Item 1. Financial Statements
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Jerash Holdings (US), Inc. (“Jerash Holdings”) is
a corporation established under the laws of the State of Delaware on January 20, 2016.
Jerash Holdings is a parent holding company with no operations.
Jerash Garments and Fashions Manufacturing
Company Limited (“Jerash Garments”) is a wholly owned subsidiary of Jerash Holdings and was established in Amman, the
Hashemite Kingdom of Jordan (“Jordan”) as a limited liability company on November 26, 2000 with declared capital of
150,000 Jordanian Dinar (“JOD”) (approximately US$212,000) as of September 30, 2019.
Jerash for Industrial Embroidery Company
(“Jerash Embroidery”) and Chinese Garments and Fashions Manufacturing Company Limited (“Chinese Garments”)
were both incorporated in Amman, Jordan as limited liability companies on March 11, 2013 and June 13, 2013, respectively, each
with declared capital of JOD 50,000 as of September 30, 2019. Jerash Embroidery and Chinese Garments are wholly owned subsidiaries
of Jerash Garments.
Al-Mutafaweq Co. for Garments Manufacturing
Ltd. (“Paramount”), was a contract garment manufacturer that was incorporated in Amman, Jordan as a limited liability
company on October 24, 2004 with declared capital of JOD100,000. On December 11, 2018, Jerash Garments and the sole stockholder
of Paramount entered into an agreement pursuant to which Jerash Garments acquired all of the outstanding shares of stock of Paramount.
The Company assumed ownership of all of the machinery and equipment owned by Paramount. Paramount had no other significant assets
or liabilities and no operating activities or employees at the time of this acquisition, so this transaction was accounted for
as an asset acquisition. As of June 18, 2019, Paramount became a subsidiary of Jerash Garments.
Treasure Success International Limited
(“Treasure Success”) was incorporated on July 5, 2016 in Hong Kong, China, for the primary purpose to employ staff
from China to support Jerash Garments' operations and is a wholly-owned subsidiary of Jerash Holdings.
Victory Apparel (Jordan) Manufacturing
Company Limited (“Victory Apparel”) was incorporated as a limited liability company in Amman, Jordan on September 18,
2005 with declared capital of JOD 50,000. Victory Apparel has no significant assets or liabilities or other operating activities
of its own.
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
Although Jerash Garments
does not own the equity interest of Victory Apparel, our president, director and significant shareholder, Mr. Choi, is also a director
of Victory Apparel and controls all decision-making for Victory Apparel along with our other significant shareholder, Mr. Lee Kian
Tjiauw, who have the ability to control Victory Apparel’s financial affairs. In addition, Victory Apparel's equity at risk
is not sufficient to permit it to operate without additional subordinated financial support from Mr. Choi. Based on these facts,
we concluded that Jerash Garments has effective control over Victory Apparel due to Mr. Choi’s roles at both organizations
and therefore Victory Apparel is considered a Variable Interest Entity (“VIE”) under Accounting Standards Codification
(“ASC”) 810-10-05-08A. Accordingly, Jerash Garments consolidates Victory Apparel’s operating results, assets
and liabilities.
On August 28, 2019,
Jiangmen Treasure Success Business Consultancy Company Limited (“Jiangmen Treasure Success”) was incorporated under
the laws of the People’s Republic of China in Guangzhou City of Guangdong Province in China with a total registered capital
of HKD 3 million (approximately $385,000) to support sales and marketing, sample development, merchandising, procurement and other
functions. One of the Company’s subsidiaries, Treasure Success, owns 100% of Jiangmen Treasure Success. Jiangmen Treasure
Success has had no operations since its inception.
Jerash Holdings, its subsidiaries and VIE
(herein collectively referred to as the “Company”) are engaged in manufacturing customized ready-made outerwear from
knitted fabric and exporting produced apparel for large brand-name retailers. The Company intends to diversify its range of products
to include additional pieces such as trousers and urban styling outerwear using different types of natural and synthetic materials.
The Company also plans to expand its workforce in Jordan with workers from other countries, including Bangladesh, Sri Lanka, India,
Myanmar and Nepal.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s unaudited condensed
consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States
of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures, which are normally included in annual financial statements prepared in accordance
with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the fiscal
year ended March 31, 2019.
In the opinion of management, all adjustments
(which include normal recurring adjustments) necessary to present a fair presentation of the Company's financial position as of
September 30, 2019, its results of operations and its cash flows for each of the six months ended September 30, 2019 and 2018,
as applicable, have been made. The unaudited interim results of operations are not necessarily indicative of the operating results
for the full fiscal year or any future periods.
Principles of Consolidation
The unaudited condensed consolidated financial statements include
the financial statements of Jerash Holdings, its subsidiaries and VIE.
All significant intercompany balances and transactions have
been eliminated in consolidation.
In accordance with accounting standards
regarding the consolidation of variable interest entities, VIEs are generally entities that lack sufficient equity to finance their
activities without additional financial support from other parties or whose equity holders lack adequate decision making ability.
All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of
the VIEs. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
As described in Note 1, management of the
Company has concluded that Victory Apparel is a VIE, and that Jerash Garments is considered the primary beneficiary because Mr.
Choi, the Company’s president, director, and significant stockholder absorbs the risks and rewards of Victory Apparel; therefore,
the Company consolidates Victory Apparel for financial reporting purposes. Noncontrolling interests result from the consolidation
of Victory Apparel, which is 100% owned by Wealth Choice Limited.
As of September 30 and March 31, 2019,
the total assets of Victory Apparel were $1,299 and $1,316, respectively, and Victory Apparel had no liabilities as of September
30 and March 31, 2019. These amounts are included in the Company’s consolidated balance sheets after elimination of intercompany
transactions and balances. Victory Apparel was inactive for the six months ended September 30, 2019.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Use of Estimates
The preparation of the unaudited condensed
consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited
condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The
Company’s most significant estimates include allowance for doubtful accounts, valuation of inventory reserve, useful lives
of buildings and other property and the measurement of stock-based compensation expense. Actual results could differ from these
estimates.
Cash
The Company considers all highly liquid
investment instruments with an original maturity of three months or less from the original date of purchase to be cash equivalents.
As of September 30, 2019, and March 31, 2019, the Company had no cash equivalents.
Restricted Cash
Restricted cash consists of cash used as
security deposits to obtain credit facilities of the Company from a bank and to secure custom clearance under the requirements
of local regulations. The Company is required to keep certain amounts on deposit that are subject to withdrawal restrictions. These
security deposits at the bank are refundable only when the bank facilities are terminated. The restricted cash is classified as
a non-current asset since the Company has no intention to terminate these bank facilities within one year.
Accounts Receivable
Accounts receivable are recognized and
carried at original invoiced amount less an estimated allowance for uncollectible accounts. The Company usually grants credit to
customers with good credit standing for a maximum of 90 days and determines the adequacy of reserves for doubtful accounts based
on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when
there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management's best
estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision
is recorded against accounts receivables balances, with a corresponding charge recorded in the unaudited condensed consolidated
statements of income and comprehensive income. Actual amounts received may differ from management's estimate of credit worthiness
and the economic environment. Delinquent account balances are written off against the allowance for doubtful accounts after management
has determined that the likelihood of collection is not probable. No allowance was considered necessary as of September 30, 2019
and March 31, 2019.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Inventories
Inventories are stated at the lower of
cost or net realizable value. Inventories include cost of raw materials, freight, direct labor and related production overhead.
The cost of inventories is determined using the First in, First out (“FIFO”) method. The Company periodically reviews
its inventories for excess or slow-moving items and makes provisions as necessary to properly reflect inventory value.
Property, Plant and Equipment
Property, plant and equipment are recorded
at cost, reduced by accumulated depreciation and amortization. Depreciation and amortization expense related to property, plant
and equipment is computed using the straight-line method based on estimated useful lives of the assets, or in the case of leasehold
improvements, the shorter of the initial lease term or the estimated useful life of the improvements. The useful life and depreciation
method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern
of economic benefits from items of property, plant and equipment. The estimated useful lives of depreciation and amortization of
the principal classes of assets are as follows:
|
|
Useful life
|
Land
|
|
Infinite
|
Property and buildings
|
|
15 years
|
Equipment and machinery
|
|
3-5 years
|
Office and electronic equipment
|
|
3-5 years
|
Automobiles
|
|
5 years
|
Leasehold improvements
|
|
Lesser of useful life and lease term
|
Expenditures for maintenance and repairs,
which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals
and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation
or amortization of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the unaudited
condensed consolidated statements of income and comprehensive income.
Impairment of Long-Lived Assets
The Company assesses its long-lived assets,
including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset group may not be recoverable. Factors which may indicate potential impairment include a significant underperformance
relative to the historical or projected future operating results 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. The fair value is estimated based on the discounted future cash flows or comparable market
values, if available. The Company did not record any impairment loss during the six months ended September 30, 2019 and 2018.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Revenue Recognition
Substantially all
of the Company’s revenue is derived from product sales, which consist of sales of the Company’s customized ready-made
outerwear for large brand-name retailers. The Company considers purchase orders to be a contract with a customer. Contracts with
customers are considered to be short-term when the time between order confirmation and satisfaction of the performance obligations
is equal to or less than one year, and virtually all of the Company’s contracts are short-term. The Company recognizes revenue
for the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be
entitled in exchange for those goods. The Company typically satisfies its performance obligations in contracts with customers upon
shipment of the goods. Generally, payment is due from customers within 30 to 60 days of the invoice date, and the contracts do
not have significant financing components. Shipping and handling costs associated with outbound freight are not an obligation of
the Company. Returns and allowances are not a significant aspect of the revenue recognition process as historically they have been
immaterial.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Revenue Recognition (Continued)
All of the Company’s contracts have
a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as a
price per unit. All estimates are based on the Company's historical experience, complete satisfaction of the performance obligation,
and the Company's best judgment at the time the estimate is made. Historically, sales returns have not significantly impacted the
Company’s revenue.
The contract assets are recorded on the
unaudited condensed consolidated balance sheet as accounts receivable as of September 30, 2019 and March 31, 2019. For the six
months ended September 30, 2019 and 2018, there was no revenue recognized from performance obligations related to prior periods.
As of September 30, 2019, there was no revenue expected to be recognized in any future periods related to remaining performance
obligations.
The Company has one revenue generating
reportable geographic segment under ASC Topic 280 “Segment Reporting” and derives its sales primarily from its sales
of customized ready-made outerwear. The Company believes disaggregation of revenue by geographic region best depicts the nature,
amount, timing, and uncertainty of its revenue and cash flows (see Note 13).
Shipping and Handling
Proceeds collected from customers for shipping
and handling costs are included in revenues. Shipping and handling costs are expensed as incurred and are included in operating
expenses, as a part of selling, general and administrative expenses. Total shipping and handling expenses were $292,354 and $281,270
for the three months ended September 30, 2019 and 2018, respectively. Total shipping and handling expenses were $501,136 and $416,152
for the six months ended September 30, 2019 and 2018, respectively.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes
The Company accounts for income taxes in
accordance with ASC 740, “Income Taxes,” which requires the Company to use the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years to differences between financial statement carrying
amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carry forwards. Under this accounting
standard, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax
asset will not be realized. Deferred income taxes were immaterial as of September 30, 2019 and March 31, 2019.
ASC 740 clarifies the accounting for uncertainty
in tax positions. This interpretation requires that an entity recognize in its financial statements the impact of a tax position,
if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition
or measurement are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest
and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements
of income and comprehensive income. No significant uncertainty in tax positions relating to income taxes were incurred during the
six months ended September 30, 2019 and 2018.
Foreign Currency Translation
The reporting currency of the Company is
the U.S. dollar and the Company uses the Jordanian Dinar (“JOD”) as its functional currency, except Treasure Success,
which uses the Hong Kong Dollar (“HKD”) as its functional currency. The assets and liabilities of the Company have
been translated into U.S. dollars using the exchange rates in effect at the balance sheet date, equity accounts have been translated
at historical rates, and revenue and expenses have been translated into U.S. dollars using average exchange rates in effect during
the reporting period. Cash flows are also translated at average translation rates for the periods, therefore, amounts related to
assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding
balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period
to period are included as a separate component of accumulated other comprehensive income or loss. Transaction gains and losses
that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included
in the results of operations as incurred.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
The value of JOD against US$ and other
currencies may fluctuate and is affected by, among other things, changes in Jordan’s political and economic conditions. Any
significant revaluation of JOD may materially affect the Company’s financial condition in terms of US$ reporting. The following
table outlines the currency exchange rates that were used in creating the unaudited condensed consolidated financial statements
in this report:
|
|
September 30, 2019
|
|
March 31, 2019
|
Period-end spot rate
|
|
US$1=JOD 0.7090
|
|
US$1=JOD 0.7090
|
|
|
US$1=HKD 7.8370
|
|
US$1=HKD 7.8500
|
Average rate
|
|
US$1=JOD 0.7090
|
|
US$1=JOD 0.7091
|
|
|
US$1=HKD 7.8370
|
|
US$1=HKD 7.8420
|
Stock-Based Compensation
The Company measures compensation expense
for stock-based awards to non-employee contractors and directors based upon the awards’ initial grant-date fair value. The
estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line
method.
The Company estimates the fair value of
stock options and warrants using a Black-Scholes model. This model is affected by the Company's stock price on the date of the
grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected
term of the option, expected risk-free rates of return, the expected volatility of the Company's common stock, and expected dividend
yield, each of which is more fully described below. The assumptions for expected term and expected volatility are the two assumptions
that significantly affect the grant date fair value.
|
·
|
Expected Term: the expected term of a warrant or a stock option is the period of time that the warrant or stock option is expected
to be outstanding.
|
|
·
|
Risk-free Interest Rate: the Company bases the risk-free interest rate used in the Black-Scholes
model on the implied yield at the grant date of the U.S. Treasury zero-coupon issue with an equivalent term to the stock-based
award being valued. Where the expected term of a stock-based award does not correspond with the term for which a zero-coupon interest
rate is quoted, the Company's uses the nearest interest rate from the available maturities.
|
|
·
|
Expected Stock Price Volatility: the Company utilizes comparable public company volatility over the same period of time as
the life of the warrant or stock option.
|
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
·
|
Dividend Yield: Until November 2018, the Board of Directors had not declared, and the company had
not yet paid, and dividends. Accordingly, stock-based compensation awards granted prior to November 2018 assumed no dividend yield,
while any subsequent stock-based compensation awards will be valued using the anticipated dividend yield.
|
Earnings per Share
The Company computes earnings per share
(“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies
with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average
common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis
of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning
of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that
increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS (See Note 12).
Comprehensive Income
Comprehensive income consists of two components,
net income and other comprehensive income. The foreign currency translation gain or loss resulting from translation of the financial
statements expressed in JOD or HKD to U.S. Dollars is reported in other comprehensive income in the unaudited condensed consolidated
statements of income and comprehensive income.
Fair Value of Financial Instruments
ASC 825-10 requires certain disclosures
regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair
value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
|
·
|
Level 1 - Quoted prices in active markets for identical assets and liabilities.
|
|
·
|
Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
·
|
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
|
The Company considers the recorded value
of its financial assets and liabilities, which consist primarily of cash, including restricted cash, accounts receivable, other
receivables, due from related parties, due from shareholders, accounts payable, accrued expenses, other payables and short-term
loan to approximate the fair value of the respective assets and liabilities at September 30, 2019 and March 31, 2019 based upon
the short-term nature of these assets and liabilities.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Concentrations and Credit Risk
Credit risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist primarily of cash. As of September 30, 2019 and March
31, 2019, $6,534,151 and $7,121,161, respectively, of the Company’s cash was on deposit at financial institutions in Jordan,
where there currently is no rule or regulation requiring such financial institutions to maintain insurance to cover bank deposits
in the event of bank failure. As of September 30, 2019 and March 31, 2019, $17,767,885 and $20,614,581, respectively, of the Company’s
cash was on deposit at financial institutions in Hong Kong, which are insured by the Hong Kong Deposit Protection Board subject
to certain limitations. While management believes that these financial institutions are of high credit quality, it also continually
monitors their credit worthiness. As of September 30, 2019 and March 31, 2019, $92,744 and $98,726, respectively, of the Company’s
cash was on deposit in the United States and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to
$250,000.
Accounts receivable are typically unsecured and derived from
revenue earned from customers, and therefore are exposed to credit risk.
The risk is mitigated by the Company's assessment of its customers'
creditworthiness and its ongoing monitoring of outstanding balances.
Customer and vendor concentration risk
The Company’s sales are made primarily
in the United States. Its operating results could be adversely affected by U.S. government policy on exporting business, foreign
exchange rate fluctuations, and change of local market conditions. The Company has a concentration of its revenues and purchases
with specific customers and suppliers. For the three months ended September 30, 2019, one end-customer accounted for 87% of total
revenue. For the three months ended September 2018, two end-customers accounted for 78% and 11% of total revenue. For the six months
ended September 30, 2019 and 2018, one end-customer accounted for 91% and 83%, respectively, of total revenue. As of September
30, 2019 and March 31, 2019, one end-customer accounted for 81% and 96% of the total accounts receivable balance, respectively.
For the three months ended September 30,
2019, the Company purchased approximately 18% and 13% of its raw materials from two major suppliers. For the six months ended September
30, 2019, the Company purchased approximately 24% and 11% of its raw materials from two major suppliers. For the three months ended
September 30, 2018, the Company purchased approximately 14% and 11% of its raw materials from two major suppliers. For the six
months ended September 30, 2018, the Company purchased approximately 19% and 13% of its raw materials from two major suppliers.
As of September 30, 2019, accounts payable to the Company’s three major suppliers accounted for 25%, 14% and 10% of the total
accounts payable balance. As of March 31, 2019, accounts payable to these three major suppliers separately accounted for 40%, 20%
and 14% of the total accounts payable balance.
A loss of any of these customers or suppliers could adversely
affect the operating results or cash flows of the Company.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Risks and Uncertainties
The principal operations of the Company
are located in Jordan. Accordingly, the Company’s business, financial condition, and results of operations may be influenced
by the political, economic, and legal environments in Jordan, as well as by the general state of the Jordanian economy. The Company’s
operations in Jordan are subject to special considerations and significant risks not typically associated with companies in North
America. These include risks associated with, among others, the political, economic and legal environment and foreign currency
exchange. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in
Jordan. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing
laws and regulations, including its organization and structure disclosed in Note 1, this may not be indicative of future results.
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
The Company considers the applicability
and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that
are issued.
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
New Accounting Pronouncements Recently Adopted
The Company adopted ASU No.
2016-02—Leases (Topic 842), as of April 1, 2019, using a modified retrospective transition method permitted under ASU
No. 2018-11. This transition approach provides a method for recording existing leases only at the date of adoption and does
not require previously reported balances to be adjusted. In addition, the Company elected the package of practical expedients
permitted under the transition guidance within the new standard, which among other things, allowed the Company to
carry forward the historical lease classification. Adoption of the new standard resulted in the recording of additional
lease assets and lease liabilities of approximately $1.3 million and $0.9 million, respectively, as of April 1, 2019. The
standard did not materially impact consolidated net earnings and had no impact on cash flows. (See Note 6).
New Accounting Pronouncements Recently Not Adopted
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is intended
to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by
financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets
held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU
requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and
judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Company’s portfolio.
These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded
in the financial statements. This ASU is effective for interim and annual periods beginning after December 15, 2019, and early
adoption is permitted. The Company will adopt ASU 2016-13 and its related amendments effective January 1, 2020, and the Company
does not expect the adoption to have a material effect on its consolidated financial statements.
NOTE 4 – ACCOUNTS RECEIVABLES, NET
The Company’s
net accounts receivable is as follows:
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
2019
|
|
|
March 31,
2019
|
|
Trade accounts receivable
|
|
$
|
14,307,200
|
|
|
$
|
4,020,369
|
|
Less: allowances for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Accounts receivables, net
|
|
$
|
14,307,200
|
|
|
$
|
4,020,369
|
|
NOTE 5 – INVENTORIES
Inventories consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
2019
|
|
|
March 31,
2019
|
|
Raw materials
|
|
$
|
6,366,507
|
|
|
$
|
11,601,262
|
|
Work-in-progress
|
|
|
780,676
|
|
|
|
1,889,329
|
|
Finished goods
|
|
|
5,903,471
|
|
|
|
7,583,652
|
|
Total inventory
|
|
$
|
13,050,654
|
|
|
$
|
21,074,243
|
|
NOTE 6 – LEASES
The Company has thirty-three operating
leases for manufacturing facilities and offices. Some leases include one or more options to renew, which is typically at the Company's
sole discretion. The majority of renewals to extend the lease terms are not included in our right of use assets and lease liabilities
as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options, and, when it is reasonably
certain of exercise, it will include the renewal period in its lease term. New lease modifications result in remeasurement of the
right of use asset and lease liability. The Company’s lease agreements do not contain any material residual value guarantees
or material restrictive covenants.
Effective April 1, 2019, the Company adopted
the new lease accounting standard using a modified retrospective transition method which allowed the Company not to recast comparative
periods presented in its unaudited condensed consolidated financial statements. In addition, the Company elected the package of
practical expedients, which allowed the Company to not reassess whether any existing contracts contain a lease, to not reassess
historical lease classification as operating or finance leases, and to not reassess initial direct costs. The Company has not elected
the practical expedient to use hindsight to determine the lease term for its leases at transition. The Company combines the lease
and non-lease components in determining the right-of-use (“ROU”) assets and related lease obligation. Adoption of this
standard resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities as disclosed below
and had no impact on accumulated deficit as of September 30, 2019. ROU assets and related lease obligations are recognized at commencement
date based on the present value of remaining lease payments over the lease term.
All of the Company’s leases are classified
as operating leases and primarily include office space and manufacturing facilities. Operating lease ROU assets are presented within
other assets-net on the unaudited condensed consolidated balance sheet. The current portion of operating lease liabilities are
presented within accrued expenses and other payables, and the non-current portion of operating lease liabilities are presented
within other long-term liabilities on the unaudited condensed consolidated balance sheet.
NOTE 6 – LEASES (Continued)
Supplemental balance sheet information related to operating leases was as follows:
|
|
September 30,
2019
|
|
|
|
(unaudited)
|
|
Right-of-use assets
|
|
$
|
1,288,159
|
|
|
|
|
|
|
Operating lease liabilities - current
|
|
$
|
266,862
|
|
Operating lease liabilities - non-current
|
|
|
639,532
|
|
Total operating lease liabilities
|
|
$
|
906,394
|
|
The weighted average remaining lease terms and discount
rates for all of operating leases were as follows as of September 30, 2019:
Remaining lease term and discount rate:
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
4.0
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.06
|
%
|
During the three months ended September 30, 2019
and 2018, the Company incurred total operating lease expenses of $402,950 and $347,286, respectively. During the six months ended
September 30, 2019 and 2018, the Company incurred total operating lease expenses of $945,735 and $689,629, respectively.
The following is a schedule, by fiscal years, of maturities
of lease liabilities as of September 30, 2019:
2020
|
|
|
$
|
253,510
|
|
2021
|
|
|
|
387,114
|
|
2022
|
|
|
|
284,084
|
|
2023
|
|
|
|
223,669
|
|
2024
|
|
|
|
171,384
|
|
Thereafter
|
|
|
|
80,669
|
|
Total lease payments
|
|
|
|
1,400,430
|
|
Less: imputed interest
|
|
|
|
(112,271
|
)
|
Less: prepayments
|
|
|
|
(381,765
|
)
|
Present value of lease liabilities
|
|
|
$
|
906,394
|
|
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
2019
|
|
|
March 31,
2019
|
|
Land (1)
|
|
$
|
1,389,030
|
|
|
$
|
61,078
|
|
Property and buildings
|
|
|
432,562
|
|
|
|
432,562
|
|
Equipment and machinery (2)
|
|
|
6,871,155
|
|
|
|
5,560,265
|
|
Office and electric equipment
|
|
|
678,058
|
|
|
|
550,738
|
|
Automobiles
|
|
|
415,589
|
|
|
|
367,332
|
|
Leasehold improvements
|
|
|
2,522,481
|
|
|
|
1,652,038
|
|
Subtotal
|
|
|
12,308,875
|
|
|
|
8,624,013
|
|
Construction in progress (3)
|
|
|
194,752
|
|
|
|
200,042
|
|
Less: Accumulated depreciation and amortization (4)
|
|
|
(7,162,551
|
)
|
|
|
(6,467,793
|
)
|
Property and equipment, net
|
|
$
|
5,341,076
|
|
|
$
|
2,356,262
|
|
(1)
On August 7, 2019, the Company, through Jerash Garments, closed on a transaction to purchase 12,340 square meters (approximately
3 acres) of land in Al Tajamouat Industrial City, Jordan (the “Jordan Property”) from a third party to construct a
dormitory for the Company’s employees. The aggregate purchase price of the Jordan Property was JOD863,800 (approximately
US$1,218,347).
(2)
On June 18, 2019, the Company closed on a transaction whereby it acquired all of the outstanding shares of Paramount, a
contract manufacturer based in Amman, Jordan. As a result, Paramount became of subsidiary of Jerash Garments, and the Company assumed
ownership of all of the machinery and equipment owned by Paramount. Paramount had no other significant assets or liabilities and
no operating activities or employees at the time of acquisition, so this transaction was accounted for as an asset acquisition.
$980,000 was paid in cash to acquire all of the machinery and equipment from Paramount and the machinery and equipment were transferred
to the Company.
(3)
The construction in progress account represents costs incurred for constructing a dormitory, which was previously planned
to be a sewing workshop. This dormitory is approximately 4,800 square feet, located in the Tafilah Governorate of Jordan, and is
expected to be operational in November 2019.
(4)
Depreciation and amortization expense was $386,136 and $334,232 for the three months ended September 30, 2019 and 2018,
respectively. Depreciation and amortization expense was $724,778 and $653,542 for the six months ended September 30, 2019 and
2018, respectively.
NOTE 8 – EQUITY
Preferred Stock
The Company has 500,000 authorized shares
of preferred stock with a par value of $0.001 per share, and with none issued and outstanding as of September 30, 2019 and March
31, 2019. The preferred stock can be issued by the Board of Directors of Jerash Holdings in one or more classes or one or more
series within any class, and such classes or series shall have such voting powers, full or limited, or no voting powers, and such
designations, preferences, rights, qualifications, limitations or restrictions of such rights as the Board of Directors may determine
from time to time.
NOTE 8 – EQUITY (Continued)
Common Stock
The Company has 30,000,000 authorized shares of common stock
with a par value of $0.001 per share.
Statutory Reserve
In accordance with the Corporate Law in
Jordan, Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount and Victory Apparel are required to make appropriations
to certain reserve funds, based on net income determined in accordance with generally accepted accounting principles of Jordan.
Appropriations to the statutory reserve are required to be 10% of net income until the reserve is equal to 100% of the entity’s
share capital. This reserve is not available for dividend distribution. As of both September 30, 2019 and March 31, 2019, the consolidated
balance of the statutory reserve was $212,739.
Dividends
On July 31, 2019, the Board of Directors
of Jerash Holdings declared a cash dividend of $0.05 per share of common stock, payable to shareholders of record at the close
of business on August 11, 2019. The dividend, equal to $566,250 in the aggregate, was paid on August 19, 2019.
On May 17, 2019, February 7, 2019 and November 1, 2018, the
Board of Directors of Jerash Holdings also declared a cash dividend of $0.05 per share of common stock. The cash dividends of
$566,250 were paid in full on June 5, 2019, February 27, 2019 and November 27, 2018, respectively.
Initial Public Offering
The registration statement on Form S-1
(File No. 333-222596) for the Company’s initial public offering (the “IPO”) was declared effective on March 14,
2018. On May 2, 2018, the Company issued 1,430,000 shares of common stock at $7.00 per share and received gross proceeds of $10,010,000.
The Company incurred underwriting commissions of $477,341, underwriter offering expenses of $250,200 and additional underwriting
expenses of $352,159, yielding net proceeds from the IPO of $8,930,300.
NOTE 9 – STOCK-BASED COMPENSATION
Warrants issued for services
From time to time, the Company issues warrants
to purchase its common stock. These warrants are valued using a Black-Scholes model and using the volatility, market price, exercise
price, risk-free interest rate and dividend yield appropriate at the date the warrants were issued.
Simultaneous with the closing of the IPO,
the Company issued to the underwriter and its affiliates warrants to purchase 57,200 shares of common stock (“IPO Underwriter
Warrants”) at an exercise price of $8.75 per share with an expiration date of May 2, 2023. The shares underlying the IPO
Underwriter Warrants were subject to a 180-day lock-up that expired on October 29, 2018.
As of September 30, 2019, all of the outstanding warrants were
fully vested and exercisable.
The fair value of these warrants was estimated as of the grant
date using the Black-Scholes model with the following assumptions:
|
|
Common Stock Warrants
|
|
|
|
September 30, 2019
|
|
Expected term (in years)
|
|
|
5.0
|
|
Risk-free interest rate (%)
|
|
|
1.8-2.8
|
%
|
Expected volatility (%)
|
|
|
50.3%-52.2
|
%
|
Dividend yield (%)
|
|
|
0.0
|
%
|
Warrant activity is summarized as follows:
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Warrants outstanding at March 31, 2018
|
|
|
264,410
|
|
|
$
|
6.35
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding at September 30, 2019
|
|
|
264,410
|
|
|
$
|
6.35
|
|
Stock Options
On March 21, 2018 the Board of Directors
adopted the Jerash Holdings (US), Inc. 2018 Stock Incentive Plan (the “Plan”), pursuant to which the Company may grant
various types of equity awards. 1,484,250 shares of common stock were reserved for issuance under the Plan. In addition, on July
19, 2019, the Board of Directors approved the amended and restatement of the Plan, which was approved by the Company’s stockholders
at its annual meeting of stockholders on September 16, 2019. The amended and restated Plan increases the number of shares reserved
for issuance under the Plan by 300,000, to 1,784,250 shares, among other changes.
On April 9, 2018, the Board of Directors
approved the issuance of 989,500 nonqualified stock options under the Plan in accordance with the Plan at an exercise price of
$7.00 per share, and a term of five years. As of September 30, 2019, all of these outstanding stock options were fully vested and
exercisable.
NOTE 9 – STOCK BASED COMPENSATION (Continued)
Stock Options (Continued)
The fair value of these options granted
on April 9, 2018 was estimated as of the grant date using the Black-Scholes model with the following assumptions:
|
|
Stock Options
|
|
|
|
September 30,
2019
|
|
Expected term (in years)
|
|
|
5.0
|
|
Risk-free interest rate (%)
|
|
|
2.6
|
%
|
Expected volatility (%)
|
|
|
50.3
|
%
|
Dividend yield (%)
|
|
|
0.0
|
%
|
On August 3, 2018, the Board of Directors
granted the Company’s Chief Financial Officer and Head of U.S. Operations a total of 150,000 nonqualified stock options under
the Plan in accordance with the Plan at an exercise price of $6.12 per share and a term of ten years. As of September 30, 2019,
these outstanding options were fully vested and exercisable.
The fair value of the options granted on
August 3, 2018 was estimated as of the grant date using the Black-Scholes model with the following assumptions:
|
|
Stock Options
|
|
|
|
September 30,
2019
|
|
Expected term (in years)
|
|
|
10.0
|
|
Risk-free interest rate (%)
|
|
|
2.95
|
%
|
Expected volatility (%)
|
|
|
50.3
|
%
|
Dividend yield (%)
|
|
|
0.0
|
%
|
Stock option activity is summarized as follows:
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Stock options outstanding at March 31, 2019
|
|
|
1,139,500
|
|
|
$
|
6.88
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Stock options outstanding at September 30, 2019
|
|
|
1,139,500
|
|
|
$
|
6.88
|
|
As of September 30, 2019, all of these outstanding stock options
were fully vested and exercisable.
NOTE 10 – RELATED PARTY TRANSACTIONS
The relationship and the nature of related party transactions are summarized as follow:
|
|
Relationship
|
|
Nature
|
Name of Related Party
|
|
to the Company
|
|
of Transactions
|
Ford Glory Holdings (“FGH”)
|
|
Affiliate, 49% indirectly owned by our President, Chief Executive Officer and
Chairman, a significant stockholder
|
|
Right of Use Asset, Purchase Agreement, Purchases
|
|
|
|
|
|
Ford Glory International Limited, or (“FGIL”)
|
|
Affiliate, subsidiary of FGH
|
|
Right of Use Asset, Purchase Agreement
|
|
|
|
|
|
Value Plus (Macao Commercial Offshore) Limited (“VPMCO”)
|
|
Affiliate, subsidiary of FGH
|
|
Purchases
|
|
|
|
|
|
Yukwise Limited (“Yukwise”)
|
|
Wholly owned by our President, Chief Executive Officer and Chairman, a significant stockholder
|
|
Consulting Services
|
|
|
|
|
|
Multi-Glory Corporation Limited (“Multi-Glory”)
|
|
Wholly owned by a significant stockholder
|
|
Consulting Services
|
|
|
|
|
|
Jiangmen V-Apparel Manufacturing Limited
|
|
Affiliate, subsidiary of FGH
|
|
Right of Use Asset
|
NOTE 10 – RELATED PARTY TRANSACTIONS (Continued)
a.
|
Related party lease and purchase agreement
|
On October 3, 2018, Treasure
Success and FGIL entered into a lease agreement pursuant to which Treasure Success leases its office space in Hong Kong from FGIL
by providing for rent in the amount of HK$119,540 (approximately $15,253) per month and having a one-year term with an option to
extend the term for an additional year at the same rent.
On August 15, 2019, Treasure
Success and Jiangmen V-Apparel Manufacturing Limited entered into a lease agreement pursuant to which Treasure Success leases it
office space in Jiangmen, China from Jiangmen V-Apparel Manufacturing Limited by providing for rent in the amount of Chinese Yuan
(“CNY”) 6,200 (approximately $885) per month. The lease has a ten-year term with a clause to increase the rental amount
by 5% annually between the third and fifth years under the lease and the rental amount will be reviewed and negotiated between
both parties according to the market rental rate.
On July 15, 2019, the
Company, through Treasure Success, entered into an agreement to purchase office space together with certain parking spaces
from FGIL for an aggregate purchase price of HK$63,000,000 (approximately $8.1 million). Pursuant to the agreement, Treasure
Success paid an initial deposit of HK$6,300,000 (approximately $0.8 million) upon signing the agreement. On October 31, 2019,
this agreement terminated pursuant to its terms because the conditions precedent to closing under the agreement were not met.
As a result of the termination, on November 7, 2019, FGIL repaid in full, without interest, the deposit Treasure Success
paid at the time the agreement was signed.
On January 16, 2018, Treasure
Success and Multi-Glory entered into a consulting agreement, pursuant to which Multi-Glory will provide high-level advisory, marketing
and sales services to the Company for $300,000 per annum. The agreement renews automatically for one-month terms. The agreement
became effective as of January 1, 2018. Total consulting fees under this agreement were $75,000 for each of the three months ended
September 30, 2019 and 2018 and $150,000 for each of the six months ended September 30, 2019 and 2018.
On January 12, 2018, Treasure
Success and Yukwise entered into a consulting agreement, pursuant to which Mr. Choi will serve as Chief Executive Officer and provide
a high level of advisory and general management services for $300,000 per annum, with automatic renewal for one-month terms. This
agreement became effective as of January 1, 2018. Total advisory and management expense under this agreement were $75,000 for each
the three months ended September 30, 2019 and 2018 and $150,000 for each of the six months ended September 30, 2019 and 2018.
Borrowings under the Credit Facilities, as defined
in Note 11, with HSBC were previously collateralized by the personal guarantees of Mr. Choi and Mr. Ng Tsze Lun. These guarantees
were released as of August 12, 2019. (See Note 11).
NOTE 11 – CREDIT FACILITIES
Pursuant to a letter agreement dated May
29, 2017, Treasure Success entered into an $8,000,000 import credit facility with HSBC (the “2017 Facility Letter”),
which was amended pursuant to a letter agreement dated June 19, 2018 (the “2018 Facility Letter”) and increased to
$11,000,000 pursuant to a letter agreement dated August 12, 2019 (the “2019 Facility Letter”, and together with the
2018 Facility Letter and 2017 Facility Letter, the “Facility Letter”). In addition, pursuant to an offer letter dated
June 5, 2017, which was amended pursuant to a letter agreement dated June 14, 2018, HSBC offered to provide Treasure Success with
a $12,000,000 factoring facility for certain debt purchase services related to our accounts receivables (the “Factoring Agreement”
and together with the Facility Letter, the “Credit Facilities”). The Credit Facilities are guaranteed by Jerash Holdings,
Jerash Garments and Treasure Success. In addition, the Credit Facilities required cash and other investment security collateral
of $3,000,000. As of January 22, 2019, the security collateral of $3,000,000 was released. HSBC released the personal guarantees
of the individual shareholders August 12, 2019. The Credit Facilities provide that drawings under the Credit Facilities are charged
interest at the Hong Kong Interbank Offered Rate (“HIBOR”) plus 1.5% for drawings in Hong Kong dollars, and the London
Interbank Offered Rate (“LIBOR”) plus 1.5% for drawings in other currencies. In addition, the Credit Facilities also
contain certain service charges and other commissions and fees.
Under the Factoring Agreement, HSBC also
provides credit protection and debt services related to each of our preapproved customers. For any approved debts or collections
assigned to HSBC, HSBC charges a flat fee of 0.35% on the face value of the invoice for such debt or collection. We may assign
debtor payments that are to be paid to HSBC within 90 days, defined as the maximum terms of payment. We may receive advances on
invoices that are due within 30 days of the delivery of our goods, defined as the maximum invoicing period.
NOTE 11 – CREDIT FACILITIES (Continued)
The Credit Facilities are subject to
review at any time, and HSBC has discretion on whether to renew the Facility Letter. Either party may terminate the Factoring Agreement
subject to a 30-day notice period.
As of September 30, 2019, and March 31,
2019, the Company had made $16,049 and $360,401 in withdrawals, respectively, under the Credit Facilities, which are due within
120 days of each borrowing date or upon demand by HSBC. As of September 30, 2019, $16,049 was outstanding under the Factoring Agreement
and no amounts were outstanding under the Facility Letter. As of March 31, 2019, $85,421 was outstanding under the Factoring Agreement
and $274,980 outstanding under the Facility Letter.
On January 31, 2019, Standard Chartered
Bank (Hong Kong) Limited (“SCBHK”) offered to provide an import facility of up to $3.0 million to Treasure Success
pursuant to a facility letter, dated June 15, 2018. Pursuant to the agreement, SCBHK agreed to finance import invoice financing
and pre-shipment financing of export orders up to an aggregate of $3.0 million. The SCBHK facility bears interest at 1.3% per annum
over SCBHK’s cost of funds. As of September 30, 2019, and March 31, 2019, the Company had an outstanding amount of $0 and
$288,310, respectively, in import invoice financing.
NOTE 12 – EARNINGS PER SHARE
The following table sets forth the computation
of basic and diluted earnings per share for the three and six months ended September 30, 2019 and 2018. 57,200 IPO Underwriter
Warrants were anti-dilutive for the three and six months ended September 30, 2019 and excluded from the EPS calculation. For the
three and six months ended September 30, 2018, 57,200 IPO Underwriter Warrants, 50,000 stock options to the Company’s Chief
Financial Officer and 100,000 stock options to the Company’s Head of U.S. Operations were anti-dilutive.
|
|
Three
Months Ended
September 30,
(in $000s except share and
per share information)
|
|
|
Six
Months Ended
September 30,
(in $000s except share and
per share information)
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Jerash Holdings (US), Inc.’s Common Shareholders
|
|
$
|
3,593
|
|
|
$
|
4,587
|
|
|
$
|
5,142
|
|
|
$
|
3,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share (weighted-average shares)
|
|
|
11,325,000
|
|
|
|
11,325,000
|
|
|
|
11,325,000
|
|
|
|
11,074,945
|
|
Dilutive securities – unexercised warrants and options
|
|
|
182,071
|
|
|
|
55,314
|
|
|
|
171,803
|
|
|
|
155,354
|
|
Denominator for diluted earnings per share (adjusted weighted-average shares)
|
|
|
11,507,071
|
|
|
|
11,380,314
|
|
|
|
11,496,803
|
|
|
|
11,230,299
|
|
Basic earnings per share
|
|
$
|
0.32
|
|
|
$
|
0.41
|
|
|
$
|
0.45
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.31
|
|
|
$
|
0.40
|
|
|
$
|
0.45
|
|
|
$
|
0.33
|
|
NOTE 13 – 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 chief operating
decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable
segments. Management, including the chief operating decision maker, reviews operating results by the revenue of the Company’s
products. The Company’s major product is outerwear. For the three months ended September 30, 2019 and 2018, outerwear accounted
for approximately 94.8% and 96.3% of total revenue, respectively. For the six months ended September 30, 2019 and 2018, outerwear
accounted for approximately 95.5% and 97.3% of total revenue, respectively. Based on management's assessment, the Company has determined
that it has only one operating segment as defined by ASC 280.
The following table summarizes sales by geographic areas for
the three months ended September 30, 2019 and 2018, respectively.
|
|
For the Three months ended
|
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
United States
|
|
$
|
29,352,998
|
|
|
$
|
27,864,070
|
|
Jordan
|
|
|
1,094,707
|
|
|
|
4,968,784
|
|
Other countries
|
|
|
163,414
|
|
|
|
631,543
|
|
Total
|
|
$
|
30,611,119
|
|
|
$
|
33,464,397
|
|
The following table summarizes sales by geographic areas for
the six months ended September 30, 2019 and 2018, respectively.
|
|
For the Six months ended
|
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
United States
|
|
$
|
51,393,943
|
|
|
$
|
45,673,431
|
|
Jordan
|
|
|
1,581,087
|
|
|
|
5,098,997
|
|
Other countries
|
|
|
163,414
|
|
|
|
1,055,054
|
|
Total
|
|
$
|
53,138,444
|
|
|
$
|
51,827,482
|
|
All long-lived assets were located in Jordan as of September
30, 2019 and March 31, 2019.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Commitments
On August 28, 2019, a new entity, Jiangmen
Treasure Success, was incorporated under the laws of the People’s Republic of China in Jiangmen City, Guangdong Province,
China with a total registered capital of HKD 3 million (approximately $385,000). The Company’s subsidiary, Treasure Success,
is required to contribute HKD 3 million (approximately $385,000) as paid-in capital in exchange for 100% ownership interest in
Jiangmen Treasure Success. As of the date of this report, Treasure Success has not made the capital contribution. Pursuant to Jiangmen
Treasure Success’s organizational documents, the Company is required to complete the capital contribution before December
31, 2029.
Contingencies
From time to time, the Company is a party
to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when
they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are
expensed as incurred. The Company’s management does not expect any liability from the disposition of such claims and litigation
individually or in the aggregate would not have a material adverse impact on the Company’s consolidated financial position,
results of operations and cash flows.
NOTE 15 – INCOME TAX
Jerash Garments, Jerash Embroidery, Chinese
Garments and Paramount and Victory Apparel are subject to the regulations of the Income Tax Department in Jordan. The corporate
income tax rate is 14% for the industrial sector. In accordance with the Investment Encouragement Law, Jerash Garments’ export
sales to overseas customers were entitled to a 100% income tax exemption for a period of 10 years commencing at the first day of
production. This exemption had been extended for 5 years until December 31, 2018. The effect of the tax exemption on the Company’s
2019 fiscal results is a tax savings of approximately $1,623,717, or $0.14 per share. Effective January 1, 2019, the Hashemite
Kingdom of Jordan government has changed some features of Jerash Garments and its subsidiaries area to a Development Zone. In accordance
with Development Zone law, Jerash Garments and its subsidiaries began paying corporate income tax in Jordan at a rate of 10% plus
a 1% social contribution. Effective January 1, 2020 this rate will increase to 14% plus a 1% social contribution.
On December 22, 2017, the Tax Cuts and
Jobs Act (the “Tax Act”) was enacted. The Tax Act imposed a tax on previously untaxed accumulated earnings and profits
(“E&P”) of foreign subsidiaries (the “Toll Charge”). The Toll Charge is based in part of the amount
of E&P held in cash and other specific assets as of December 31, 2017. The Toll Charge can be paid over an eight-year period,
starting in 2018, and will not accrue interest. Additionally, under the provisions of the Tax Act, for taxable years beginning
after December 31, 2017, the foreign earnings of Jerash Garments and its subsidiaries are subject to U.S. taxation at the Jerash
Holdings level under the new Global Intangible Low-Taxed Income (“GILTI”) regime. The GILTI provisions have an effect
of increasing the effective tax rate by absorbing the current year loss generated by Jerash Holdings. However, Jerash Holdings
is eligible to claim a deduction of up to 50% of GILTI income and is eligible to claim a foreign tax credit on the foreign taxes
paid by Jerash Garments and its subsidiaries which are attributable to GILTI. Furthermore, the GILTI income is effectively exempt
from tax in the states in which Jerash Holdings operates. As a result of these provisions, Jerash Holdings is not expected to have
an incremental U.S. cash tax cost as a result of the GILTI rules during fiscal 2020.
NOTE 16 – SUBSEQUENT EVENTS
As of October 27, 2019, our Chairman and
Chief Executive Officer assumed the positions of principal financial officer and principal accounting officer on an interim basis
upon the death of Richard J. Shaw.
On October 31, 2019, the agreement between
Treasure Success and FGIL for the purchase of office and parking spaces terminated pursuant to its terms. See Note 10.
On November 4, 2019, the Company’s Board of Directors
approved the payment of a dividend of $0.05 per share payable on November 26, 2019 to stockholders of record as of the close of
business on November 18, 2019.