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”) was incorporated under the laws of the State of Delaware on January 20, 2016. Jerash
Holdings is a holding company with no operations. Jerash Holdings and its subsidiaries and its variable interest entity (“VIE”)
are herein collectively referred to as the “Company.”
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 a declared capital of 150,000 Jordanian Dinar (“JOD”) (approximately US$212,000).
Jerash
for Industrial Embroidery Company (“Jerash Embroidery”) and Chinese Garments and Fashions Manufacturing Company Limited (“Chinese
Garments”) were both established in Amman, Jordan, as limited liability companies on March 11, 2013 and June 13, 2013, respectively,
each with a declared capital of JOD 50,000. Jerash Embroidery and Chinese Garments are wholly owned subsidiaries of Jerash Garments.
Al-Mutafaweq
Co. for Garments Manufacturing Ltd. (“Paramount”) is a contract garment manufacturer that was established in Amman, Jordan,
as a limited liability company on October 24, 2004 with a declared capital of JOD 100,000. On December 11, 2018, Jerash Garments and
the sole shareholder of Paramount entered into an agreement pursuant to which Jerash Garments acquired all of the outstanding shares
of stock of Paramount. Jerash Garments 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.
Jerash
The First for Medical Supplies Manufacturing Company Limited (“Jerash The First”) was established in Amman, Jordan, as limited
liability company on July 6, 2020, with a registered capital of JOD 150,000. Jerash The First is engaged in the production of medical
supplies in Jordan and is a wholly owned subsidiary of Jerash Garments.
Mustafa
and Kamal Ashraf Trading Company (Jordan) for the Manufacture of Ready-Make Clothes LLC (“MK Garments”) is a garment manufacturer
that was established in Amman, Jordan, as a limited liability company on January 23, 2003 with a declared capital of JOD100,000. On June
24, 2021, Jerash Garments and the sole shareholder of MK Garments entered into an agreement, pursuant to which Jerash Garments acquired
all of the outstanding stock of MK Garments. As of October 7 2021, MK Garments became a subsidiary of Jerash Garments.
Victory
Apparel (Jordan) Manufacturing Company Limited (“Victory Apparel”) was established as a limited liability company in Amman,
Jordan, on September 18, 2005 with a declared capital of JOD 50,000. Victory Apparel has no significant assets or liabilities or other
operating activities of its own. Although Jerash Garments does not own the equity interest of Victory Apparel, the Company’s president,
director, and significant shareholder, Mr. Choi Lin Hung (“Mr. Choi”), is also a director of Victory Apparel and controls
all decision-making for Victory Apparel along with another significant shareholder of Jerash Garments, Mr. Lee Kian Tjiauw (“Mr.
Lee”), who has 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 Jerash Garments. Based on these
facts, the Company 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 VIE under Accounting Standards Codification (“ASC”) 810-10-05-08A. Accordingly,
Jerash Garments consolidates Victory Apparel’s operating results, assets, and liabilities.
Treasure
Success International Limited (“Treasure Success”) was organized on July 5, 2016 in Hong Kong, the People’s Republic
of China (“China”), as a limited liability company for the primary purpose of employing staff from China to support Jerash
Garments’ operations and is a wholly-owned subsidiary of Jerash Holdings.
Jiangmen
Treasure Success Business Consultancy Company Limited (“Jiangmen Treasure Success”) was organized on August 28, 2019 under
the laws of China in Guangzhou City of Guangdong Province in China with a total registered capital of 15 million Hong Kong Dollars (“HKD”)
(approximately $1.9 million) to provide support in sales and marketing, sample development, merchandising, procurement, and other areas.
Treasure Success owns 100% of the equity interests in Jiangmen Treasure Success.
Jerash
Supplies, LLC (“Jerash Supplies”) was formed under the laws of the State of Delaware on November 20, 2020. Jerash Supplies
is engaged in the trading of personal protective equipment products and is a wholly owned subsidiary of Jerash Holdings.
The
Company is engaged primarily in the manufacturing and exporting of customized, ready-made sport and outerwear and personal protective
equipment (“PPE”) produced in its facilities in Jordan and sold in the United States, Jordan, and other countries.
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”) for interim financial information and the instructions to Form 10-Q and Article
8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the Company’s
unaudited condensed consolidated financial statements. The consolidated balance sheet as of March 31, 2021 has been derived from the
audited consolidated balance sheet at that date but does not include all of the information and footnotes required by U.S. GAAP for complete
financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited
consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
Principles
of Consolidation
The
unaudited condensed consolidated financial statements include the financial statements of Jerash Holdings, and its subsidiaries and VIE.
All significant intercompany balances and transactions have been eliminated in consolidation.
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 a 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. The Company’s VIE, Victory Apparel, was inactive for the nine months ended December 31, 2021, and the net assets
of the VIE were approximately $0.3 million as each of December 31, 2021 and March 31, 2021.
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 consolidated financial statements, and the reported amounts of revenue 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 expenses. Actual results could differ from these estimates.
Cash
The
Company’s cash consists of cash on hand and cash deposited in financial institutions. 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 December
31, 2021 and March 31, 2021, the Company had no cash equivalents.
Restricted
Cash
Restricted
cash consists of cash used as security deposits to obtain credit facilities from a bank and to secure customs 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 current asset
if the Company intends to terminate these bank facilities within one year, and as a non-current asset if otherwise.
Short-term
Investments
From
time to time, the Company purchased financial products that can be readily converted into cash and accounted for such financial products
as short-term investments. The financial products include money market funds, bonds, and mutual funds. The carrying values of the Company’s
short-term investments approximate fair value because of their liquidity. The gain and interest earned are recognized in the consolidated
statements of income over the contractual terms of these investments.
The
Company had no short-term investments as of December 31, 2021 and March 31, 2021. The Company recorded a realized gain of $Nil and $60,197
for the three months ended December 31, 2021 and 2020, respectively, and $Nil and $124,889 for the nine months ended December 31, 2021
and 2020, respectively.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts
Receivable, Net
Accounts
receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts. The Company
usually grants extended payment terms to customers with good credit standing 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 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.
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 method. The Company periodically reviews its
inventories for excess or slow-moving items and makes provisions as necessary to properly reflect inventory value.
Advance
to Suppliers, Net
Advance
to suppliers consists of balances paid to suppliers for services or materials purchased that have not been provided or received. Advance
to suppliers for services and materials is short-term in nature. Advance to suppliers is reviewed periodically to determine whether its
carrying value has become impaired. The Company considers the assets to be impaired if the performance by the suppliers becomes doubtful.
The Company uses the aging method to estimate the allowance for the questionable balances. In addition, at each reporting date, the Company
generally determines the adequacy of allowance for doubtful accounts by evaluating all available information, and then records specific
allowances for those advances based on the specific facts and circumstances.
Property,
Plant, and Equipment, Net
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 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 nine months ended December 31, 2021 and 2020.
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 and PPE. 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. 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 seven to 150 days of the invoice date. The contracts do not have significant financing
components. Shipping and handling costs associated with outbound freight from Jordan export dock 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.
The
Company also derives revenue rendering cutting and making services to other apparel vendors who subcontract order to the Company. Revenue
is recognized when the service is rendered. 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
Company does not have any contract assets since the Company has an unconditional right to consideration when the Company has satisfied
its performance obligation and payment from customers is not contingent on a future event. For the nine months ended December 31, 2021
and 2020, there was no revenue recognized from performance obligations related to prior periods. As of December 31, 2021, 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 14—Segment Reporting”).
Shipping
and Handling
Proceeds
collected from customers for shipping and handling costs are included in revenue. 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 $571,749 and $316,027 for the three months ended December 31, 2021 and 2020, respectively.
Total shipping and handling expenses were $1,557,328 and $860,157 for the nine months ended
December 31, 2021 and 2020, respectively.
Income
and Sales Taxes
The
Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity
is domiciled.
Jerash
Holdings and Jerash Supplies are incorporated/formed in the State of Delaware and are subject to federal income tax in the United States
of America. Treasure Success is registered in Hong Kong and has no accumulated profit. Jiangmen Treasure Success is incorporated in China
and is subject to corporate income tax in China. Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and
Victory Apparel are subject to income tax in Jordan, unless an exemption is granted. In accordance with Development Zone law, Jerash
Garments and its subsidiaries and VIE were subject to corporate income tax in Jordan at a rate of 10% plus a 1% social contribution.
Effective January 1, 2021, the income tax rate increased to 16% and plus a 1% social contribution.
Jerash
Garments and its subsidiaries and VIE are subject to local sales tax of 16% on purchases. Jerash Garments was granted a sales tax exemption
from the Jordanian Investment Commission for the period from June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases
with no sales tax charge. The exemption has been extended to February 5, 2023.
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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income
and Sales Taxes (continued)
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 nine months ended December 31, 2021 and 2020.
Foreign
Currency Translation
The
reporting currency of the Company is the U.S. dollar (“US$” or “$”). The Company uses JOD in Jordan companies,
HKD in Treasure Success, and Chinese Yuan (“CNY”) in Jiangmen Treasure Success as functional currency of each abovementioned
entity. The assets and liabilities of the Company have been translated into US$ 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 US$ 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.
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.
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 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 a 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 issued 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 uses the nearest
interest rate from the available maturities.
|
|
●
|
Expected
Stock Price Volatility: the Company utilizes the expected volatility of the Company’s common stock over the same period of
time as the life of the warrant or stock option.
|
|
●
|
Dividend
Yield: 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.
|
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 13–Earnings
per Share”).
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 or CNY to US$ is reported in other comprehensive income in the 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, credit facilities, accounts payable, accrued expenses, income tax payables, other payables, and
operating lease liabilities to approximate the fair value of the respective assets and liabilities at December 31, 2021 and March 31,
2021 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 December 31, 2021 and March 31, 2021, respectively,
$14,156,649 and $5,122,292 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 December 31, 2021, and March 31, 2021, respectively, $286,111 and $2,036,147 of the Company’s cash was on deposit at financial
institutions in China. Cash maintained in banks within China of less than CNY0.5 million (equivalent to $77,629) per bank are covered
by “deposit insurance regulation” promulgated by the State Council of the People’s Republic of China. As of December
31, 2021, and March 31, 2021, respectively, $19,716,479 and $15,622,051 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 December 31, 2021,
and March 31, 2021, respectively, $83,886 and $81,221 of the Company’s cash was on deposit in the United States and are insured
by the Federal Deposit Insurance Corporation 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 policies
on importing business, foreign exchange rate fluctuations, and changes in local market conditions. The Company has a concentration of
its revenue and purchases with specific customers and suppliers. For the three months ended December 31, 2021, two end-customers accounted
for 53% and 27% of the Company’s total revenue, respectively. For the three months ended December 31, 2020, four end-customers
accounted for 31%, 18%, 16%, and 14% of the Company’s total revenue, respectively. For the nine months ended December 31, 2021,
two end-customers accounted for 68% and 23% of the Company’s total revenue, respectively. For the nine months ended December 31,
2020, two end-customers accounted for 62% and 10% of the Company’s total revenue, respectively. As of December 31, 2021, four end-customers
accounted for 43%, 20%, 17%, and 11% of the Company’s total accounts receivable balance, respectively. As of March 31, 2021, two
end-customers accounted for 68% and 24% of the Company’s total accounts receivable balance, respectively.
For
the three months ended December 31, 2021, the Company purchased approximately 53% and 22% of its garments and raw materials from two
major suppliers, respectively. For the three months ended December 31, 2020, the Company purchased approximately 20% and 11% of its raw
materials and garments from two major suppliers, respectively. For the nine months ended December 31, 2021, the Company purchased approximately
20% and 10% of its garments and raw materials from two major suppliers, respectively. For the nine months ended December 31, 2020, the
Company purchased approximately 14% and 11% of its raw materials and garments from two major suppliers, respectively. As of December
31, 2021, accounts payable to the Company’s two major suppliers accounted for 14% and 11% of its total accounts payable balance,
respectively. As of March 31, 2021, accounts payable to the Company’s four major suppliers accounted for 19%, 11%, 11%, and 10%
of its total accounts payable balance, respectively.
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 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.
The
spread of COVID-19 around the world since March 2020 has caused significant volatility in U.S. and international markets. The Company’s
operations were negatively impacted during the first three quarters of the fiscal year ended March 31, 2021 due to COVID-19 related shutdowns,
global logistics disruptions, and order cancelations and shipment delays. However, sales growth resumed in the fourth quarter of the
prior fiscal year and has extended well into the current fiscal year. The Company does not believe the COVID-19 pandemic had a significant
impact on its operations during the nine months ended December 31, 2021.
There
is still significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on
the U.S. and international economies. The Company currently expects that its operation results for the fiscal year ending March 31, 2022
would not be significantly impacted by COVID-19. However, given the dynamic nature of these circumstances, should there be resurgence
of COVID-19 cases globally and should the U.S. government or the Jordan government implement new restrictions to contain the spread,
the Company’s business would be negatively impacted.
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.
In
September 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. In November 2019, the FASB issued ASU 2019-10, which amended the effective dates of
ASU 2016-13. For public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting
companies (“SRC”) as defined by the SEC, ASU 2016-13 will become effective for the fiscal years beginning after December
15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 will become effective for the fiscal
years beginning after December 15, 2022, including interim periods within those fiscal years. As an SRC, the Company plans to adopt this
ASU effective April 1, 2023. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial
statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12
is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends
existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and
interim periods within those fiscal years, with early adoption permitted. The Company adopted this new ASU in April 2021 and the adoption
of the new ASU did not have a significant impact on its consolidated financial statements.
NOTE
4 – ACCOUNTS RECEIVABLE, NET
Accounts
receivable consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
Trade accounts receivable
|
|
$
|
8,293,331
|
|
|
$
|
12,033,268
|
|
Less: allowances for doubtful accounts
|
|
|
221,584
|
|
|
|
—
|
|
Accounts receivable, net
|
|
$
|
8,071,747
|
|
|
$
|
12,033,268
|
|
NOTE
5 – INVENTORIES
Inventories
consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
Raw materials
|
|
$
|
10,480,407
|
|
|
$
|
13,293,628
|
|
Work-in-progress
|
|
|
3,619,418
|
|
|
|
2,057,986
|
|
Finished goods
|
|
|
7,382,516
|
|
|
|
9,684,352
|
|
Total inventory
|
|
$
|
21,482,341
|
|
|
$
|
25,035,966
|
|
NOTE
6 – ADVANCE TO SUPPLIERS, NET
Advance
to suppliers consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
Advance to suppliers
|
|
$
|
1,807,348
|
|
|
$
|
3,036,693
|
|
Less: allowances for doubtful accounts
|
|
|
—
|
|
|
|
—
|
|
Advance to suppliers, net
|
|
$
|
1,807,348
|
|
|
$
|
3,036,693
|
|
NOTE
7 – LEASES
The
Company has 47 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 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 measurement of the right of use
(“ROU”) assets and lease liability. The Company’s lease agreements do not contain any material residual value guarantees
or material restrictive covenants. 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.
Supplemental
balance sheet information related to operating leases was as follows:
|
|
As of
December 31,
2021
|
|
Right-of-use assets
|
|
$
|
1,857,871
|
|
|
|
|
|
|
Operating lease liabilities – current
|
|
$
|
650,809
|
|
Operating lease liabilities – non-current
|
|
|
902,404
|
|
Total operating lease liabilities
|
|
$
|
1,553,213
|
|
The
weighted average remaining lease terms and discount rates for all of operating leases were as follows as of December 31, 2021:
Remaining lease term and discount rate:
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
2.4
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.06
|
%
|
During
the three months ended December 31, 2021 and 2020, the Company incurred total operation lease expenses of $618,751 and $534,674, respectively.
During the nine months ended December 31, 2021 and 2020, the Company incurred total operation lease expenses of $1,810,501 and $1,582,015,
respectively.
NOTE
7 – LEASES (continued)
The
following is a schedule, by fiscal years, of maturities of lease liabilities as of December 31, 2021:
2022
|
|
$
|
245,949
|
|
2023
|
|
|
903,909
|
|
2024
|
|
|
570,579
|
|
2025
|
|
|
135,728
|
|
2026
|
|
|
97,350
|
|
Thereafter
|
|
|
-
|
|
Total lease payments
|
|
|
1,953,515
|
|
Less: imputed interest
|
|
|
(95,644
|
)
|
Less: prepayments
|
|
|
(304,658
|
)
|
Present value of lease liabilities
|
|
$
|
1,553,213
|
|
NOTE
8 – PROPERTY, PLANT, AND EQUIPMENT, NET
Property,
plant, and equipment, net consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
Land
|
|
$
|
1,831,192
|
|
|
$
|
1,831,192
|
|
Property and buildings
|
|
|
1,911,818
|
|
|
|
432,562
|
|
Equipment and machinery
|
|
|
10,481,594
|
|
|
|
8,532,813
|
|
Office and electric equipment
|
|
|
906,232
|
|
|
|
825,013
|
|
Automobiles
|
|
|
785,392
|
|
|
|
512,209
|
|
Leasehold improvements
|
|
|
4,001,546
|
|
|
|
2,943,797
|
|
Subtotal
|
|
|
19,917,774
|
|
|
|
15,077,586
|
|
Construction in progress (1)
|
|
|
—
|
|
|
|
194,752
|
|
Less: Accumulated depreciation and amortization
|
|
|
(11,083,496
|
)
|
|
|
(9,572,832
|
)
|
Property and equipment, net
|
|
$
|
8,834,278
|
|
|
$
|
5,699,506
|
|
|
(1)
|
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 in the Tafilah Governorate of Jordan. Construction was temporarily suspended
in March 2020 due to the COVID-19 pandemic but was subsequently completed, and the dormitory was ready for use as of September 30, 2021.
|
NOTE
9 – EQUITY
Preferred
Stock
The
Company has 500,000 shares of preferred stock, par value of $0.001 per share, authorized; none were issued and outstanding as of December
31, 2021 and March 31, 2021. The preferred stock can be issued by the board of directors of Jerash Holdings (the “Board of Directors”)
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.
Common
Stock
The
Company had 12,334,318 and 11,332,974 shares of common stock outstanding as of December 31, 2021 and March 31, 2021, respectively.
Statutory
Reserve
In
accordance with the corporate laws in Jordan, Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, MK Garments,
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. In addition, PRC companies
are required to set aside at least 10% of their after-tax net profits each year, if any, to fund the statutory reserves until the balance
of the reserves reaches 50% of their registered capital. The statutory reserves are not distributable in the form of cash dividends to
the Company and can be used to make up cumulative prior year losses. The Company’s subsidiaries and VIE have reserved the maximum
amount required.
Dividends
During
the fiscal year ending March 31, 2022, on November 2, August 5, and May 14, 2021, the Board of Directors declared a cash dividend of
$0.05 per share of common stock, respectively. The cash dividends of $616,716, $566,716, and $566,649 were paid in full on November 29,
August 24, and June 2, 2021, respectively.
During
the fiscal year ended March 31, 2021, on February 5, 2021, November 2, 2020, August 5, 2020, and May 15, 2020, the Board of Directors
declared a cash dividend of $0.05 per share of common stock, respectively. The cash dividends of $566,250 were paid in full on February
23, 2021, November 23, 2020, August 24, 2020, and June 2, 2020, respectively.
NOTE
10 – 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 the 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.
The major assumptions used in the Black Scholes model included the followings: the expected term is five years; risk-free interest rate
is 1.8% to 2.8%; and the expected volatility is 50.3% to 52.2%. For the nine months ended December 31, 2021, 20,000 warrants were exercised
on a cashless basis. There were 194,410 warrants outstanding as of December 31, 2021 with a weighted average exercise price of $6.71.
All of the outstanding warrants were fully vested and exercisable as of December 31, 2021 and March 31, 2021.
All
stock warrants activities are summarized as follows:
|
|
Option to
Acquire Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Stock warrants outstanding at March 31, 2021
|
|
|
214,410
|
|
|
$
|
6.67
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
20,000
|
|
|
|
6.25
|
|
Stock warrants outstanding at December 31, 2021
|
|
|
194,410
|
|
|
$
|
6.71
|
|
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 of the Company were reserved for issuance
under the Plan. In addition, on July 19, 2019, the Board of Directors approved an amendment 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 increased
the number of shares reserved for issuance under the Plan by 300,000, to 1,784,250, among other changes.
NOTE
10 – STOCK-BASED COMPENSATION (continued)
Stock
Options (continued)
On April 9, 2018, the Board of Directors approved
the issuance of 989,500 nonqualified stock options under the Plan to 13 executive officers and employees of the Company in accordance
with the Plan at an exercise price of $7.00 per share, and a term of five years. The fair value of these options was estimated as of the
grant date using the Black-Scholes model with the major assumptions that expected terms is five years; risk-free interest rate is 2.6%;
and the expected volatility is 50.3%. All these outstanding options were fully vested and exercisable on issue date. 3,000 options expired
in November 2020.
On August 3, 2018, the Board of Directors granted
the Company’s then 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 10 years. The fair value of these options was estimated
as of the grant date using the Black-Scholes model with the major assumptions that expected terms is 10 years; risk-free interest rate
is 2.95%; and the expected volatility is 50.3%. All these outstanding options were fully vested. 50,000 options expired in October 2020.
The remaining 100,000 options became exercisable in August 2019.
On
November 27, 2019, the Board of Directors granted the Company’s Chief Financial Officer 50,000 nonqualified stock options under
the amended and restated Plan in accordance with the amended and restated Plan at an exercise price of $6.50 per share and a term of
10 years. All these outstanding options became fully vested and exercisable in May 2020. The fair value of the options granted on November
27, 2019 was $126,454. It is estimated as of the grant date using the Black-Scholes model with the major assumptions that expected term
of 10 years; risk-free interest rate of 1.77%; expected volatility of 48.59%; and dividend yield of 3.08%.
All
stock option activities are summarized as follows:
|
|
Option to
Acquire Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Stock options outstanding at March 31, 2021
|
|
|
1,136,500
|
|
|
$
|
6.90
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Stock options outstanding at December 31, 2021
|
|
|
1,136,500
|
|
|
$
|
6.90
|
|
Restricted
Stock Units
On
June 24, 2021, the Board of Directors approved the grant of 200,000 Restricted Stock Units (“RSUs”) under the Plan to 32
executive officers and employees of the Company, with a one-year vesting period. The fair value of these RSUs on June 24, 2021 was $1,266,000,
based on the market price of the Company’s common stock as of the date of the grant. As of December 31, 2021, there were $606,986
unrecognized stock-based compensation expenses to be recognized in the future.
Total
stock-based expenses were $319,101 and $Nil for the three months ended December 31, 2021 and 2020, respectively. Total stock-based expenses
were $634,914 and $42,151 for the nine months ended December 31, 2021 and 2020, respectively.
NOTE
11 – RELATED PARTY TRANSACTIONS
The
relationship and the nature of related party transactions are summarized as follow:
Name
of Related Party
|
|
Relationship
to the Company
|
|
Nature
of Transactions
|
|
|
|
|
|
Ford Glory International Limited (“FGIL”)
|
|
Affiliate, subsidiary of Ford Glory Holdings (“FGH”), which is 49% indirectly owned by the Company’s President, Chief Executive Officer, and Chairman, and a significant stockholder
|
|
Operating Lease
|
|
|
|
|
|
Yukwise
Limited (“Yukwise”)
|
|
Wholly owned by the Company’s President, Chief Executive Officer, and Chairman, and 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
|
|
Operating Lease
|
NOTE
11 – RELATED PARTY TRANSACTIONS (continued)
|
a.
|
Related
party lease and purchases agreement
|
On
October 3, 2018, Treasure Success and FGIL entered into a lease agreement, pursuant to which Treasure Success leased its office space
in Hong Kong from FGIL for a monthly rent in the amount of HKD119,540 (approximately $15,253) and for a one-year term with an option
to extend the term for an additional year at the same rent. On October 3, 2019, Treasure Success exercised the option to extend the lease
for an additional year at the same rent. On December 15, 2020, Treasure Success and FGIL renewed the lease agreement with the same term
and lease amount. On February 25, 2021, the lease agreement was terminated, and Ford Glory disposed of the property that was subject
of the lease agreement between Treasure Success and Ford Glory.
On
July 1, 2020, Jiangmen Treasure Success and Jiangmen V-Apparel Manufacturing Limited entered into a factory lease agreement, which was
a replacement of a previous lease agreement between Treasure Success and Jiangmen V-Apparel Manufacturing Limited dated August 31, 2019,
pursuant to which Treasure Success leased additional space for office and sample production purposes in Jiangmen, China from Jiangmen
V-Apparel Manufacturing Limited for a monthly rent in the amount of CNY 28,300 (approximately $4,400). The lease had one-year term and
could be renewed with a one-month notice. On April 30, 2021, the factory lease agreement between Jiangmen Treasure Success and Jiangmen
V-apparel Manufacturing Limited was terminated.
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 high-level advisory and general management services for $300,000 per annum. The agreement renews automatically for
one-month terms. This agreement became effective as of January 1, 2018. Due to the COVID-19 pandemic, Yukwise’s compensation was
temporarily reduced to $20,000 per month from May 2020 to August 2020. For the three months ended December 31, 2021 and 2020, the total
consulting fees under this agreement were $75,000 and $65,000, respectively. For the nine months ended December 31, 2021 and 2020, the
total consulting fees under this agreement were $225,000 and $205,000, respectively.
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. Due to the COVID-19 pandemic, Multi-Glory’s compensation was temporarily
reduced to $20,000 per month from May 2020 to August 2020. For the three months ended December 31, 2021 and 2020, the total advisory
and management expenses under this agreement were $75,000 and $65,000, respectively. For the nine months ended December 31, 2021 and
2020, the total advisory and management expenses under this agreement were $225,000 and $205,000, respectively.
NOTE
12 – CREDIT FACILITIES
Pursuant
to a letter agreement dated May 29, 2017, Treasure Success entered into an initial $8,000,000 import credit facility with Hong Kong and
Shanghai Banking Corporation (“HSBC”) (the “2017 Facility Letter”), which was first amended pursuant to a letter
agreement between HSBC, Treasure Success, and Jerash Garments dated June 19, 2018 (the “2018 Facility Letter”), further amended
pursuant to a letter agreement dated August 12, 2019 (the “2019 Facility Letter”), and further amended pursuant to a letter
agreement dated July 3, 2020 (the “2020 Facility Letter,” and together with the 2017 Facility Letter, 2018 Facility Letter,
and 2019 Facility Letter, the “HSBC Facility”). The 2020 Facility Letter extended the term of the HSBC Facility indefinitely.
Pursuant to the HSBC Facility, the Company had a total credit limit of $11,000,000.
In
addition, on June 5, 2017, Treasure Success entered into an Offer Letter - Invoice Discounting/Factoring Agreement, and on August 21,
2017, Treasure Success entered into an Invoice Discounting/Factoring Agreement (together, the “2017 Factoring Agreement”)
with HSBC for certain debt purchase services related to the Company’s accounts receivable. On June 14, 2018, Treasure Success and
Jerash Garments entered into another Offer Letter-Invoice Discounting/Factoring Agreement with HSBC, which amended the 2017 Factoring
Agreement (the “2018 Factoring Agreement, and together with the 2017 Factoring Agreement, the “HSBC Factoring Agreement,”
and together with the HSBC Facility, the “HSBC Credit Facilities”). Pursuant to the HSBC Factoring Agreement, HSBC offered
to provide Treasure Success with a $12,000,000 factoring facility for certain debt purchase services related to Treasure Success’s
accounts receivable.
The
HSBC Credit Facilities were guaranteed by Jerash Holdings, Jerash Garments, and Treasure Success. In addition, the HSBC Credit Facilities
required cash and other investment security collateral of $3,000,000 and were secured by the personal guarantees of Mr. Choi and Mr.
Ng Tsze Lun (“Mr. Ng”). As of January 22, 2019, the security collateral of $3,000,000 had been released. HSBC also released
the personal guarantees of Mr. Choi and Mr. Ng on August 12, 2019. The HSBC Credit Facilities provide that drawings under the HSBC Credit
Facilities were charged interest at the Hong Kong Interbank Offered Rate plus 1.5% for drawings in HKD, and the London Interbank Offered
Rate plus 1.5% for drawings in other currencies. In addition, the HSBC Credit Facilities also contained certain service charges and other
commissions and fees.
Under
the HSBC Factoring Agreement, HSBC also provided credit protection and debt services related to each of the Company’s preapproved
customers. For any approved debts or collections assigned to HSBC, HSBC charged a flat fee of 0.35% on the face value of the invoice
for such debt or collection. The Company may assign debtor payments that are to be paid to HSBC within 90 days, defined as the maximum
terms of payment. The Company may receive advances on invoices that are due within 30 days of the delivery of its goods, defined as the
maximum invoicing period.
NOTE
12 – CREDIT FACILITIES (continued)
The
HSBC Credit Facilities were subject to review at any time, and HSBC had discretion on whether to renew the HSBC Facility. Either party
could terminate the HSBC Factoring Agreement subject to a 30-day notice period.
On
March 30, 2021, HSBC informed Treasure Success that the debts purchase services under the HSBC Factoring Agreement were terminated with
immediate effect. As of December 31, 2021 and March 31, 2021, the Company had made $Nil and $Nil in withdrawals under the HSBC Credit
Facilities, which were due within 120 days of each borrowing date or upon demand by HSBC. On June 30, 2021, the Company terminated the
HSBC Facilities with immediately effect.
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 December 31, 2021 and March 31, 2021, the Company had $Nil and $612,703 outstanding
amount, respectively, in import invoice financing under the SCBHK facility.
Starting from May and July 2021, the Company has
participated in a financing program with two customers, in which the Company may receive early payments for approved sales invoices submitted
by the Company through the bank the customer cooperates with. For any early payments received, the Company is subject to an early payment
charge imposed by the customer’s bank, for which the rate is based on London Interbank Offered Rate (“LIBOR”) plus a
spread. In certain scenarios, the Company submits the sales invoice and receives payments prior to the shipment of the relative products.
In that case, instead of recording the cash receipts as a reduction to accounts receivables, the Company records the cash receipts as
receipts in advance from a customer until products are entitled to transfer. The Company records the early payment charge in interest
expenses in the unaudited condensed consolidated statements of income and comprehensive income. For the three and nine months ended December
31, 2021, the early payment charge was $73,276 and $147,677, respectively. As of December 31, 2021 and March 31, 2021, receipts in advance
from a customer was $444,165 and $Nil, respectively.
NOTE
13 – EARNINGS PER SHARE
The
following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended December 31, 2021
and 2020. As of December 31, 2021, 1,530,910 RSUs, warrants, and stock options were outstanding. For the three and nine months ended
December 31, 2021, 1,043,700 warrants and stock options were excluded from the EPS calculation as containing anti-dilution provisions.
For the three and nine months ended December 31, 2020, 1,350,910 warrants and stock options were excluded from the EPS calculation as
containing anti-dilution provisions.
|
|
Three Months Ended
December 31,
(in $000s except share and
per share information)
|
|
|
Nine months Ended
December 31,
(in $000s except share and
per share information)
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Jerash Holdings (US), Inc.’s Common Stockholders
|
|
$
|
1,675
|
|
|
$
|
94
|
|
|
$
|
8,051
|
|
|
$
|
3,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share (weighted-average shares)
|
|
|
12,290,840
|
|
|
|
11,325,000
|
|
|
|
11,654,039
|
|
|
|
11,325,000
|
|
Dilutive securities – unexercised RSUs, warrants and options
|
|
|
123,208
|
|
|
|
7,552
|
|
|
|
42,184
|
|
|
|
5,950
|
|
Denominator for diluted earnings per share (adjusted weighted-average shares)
|
|
|
12,414,048
|
|
|
|
11,332,552
|
|
|
|
11,696,223
|
|
|
|
11,330,950
|
|
Basic earnings per share
|
|
$
|
0.14
|
|
|
$
|
0.01
|
|
|
$
|
0.69
|
|
|
$
|
0.31
|
|
Diluted earnings per share
|
|
$
|
0.13
|
|
|
$
|
0.01
|
|
|
$
|
0.69
|
|
|
$
|
0.31
|
|
NOTE
14 – SEGMENT REPORTING
ASC
280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent
with the Company’s internal organizational structure as well as information about geographical areas, business segments and major
customers in financial statements for details on the Company’s business segments. The Company uses the “management approach”
in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s
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 operation results by the revenue of the Company’s
products. The Company’s major product is outerwear. For the three months ended December 31, 2021 and 2020, outerwear accounted
for approximately 84.1% and 89.7% of the Company’s total revenue, respectively. For the nine months ended December 31, 2021 and
2020, outerwear accounted for approximately 92.9% and 89.9% of the Company’s total revenue, respectively. Based on management’s
assessment, the Company has determined that it has only one operating segment as defined by ASC 280.
NOTE
14 – SEGMENT REPORTING (continued)
The
following table summarizes sales by geographic areas for the three months ended December 31, 2021 and 2020, respectively.
|
|
For the three months Ended
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
United States
|
|
$
|
32,963,965
|
|
|
$
|
15,459,814
|
|
Jordan
|
|
|
267,910
|
|
|
|
1,645,232
|
|
Others
|
|
|
3,583,148
|
|
|
|
3,558,879
|
|
Total
|
|
$
|
36,815,023
|
|
|
$
|
20,663,925
|
|
The
following table summarizes sales by geographic areas for the nine months ended December 31, 2021 and 2020, respectively.
|
|
For the nine months ended
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
United States
|
|
$
|
106,657,366
|
|
|
$
|
56,452,326
|
|
Jordan
|
|
|
568,750
|
|
|
|
5,073,429
|
|
Others
|
|
|
5,188,765
|
|
|
|
4,931,243
|
|
Total
|
|
$
|
112,414,881
|
|
|
$
|
66,456,998
|
|
79.0% and 16.8% of long-lived assets were located
in Jordan and Hong Kong, respectively, as of December 31, 2021.
NOTE
15 – COMMITMENTS AND CONTINGENCIES
Commitments
On
August 28, 2019, 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). On December 9, 2020, shareholders
of Jiangmen Treasure Success approved to increase its registered capital to HKD 15 million (approximately $1.9 million). The Company’s
subsidiary, Treasure Success, as a shareholder of Jiangmen Treasure Success, is required to contribute HKD 15 million (approximately
$1.9 million) as paid-in capital in exchange for 100% ownership interest in Jiangmen Treasure Success. As of December 31, Treasure Success
had made capital contribution of HKD 3 million (approximately $385,000). Pursuant to the articles of incorporation of Jiangmen Treasure
Success, Treasure Success is required to complete the remaining capital contribution before December 31, 2029 as Treasure Success’
available funds permit.
On
July 14, 2021, the Company through its wholly owned subsidiary Jerash Garments, entered into a Sale and Purchase Contract (the “Kawkab
Agreement”) with Kawkab Venus Dowalyah Lisenaet Albesah (the “Seller”). Pursuant to the Kawkab Agreement, the Seller
agreed to sell, and Jerash Garments agreed to purchase, 100% ownership interests in Kawkab Venus Al Dowalyah for Garment Manufacturing
LLC for a consideration of $2.7 million. Kawkab Venus Al Dowalyah for Garment Manufacturing LLC holds a land with factory premises, which
it leases to MK Garments. The Kawkab Agreement contains customary representations and warranties of Jerash Garments and the Seller, customary
conditions to closing, other obligations and rights of the parties, and termination provisions. The Company expects to complete this
acquisition before the end of March 2022 due to personal reasons of the seller in relation to health and quarantine requirements. As
of December 31, 2021, the Company paid $500,000. The Company will pay the remaining $2.2 million upon the acquisition closing.
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
16 – INCOME TAX
Jerash
Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and Victory Apparel are subject to the regulations of the
Income Tax Department in Jordan. The corporate income tax rate is 16% 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 on the first day of production. This exemption had been extended for five years until December 31, 2018. Effective January
1, 2019, the Jordanian government reclassified the area where Jerash Garments and its subsidiaries are to a Development Zone. In accordance
with the Development Zone law, Jerash Garments and its subsidiaries and VIE began paying corporate income tax in Jordan at a rate of
10% plus a 1% social contribution. The income tax rate increased to 14% plus a 1% social contribution from January 1, 2020. Effective
January 1, 2021, this rate increased to 16% plus a 1% social contribution.
On
December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act imposed 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.
Interim
income tax expenses or benefit is recognized based on the Company’s estimated annual effective tax rate, which is based upon the
tax rate expected for the full fiscal year applied to the pretax income or loss of the interim period. The Company’s consolidated
effective tax rate for the three and nine months ended December 31, 2021 was 28.0% and 20.8%, respectively, and differed from the effective
statutory federal income tax rate of 21.0%, primarily due to GILTI adjustments, foreign tax rate differentials, and valuation allowance
adjustments.
NOTE 17 – ACQUISITION
On October 7, 2021, the Company acquired 100%
of the equity interests in MK Garments for an aggregate of $2.8 million according to a Sale and Purchase Contract. As of December 31,
2021, $2.7 million had been paid and the remaining $100,000 is recorded as other payables and is expected to be paid in the fourth quarter
of fiscal year 2022 ending March 31, 2022. MK Garments has approximately 500 employees and machine and equipment and is able to produce
garments from raw materials. Costs associated with this transaction were not material and were expensed as incurred. Upon acquisition,
MK Garments did not have any cash, financial assets, or liabilities. The acquisition has been accounted for under the acquisition method
of accounting, under which the total purchase price is allocated to the net tangible and identifiable intangible assets of MK Garments
based on their estimated fair values. Of the total $2.8 million purchase price, $1.5 million was allocated to machinery and equipment,
$0.8 million was allocated to leasehold improvements, and the residual amount of $0.5 million was allocated to goodwill. The goodwill
recognized as a result of this acquisition is primarily attributable to the assembled workforce. The results of operations since the acquisition
date, and the assets, including the goodwill associated with the acquisition, are included in these unaudited condensed consolidated financial
statements.
NOTE 18 – SUBSEQUENT EVENT
On
February 4, 2022, the Board of Directors approved the payment of a dividend of $0.05 per share, payable on February 22, 2022 to stockholders
of record as of the close of business on February 15, 2022.