which transactions closed in April 2020 and August 2020, respectively.
It has since come to the Audit Committee’s
attention that the Registrant did not in fact acquire control of the Subsidiaries as of the closing dates. Management gradually came to
such conclusion during the preparation of the Form 10-K for the year ended March 31, 2021, as it continued to encounter difficulties in
(a) attempting to obtain access to the Subsidiaries’ books and records, (b) gaining access for Registrant-appointed management to
manage these Subsidiaries’ operations, and (c) otherwise exercising de facto control over those Subsidiaries. Although Management
was able to obtain the necessary information and prepare unaudited financial statements for previous periods with the cooperation of such
Subsidiaries, the difficulties in obtaining the information required for the preparation of the audited financial statements despite the
Registrant’s efforts to control the Subsidiaries has created doubt about whether the Registrant ever held actual control over such
entities.
In addition, in January 2021, the iFresh shareholders
who acquired shares through their sale of RET and Jiuxiang to iFresh, acting in concert with another Registrant shareholder who obtained
his shares through an earlier equity investment, made an attempt to unseat members of the Registrant’s current Board in order to
effect a takeover of the Registrant. This attempt is currently the subject of litigation in Delaware. For the above reasons, the Audit
Committee has determined that the financial data provided by the two subsidiaries as incorporated in the Registrant’s previously-filed
unaudited financial statements should not be relied upon.
Based on the foregoing, the Registrant is working
to complete a restatement of, and file amended financial statements with the SEC for, the periods ended June 30, 2020, September 30, 2020,
and December 31, 2020, all of the periods during which RET and Jiuxiang’s financial results were included in the unaudited financial
statements of the Registrant. The Registrant is seeking guidance from the SEC’s Office of the Chief Accountant and is working with
its auditor in an effort to complete the analysis. As discussed below, the Registrant has also retained an external accounting consultancy
firm to assist. The Registrant anticipates filing the annual report for the year ended March 31, 2021, and the amendments to the quarterly
reports for the periods ended June 30, 2020, September 30, 2020, and December 31, 2020, upon the conclusion of such analysis. The Registrant’s
management currently expects its stockholders’ equity balance to decrease by approximately $16 million, which represents the value
of the stock issued as of the dates of the acquisitions. Management is evaluating whether to record an expense in the same amount for
the value of the shares issued.
The Registrant has not yet completed its review
and has not yet reached a final determination with respect to the impact of the restatement on its previously-filed unaudited financial
statements. The Delaware litigation concerning the membership of the Registrant’s board is also ongoing. For these reasons, the
amount and potential impact discussed herein are preliminary and subject to change. Furthermore, the final adjustments may differ materially
from the estimated amounts discussed herein, and additional errors and deficiencies could be identified during the course of these restatements.
As soon as practicable following the Registrant’s determination regarding the appropriate accounting treatment, the Registrant plans
to file amendments to the affected Forms 10-Q, as well as file the Form 10-K for the fiscal year ended March 31, 2021.
Beyond the restatement process, the challenged
Board members are vigorously litigating before a Delaware court to resist the above-described takeover attempt.
As noted in a prior Form 8-K dated June 25, 2021,
on June 21, 2021, Amy Xue resigned from her position as the Registrant’s Chief Financial Officer (“CFO”). Ms. Xue’s
appointment as CFO was recommended to the Registrant by the shareholder leading the effort to unseat members of the Board. Since Ms. Xue’s
departure, the Registrant has retained an external accounting consultancy firm to assist the Registrant with fulfilling its public reporting
obligations.