The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
NOTES TO 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 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 JOD50,000.
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 JOD100,000. 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. On 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 JOD150,000. 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.
On October 7, 2021, MK Garments became a subsidiary of Jerash Garments.
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 sportswear 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 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 (the “SEC”).
The consolidated financial statements include
the financial statements of Jerash Holdings and its subsidiaries. All significant intercompany balances and transactions have been eliminated
in consolidation.
Use of Estimates
The preparation of the 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 March 31, 2022 and 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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 comprehensive income over
the contractual terms of these investments.
The Company had no short-term investments as of
March 31, 2022 and 2021. The Company recorded a realized gain of $nil and $124,889 for the fiscal years ended March 31, 2022 and 2021,
respectively.
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 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
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 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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 fiscal years ended March 31, 2022 and 2021.
Goodwill
Goodwill represents the excess purchase price paid over the fair value
of the net assets of acquired companies. Goodwill is not amortized. As of March 31, 2022 and 2021, the carrying amount of goodwill was
$499,282 and $nil, respectively. Goodwill is tested for impairment on an annual basis, or in interim periods if indicators of potential
impairment exist, based on the one reporting unit. The Company has the option to perform a qualitative assessment to determine whether
it is necessary to perform the quantitative goodwill impairment test. When performing the quantitative impairment test, the Company compares
the fair value of its only reporting unit with the carrying amounts. The Company would recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value. The Company concluded that no impairment of its goodwill occurred
for the year ended March 31, 2022.
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 ten to 150 days of the invoice date. 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.
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. The Company did not have any contract liabilities as of March 31, 2022 and 2021. For the
fiscal year ended March 31 2022 and 2021, there was no revenue recognized from performance obligations related to prior periods. As of
March 31, 2022, 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 $1,864,202 and $1,108,659 for the fiscal years ended March
31, 2022 and 2021, 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 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 is subject to profits tax in Hong Kong. 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 MK Garments are subject to
income tax in Jordan, unless an exemption is granted. In accordance with Development Zone law, Jerash Garments and its subsidiaries were
subject to corporate income tax in Jordan at a rate of 14% plus a 1% social contribution as of January 1, 2020. The income tax rate increased
to 16% plus a 1% social contribution starting from January 1, 2021. Effective January 1, 2022, income rate increased to 18% or 20%, plus
a 1% social contribution.
Jerash Garments and its subsidiaries 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 comprehensive income.
No significant uncertainty in tax positions relating to income taxes were incurred during the fiscal years ended March 31, 2022 and 2021.
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 statement of comprehensive income as incurred.
The value of JOD and other currencies against
US$ may fluctuate and is affected by, among other things, changes in Jordan’s political and economic conditions. Any significant
revaluation of JOD, HKD, and CNY 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 consolidated financial statements in this report:
| |
March 31, 2022 | |
March 31, 2021 |
Period-end spot rate | |
US$1=JOD0.7090 | |
US$1=JOD0.7090 |
| |
US$1=HKD7.8325 | |
US$1=HKD7.7744 |
| |
US$1=CNY6.3393 | |
US$1=CNY6.5565 |
Average rate | |
US$1=JOD0.7090 | |
US$1=JOD0.7090 |
| |
US$1=HKD7.7844 | |
US$1=HKD7.7527 |
| |
US$1=CNY6.4180 | |
US$1=CNY6.7702 |
Stock-Based Compensation
The Company measures compensation expense for
stock-based awards 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 its own stock volatility over the same period of time as the life of the warrant or stock
option. When the Company’s own stock volatility information is unavailable for such period of time, the Company utilizes comparable
public company volatility. |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (continued)
| ● | 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. |
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 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 current assets,
credit facilities, accounts payable, accrued expenses, income tax payables, other payables, amount due to a related party and operating
lease liabilities to approximate the fair value of the respective assets and liabilities at March 31, 2022 and 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 March 31, 2022 and 2021, respectively, $12,735,486
and $5,121,044 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 March 31, 2022
and 2021, respectively, $351,255 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 $78,873) per bank are covered by “deposit insurance regulation”
promulgated by the State Council of the People’s Republic of China. As of March 31, 2022 and 2021, respectively, $13,311,340 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 March 31, 2022 and 2021, respectively, $37,342 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 fiscal year ended March 31, 2022, two end-customers accounted for 67% and 24% of the Company’s
total revenue, respectively. For the fiscal year ended March 31, 2021, two end-customers accounted for 62% and 12% of the Company’s
total revenue, respectively. As of March 31, 2022, one end-customer accounted for 89% of the Company’s total accounts receivable
balance. As of March 31, 2021, two end-customers accounted of 68% and 24% of the Company’s total accounts receivable balance, respectively.
For the fiscal year ended March 31, 2022, the
Company purchased approximately 20% and 11% of its garments and raw materials from two major suppliers, respectively. For the fiscal year
ended March 31, 2021, the Company purchased approximately 13% of its garments from one major supplier. As of March 31, 2022, accounts
payable to the Company’s three major suppliers accounted for 11%, 11%, and 10% of the 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 the 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. In fiscal 2022, the Company’s production facilities resumed full operation with additional medical
and hygienic measures in place.
There is 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, 2023 would not be significantly impacted by COVID-19. However,
given the dynamic nature of these circumstances, should there be resurgence of the COVID-19 cases globally so that the U.S. government
or the Jordan government implements new restrictions to contain the spread, it is expected the Company’s business will be negatively
impacted.
Reclassification
Certain prior period amounts have been reclassified
to conform to the current period presentation. As of March 31, 2021, the Company overstated noncontrolling interest by $302,120 and understated
amount due to a related party by $301,930. The misstatement was due to the Company erroneously concluding that it was the primary beneficiary
of a variable interest entity, Victory Apparel (Jordan) Manufacturing Company Limited (“Victory Apparel”), which is an inactive
related party to the Company, and consolidating the financial statements of Victory Apparel in the Company’s consolidated financial
statements as of and for the year ended March 31, 2021. The error has been corrected in the accompanying consolidated financial statements
as of March 31, 2022 and 2021 and for each of the two years ended March 31, 2022. Such reclassifications had no effect on net income or
cash flows as previously reported.
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 | |
| |
March 31, 2022 | | |
March 31, 2021 | |
Trade accounts receivable | |
$ | 11,270,652 | | |
$ | 12,033,268 | |
Less: allowances for doubtful accounts | |
| 221,583 | | |
| - | |
Accounts receivable, net | |
$ | 11,049,069 | | |
$ | 12,033,268 | |
NOTE 5 – INVENTORIES
Inventories consisted of the following:
| |
As of | | |
As of | |
| |
March 31, 2022 | | |
March 31, 2021 | |
Raw materials | |
$ | 17,714,578 | | |
$ | 13,293,628 | |
Work-in-progress | |
| 2,010,417 | | |
| 2,057,986 | |
Finished goods | |
| 8,530,184 | | |
| 9,684,352 | |
Total inventory | |
$ | 28,255,179 | | |
$ | 25,035,966 | |
NOTE 6 – ADVANCE TO SUPPLIERS, NET
Advance to suppliers consisted of the following:
| |
As of | | |
As of | |
| |
March 31, 2022 | | |
March 31, 2021 | |
Advance to suppliers | |
$ | 1,284,601 | | |
$ | 3,036,693 | |
Less: allowances for doubtful accounts | |
| - | | |
| - | |
Advance to suppliers, net | |
$ | 1,284,601 | | |
$ | 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:
| |
March 31, 2022 | |
ROU assets | |
$ | 1,826,062 | |
| |
| | |
Operating lease liabilities - current | |
$ | 739,101 | |
Operating lease liabilities - non-current | |
| 869,313 | |
Total operating lease liabilities | |
$ | 1,608,414 | |
The weighted average remaining lease terms and
discount rates for all of operating leases were as follows as of March 31, 2022:
Remaining lease term and discount rate: | |
| |
| |
| |
Weighted average remaining lease term (years) | |
| 2.2 | |
| |
| | |
Weighted average discount rate | |
| 4.06 | % |
During the fiscal years ended March 31, 2022 and
2021, the Company incurred total operating lease expenses of $2,542,431 and $2,140,894, respectively.
NOTE 7 – LEASES (CONTINUED)
The following is a schedule, by fiscal years, of maturities of lease
liabilities as of March 31, 2022:
2023 | |
$ | 977,574 | |
2024 | |
| 643,132 | |
2025 | |
| 197,165 | |
2026 | |
| 97,698 | |
2027 | |
| — | |
Thereafter | |
| — | |
Total lease payments | |
| 1,915,569 | |
Less: imputed interest | |
| (89,508 | ) |
Less: prepayments | |
| (217,647 | ) |
Present value of lease liabilities | |
$ | 1,608,414 | |
NOTE 8 – PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment, net consisted of the following:
| |
As of | | |
As of | |
| |
March 31, 2022 | | |
March 31, 2021 | |
Land | |
$ | 1,831,192 | | |
$ | 1,831,192 | |
Property and buildings | |
| 1,911,818 | | |
| 432,562 | |
Equipment and machinery | |
| 11,091,566 | | |
| 8,532,813 | |
Office and electric equipment | |
| 915,686 | | |
| 825,013 | |
Automobiles | |
| 802,399 | | |
| 512,209 | |
Leasehold improvements | |
| 4,002,833 | | |
| 2,943,797 | |
Subtotal | |
| 20,555,494 | | |
| 15,077,586 | |
Construction in progress (1)(2)(3) | |
| 2,098,323 | | |
| 194,752 | |
Less: Accumulated depreciation and amortization | |
| (11,720,670 | ) | |
| (9,572,832 | ) |
Property and equipment, net | |
$ | 10,933,147 | | |
$ | 5,699,506 | |
| (1) | The construction in progress in March 2021 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 and the balance has been transferred to property and buildings. |
| (2) | In January 2022, the Company commenced a construction project of an expansion of the Company-own premises in Al Tajamouat Industrial City, Jordan. Through March 31, 2022, the Company had paid approximately JOD 270,000 (approximately US $381,000) and the entire $381,000 was recorded as construction in progress. The estimated construction cost is JOD 342,000 (approximately US $483,000). The project is expected to be completed and ready to use in fiscal 2023. |
| (3) | In January 2022, the Company commenced a construction project to build a dormitory for employee. The construction is built on a land of 12,340 square meters (approximately three acres) in Al Tajamouat Industrial City, Jordan, which was acquired by the Company in 2019. The dormitory is expected to cost $8.2 million. Through March 31, 2022, the Company had spent approximately JOD 1.2 million (approximately US $1.7 million) for the construction. The dormitory is expected to be completed and ready for use in fiscal 2023. |
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 March 31, 2022 and 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 March 31, 2022 and 2021, respectively.
On October 4, 2021, the Company completed its public offering of 1,400,000
shares of its common stock at a public offering price of $7.00 per share (the “Offering”). 1,000,000 of the shares were issued
and sold by the Company and 400,000 were sold by a selling stockholder. The Company received net proceeds of approximately $6.27 million
from the Offering, after deducting the underwriting discount and offering expenses payable by the Company. On October 7, 2021, the underwriters
exercised their over-allotment option and purchased 210,000 additional shares of the Company’s common stock from the selling stockholder.
The Company did not receive any of the proceeds from the sale of shares of its common stock by the selling stockholder.
Statutory Reserve
In accordance with the Corporate Law in Jordan,
Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and MK Garments 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.
Dividends
During the fiscal year ended March 31, 2022, on
February 4, 2022, November 2, 2021, August 5, 2021, 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 $616,715, $616,716, $566,716, and $566,649 were paid in full on February 22, 2022,
November 29, August 24, 2021, 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 fiscal year 2022, 20,000 warrants were exercised on a cashless basis. There were 194,410 warrants
outstanding as of March 31, 2022 with a weighted average exercise price of $6.71. All of the outstanding warrants were fully vested and
exercisable as of March 31, 2022 and 2021.
All stock warrants activities are summarized as follows:
| |
Option to | | |
Weighted
Average | |
| |
Acquire
Shares | | |
Exercise Price | |
Stock warrants outstanding at March 31, 2021 | |
| 214,410 | | |
$ | 6.67 | |
Granted | |
| — | | |
| — | |
Exercised | |
| 20,000 | | |
| 6.25 | |
Stock warrants outstanding at March 31, 2022 | |
| 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)
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 were
forfeited 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 were forfeited 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 | | |
Weighted
Average | |
| |
Acquire
Shares | | |
Exercise Price | |
Stock options outstanding at March 31, 2021 | |
| 1,136,500 | | |
$ | 6.90 | |
Granted | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | |
Stock options outstanding at March 31, 2022 | |
| 1,136,500 | | |
$ | 6.90 | |
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 March 31, 2022, there were $294,822 unrecognized stock-based compensation expenses to
be recognized in the future.
Total stock-based expenses were $947,079 and $66,251
for the year ended March 31, 2022 and 2021, 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 |
|
|
|
|
|
Victory Apparel (Jordan) Manufacturing Company Limited (“Victory Apparel”) |
|
Affiliate, controlled by the Company’s President, Chief Executive Officer, Chairman and a significant stockholder and another significant stockholder |
|
Borrowings |
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 CNY28,300 (approximately $4,500). 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. Total consulting fees under this agreement were $300,000 and $280,000, respectively, for the fiscal years
ended March 31, 2022 and 2021.
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. Total consulting fees under this agreement were $300,000 and $280,000, respectively, for the fiscal years ended March 31,
2022 and 2021.
c. |
Borrowings from a related party |
As of March 31, 2022 and 2021, the Company had
outstanding balances due to Victory Apparel of $300,166 and $302,120, respectively. These advances are non-interest bearing and due on
demand. The outstanding balance as of March 31, 2022 is expected to be repaid in the first quarter of fiscal 2023.
NOTE 12 – CREDIT FACILITIES
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 March 31, 2022 and 2021, the Company had $nil and $612,703 outstanding amount, respectively, in import invoice financing under the
SCBHK facility. In June 2022, the Company was informed by SCBHK that the facility was cancelled due to persistently low usage and zero
loan outstanding.
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 consolidated statements of income and comprehensive income. For the year ended March 31, 2022, the early payment charge was $210,576.
As of March 31, 2022 and 2021, there was $nil receipts in advance from a customer.
On January 12, 2022, DBS Bank (Hong Kong) Limited
(“DBSHK”) offered to provide a banking facility of up to $5.0 million to Treasure Success pursuant to a facility letter dated
January 12, 2022. Pursuant to the agreement, DBSHK agreed to finance cargo receipt, trust receipt, account payable financing, and certain
type of import invoice financing up to an aggregate of $5.0 million. The DBSHK facility bears interest at 1.5% per annum over Hong Kong
Interbank Offered Rate (“HIBOR”) for HKD bills and 1.3% per annum over DBSHK’s cost of funds for foreign currency bills.
The facility is guaranteed by Jerash Holdings and became available to the Company on June 17, 2022. As of March 31, 2022 and 2021, the
Company had $nil outstanding amount under the DBSHK facility.
NOTE 13 – EARNINGS PER SHARE
The following table sets forth the computation
of basic and diluted earnings per share for the fiscal years ended March 31, 2022 and 2021. As of March 31, 2022, 1,530,910 RSUs, warrants,
and stock options were outstanding. For the fiscal years ended March 31, 2022 and 2021, 1,043,700 and 1,250,910 warrants and stock options
were excluded from the EPS calculation, respectively, as they contained anti-dilution provisions.
| |
Fiscal Year Ended
| |
| |
March 31,
| |
| |
(in $000s except share and | |
| |
per share information) | |
| |
2022 | | |
2021 | |
Numerator: | |
| | |
| |
Net income attributable to Jerash Holdings (US), Inc.’s Common Stockholders | |
$ | 7,920 | | |
$ | 4,150 | |
| |
| | | |
| | |
Denominator: | |
| | | |
| | |
Denominator for basic earnings per share (weighted-average shares) | |
| 11,821,779 | | |
| 11,325,131 | |
Dilutive securities – unexercised warrants and options | |
| 75,938 | | |
| 180 | |
Denominator for diluted earnings per share (adjusted weighted-average shares) | |
| 11,897,717 | | |
| 11,325,311 | |
Basic and diluted earnings per share | |
$ | 0.67 | | |
$ | 0.37 | |
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 fiscal years ended March 31, 2022 and 2021, outerwear accounted for approximately 93.4% and 91.4%
of total revenue. 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 fiscal years ended March 31, 2022 and 2021, respectively.
| |
For the Fiscal Year Ended March 31, | |
| |
2022 | | |
2021 | |
United States | |
$ | 136,067,702 | | |
$ | 79,190,558 | |
Jordan | |
| 1,950,408 | | |
| 5,702,774 | |
Others | |
| 5,336,792 | | |
| 5,320,029 | |
Total | |
$ | 143,354,902 | | |
$ | 90,213,361 | |
83.6% and 13.3% of long-lived assets were located in Jordan and Hong
Kong, respectively, as of March 31, 2022.
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 HKD3 million (approximately $385,000). On December 9, 2020, shareholders of Jiangmen Treasure Success approved to increase
its registered capital to HKD15 million (approximately $1.9 million). The Company’s subsidiary, Treasure Success, as a shareholder
of Jiangmen Treasure Success, is required to contribute HKD15 million (approximately $1.9 million) as paid-in capital in exchange for
100% ownership interest in Jiangmen Treasure Success. As of March 31, 2022, Treasure Success had made capital contribution of HKD6 million
(approximately $770,000). 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 in the second quarter of fiscal 2023 due to personal
reasons of the seller in relation to health and quarantine requirements. As of March 31, 2022, the Company paid $500,000. The Company
will pay the remaining $2.2 million upon the acquisition closing.
NOTE 15 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, MK Garments, and Jerash The First are subject to the regulations of the Income Tax Department in Jordan. The corporate income
tax rate is 18% or 20% 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 began paying corporate income tax in Jordan at a rate of 10% plus a 1% social contribution. The income tax rate increased
to 16% plus a 1% social contribution from January 1, 2021. Effective January 1, 2022, this rate increased to 18% or 20% 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.
Income tax payable consisted of the following:
| |
As of March 31, 2022 | | |
As of March 31, 2021 | |
Income tax payable – current | |
$ | 2,861,272 | | |
$ | 1,803,175 | |
Income tax payable – non-current | |
| 1,001,880 | | |
| 1,094,048 | |
| |
$ | 3,863,152 | | |
$ | 2,897,223 | |
The provision for income taxes consisted of the
following:
| |
For the fiscal years ended March 31, | |
| |
2022 | | |
2021 | |
Domestic and foreign components of income (loss) before income taxes | |
| | |
| |
Domestic | |
$ | (2,508,655 | ) | |
$ | (1,163,505 | ) |
Foreign | |
| 12,952,530 | | |
| 6,658,864 | |
Total | |
$ | 10,443,875 | | |
$ | 5,495,359 | |
| |
For the fiscal years ended March 31, | |
| |
2022 | | |
2021 | |
Provision (benefit) for income taxes | |
| | |
| |
Current tax: | |
| | |
| |
U.S. federal | |
$ | (147 | ) | |
$ | 10,574 | |
U.S. state and local | |
| 700 | | |
| 1,550 | |
Foreign | |
| 2,727,650 | | |
| 1,342,290 | |
Total Current Tax | |
| 2,728,203 | | |
| 1,354,414 | |
Deferred tax: | |
| | | |
| | |
U.S. federal | |
| (203,928 | ) | |
| (8,768 | ) |
Total deferred tax | |
| (203,928 | ) | |
| (8,768 | ) |
Total tax | |
$ | 2,524,275 | | |
$ | 1,345,646 | |
| |
| | | |
| | |
Effective tax rates | |
| 24.2 | % | |
| 24.5 | % |
NOTE 16 – INCOME TAX (CONTINUED)
A reconciliation of the effective tax rate was as follows:
| |
For the fiscal years ended March 31, | |
| |
2022 | | |
2021 | |
Tax at statutory rate | |
$ | 2,193,499 | | |
$ | 1,158,858 | |
State tax, net of federal benefit | |
| 593 | | |
| 632 | |
Non-deductible expenses | |
| 431 | | |
| 17 | |
Non-taxable income | |
| (474 | ) | |
| (564 | ) |
Global Intangible Low-Taxed Income | |
| 1,783,313 | | |
| 767,729 | |
Tax Credits | |
| (1,455,812 | ) | |
| (536,999 | ) |
Foreign tax rate differential | |
| 159,053 | | |
| (58,304 | ) |
Valuation Allowance | |
| (151,246 | ) | |
| 3,026 | |
Provision to return adjustments | |
| (5,082 | ) | |
| 11,251 | |
Total | |
$ | 2,524,275 | | |
$ | 1,345,646 | |
The Company’s deferred tax assets and liabilities
as of March 31, 2022 and 2021 consisted of the following:
Deferred tax assets | |
As of March 31,
2022 | | |
As of March 31, 2021 | |
Stock-based compensation | |
$ | 352,590 | | |
$ | 148,663 | |
Net operating losses carried forward | |
| — | | |
| 151,246 | |
Less: valuation allowance | |
| — | | |
| (151,246 | ) |
Deferred tax assets, net | |
$ | 352,590 | | |
$ | 148,663 | |
Deferred tax assets are reduced by a valuation
allowance when it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. As of March
31, 2022 and 2021, the allowance for deferred tax assets was $nil and $151,246, respectively.
As of March 31, 2022, the Company had cumulative
book-tax basis differences in its foreign subsidiaries of approximately $18.4 million. The Company has not recorded a U.S. deferred tax
liability for the book-tax basis in its foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations.
The reversal of this temporary difference would occur upon the sale or liquidation of the Company’s foreign subsidiaries, and the
estimated impact of the reversal of this temporary difference is approximately $3.8 million.
The Company files income tax returns in the U.S.
federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax authorities for years prior to December 31, 2016.
NOTE 17 – SUBSEQUENT EVENTS
On May 16, 2022, the Board of Directors approved
the payment of a dividend of $0.05 per share, payable on June 3, 2022, to stockholders of record as of the close of business on May 27,
2022.
On June 13, 2022, the Board of Directors authorized
a share repurchase program, under which the Company may repurchase up to $3.0 million of its outstanding shares of common stock. The share
repurchase program will be in effect through March 31, 2023.
On June 22, 2022, Treasure Success entered into
a Sale and Purchase Agreement with Wong Bing Lun and Chow Lai Ming (the “Sellers”). Pursuant to the agreement, the Sellers
agreed to sell, and Treasure Success agreed to purchase, 100% of the ownership interests and the Sellers’ benefit of the shareholder/director
loans in Ever Winland Limited, a Hong Kong company, for a consideration of HKD39.6 million. The agreement contains customary representations
and warranties of Treasure Success and the Sellers, customary conditions to closing, other obligations and rights of the parties, and
termination provisions.