Item 1. Financial Statements
The accompanying notes are an
integral part of these condensed unaudited consolidated financial statements.
The accompanying notes are an integral part
of these condensed unaudited consolidated financial statements.
The accompanying notes are an integral part
of these condensed unaudited consolidated financial statements.
The accompanying notes are an integral part
of these condensed unaudited consolidated financial statements.
The accompanying notes are an integral part
of these condensed unaudited consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Jerash Holdings (US), Inc. (“Jerash
Holdings”) is a corporation incorporated 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 December 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 December 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.
Jerash the First for Medical Supplies Manufacturing
Company Limited (“Jerash the First”) was incorporated 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.
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 (“Mr.
Lee”), who has the ability to control Victory Apparel’s financial affairs. In addition, Victory Apparel’s equity
at risk is not sufficient to permit it to operate without additional subordinated financial support from Jerash Garments. Based
on these facts, the Company concluded that Jerash Garments has effective control over Victory Apparel due to Mr. Choi’s roles
at both organizations and therefore Victory Apparel is considered a VIE under Accounting Standards Codification (“ASC”)
810-10-05-08A. Accordingly, Jerash Garments consolidates Victory Apparel’s operating results, assets, and liabilities.
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 (“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 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.
VIEs are generally entities that lack sufficient
equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate
decision making ability. All VIEs with which a company is involved must be evaluated to determine the primary beneficiary of the
risks and rewards of the VIEs. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. The
Company’s VIE, Victory Apparel, was inactive for the nine months ended December 31, 2020, and the net assets of the VIE were
approximately $0.3 million as of December 31, 2020 and 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 December 31, 2020, and March 31, 2020, the Company had no cash equivalents.
Restricted Cash
Restricted cash consists of cash used as
security deposits to obtain credit facilities from a bank and to secure customs clearance under the requirements of local regulations.
The Company is required to keep certain amounts on deposit that are subject to withdrawal restrictions. These security deposits
at the bank are refundable only when the bank facilities are terminated. The restricted cash is classified as a current asset if
the Company intends to terminate these bank facilities within one year, and as a non-current asset if otherwise.
Short-term Investments
The Company’s short-term investments
consist of financial products purchased from banks. The bank invests the Company’s funds in certain financial instruments
including money market funds, bonds, and mutual funds, with an expected annual return of 5%. The carrying values of the Company’s
short-term investments approximate fair value because of their liquidity. The gain and interest earned are recognized in the consolidated
statements of income over the contractual terms of these investments. The Company exited the investment
before December 31, 2020.
The Company had no short-term investments
as of December 31, 2020 and 2019. The Company recorded a realized gain of $60,197 and $Nil for the three months ended December
31, 2020 and $124,889 and $Nil for the nine months ended December 31, 2020 and 2019, respectively.
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 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 receivable balances, with a corresponding charge recorded in the consolidated statements of 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
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.
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 nine months ended December 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 and personal protective equipment. 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 150 days of the invoice date. The contracts do not have a significant financing component. 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 orders to the Company, and the revenue is recognized when
the service is rendered.
All of the Company’s contracts have
a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as a
price per unit. All estimates are based on the Company’s historical experience, complete satisfaction of the performance
obligation, and the Company’s best judgment at the time the estimate is made. Historically, sales returns have not significantly
impacted the Company’s revenue.
The Company does not have any contract
assets since the Company has an unconditional right to consideration when the Company has satisfied its performance obligation
and payment from customers is not contingent on a future event. For the nine months ended December 31, 2020 and 2019, there was
no revenue recognized from performance obligations related to prior periods. As of December 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
$316,027 and $168,580 for the three months ended December 31, 2020 and 2019, respectively. Total shipping and handling expenses
were $860,157 and $669,716 for the nine months ended December 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
and Jerash Supplies are incorporated/formed in the State of Delaware and is subject to federal income tax in the United States
of America. Treasure Success is registered in Hong Kong and has no operating profit. Jiangmen Treasure Success is incorporated
in China and is subject to corporate income tax in China. Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash
the First and Victory Apparel are subject to income tax in Jordan, unless an exemption is granted. 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 an industrial park that houses manufacturing operations in Jordan (“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 a 1%
social contribution. Effective January 1, 2020, income rate increased to 14% plus a 1% social contribution.
Jerash Garments and its subsidiaries and
VIE are subject to local sales tax of 16% on purchases. Jerash Garments was granted a sales tax exemption from the Jordanian Investment
Commission for the period from June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases with no sales tax charge.
This exemption was extended to February 5, 2021 and Jerash Garments is currently applying for another extension, though there is
no guarantee that such an extension will be granted.
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 nine
months ended December 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:
|
|
December 31,
2020
|
|
March 31,
2020
|
|
December 31, 2019
|
Period-end spot rate
|
|
US$1=JOD0.7090
|
|
US$1=JOD0.7090
|
|
US$1=JOD0.7090
|
|
|
US$1=HKD7.7527
|
|
US$1=HKD7.7529
|
|
US$1=HKD7.7877
|
|
|
US$1=CNY6.5327
|
|
US$1=CNY7.0896
|
|
US$1=CNY6.9680
|
Average rate
|
|
US$1=JOD0.7090
|
|
US$1=JOD0.7090
|
|
US$1=JOD0.7090
|
|
|
US$1=HKD7.7512
|
|
US$1=HKD7.8163
|
|
US$1=HKD7.8314
|
|
|
US$1=CNY6.8695
|
|
US$1=CNY6.9642
|
|
US$1=CNY6.9587
|
Stock-Based Compensation
The Company measures compensation expense
for stock-based awards to non-employee contractors and directors based upon the awards’ initial grant-date fair value. The
estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line
method.
The Company estimates the fair value of
stock options using a Black-Scholes model. This model is affected by the Company’s stock price on the date of the grant as
well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected term of
the option, expected risk-free rates of return, the expected volatility of the Company’s common stock, and expected dividend
yield, each of which is more fully described below. The assumptions for expected term and expected volatility are the two assumptions
that significantly affect the grant date fair value.
|
●
|
Expected Term: the expected term of a warrant or a stock option is the period of time that the warrant or 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 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: Stock-based compensation awards granted prior to November 2018 assumed no dividend yield, while any subsequent stock-based compensations 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 December 31, 2020 and March 31, 2020 based upon the short-term
nature of these assets and liabilities.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Concentrations and Credit Risk
Credit risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist primarily of cash. As of December 31, 2020, and March
31, 2020, respectively, $6,799,294 and $6,894,641 of the Company’s cash was on deposit
at financial institutions in Jordan, where there currently is no rule or regulation requiring such financial institutions to maintain
insurance to cover bank deposits in the event of bank failure. As of December 31, 2020 and March 31, 2020,
respectively, $5,598,902 and $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 December 31, 2020 and March 31, 2020, respectively, $16,734,532 and $19,847,852 of the Company’s cash
was on deposit at financial institutions in Hong Kong, which are insured by the Hong Kong Deposit Protection Board subject to certain
limitations. While management believes that these financial institutions are of high credit quality, it also continually monitors
their credit worthiness. As of December 31, 2020 and March 31, 2020, respectively, $95,029 and $48,386 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 changes in local market conditions. The Company has a concentration of its revenue and purchases
with specific customers and suppliers. For the three months ended December 31, 2020, four end-customers accounted for 31%, 18%,
16%, and 14% of the Company’s total revenue respectively. For the three months ended December 31, 2019, two end-customers
accounted for 66% and 24% of the Company’s total revenue respectively. For the nine months ended December 31, 2020, two end-customers
accounted for 62% and 10% of the Company’s total revenue respectively. For the nine months ended December 31, 2019, one-end
customer accounted for 83% of the Company’s total revenue. As of December 31, 2020, two end-customers accounted for 45% and
36% of the Company’s total accounts receivable balance, respectively. As of March 31, 2020, four end-customers accounted
for 42%, 20%, 20%, and 14% of the Company’s total accounts receivable balance, respectively.
For the three months ended December 31,
2020, the Company purchased approximately 20% and 11% of its raw materials and garments from two major suppliers, respectively.
For the nine months ended December 31, 2020, the Company purchased approximately 14% and 11% of its raw materials and garments
from two major suppliers, respectively. For the three months ended December 31, 2019, the Company purchased 48% of its raw materials
from one major supplier. For the nine months ended December 31, 2019, the Company purchased approximately 23% and 17% of its raw
materials from two major suppliers, respectively. As of December 31 2020, accounts payable to the Company’s two major suppliers
accounted for 54% and 15% of the total accounts payable balance, 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.
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 sales
declined in the first nine months of 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. Based on the
assessment of the current economic environment, customer demand, and sales trend, and the negative impact from the prolonged
COVID-19 outbreak and spread, management has indicated that the Company’s revenue and operating cash flows may be lower
than expected for fiscal year 2021.
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. This ASU is effective for interim and annual periods beginning
after December 15, 2019. For all other entities, this guidance and its amendments will be effective for fiscal years beginning
after December 15, 2022, including interim periods within those fiscal years. Early application will be permitted for all entities
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. As an emerging growth company,
the Company plans to adopt this guidance effective April 1, 2023. The Company is currently evaluating the impact of adopting 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 does not expect adoption of the new ASU to have a significant
impact on its consolidated financial statements.
In January 2021, the FASB issued ASU No. 2021-01, Reference
Rate Reform (Topic 848). This ASU is intended to transition away from referencing the London Interbank Offered Rate (“LIBOR”)
and other interbank offered rates (IBORs), and toward new reference rates that are more reliable and robust. The amendments in
this ASU are effective immediately for all entities. An entity may elect to apply the amendments in this ASU on a full retrospective
basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective
basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of
a final ASU, up to the date that financial statements are available to be issued. The Company is evaluating the impact of adopting
this new ASU and does not expect a significant impact on its consolidated financial statements.
NOTE 4 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
Trade accounts receivable
|
|
$
|
10,332,090
|
|
|
$
|
5,340,389
|
|
Less: allowances for doubtful accounts
|
|
|
(45,003
|
)
|
|
|
(4,641
|
)
|
Accounts receivable, net
|
|
$
|
10,287,087
|
|
|
$
|
5,335,748
|
|
NOTE 5 – INVENTORIES
Inventories consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
Raw materials
|
|
$
|
10,000,920
|
|
|
$
|
12,499,301
|
|
Work-in-progress
|
|
|
1,229,410
|
|
|
|
1,541,716
|
|
Finished goods
|
|
|
7,983,440
|
|
|
|
8,592,755
|
|
Total inventory
|
|
$
|
19,213,770
|
|
|
$
|
22,633,772
|
|
NOTE 6 – ADVANCE TO SUPPLIERS
Advance to suppliers consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
Advance to suppliers
|
|
$
|
4,171,819
|
|
|
$
|
2,118,367
|
|
Less: allowances for doubtful accounts
|
|
|
(17,857
|
)
|
|
|
(2,000
|
)
|
Advance to suppliers, net
|
|
$
|
4,153,962
|
|
|
$
|
2,116,367
|
|
NOTE 7 – LEASES
The Company has 35 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:
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
Right-of-use assets
|
|
$
|
1,168,795
|
|
|
$
|
1,147,090
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities - current
|
|
$
|
316,068
|
|
|
$
|
210,081
|
|
Operating lease liabilities - non-current
|
|
|
531,080
|
|
|
|
649,935
|
|
Total operating lease liabilities
|
|
$
|
847,148
|
|
|
$
|
860,016
|
|
The weighted average remaining lease terms
and discount rates for all of operating leases were as follows as of December 31, 2020:
Remaining lease term and discount rate:
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
2.4
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.06
|
%
|
During the three months ended December 31, 2020 and 2019, the
Company incurred total lease expenses of $534,674 and $494,335, respectively. During the nine months ended December 31, 2020 and
2019, the Company incurred total lease expenses of $1,582,015 and $1,440,070, respectively.
NOTE 7 – LEASES (Continued)
The following is a schedule, by fiscal years, of maturities
of lease liabilities as of December 31, 2020:
2021
|
|
$
|
147,550
|
|
2022
|
|
|
556,007
|
|
2023
|
|
|
340,119
|
|
2024
|
|
|
186,854
|
|
Total lease payments
|
|
|
1,230,530
|
|
Less: imputed interest
|
|
|
(60,190
|
)
|
Less: prepayments
|
|
|
(323,192
|
)
|
Present value of lease liabilities
|
|
$
|
847,148
|
|
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
Land (1)
|
|
$
|
1,831,192
|
|
|
$
|
1,831,192
|
|
Property and buildings
|
|
|
432,562
|
|
|
|
432,562
|
|
Equipment and machinery (2)
|
|
|
8,132,731
|
|
|
|
7,630,255
|
|
Office and electric equipment
|
|
|
811,754
|
|
|
|
793,405
|
|
Automobiles
|
|
|
512,210
|
|
|
|
480,687
|
|
Leasehold improvements
|
|
|
2,766,569
|
|
|
|
2,765,610
|
|
Subtotal
|
|
|
14,487,018
|
|
|
|
13,933,711
|
|
Construction in progress (3)
|
|
|
194,752
|
|
|
|
194,752
|
|
Less: Accumulated depreciation and amortization (4)
|
|
|
(9,184,300
|
)
|
|
|
(7,954,299
|
)
|
Property and equipment, net
|
|
$
|
5,497,470
|
|
|
$
|
6,174,164
|
|
|
(1)
|
On
August 7, 2019 and February 6, 2020, the Company, through Jerash Garments, purchased 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 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 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 due to the COVID-19 pandemic. The dormitory is expected to be completed and ready for use in fiscal 2022.
|
|
(4)
|
Depreciation and amortization expenses totaled $400,717 and
$383,474 for the three months ended December 31, 2020 and 2019, respectively. Depreciation and amortization expenses totaled $1,230,002
and $1,108,252 for the nine months ended December 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; none were issued and outstanding as of December 31, 2020 and March 31, 2020.
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 11,325,000 shares of common
stock outstanding as of December 31, 2020 and March 31, 2020.
Statutory Reserve
In accordance with the Corporate Law in
Jordan, Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash the First, and Victory Apparel are required to
make appropriations to certain reserve funds, based on net income determined in accordance with generally accepted accounting principles
of Jordan. Appropriations to the statutory reserve are required to be 10% of net income until the reserve is equal to 100% of the
entity’s share capital. This reserve is not available for dividend distribution. In addition, PRC companies are required
to set aside at least 10% of their after-tax net profits each year, if any, to fund the statutory reserves until the balance of
the reserves reaches 50% of their registered capital. The statutory reserves are not distributable in the form of cash dividends
to the Company and can be used to make up cumulative prior year losses. The Company’s subsidiaries and VIE have already reserved
the maximum amount required.
Dividends
During the fiscal year ending March 31,
2021, on 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 November 23, 2020, August 24, 2020, and June
2, 2020, respectively.
During the fiscal year ended March 31,
2020, 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.
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.
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 the expected term 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 December 31, 2020 and
March 31, 2020 with a weighted average exercise price of $6.35. All of the outstanding warrants were fully vested and exercisable
as of December 31, 2020 and March 31, 2020.
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.
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.
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 assumption that expected term 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. 100,000 options were 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
were 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 following assumptions:
|
|
Stock Options
|
|
|
|
November 27,
2019
|
|
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:
|
|
Option to
|
|
|
Weighted Average
|
|
|
|
Acquire Shares
|
|
|
Exercise
Price
|
|
Stock options outstanding at March 31, 2020
|
|
|
1,189,500
|
|
|
$
|
6.87
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
53,000
|
|
|
|
6.17
|
|
Stock options outstanding at December 31, 2020
|
|
|
1,136,500
|
|
|
$
|
6.90
|
|
Total expense related to the stock options
issued was $Nil and $Nil for the three months ended December 31, 2020 and 2019 respectively. Total expense related to the stock
options issued was $42,151 and $193,955 for the nine months ended December 31, 2020 and 2019 respectively. As of December 31, 2020,
all outstanding options were fully vested and exercisable.
NOTE 11 – RELATED
PARTY TRANSACTIONS
The relationship and the nature of related
party transactions are summarized as follow:
Name of Related Party
|
|
Relationship to the Company
|
|
Nature of Transactions
|
|
|
|
|
|
Ford Glory International Limited (“FGIL”)
|
|
Affiliate, subsidiary of Ford Glory Holdings (“FGH”), which is 49% indirectly owned by the Company’s President, Chief Executive Officer, and Chairman, and a significant stockholder
|
|
Operating Lease
|
|
|
|
|
|
Yukwise Limited (“Yukwise”)
|
|
Wholly owned by the Company’s President, Chief Executive Officer, and Chairman, and a significant stockholder
|
|
Consulting Services
|
|
|
|
|
|
Multi-Glory Corporation Limited (“Multi-Glory”)
|
|
Wholly owned by a significant stockholder
|
|
Consulting Services
|
|
|
|
|
|
Jiangmen V-Apparel Manufacturing Limited
|
|
Affiliate, subsidiary of FGH
|
|
Operating Lease
|
NOTE 11 – RELATED PARTY TRANSACTIONS
(Continued)
|
a.
|
Related
party lease and purchases agreement
|
On October 3, 2018, Treasure
Success and FGIL entered into a lease agreement, pursuant to which Treasure Success leased its office space in Hong Kong from FGIL
for a monthly rent in the amount of HKD119,540 (approximately $15,253) and for a one-year term with an option to extend the term
for an additional year at the same rent. On October 3, 2019, Treasure Success exercised the option to extend the lease for an additional
year at the same rent. On December 15, 2020, Treasure Success and FGIL renewed the lease agreement with the same term and lease
amount.
On 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 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 leases 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 $4,000). The lease has one-year term and may be renewed with
a one-month notice. If the lease is renewed, the rental amount will be reviewed by and negotiated between both parties according
to the market rental rate annually.
On January 12, 2018, Treasure
Success and Yukwise entered into a consulting agreement, pursuant to which Mr. Choi will serve as Chief Executive Officer and provide
high-level advisory and general management services for $300,000 per annum. The agreement renews automatically for one-month terms.
This agreement became effective as of January 1, 2018. Due to the COVID-19 pandemic, Yukwise’s compensation was temporarily
reduced to $20,000 per month from May 2020 to August 2020. For the three months ended December 31, 2020 and 2019, total consulting
fees under this agreement were $75,000 and $75,000, respectively. For the nine months ended December 31, 2020 and 2019, total consulting
fees under this agreement were $205,000 and $225,000, respectively.
On January 16, 2018, Treasure
Success and Multi-Glory entered into a consulting agreement, pursuant to which Multi-Glory will provide high-level advisory, marketing,
and sales services to the Company for $300,000 per annum. The agreement renews automatically for one-month terms. The agreement
became effective as of January 1, 2018. Due to the COVID-19 pandemic, Multi-Glory’s compensation was temporarily reduced
to $20,000 per month from May 2020 to August 2020. For the three months ended December 31, 2020 and 2019, total consulting fees
under this agreement were $75,000 and $75,000, respectively. For the nine months ended December 31, 2020 and 2019, total consulting
fees under this agreement were $205,000 and $225,000, respectively.
NOTE 12 – CREDIT FACILITIES
Pursuant to a letter agreement dated
May 29, 2017, Treasure Success entered into an initial $8,000,000 import credit facility with Hong Kong and Shanghai Banking
Corporation (“HSBC”) (the “2017 Facility Letter”), which was first amended pursuant to a letter
agreement between HSBC, Treasure Success, and Jerash Garments dated June 19, 2018 (the “2018 Facility Letter”),
further amended pursuant to a letter agreement dated August 12, 2019 (the “2019 Facility Letter”), and further
amended pursuant to a letter agreement dated July 3, 2020 (the “2020 Facility Letter,” and together with the 2017
Facility Letter, 2018 Facility Letter, and 2019 Facility Letter, the “HSBC Facility”). The 2020 Facility Letter
extends the term of the HSBC Facility indefinitely. Pursuant to the HSBC Facility, the Company has a total credit limit of
$11,000,000.
In addition, on June 5, 2017, Treasure
Success entered into an Offer Letter - Invoice Discounting/Factoring Agreement, and on August 21, 2017, Treasure Success entered
into an Invoice Discounting/Factoring Agreement (together, the “2017 Factoring Agreement”) with HSBC for certain debt
purchase services related to the Company’s accounts receivable. On June 14, 2018, Treasure Success and Jerash Garments entered
into another Offer Letter-Invoice Discounting/Factoring Agreement with HSBC, which amended the 2017 Factoring Agreement (the “2018
Factoring Agreement, and together with the 2017 Factoring Agreement, the “HSBC Factoring Agreement,” and together with
the HSBC Facility, the “HSBC Credit Facilities”). Pursuant to the HSBC Factoring Agreement, HSBC offered to provide
Treasure Success with a $12,000,000 factoring facility for certain debt purchase services related to Treasure Success’s accounts
receivable.
The HSBC Credit Facilities 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 Tsze Lun (“Mr. Ng”).
As of January 22, 2019, the security collateral of $3,000,000 had been released. HSBC also released the personal guarantees of
Mr. Choi and Mr. Ng on August 12, 2019. The HSBC Credit Facilities provide that drawings under the HSBC Credit Facilities 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 of December 31, 2020 and March 31, 2020,
the Company had made $807,298 and $235 in withdrawals, under the HSBC Credit Facilities, which are due within 120 days of each
borrowing date or upon demand by HSBC.
On January 31, 2019, Standard Chartered
Bank (Hong Kong) Limited (“SCBHK”) offered to provide an import facility of up to $3.0 million to Treasure Success
pursuant to a facility letter dated June 15, 2018. Pursuant to the agreement, SCBHK agreed to finance import invoice financing
and pre-shipment financing of export orders up to an aggregate of $3.0 million. The SCBHK facility bears interest at 1.3% per annum
over SCBHK’s cost of funds. As of December 31, 2020 and March 31, 2020, the Company had no outstanding amount, 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 three and nine months ended December 31, 2020 and 2019. As of December 31, 2020,
1,453,910 warrants and stock options were issued, 53,000 options were forfeited and 1,400,910 warrants and stock options were outstanding.
For the three and nine months ended December 31, 2020, 1,350,910 warrants and stock options were excluded from the EPS calculation
as they contained anti-dilution provisions. For the three and nine months ended December 31, 2019, 107,200 warrants and stock options
were excluded from the EPS calculation as they contained anti-dilution provisions.
|
|
Three Months Ended
December 31,
(in $000s except share and
per share information)
|
|
|
Nine Months Ended
December 31,
(in $000s except share and
per share information)
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Jerash Holdings (US), Inc.’s Common Stockholders
|
|
$
|
94
|
|
|
$
|
2,073
|
|
|
$
|
3,468
|
|
|
$
|
7,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share (weighted-average shares)
|
|
|
11,325,000
|
|
|
|
11,325,000
|
|
|
|
11,325,000
|
|
|
|
11,325,000
|
|
Dilutive securities – unexercised warrants and options
|
|
|
7,552
|
|
|
|
125,707
|
|
|
|
5,950
|
|
|
|
152,344
|
|
Denominator for diluted earnings per share (adjusted weighted-average shares)
|
|
|
11,332,552
|
|
|
|
11,450,707
|
|
|
|
11,330,950
|
|
|
|
11,477,344
|
|
Basic earnings per share
|
|
$
|
0.01
|
|
|
$
|
0.18
|
|
|
$
|
0.31
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.01
|
|
|
$
|
0.18
|
|
|
$
|
0.31
|
|
|
$
|
0.63
|
|
NOTE 14 – SEGMENT REPORTING
ASC 280, “Segment Reporting”,
establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal
organizational structure as well as information about geographical areas, business segments and major customers in financial statements
for details on the Company’s business segments. The Company uses the “management approach” in determining reportable
operating segments. The management approach considers the internal organization and reporting used by the Company’s chief
operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s
reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of the
Company’s products. The Company’s major product is outerwear. For the three months ended December 31, 2020 and 2019,
outerwear accounted for approximately 89.7% and 73.4% of the Company’s total revenue, respectively. For the nine months ended
December 31, 2020 and 2019, outerwear accounted for approximately 89.9% and 88.4% of the Company’s total revenue, respectively.
Based on management’s assessment, the Company has determined that it has only one operating segment as defined by ASC 280.
The following table summarizes sales by
geographic areas for the three months ended December 31, 2020 and 2019, respectively.
|
|
For the Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
15,459,814
|
|
|
$
|
24,825,021
|
|
Jordan
|
|
|
1,645,232
|
|
|
|
621,687
|
|
China mainland and Hong Kong
|
|
|
3,558,879
|
|
|
|
-
|
|
Total
|
|
$
|
20,663,925
|
|
|
$
|
25,446,708
|
|
The following table summarizes sales by
geographic areas for the nine months ended December 31, 2020 and 2019, respectively.
|
|
For the Nine Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
56,452,326
|
|
|
$
|
76,218,964
|
|
Jordan
|
|
|
5,073,429
|
|
|
|
2,202,774
|
|
Others
|
|
|
4,931,243
|
|
|
|
163,414
|
|
Total
|
|
$
|
66,456,998
|
|
|
$
|
78,585,152
|
|
99.9% of long-lived assets were located in Jordan as of December
31, 2020
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 December 31, 2020, Treasure Success had made
capital contribution of HKD3 million ($385,000). Pursuant to the articles of incorporation of Jiangmen Treasure Success, Treasure
Success is required to complete the remaining capital contribution before December 31, 2029 as Treasure Success’ available
funds permit.
Contingencies
From time to time, the Company is a party
to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when
they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are
expensed as incurred. The Company’s management does not expect any liability from the disposition of such claims and litigation
individually or in the aggregate would not have a material adverse impact on the Company’s consolidated financial position,
results of operations, and cash flows.
NOTE 16 – INCOME TAX
Jerash Garments, Jerash Embroidery, Chinese
Garments, Paramount, Jerash the First and Victory Apparel are subject to the regulations of the Income Tax Department in Jordan.
The corporate income tax rate is 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 on the first
day of production. This exemption had been extended for five years until December 31, 2018. Effective January 1, 2019, the Jordanian
government reclassified the area where Jerash Garments and its subsidiaries are to a Development Zone. In accordance with the Development
Zone law, Jerash Garments and its subsidiaries and VIE began paying corporate income tax in Jordan at a rate of 10% plus a 1% social
contribution. Effective January 1, 2020, this rate increased to 14% 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.
NOTE 17 – SUBSEQUENT EVENTS
On February 5, 2021, the Board of Directors
approved the payments of a dividend of $0.05 per share, payable on February 23, 2021 to stockholders of record as of the close
of business on February 16, 2021.