NOTES TO CONSOLIDATED FINANCIALSTATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Jerash Holdings (US), Inc. (“Jerash
Holdings”) is a corporation established under the laws of the State of Delaware on January 20, 2016. Jerash Holdings is a
parent holding company with no operations. Jerash Holdings, and its subsidiaries and 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) as of March 31, 2020.
Jerash for Industrial Embroidery Company
(“Jerash Embroidery”) and Chinese Garments and Fashions Manufacturing Company Limited (“Chinese Garments”)
were both incorporated in Amman, Jordan, as limited liability companies on March 11, 2013 and June 13, 2013, respectively, each
with a declared capital of JOD50,000 as of March 31, 2020. Jerash Embroidery and Chinese Garments are wholly owned subsidiaries
of Jerash Garments.
Al-Mutafaweq Co. for Garments Manufacturing
Ltd. (“Paramount”), was a contract garment manufacturer that was incorporated in Amman, Jordan, as a limited liability
company on October 24, 2004 with a declared capital of JOD100,000. On December 11, 2018, Jerash Garments and the sole stockholder
of Paramount entered into an agreement pursuant to which Jerash Garments acquired all of the outstanding shares of stock of Paramount.
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. Treasure Success International
Limited (“Treasure Success”) was incorporated on July 5, 2016 in Hong Kong, China, for the primary purpose of employing
staff from China to support Jerash Garments’ operations and is a wholly-owned subsidiary of Jerash Holdings.
Treasure Success International Limited
(“Treasure Success”) was incorporated on July 5, 2016 in Hong Kong, China, for the primary purpose of employing staff
from China to support Jerash Garments’ operations and is a wholly-owned subsidiary of Jerash Holdings.
Victory Apparel (Jordan) Manufacturing
Company Limited (“Victory Apparel”) was incorporated as a limited liability company in Amman, Jordan, on September
18, 2005 with a declared capital of JOD50,000. 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 stockholder, 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
stockholder of Jerash Garments, Mr. Lee Kian Tjiauw, 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 Mr. Choi. 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.
Jiangmen Treasure Success Business Consultancy
Company Limited (“Jiangmen Treasure Success”) was incorporated on August 28, 2019 under the laws of the People’s
Republic of China in Guangzhou City of Guangdong Province in China with a total registered capital of 3 million Hong Kong Dollars
(“HKD”) (approximately $385,000) 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.
The Company is engaged in the manufacturing
and exporting of customized, ready-made sport and outerwear from knitted fabric 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”).
Principles of Consolidation
The 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.
In accordance with accounting standards
regarding the consolidation of VIE, 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.
As described in Note 1, management of the
Company has concluded that Victory Apparel is a VIE, and that Jerash Garments is considered the primary beneficiary because Mr.
Choi, the Company’s president, director, and significant stockholder absorbs the risks and rewards of Victory Apparel; therefore,
the Company consolidates Victory Apparel for financial reporting purposes. Noncontrolling interests result from the consolidation
of Victory Apparel, which is 100% owned by Wealth Choice Limited.
The
following table sets forth the carrying amounts of the assets and liabilities of the VIE, Victory Apparel, which was included
in the Company’s consolidated balance sheets:
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Current assets
|
|
$
|
1,280
|
|
|
$
|
1,316
|
|
Intercompany receivables*
|
|
|
303,692
|
|
|
|
307,687
|
|
Total assets
|
|
|
304,972
|
|
|
|
309,003
|
|
|
|
|
|
|
|
|
|
|
Third party current liabilities
|
|
|
1,763
|
|
|
|
-
|
|
Total liabilities
|
|
|
1,763
|
|
|
|
-
|
|
Net assets
|
|
$
|
303,209
|
|
|
$
|
309,003
|
|
*
|
Receivables from Jerash Garments are eliminated upon
consolidation.
|
Victory Apparel was inactive for the year
ended March 31, 2020.
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 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, 2020, and 2019, 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 non-current asset
since the Company has no intention to terminate these bank facilities within one year.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Accounts Receivable
Accounts receivable are recognized and
carried at original invoiced amount less an estimated allowance for uncollectible accounts. The Company usually grants credit
to customers with good credit standing for a maximum of 120 days and determines the adequacy of reserves for doubtful accounts
based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables
when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s
best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision
is recorded against accounts receivables balances, with a corresponding charge recorded in the 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. Allowance was $4,641 and nil as of March 31, 2020 and 2019, respectively.
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
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 collectability of the advance becomes doubtful. The Company
uses the aging method to estimate the allowance for uncollectible 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. Allowance was $2,000 and nil as of March 31, 2020
and 2019, respectively.
Property, Plant and Equipment
Property, plant and equipment are recorded
at cost, reduced by accumulated depreciation and amortization. Depreciation and amortization expense related to property, plant
and equipment is computed using the straight-line method based on estimated useful lives of the assets, or in the case of leasehold
improvements, the shorter of the initial lease term or the estimated useful life of the improvements. The useful life and depreciation
method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern
of economic benefits from items of property, plant and equipment. The estimated useful lives of depreciation and amortization of
the principal classes of assets are as follows:
|
Useful life
|
Land
|
Infinite
|
Property and buildings
|
15 years
|
Equipment and machinery
|
3-5 years
|
Office and electronic equipment
|
3-5 years
|
Automobiles
|
5 years
|
Leasehold improvements
|
Lesser of useful life and lease term
|
Expenditures for maintenance and repairs,
which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals
and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation
or amortization of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the 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 years ended March 31, 2020 and 2019.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Revenue Recognition
Substantially all of the Company’s
revenue is derived from product sales, which consist of sales of the Company’s customized ready-made outerwear for large
brand-name retailers. The Company considers purchase orders to be a contract with a customer. Contracts with customers are considered
to be short term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than
one year, and virtually all of the Company’s contracts are short term. The Company recognizes revenue for the transfer of
promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange
for those goods. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods.
Generally, payment is due from customers within seven to 120 days of the invoice date, and the contracts do not have significant
financing components. Shipping and handling costs associated with outbound freight are not an obligation of the Company. Returns
and allowances are not a significant aspect of the revenue recognition process as historically they have been immaterial.
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 fiscal year March 31 2020 and 2019, there was no revenue
recognized from performance obligations related to prior periods. As of March 31, 2020, 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
$821,805 and $692,794 for the years ended March 31, 2020 and 2019, respectively.
Income 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 was
incorporated in the State of Delaware and is subject to federal income tax in the United States of America. Treasure Success was
registered in Hong Kong and has no operating profit. Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, and Victory
Apparel are subject to income tax in Jordan, unless an exemption is granted. The corporate income tax rate is 14% for the businesses
classified within the industrial sector. In accordance with the Investment Encouragement Law, Jerash Garments’ export sales
to overseas customers were entitled to a 100% income tax exemption for a period of 10 years commencing at the first day of production.
This exemption had been extended for five years until December 31, 2018. Effective January 1, 2019, the Jordanian government changed
some features of its tax incentive programs and Jerash Garments and its subsidiaries and VIE are now qualified for incentives
applicable to a Development Zone, a change from the previous incentive program relating to Qualifying Industrial Zone. 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 1% social contribution. Effective January 1, 2020, income rate increased to 14% plus 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 June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases with no sales tax charge.
This exemption has been extended to February 5, 2021.
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 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 year
ended March 31, 2020 and 2019.
Foreign Currency Translation
The reporting currency of the Company is
the U.S. dollar (“US$” or “$”). The Company uses JOD as its functional currency in Jordanian companies,
HKD in Treasure Success, and Chinese Yuan (“CNY”) in Jiangmen Treasure Success as functional currency of each abovementioned
entity. The assets and liabilities of the Company have been translated into US$ 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. The following
table outlines the currency exchange rates that were used in creating the consolidated financial statements in this report:
|
|
March 31,
2020
|
|
March 31,
2019
|
Period-end spot rate
|
|
US$1=JOD0.7090
|
|
US$1=JOD0.7090
|
|
|
US$1=HKD7.7529
US$1=CNY7.0896
|
|
US$1=HKD7.8500
|
Average rate
|
|
US$1=JOD0.7090
|
|
US$1=JOD0.7091
|
|
|
US$1=HKD7.8163
US$1=CNY6.9642
|
|
US$1=HKD7.8420
|
Stock-Based Compensation
The Company measures compensation expense
for stock-based awards to non-employee contractors and directors based upon the awards’ initial grant-date fair value. The
estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line
method.
The Company estimates the fair value of
stock options 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 sock option is the period of time that the
warrant or stock option is expected to be outstanding.
|
|
●
|
Risk-free
Interest Rate: the Company bases the risk-free interest rate used in the Black-Scholes
model on the implied yield at the grant date of the U.S. Treasury zero-coupon issued
with an equivalent term to the share-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 comparable public company volatility over
the same period of time as the life of the warrant or stock option.
|
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Stock-Based Compensation (Continued)
|
●
|
Dividend
Yield: Until November 2018, the board of directors of Jerash Holdings (the “Board
of Directors”) had not declared, and the Company had not yet paid, any dividends.
Accordingly, stock-based compensation awards granted prior to November 2018 assumed no
dividend yield, while any subsequent stock-based compensation awards are 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 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 payable, other payables, and operating lease liabilities
to approximate the fair value of the respective assets and liabilities at March 31, 2020 and 2019 based upon the short-term nature
of these assets and liabilities.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Concentrations and Credit Risk
Credit risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist primarily of cash. As of March 31, 2020, and 2019, respectively,
$6,894,641 and $7,121,161 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, 2020, $125,830 of the Company’s cash was on deposit
at financial institutions in China, 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, 2020, and 2019, respectively, $19,847,852 and $20,614,581
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, 2020, and 2019, respectively, $48,386 and
$98,726 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 exporting
business, foreign exchange rate fluctuations, and change of 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, 2020, two end-customers
accounted for 77% and 11%, respectively, of the Company’s total revenue. For the fiscal year ended March 31, 2019, one
end-customer accounted for 79% of the Company’s total revenue. As of March 31, 2020, four end-customers accounted for
42%, 20%, 20%, and 14% of the Company’s total accounts receivable balance. As of March 31, 2019, one end-customer
accounted of 96% of the Company’s total accounts receivable balance.
For the fiscal year ended March 31, 2020,
the Company purchased approximately 22%, 16%, and 11% of its raw materials from three major suppliers, respectively. For the fiscal
year ended March 31, 2019, the Company purchased approximately 19%, 12%, and 11% of its raw materials from three major suppliers,
respectively. As of March 31, 2020, accounts payable to the Company’s three major suppliers accounted for 39%, 16%, and
10% of the total accounts payable balance, respectively. As of March 31, 2019, accounts payable to the Company’s three major
suppliers accounted for 40%, 20%, and 14 % of the total accounts payable balance, respectively.
A loss of any of these customers or suppliers could adversely
affect the operating results or cash flows of the Company.
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.
NOTE 3 – RECENT ACCOUNTING PRONOUNANCEMENTS
The Company considers the applicability
and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that
are issued.
The Company adopted ASU No. 2016-02—Leases
(Topic 842), as of April 1, 2019, using a modified retrospective transition method permitted under ASU No. 2018-11. This transition
approach provides a method for recording existing leases only at the date of adoption and does not require previously reported
balances to be adjusted. In addition, the Company elected the package of practical expedients permitted under the transition guidance
within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. Adoption
of the new standard resulted in the recording of additional lease assets and lease liabilities of approximately $1.4 million and
$0.9 million, respectively, as of April 1, 2019. The standard did not materially impact consolidated net earnings and had no impact
on cash flows. (See “Note 7—Leases”).
In June 2016, the FASB issued ASU No.
2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This
ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments
held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial
assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates
and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Company’s
portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts
recorded in the financial statements. This ASU is effective for interim and annual periods beginning after December 15, 2019,
and early adoption is permitted. The Company will adopt ASU 2016-13 and its related amendments effective April 1, 2020, and there
was no material effect on its consolidated financial statements for the adoption of this standard.
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 does not expect adoption of the new guidance to have a significant
impact on its consolidated financial statements.
NOTE 4 – ACCOUNTS RECEIVABLES
Accounts receivable consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
2020
|
|
|
March 31,
2019
|
|
Trade accounts receivable
|
|
$
|
5,340,389
|
|
|
$
|
4,020,369
|
|
Less: allowances for doubtful accounts
|
|
|
4,641
|
|
|
|
-
|
|
Accounts receivables, net
|
|
$
|
5,335,748
|
|
|
$
|
4,020,369
|
|
NOTE 5 – INVENTORIES
Inventories consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
2020
|
|
|
March 31,
2019
|
|
Raw materials
|
|
$
|
12,499,301
|
|
|
$
|
11,601,262
|
|
Work-in-progress
|
|
|
1,541,716
|
|
|
|
1,889,329
|
|
Finished goods
|
|
|
8,592,755
|
|
|
|
7,583,652
|
|
Total inventory
|
|
$
|
22,633,772
|
|
|
$
|
21,074,243
|
|
NOTE 6 – ADVANCE TO SUPPLIERS
Advance to suppliers consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
2020
|
|
|
March 31,
2019
|
|
Advance to suppliers
|
|
$
|
2,118,367
|
|
|
$
|
443,395
|
|
Less: allowances for doubtful accounts
|
|
|
2,000
|
|
|
|
-
|
|
Advance to suppliers, net
|
|
$
|
2,116,367
|
|
|
$
|
443,395
|
|
NOTE 7 – LEASES
The Company has 31 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 remeasurement 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.
Effective April 1, 2019, the Company adopted
the new lease accounting standard using a simplified retrospective transition method which allowed the Company not to recast comparative
periods presented in its unaudited condensed consolidated financial statements. In addition, the Company elected the package of
practical expedients, which allowed the Company to not reassess whether any existing contracts contain a lease, to not reassess
historical lease classification as operating or finance leases, and to not reassess initial direct costs. The Company has not elected
the practical expedient to use hindsight to determine the lease term for its leases at transition. The Company combines the lease
and non-lease components in determining the ROU assets and related lease obligation. Adoption of this standard resulted in the
recording of operating lease ROU assets and corresponding operating lease liabilities as disclosed below and had no impact on accumulated
deficit as of March 31, 2020. 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,
2020
|
|
Right-of-use assets
|
|
$
|
1,147,090
|
|
|
|
|
|
|
Operating lease liabilities - current
|
|
$
|
210,081
|
|
Operating lease liabilities - non-current
|
|
|
649,935
|
|
Total operating lease liabilities
|
|
$
|
860,016
|
|
The weighted average remaining lease terms
and discount rates for all of operating leases were as follows as of March 31, 2020:
Remaining lease term and discount rate:
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
3.6
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.06
|
%
|
During the fiscal 2020 and 2019, the Company
incurred total operation lease expenses of $1,963,831 and $1,528,500 respectively.
NOTE 7 – LEASES (Continued)
The following is a schedule, by fiscal years, of maturities
of lease liabilities as of March 31, 2020:
2021
|
|
$
|
448,886
|
|
2022
|
|
|
317,113
|
|
2023
|
|
|
223,571
|
|
2024
|
|
|
171,282
|
|
2025
|
|
|
82,831
|
|
Thereafter
|
|
|
-
|
|
Total lease payments
|
|
|
1,243,683
|
|
Less: imputed interest
|
|
|
(96,593
|
)
|
Less: prepayments
|
|
|
(287,074
|
)
|
Present value of lease liabilities
|
|
$
|
860,016
|
|
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
2020
|
|
|
March 31,
2019
|
|
Land (1)
|
|
$
|
1,831,192
|
|
|
$
|
61,078
|
|
Property and buildings
|
|
|
432,562
|
|
|
|
432,562
|
|
Equipment and machinery (2)
|
|
|
7,630,255
|
|
|
|
5,560,265
|
|
Office and electric equipment
|
|
|
793,405
|
|
|
|
550,738
|
|
Automobiles
|
|
|
480,687
|
|
|
|
367,332
|
|
Leasehold improvements
|
|
|
2,765,610
|
|
|
|
1,652,038
|
|
Subtotal
|
|
|
13,933,711
|
|
|
|
8,624,013
|
|
Construction in progress (3)
|
|
|
194,752
|
|
|
|
200,042
|
|
Less: Accumulated depreciation and amortization (4)
|
|
|
(7,954,299
|
)
|
|
|
(6,467,793
|
)
|
Property and equipment, net
|
|
$
|
6,174,164
|
|
|
$
|
2,356,262
|
|
|
(1)
|
On August 7, 2019 and February 6, 2020, the Company, through
Jerash Garments, closed transactions to purchase 12,340 square meters (approximately three acres) and 4,516 square meters (approximately
48,608 square feet) of land in Al Tajamouat Industrial City, Jordan (the “Jordan Properties”), from third parties to
construct a factory and a dormitory for the Company’s employees, respectively. The aggregate purchase price of the Jordan
Properties was JOD1,177,301 (approximately US$1.7 million).
|
|
(2)
|
On June 18, 2019, the Company closed a transaction whereby
it acquired all of the outstanding shares of Paramount, a contract manufacturer based in Amman, Jordan. As a result, Paramount
became a subsidiary of Jerash Garments, and the Company assumed ownership of all of the machinery and equipment owned by Paramount.
Paramount had no other significant assets or liabilities and no operating activities or employees at the time of acquisition,
so this transaction was accounted for as an asset acquisition. $980,000 was paid in cash to acquire all of the machinery and equipment
from Paramount and the machinery and equipment were transferred to the Company.
|
|
(3)
|
The construction in progress account represents costs incurred
for constructing dormitory, which was previously planned to be a sewing workshop. This dormitory is approximately 4,800 square
feet in the Tafilah Governorate of Jordan, and is expected to be operational before the end of fiscal 2021.
|
|
(4)
|
Depreciation and amortization expenses were $1,516,526
and $1,255,820 for the fiscal years ended March 31, 2020 and 2019, respectively.
|
NOTE 9 – EQUITY
Preferred Stock
The Company had 500,000 shares of preferred
stock authorized with a par value of $0.001 per share, and with none issued and outstanding as of March 31, 2020 and March 31,
2019. The preferred stock can be issued by the Board of Directors of Jerash Holdings in one or more classes or one or more series
within any class, and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations,
preferences, rights, qualifications, limitations, or restrictions of such rights as the Board of Directors may determine from time
to time.
Common Stock
Prior to September 17, 2018, the Company
had 15,000,000 shares of common stock authorized with a par value of $0.001 per share. On September 17, 2018, following approval
from its stockholders, the Company filed a certificate of amendment to its certificate of incorporation with the State of Delaware
to increase its authorized shares of common stock from 15,000,000 to 30,000,000. The Company had 11,325,000 shares common stock
outstanding as of March 31, 2020 and 2019.
Statutory Reserve
In accordance with the Corporate Law in
Jordan, Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, and Victory Apparel are required to make appropriations
to certain reserve funds, based on net income determined in accordance with generally accepted accounting principles of Jordan.
Appropriations to the statutory reserve are required to be 10% of net income until the reserve is equal to 100% of the entity’s
share capital. This reserve is not available for dividend distribution. 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
On February 5, 2020, November 4, 2019,
July 29, 2019, and May 17, 2019, 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 26, 2020, November 26, 2019, August 19, 2019, and June 5, 2019, respectively.
On February 7, 2019 and November 1, 2018,
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 27, 2019 and November 27, 2018, respectively.
Initial Public Offering
The registration statement on Form S-1
(File No. 333-222596) for the Company’s initial public offering (the “IPO”) was declared effective on March 14,
2018. On May 2, 2018, the Company issued 1,430,000 shares of common stock at $7.00 per share and received gross proceeds of $10,010,000.
The Company incurred underwriting commissions of $477,341, underwriter offering expenses of $250,200, and additional underwriting
expenses of $352,159, yielding net proceeds from the IPO of $8,930,300.
NOTE 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 a Black-Scholes model and using the volatility, market price, exercise
price, risk-free interest rate, and dividend yield appropriate at the date the warrants were issued.
Simultaneous with the closing of the IPO,
the Company issued to the underwriter and its affiliates warrants to purchase 57,200 shares of common stock (“IPO Underwriter
Warrants”) at an exercise price of $8.75 per share with an expiration date of May 2, 2023. The shares underlying the IPO
Underwriter Warrants were subject to a 180-day lock-up that expired on October 29, 2018.
The fair value of these warrants 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 1.8-2.8%; and the expected volatility is 50.3-52.2%. There were 264,410 warrants outstanding as of March 31, 2020 and 2019
with a weighted average exercise price of $6.35. All of the outstanding warrants were fully vested and exercisable as of March
31, 2020 and 2019.
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 the 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.
On April 9, 2018, the Board of Directors
approved the issuance of 989,500 nonqualified stock options under the Plan in accordance with the Plan at an exercise price of
$7.00 per share, and a term of five years. 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.
NOTE 10 – STOCK-BASED COMPENSATION
(Continued)
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 and 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. As of March 31, 2020, there
was $42,151 remaining amount to vest.
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 following assumptions:
|
|
Stock Options
|
|
|
|
March 31,
2020
|
|
Expected term (in years)
|
|
|
10.0
|
|
Risk-free interest rate (%)
|
|
|
1.77
|
%
|
Expected volatility (%)
|
|
|
48.59
|
%
|
Dividend yield (%)
|
|
|
3.08
|
%
|
All stock option activities are summarized
as follows:
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Stock options outstanding at March 31, 2019
|
|
|
1,139,500
|
|
|
$
|
6.88
|
|
Granted
|
|
|
50,000
|
|
|
|
6.50
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Stock options outstanding at March 31, 2020
|
|
|
1,189,500
|
|
|
$
|
6.87
|
|
Total expense related to the stock options
issued was $278,258 for the year ended March 31, 2020. There were $42,151 of unrecognized compensation costs at March 31, 2020
relating to unvested awards.
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, a significant stockholder
|
|
Operating Lease
|
|
|
|
|
|
Yukwise Limited (“Yukwise”)
|
|
Wholly owned by the Company’s President, Chief Executive Officer, and Chairman, a significant stockholder
|
|
Consulting Services
|
|
|
|
|
|
Multi-Glory Corporation Limited (“Multi-Glory”)
|
|
Wholly owned by a significant stockholder
|
|
Consulting Services
|
|
|
|
|
|
Jiangmen V-Apparel Manufacturing Limited
|
|
Affiliate, subsidiary of FGH
|
|
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 leases 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 August 31, 2019, Jiangmen
Treasure Success and Jiangmen V-Apparel Manufacturing Limited entered into a lease agreement, which was a replacement of a previous
lease agreement between Treasure Success and Jiangmen V-Apparel Manufacturing Limited dated August 15, 2019, pursuant to which
Treasure Success leases its office space in Jiangmen, China from Jiangmen V-Apparel Manufacturing Limited for a monthly rent in
the amount of CNY6,200 (approximately $891). The lease has a 10-year term with a clause to increase the rental amount by 5% annually
between the third and fifth years of the lease term and the rental amount will be reviewed by and negotiated between both parties
according to the market rental rate.
On July 15, 2019, the Company,
through Treasure Success, entered into an agreement to purchase office space together with certain parking spaces from FGIL for
an aggregate purchase price of HKD63,000,000 (approximately $8.1 million). Pursuant to the agreement, Treasure Success paid an
initial deposit of HKD6,300,000 (approximately $0.8 million) upon signing the agreement. On October 31, 2019, this agreement was
terminated pursuant to its terms because the conditions precedent to closing under the agreement were not met. As a result of the
termination, on November 7, 2019, FGIL repaid in full, without interest, the deposit Treasure Success paid at the time the agreement
was signed.
On January 16, 2018, Treasure
Success and Multi-Glory entered into a consulting agreement, pursuant to which Multi-Glory will provide high-level advisory, marketing,
and sales services to the Company for $300,000 per annum. The agreement renews automatically for one-month terms. The agreement
became effective as of January 1, 2018. Total consulting fees under this agreement were $300,000 for the years ended March
31, 2020 and 2019.
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. Total advisory and management expenses under this agreement were $300,000
for the years ended March 31, 2020 and 2019.
NOTE 11 – RELATED
PARTY TRANSACTIONS (Continued)
Borrowings under the Credit Facilities, with HSBC were previously
secured by the personal guarantees of Mr. Choi and Mr. Ng Tsze Lun (“Mr. Ng”). These guarantees were released as of
August 12, 2019. (See “Note 12—Credit Facilities”).
NOTE 12 – CREDIT FACTILITIES
Pursuant to a letter agreement dated May
29, 2017, Treasure Success entered into an $8,000,000 import credit facility with Hong Kong and Shanghai Banking Corporation (“HSBC”)
(the “2017 Facility Letter”),which was amended pursuant to a letter agreement between HSBC, Treasure Success, and Jerash
Garments dated June 19, 2018 (the “2018 Facility Letter”), and increased to $11,000,000 pursuant to a letter agreement
dated August 12, 2019 (the “2019 Facility Letter,” and together with the 2018 Facility Letter and 2017 Facility Letter,
the “HSBC Facility”).
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 the Invoice Discounting/Factoring Agreement (together, the “2017 Factoring Agreement”) with HSBC for certain debt
purchase services related to the Company’s accounts receivables. 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
receivables.
The HSBC Credit Facilities are 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. 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 are 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 contain certain service charges and other commissions and fees.
Under the HSBC Factoring Agreement, HSBC
also provides credit protection and debt services related to each of the Company’s preapproved customers. For any approved
debts or collections assigned to HSBC, HSBC charges a flat fee of 0.35% on the face value of the invoice for such debt or collection.
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.
The HSBC Credit Facilities are subject
to review at any time, and HSBC has discretion on whether to renew the HSBC Facility. Either party may terminate the HSBC Factoring
Agreement subject to a 30-day notice period.
As March 31, 2020, and 2019, the Company
had made $235 and $360,401 in withdrawals, under the HSBC Credit Facilities, which are due within 120 days of each borrowing date
or upon demand by HSBC. As of March 31, 2020, $235 was outstanding under the HSBC Factoring Agreement. As of March 31, 2019, $85,421
was outstanding under the HSBC Factoring Agreement and $274,980 outstanding under the HSBC Facility.
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 March 31, 2020 and 2019, the Company had an outstanding amount of $0 and $288,310, respectively,
in import invoice financing under the SCBHK 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, 2020 and 2019. 57,200 IPO Underwriter Warrants, 50,000
stock options to the Company’s Chief Financial Officer were anti-dilutive for the year ended March 31, 2020 and excluded from the EPS calculation.
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
|
(in $000s except share and
|
|
|
|
per share information)
|
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
Net income attributable to Jerash Holdings (US), Inc.’s Common Stockholders
|
|
$
|
6,475
|
|
|
$
|
5,112
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share (weighted-average shares)
|
|
|
11,325,000
|
|
|
|
11,199,630
|
|
Dilutive securities – unexercised warrants and options
|
|
|
118,364
|
|
|
|
130,680
|
|
Denominator for diluted earnings per share (adjusted weighted-average shares)
|
|
|
11,443,364
|
|
|
|
11,330,310
|
|
Basic earnings per share
|
|
$
|
0.57
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.57
|
|
|
$
|
0.45
|
|
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 years ended March 31, 2020 and 2019, outerwear
accounted for approximately 85.0% and 88.3% 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 years ended March 31, 2020 and 2019, respectively.
|
|
For the years ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
89,123,214
|
|
|
$
|
70,092,992
|
|
Jordan
|
|
|
3,737,608
|
|
|
|
13,693,020
|
|
Other countries
|
|
|
163,414
|
|
|
|
1,197,649
|
|
Total
|
|
$
|
93,024,236
|
|
|
$
|
84,983,661
|
|
99.9% of long-lived assets were located in Jordan as of March
31, 2020
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Commitments
On August 28, 2019, a new entity, Jiangmen
Treasure Success, was incorporated under the laws of the People’s Republic of China in Jiangmen City, Guangdong Province,
China, with a total registered capital of HKD3 million (approximately $385,000). The Company’s subsidiary, Treasure Success,
is required to contribute HKD3 million (approximately $385,000) as paid-in capital in exchange for 100% ownership interest in Jiangmen
Treasure Success. As of March 31, 2020, Treasure Success had made capital contribution of HKD1.3 million (approximately $167,000).
Pursuant to Jiangmen Treasure Success’s organizational documents, the Company is required to complete the capital contribution
before December 31, 2029.
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, and Victory Apparel are subject to the regulations of the Income Tax Department in Jordan. The corporate income
tax rate is 14% for the industrial sector. In accordance with the Investment Encouragement Law, Jerash Garments’ export sales
to overseas customers were entitled to a 100% income tax exemption for a period of 10 years commencing at the first day of production.
This exemption had been extended for five years until December 31, 2018. The effect of the tax exemption on the Company’s
2019 fiscal results is a tax savings of approximately $1,623,717, or $0.14 per share. Effective January 1, 2019, Jordanian government
has changed some features of Jerash Garments and its subsidiaries area to a Development Zone. In accordance with Development Zone
law, Jerash Garments and its subsidiaries and VIE began paying corporate income tax in Jordan at a rate of 10% plus a 1% social
contribution. Effective January 1, 2020, this rate increased to 14% plus a 1% social contribution.
On December 22, 2017, the Tax Cuts and
Jobs Act (the “Tax Act”) was enacted. The Tax Act imposed 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,
2020
|
|
|
As of
March 31,
2019
|
|
Income tax payable – current
|
|
$
|
1,088,497
|
|
|
$
|
1,164,238
|
|
Income tax payable – non-current
|
|
|
1,227,632
|
|
|
|
1,403,087
|
|
|
|
$
|
2,316,129
|
|
|
$
|
2,567,325
|
|
NOTE 16 – INCOME TAX (Continued)
The provision for income taxes consisted
of the following:
|
|
For the years ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Domestic and foreign components of income (loss) before income taxes
|
|
|
|
|
|
|
Domestic
|
|
$
|
(1,811,749
|
)
|
|
$
|
(5,205,168
|
)
|
Foreign
|
|
|
9,456,015
|
|
|
|
11,577,544
|
|
Total
|
|
$
|
7,644,266
|
|
|
$
|
6,372,376
|
|
|
|
For the years ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
|
|
Current tax:
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
4,002
|
|
|
$
|
1,302,022
|
|
U.S. state and local
|
|
|
50
|
|
|
|
40
|
|
Foreign
|
|
|
1,229,000
|
|
|
|
40,260
|
|
Total Current Tax
|
|
|
1,233,052
|
|
|
|
1,342,322
|
|
Deferred tax:
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(58,434
|
)
|
|
|
(81,461
|
)
|
U.S. state and local
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Total deferred tax
|
|
|
(58,434
|
)
|
|
|
(81,461
|
)
|
Total tax
|
|
$
|
1,174,618
|
|
|
$
|
1,260,861
|
|
|
|
|
|
|
|
|
|
|
Effective tax rates
|
|
|
15.4
|
%
|
|
|
19.8
|
%
|
A reconciliation of the effective tax
rate was as follows:
|
|
For the years ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Tax at statutory rate
|
|
$
|
1,605,296
|
|
|
$
|
1,338,199
|
|
State tax, net of federal benefit
|
|
|
40
|
|
|
|
40
|
|
Non-deductible expenses
|
|
|
29
|
|
|
|
692,749
|
|
Non-taxable income
|
|
|
(10,151
|
)
|
|
|
(17,416
|
)
|
Global Intangible Low-Taxed Income
|
|
|
1,130,422
|
|
|
|
1,381,950
|
|
Tax Credits
|
|
|
(808,407
|
)
|
|
|
(31,307
|
)
|
Foreign tax rate differential
|
|
|
(804,026
|
)
|
|
|
(2,426,493
|
)
|
Valuation Allowance
|
|
|
57,413
|
|
|
|
52,885
|
|
Provision to return adjustments
|
|
|
4,002
|
|
|
|
270,254
|
|
Total
|
|
$
|
1,174,618
|
|
|
$
|
1,260,861
|
|
The Company’s deferred tax assets
and liabilities at March 31, 2020 and 2019 consisted of the following:
Deferred tax assets
|
|
As of March 31, 2020
|
|
|
As of March 31,
2019
|
|
Stock based compensation
|
|
$
|
139,895
|
|
|
$
|
81,461
|
|
Net operating losses carried forward
|
|
|
148,220
|
|
|
|
90,807
|
|
Less: valuation allowance
|
|
|
(148,220
|
)
|
|
|
(90,807
|
)
|
Deferred tax assets, net
|
|
$
|
139,895
|
|
|
$
|
81,461
|
|
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, 2020 and 2019, the allowance for deferred tax assets was $148,220 and $90,807, respectively.
NOTE
17 – SUBSEQUENT EVENTS
As
of March 31, 2020, the Company had cumulative book-tax basis differences in its foreign
subsidiaries of approximately $20.5 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
$4.3 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.
On
May 15, 2020, the Board of Directors approved the payment of a dividend of $0.05 per share payable on June 2, 2020 to stockholders
of record as of the close of business on May 26, 2020.
In March 2020, the outbreak of COVID-19 (coronavirus) caused
by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become
increasingly widespread all over the world, including in each of the areas in which the Company operates. The Company temporarily
closed its manufacturing facilities from March 18, 2020 to April 3, 2020. As the situation was controlled and improved gradually
in April and May, the Company’s manufacturing facilities in Jordan have been resumed step by step, and reached full capacity
since June 1, 2020. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility in U.S.
and international markets. There was no significant negative impact for the fiscal year ended March 31, 2020, but the management
expects a short-term decline in fiscal 2021. 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 and, as such, the Company is unable to estimate
the impact on the Company’s financial condition and operations in the long run.