NOTES TO 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 March 31, 2021.
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 JOD 50,000 as of March 31, 2021. 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 JOD 100,000. 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 JOD 150,000. Jerash The First is engaged in the production of medical supplies in Jordan
and is a wholly owned subsidiary of Jerash Garments.
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 JOD 50,000. Victory Apparel has no significant assets or liabilities or other operating activities
of its own. Although Jerash Garments does not own the equity interest of Victory Apparel, the Company’s president, director,
and significant 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 primarily in the manufacturing
and exporting of customized, ready-made sport and outerwear and personal protective equipment (“PPE”) produced in its facilities
in Jordan and sold in the United States, Jordan, and other countries.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s 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 VIEs, 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,
2021
|
|
|
March 31,
2020
|
|
Current assets
|
|
$
|
1,249
|
|
|
$
|
1,280
|
|
Intercompany receivables*
|
|
|
301,929
|
|
|
|
303,692
|
|
Total assets
|
|
|
303,178
|
|
|
|
304,972
|
|
|
|
|
|
|
|
|
|
|
Third party current liabilities
|
|
|
1,058
|
|
|
|
1,763
|
|
Total liabilities
|
|
|
1,058
|
|
|
|
1,763
|
|
Net assets
|
|
$
|
302,120
|
|
|
$
|
303,209
|
|
*
|
Receivables from Jerash Garments are eliminated upon consolidation.
|
Victory Apparel was inactive for the fiscal years ended March 31, 2021
and 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’s cash consists of cash on hand
and cash deposited in financial institutions. The Company considers all highly liquid investment instruments with an original maturity
of three months or less from the original date of purchase to be cash equivalents. As of March 31, 2021 and 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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Short-term Investments
From time to time, the Company purchased financial
products that can be readily converted into cash and accounted for such financial products as short-term investments. The financial products
include money market funds, bonds, and mutual funds. The carrying values of the Company’s short-term investments approximate fair
value because of their liquidity. The gain and interest earned are recognized in the consolidated statements of income over the contractual
terms of these investments.
The Company had no short-term investments as of
March 31, 2021 and 2020. The Company recorded a realized gain of $124,889 and $Nil for the fiscal years ended March 31, 2021 and 2020,
respectively.
Accounts Receivable, Net
Accounts receivable are recognized and
carried at original invoiced amount less an estimated allowance for uncollectible accounts. The Company usually grants extended payment
terms to customers with good credit standing and determines the adequacy of reserves for doubtful accounts based on individual account
analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence
that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses
on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables
balances, with a corresponding charge recorded in the consolidated statements of income and comprehensive income. Actual amounts received
may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written
off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
Inventories
Inventories are stated at the lower
of cost or net realizable value. Inventories include cost of raw materials, freight, direct labor and related production overhead. The
cost of inventories is determined using the First in, First-out method. The Company periodically reviews its inventories for excess or
slow-moving items and makes provisions as necessary to properly reflect inventory value.
Advance to Suppliers, Net
Advance to suppliers consists of balances
paid to suppliers for services or materials purchased that have not been provided or received. Advance to suppliers for services and materials
is short-term in nature. Advance to suppliers is reviewed periodically to determine whether its carrying value has become impaired. The
Company considers the assets to be impaired if the performance by the suppliers becomes doubtful. The Company uses the aging method to
estimate the allowance for the questionable balances. In addition, at each reporting date, the Company generally determines the adequacy
of allowance for doubtful accounts by evaluating all available information, and then records specific allowances for those advances based
on the specific facts and circumstances.
Property, Plant, and Equipment
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 fiscal years ended March 31, 2021 and 2020.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Revenue Recognition
Substantially all of the Company’s
revenue is derived from product sales, which consist of sales of the Company’s customized ready-made outerwear for large brand-name
retailers and PPE. The Company considers purchase orders to be a contract with a customer. Contracts with customers are considered to
be short term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year.
Virtually all of the Company’s contracts are short term. The Company recognizes revenue for the transfer of promised goods to customers
in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. The Company typically
satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due from customers
within seven to 150 days of the invoice date. The contracts do not have significant financing components. Shipping and handling costs
associated with outbound freight are not an obligation of the Company. Returns and allowances are not a significant aspect of the revenue
recognition process as historically they have been immaterial.
The Company also derives revenue rendering
cutting and making services to other apparel vendors who subcontract order to the Company. Revenue is recognized when the service is rendered.
All of the Company’s contracts have a single performance obligation satisfied at a point in time and the transaction price is stated
in the contract, usually as a price per unit. All estimates are based on the Company’s historical experience, complete satisfaction
of the performance obligation, and the Company’s best judgment at the time the estimate is made. Historically, sales returns have
not significantly impacted the Company’s revenue.
The Company does not have any contract
assets since the Company has an unconditional right to consideration when the Company has satisfied its performance obligation and payment
from customers is not contingent on a future event. The Company did not have any contract liabilities as of March 31, 2021 and March 31,
2020. For the fiscal year ended March 31 2021 and 2020, there was no revenue recognized from performance obligations related to prior
periods. As of March 31, 2021, there was no revenue expected to be recognized in any future periods related to remaining performance obligations.
The Company has one revenue generating
reportable geographic segment under ASC Topic 280 “Segment Reporting” and derives its sales primarily from its sales of customized
ready-made outerwear. The Company believes disaggregation of revenue by geographic region best depicts the nature, amount, timing, and
uncertainty of its revenue and cash flows (see “Note 14—Segment Reporting”).
Shipping and Handling
Proceeds collected from customers for
shipping and handling costs are included in revenue. Shipping and handling costs are expensed as incurred and are included in operating
expenses, as a part of selling, general and administrative expenses. Total shipping and handling expenses were $1,108,659 and $821,805
for the fiscal years ended March 31, 2021 and 2020, respectively.
Income and Sales Taxes
The Company is subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled. Jerash Holdings and Jerash Supplies
are incorporated/formed in the State of Delaware and 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. 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. The income tax rate increased to
14% plus a 1% social contribution from January 1, 2020. Effective January 1, 2021, income rate increased to 16% and plus a 1% social contribution.
Jerash Garments and its subsidiaries and VIE are
subject to local sales tax of 16% on purchases. Jerash Garments was granted a sales tax exemption from the Jordanian Investment Commission
for the period from June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases with no sales tax charge. The exemption
has been extended to February 5, 2022.
The Company accounts for income taxes in accordance
with ASC 740, “Income Taxes,” which requires the Company to use the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases of
existing assets and liabilities and operating loss and tax credit carry forwards. Under this accounting standard, the effect on deferred
income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is
recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Income and Sales Taxes (Continued)
ASC 740 clarifies the accounting for uncertainty
in tax positions. This interpretation requires that an entity recognize in its financial statements the impact of a tax position, if that
position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement
are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and penalties related
to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of income and comprehensive
income. No significant uncertainty in tax positions relating to income taxes were incurred during the fiscal years ended March 31, 2021
and 2020.
Foreign Currency Translation
The reporting currency of the Company
is the U.S. dollar (“US$” or “$”). The Company uses JOD in Jordan companies, HKD in Treasure Success, and Chinese
Yuan (“CNY”) in Jiangmen Treasure Success as functional currency of each abovementioned entity. The assets and liabilities
of the Company have been translated into US$ using the exchange rates in effect at the balance sheet date, equity accounts have been translated
at historical rates, and revenue and expenses have been translated into US$ using average exchange rates in effect during the reporting
period. Cash flows are also translated at average translation rates for the periods. Therefore, amounts related to assets and liabilities
reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated
balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate
component of accumulated other comprehensive income or loss. Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
The value of JOD against US$ and other
currencies may fluctuate and is affected by, among other things, changes in Jordan’s political and economic conditions. Any significant
revaluation of JOD may materially affect the Company’s financial condition in terms of US$ reporting. The following table outlines
the currency exchange rates that were used in creating the consolidated financial statements in this report:
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
Period-end spot rate
|
|
|
US$1=JOD0.7090
|
|
|
|
US$1=JOD0.7090
|
|
|
|
|
US$1=HKD7.7744
|
|
|
|
US$1=HKD7.7529
|
|
|
|
|
US$1=CNY6.5565
|
|
|
|
US$1=CNY7.0896
|
|
Average rate
|
|
|
US$1=JOD0.7090
|
|
|
|
US$1=JOD0.7090
|
|
|
|
|
US$1=HKD7.7527
|
|
|
|
US$1=HKD7.8163
|
|
|
|
|
US$1=CNY6.7702
|
|
|
|
US$1=CNY6.9642
|
|
Stock-Based Compensation
The Company measures compensation expense
for stock-based awards to non-employee contractors and directors based upon the awards’ initial grant-date fair value. The estimated
grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method.
The Company estimates
the fair value of stock options using a Black-Scholes model. This model is affected by the Company’s stock price on the date of
the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected term
of the option, expected risk-free rates of return, the expected volatility of the Company’s common stock, and expected dividend
yield, each of which is more fully described below. The assumptions for expected term and expected volatility are the two assumptions
that significantly affect the grant date fair value.
|
●
|
Expected Term: the expected term of a warrant or a stock option is the period of time that the warrant
or a stock option is expected to be outstanding.
|
|
●
|
Risk-free Interest Rate: the Company bases the risk-free interest rate used in the Black-Scholes model
on the implied yield at the grant date of the U.S. Treasury zero-coupon issued with an equivalent term to the stock-based award being
valued. Where the expected term of a stock-based award does not correspond with the term for which a zero-coupon interest rate is quoted,
the Company uses the nearest interest rate from the available maturities.
|
|
●
|
Expected Stock Price Volatility: the Company utilizes 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 compensation awards will be valued using the anticipated dividend yield.
|
Earnings per Share
The Company computes earnings per share
(“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with
complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common
shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential
common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS (See “Note 13–Earnings per Share”).
Comprehensive Income
Comprehensive income consists of two
components, net income and other comprehensive income. The foreign currency translation gain or loss resulting from translation of the
financial statements expressed in JOD or HKD or CNY to US$ is reported in other comprehensive income in the consolidated statements of
income and comprehensive income.
Fair Value of Financial Instruments
ASC 825-10 requires certain disclosures
regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy
prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize
the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
|
●
|
Level 1 - Quoted prices in active markets for identical assets and liabilities.
|
|
●
|
Level 2 - Quoted prices in active markets for similar assets and liabilities, or
other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
|
|
●
|
Level 3 - Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies
and similar techniques that use significant unobservable inputs.
|
The Company considers the recorded value
of its financial assets and liabilities, which consist primarily of cash, including restricted cash, accounts receivable, other receivables,
credit facilities, accounts payable, accrued expenses, income tax payables, other payables, and operating lease liabilities to approximate
the fair value of the respective assets and liabilities at March 31, 2021 and 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 March 31, 2021, and 2020, respectively, $5,122,292
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 March 31, 2021,
and 2020, respectively, $2,036,147 and $125,830 of the Company’s cash was on deposit at financial institutions in China. Cash maintained
in banks within China of less than CNY0.5 million (equivalent to $76,260) per bank are covered by “deposit insurance regulation”
promulgated by the State Council of the People’s Republic of China. As of March 31, 2021, and 2020, respectively, $15,622,051 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 March 31, 2021, and 2020, respectively, $81,221 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 importing 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, 2021, two end-customers accounted for 62% and 12% of the Company’s total revenue,
respectively. For the fiscal year ended March 31, 2020, two end-customers accounted for 77% and 11% of the Company’s total revenue,
respectively. As of March 31, 2021, two end-customers accounted of 68% and 24% 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 fiscal year ended March 31, 2021, the
Company purchased approximately 13% of its garments from one major supplier. 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. As of March 31, 2021, accounts payable
to the Company’s four major suppliers accounted for 19%, 11%, 11%, and 10% of the total accounts payable balance, respectively.
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 operations during the fiscal
year ended March 31, 2021 were impacted by the spread of COVID-19. The Company’s manufacturing facilities in Jordan was operating
on limited capacity until June 1, 2020, the shipment of certain sales orders was delayed to the fourth fiscal quarter of 2021, and the
Company postponed its construction plan of new housing facilities in Jordan.
There is significant uncertainty around
the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. The
Company currently expects that its operation results for the fiscal year ending March 31, 2022 would not be significantly impacted by
COVID-19. However, given the dynamic nature of these circumstances, should there be resurgence of the COVID-19 cases globally and that
U.S. government or Jordan government implements new restrictions to contain the spread, it is expected the Company’s business will
be negatively impacted.
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
The Company considers the applicability
and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are
issued.
In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments
– Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is intended to improve financial reporting
by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.
This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience,
current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial
statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality
and underwriting standards of the Company’s portfolio. These disclosures include qualitative and quantitative requirements that
provide additional information about the amounts recorded in the financial statements. In November 2019, the FASB issued ASU 2019-10,
which amended the effective dates of ASU 2016-13. For public business entities that meet the definition of an SEC filer, excluding entities
eligible to be smaller reporting companies (“SRC”) as defined by the SEC, ASU 2016-13 will become effective for the fiscal
years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 will
become effective for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an SRC,
the Company plans to adopt this ASU effective April 1, 2023. The Company is currently evaluating the impact of the adoption of ASU 2016-13
on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12,
Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income
taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application.
ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early
adoption permitted. The Company 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 and other
interbank offered rates, 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
|
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
Trade accounts receivable
|
|
$
|
12,033,268
|
|
|
$
|
5,340,389
|
|
Less: allowances for doubtful accounts
|
|
|
-
|
|
|
|
(4,641
|
)
|
Accounts receivable, net
|
|
$
|
12,033,268
|
|
|
$
|
5,335,748
|
|
NOTE 5 – INVENTORIES
Inventories consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
Raw materials
|
|
$
|
13,293,628
|
|
|
$
|
12,499,301
|
|
Work-in-progress
|
|
|
2,057,986
|
|
|
|
1,541,716
|
|
Finished goods
|
|
|
9,684,352
|
|
|
|
8,592,755
|
|
Total inventory
|
|
$
|
25,035,966
|
|
|
$
|
22,633,772
|
|
NOTE 6 – ADVANCE TO SUPPLIERS, NET
Advance to suppliers consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
Advance to suppliers
|
|
$
|
3,036,693
|
|
|
$
|
2,118,367
|
|
Less: allowances for doubtful accounts
|
|
|
-
|
|
|
|
(2,000
|
)
|
Advance to suppliers, net
|
|
$
|
3,036,693
|
|
|
$
|
2,116,367
|
|
NOTE 7 – LEASES
The Company has 44 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 modified retrospective transition method which allowed the Company not to recast comparative periods
presented in its 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 retained earnings 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,
2021
|
|
Right-of-use assets
|
|
$
|
1,596,600
|
|
|
|
|
|
|
Operating lease liabilities - current
|
|
$
|
400,043
|
|
Operating lease liabilities - non-current
|
|
|
935,773
|
|
Total operating lease liabilities
|
|
$
|
1,335,816
|
|
The weighted average remaining lease terms and discount rates for all
of operating leases were as follows as of March 31, 2021:
Remaining lease term and discount rate:
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
3.0
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.06
|
%
|
During the fiscal years ended March 31, 2021 and
2020, the Company incurred total operating lease expenses of $2,140,894 and $1,963,831, respectively.
NOTE 7 – LEASES (continued)
The following is a schedule, by fiscal years, of maturities of lease
liabilities as of March 31, 2021:
2022
|
|
$
|
651,349
|
|
2023
|
|
|
526,933
|
|
2024
|
|
|
302,664
|
|
2025
|
|
|
121,599
|
|
2026
|
|
|
52,542
|
|
Thereafter
|
|
|
-
|
|
Total lease payments
|
|
|
1,655,087
|
|
Less: imputed interest
|
|
|
(58,489
|
)
|
Less: prepayments
|
|
|
(260,782
|
)
|
Present value of lease liabilities
|
|
$
|
1,335,816
|
|
NOTE 8 – PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment, net consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
Land (1)
|
|
$
|
1,831,192
|
|
|
$
|
1,831,192
|
|
Property and buildings
|
|
|
432,562
|
|
|
|
432,562
|
|
Equipment and machinery (2)
|
|
|
8,532,813
|
|
|
|
7,630,255
|
|
Office and electric equipment
|
|
|
825,013
|
|
|
|
793,405
|
|
Automobiles
|
|
|
512,209
|
|
|
|
480,687
|
|
Leasehold improvements
|
|
|
2,943,797
|
|
|
|
2,765,610
|
|
Subtotal
|
|
|
15,077,586
|
|
|
|
13,933,711
|
|
Construction in progress (3)
|
|
|
194,752
|
|
|
|
194,752
|
|
Less: Accumulated depreciation and amortization
|
|
|
(9,572,832
|
)
|
|
|
(7,954,299
|
)
|
Property and equipment, net
|
|
$
|
5,699,506
|
|
|
$
|
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 has been temporarily suspended since March 2020 due to the COVID-19 pandemic. The dormitory is expected to be completed and ready for use in fiscal 2022.
|
NOTE 9 – EQUITY
Preferred Stock
The Company has 500,000 shares of preferred
stock, par value of $0.001 per share, authorized; none were issued and outstanding as of March 31, 2021 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 11,332,974 and 11,325,000 shares
of common stock outstanding as of March 31, 2021 and 2020 respectively.
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 reserved the maximum amount required.
Dividends
During the fiscal year ended March 31, 2021, on
February 5, 2021, November 2, 2020, August 5, 2020, and May 15, 2020, the Board of Directors declared a cash dividend of $0.05 per share
of common stock, respectively. The cash dividends of $566,250 were paid in full on February 23, 2021, November 23, 2020, August 24, 2020,
and June 2, 2020, respectively.
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% to 2.8%;
and the expected volatility is 50.3% to 52.2%. In March 2021, 50,000 warrants were exercised. There were 214,410 and 264,410 warrants
outstanding as of March 31, 2021 and March 31, 2020, respectively, with a weighted average exercise price of $6.67 and $6.35, respectively.
All of the outstanding warrants were fully vested and exercisable as of March 31, 2021 and 2020.
All stock warrants activities are summarized as follows:
|
|
Option to
|
|
|
Weighted Average
|
|
|
|
Acquire Shares
|
|
|
Exercise
Price
|
|
Stock warrants outstanding at March 31, 2020
|
|
|
264,410
|
|
|
$
|
6.35
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
50,000
|
|
|
|
5.00
|
|
Stock warrants outstanding at March 31, 2021
|
|
|
214,410
|
|
|
$
|
6.67
|
|
Stock Options
On March 21, 2018, the Board of Directors adopted
the Jerash Holdings (US), Inc. 2018 Stock Incentive Plan (the “Plan”), pursuant to which the Company may grant various types
of equity awards. 1,484,250 shares of common stock of the Company were reserved for issuance under the Plan. In addition, on July 19,
2019, the Board of Directors approved an amendment and restatement of the Plan, which was approved by the Company’s stockholders
at its annual meeting of stockholders on September 16, 2019. The amended and restated Plan increased the number of shares reserved for
issuance under the Plan by 300,000, to 1,784,250, among other changes.
NOTE 10 – STOCK-BASED COMPENSATION (continued)
On April 9, 2018, the Board of Directors approved
the issuance of 989,500 nonqualified stock options under the Plan to 13 executive officers and employees of the Company in accordance
with the Plan at an exercise price of $7.00 per share, and a term of five years. The fair value of these options was estimated as of the
grant date using the Black-Scholes model with the major assumptions that expected terms is five years; risk-free interest rate is 2.6%;
and the expected volatility is 50.3%. All these outstanding options were fully vested and exercisable on issue date. 3,000 options were
forfeited in November 2020.
On August 3, 2018, the Board of Directors granted
the Company’s then Chief Financial Officer and Head of U.S. Operations a total of 150,000 nonqualified stock options under the Plan
in accordance with the Plan at an exercise price of $6.12 per share and a term of 10 years. The fair value of these options was estimated
as of the grant date using the Black-Scholes model with the major assumptions that expected terms is 10 years; risk-free interest rate
is 2.95%; and the expected volatility is 50.3%. All these outstanding options were fully vested. 50,000 options were forfeited in October
2020. The remaining 100,000 options became exercisable in August 2019.
On November 27, 2019, the Board of Directors
granted the Company’s Chief Financial Officer 50,000 nonqualified stock options under the amended and restated Plan in
accordance with the amended and restated Plan at an exercise price of $6.50 per share and a term of 10 years. All these outstanding
options became fully vested and exercisable in May 2020. The fair value of the options granted on November 27, 2019 was $126,454. It
is estimated as of the grant date using the Black-Scholes model with the major assumptions that expected term of 10 years; risk-free
interest rate of 1.77%; expected volatility of 48.59%; and dividend yield of 3.08%.
All stock option activities are summarized as
follows:
|
|
Option to
|
|
|
Weighted Average
|
|
|
|
Acquire Shares
|
|
|
Exercise
Price
|
|
Stock options outstanding at March 31, 2020
|
|
|
1,189,500
|
|
|
$
|
6.87
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
53,000
|
|
|
|
6.17
|
|
Stock options outstanding at March 31, 2021
|
|
|
1,136,500
|
|
|
$
|
6.90
|
|
Total expenses related to the stock options issued
were $66,251 and $278,258 for fiscal years ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there was $nil remaining
amount to vest.
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 HKD 119,540 (approximately $15,253) and for a one-year term with an option to extend the term
for an additional year at the same rent. On October 3, 2019, Treasure Success exercised the option to extend the lease for an
additional year at the same rent. On December 15, 2020, Treasure Success and FGIL renewed the lease agreement with the same term and
lease amount. On February 25, 2021, the lease agreement was terminated, and Ford Glory disposed of the property that was subject of
the lease agreement between Treasure Success and Ford Glory.
On July 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 HKD 63,000,000 (approximately $8.1 million). Pursuant to the agreement, Treasure Success paid an initial
deposit of HKD 6,300,000 (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 leased additional space for office and sample production purposes in Jiangmen, China from Jiangmen V-Apparel
Manufacturing Limited for a monthly rent in the amount of CNY 28,300 (approximately $4,300). The lease had one-year term and might
be renewed with a one-month notice. On April 30, 2021, the factory lease agreement between Jiangmen Treasure Success and Jiangmen
V-apparel Manufacturing Limited was terminated.
On January 12, 2018, Treasure Success
and Yukwise entered into a consulting agreement, pursuant to which Mr. Choi will serve as Chief Executive Officer and provide high-level
advisory and general management services for $300,000 per annum. The agreement renews automatically for one-month terms. This agreement
became effective as of January 1, 2018. Due to the COVID-19 pandemic, Yukwise’s compensation was temporarily reduced to $20,000
per month from May 2020 to August 2020. Total consulting fees under this agreement were $280,000 and $300,000, respectively, for the fiscal
years ended March 31, 2021 and 2020.
On January 16, 2018, Treasure Success
and Multi-Glory entered into a consulting agreement, pursuant to which Multi-Glory will provide high-level advisory, marketing, and sales
services to the Company for $300,000 per annum. The agreement renews automatically for one-month terms. The agreement became effective
as of January 1, 2018. Due to the COVID-19 pandemic, Multi-Glory’s compensation was temporarily reduced to $20,000 per month from
May 2020 to August 2020. Total consulting fees under this agreement were $280,000 and $300,000, respectively, for the fiscal years ended
March 31, 2021 and 2020.
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 were guaranteed by
Jerash Holdings, Jerash Garments, and Treasure Success. In addition, the HSBC Credit Facilities required cash and other investment security
collateral of $3,000,000 and were secured by the personal guarantees of Mr. Choi and Mr. Ng Tsze Lun (“Mr. Ng”). As of January
22, 2019, the security collateral of $3,000,000 had been released. HSBC also released the personal guarantees of Mr. Choi and Mr. Ng on
August 12, 2019. The HSBC Credit Facilities provide that drawings under the HSBC Credit Facilities were charged interest at the Hong Kong
Interbank Offered Rate plus 1.5% for drawings in HKD, and the London Interbank Offered Rate plus 1.5% for drawings in other currencies.
In addition, the HSBC Credit Facilities also contained certain service charges and other commissions and fees.
Under the HSBC Factoring Agreement, HSBC also
provided credit protection and debt services related to each of the Company’s preapproved customers. For any approved debts or collections
assigned to HSBC, HSBC charged a flat fee of 0.35% on the face value of the invoice for such debt or collection. The Company may assign
debtor payments that are to be paid to HSBC within 90 days, defined as the maximum terms of payment. The Company may receive advances
on invoices that are due within 30 days of the delivery of its goods, defined as the maximum invoicing period.
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.
On
March 30, 2021, HSBC informed Treasure Success that the debts purchase services under the HSBC Factoring Agreement were terminated with
immediate effect. As of March 31, 2021 and 2020, the Company had made $nil and $235 in withdrawals under the HSBC Credit Facilities,
which were 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 March 31, 2021 and 2020, the Company had $612,703 and $nil 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 fiscal years ended March 31, 2021 and 2020. As of March 31, 2021, 1,453,910 warrants and
stock options were issued, 50,000 warrants were exercised, 53,000 options were forfeited, and 1,350,910 warrants and stock options were
outstanding. For the fiscal years ended March 31, 2021 and 2020, 1,250,910 and 107,200 warrants and stock options were excluded from the
EPS calculation, respectively, as they contained anti-dilution provisions.
|
|
Fiscal
Year Ended
|
|
|
|
March
31,
|
|
|
|
(in
$000s except share and
|
|
|
|
per
share information)
|
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
Net
income attributable to Jerash Holdings (US), Inc.’s Common Stockholders
|
|
$
|
4,150
|
|
|
$
|
6,475
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings
per share (weighted-average shares)
|
|
|
11,325,131
|
|
|
|
11,325,000
|
|
Dilutive
securities – unexercised warrants and options
|
|
|
180
|
|
|
|
118,364
|
|
Denominator
for diluted earnings per share (adjusted weighted-average shares)
|
|
|
11,325,311
|
|
|
|
11,443,364
|
|
Basic
and diluted earnings per share
|
|
$
|
0.37
|
|
|
$
|
0.57
|
|
NOTE
14 – SEGMENT REPORTING
ASC
280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent
with the Company’s internal organizational structure as well as information about geographical areas, business segments and major
customers in financial statements for details on the Company’s business segments. The Company uses the “management approach”
in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s
chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s
reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of the Company’s
products. The Company’s major product is outerwear. For the fiscal years ended March 31, 2021 and 2020, outerwear accounted for
approximately 91.4% and 85.0% of total revenue. Based on management’s assessment, the Company has determined that it has only one
operating segment as defined by ASC 280.
The
following table summarizes sales by geographic areas for the fiscal years ended March 31, 2021 and 2020, respectively.
|
|
For
the Fiscal Year Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
United States
|
|
$
|
79,190,558
|
|
|
$
|
89,123,214
|
|
Jordan
|
|
|
5,702,774
|
|
|
|
3,737,608
|
|
Others
|
|
|
5,320,029
|
|
|
|
163,414
|
|
Total
|
|
$
|
90,213,361
|
|
|
$
|
93,024,236
|
|
96.0%
of long-lived assets were located in Jordan as of March 31, 2021.
NOTE
15 – COMMITMENTS AND CONTINGENCIES
Commitments
On
August 28, 2019, Jiangmen Treasure Success, was incorporated under the laws of the People’s Republic of China in Jiangmen
City, Guangdong Province, China, with a total registered capital of HKD 3 million (approximately $385,000). On December 9, 2020,
shareholders of Jiangmen Treasure Success approved to increase its registered capital to HKD 15 million (approximately $1.9
million). The Company’s subsidiary, Treasure Success, as a shareholder of Jiangmen Treasure Success, is required to contribute
HKD 15 million (approximately $1.9 million) as paid-in capital in exchange for 100% ownership interest in Jiangmen Treasure Success.
As of March 31, 2021, Treasure Success had made capital contribution of HKD 3 million (approximately $385,000). Pursuant to the
articles of incorporation of Jiangmen Treasure Success, Treasure Success is required to complete the remaining capital contribution
before December 31, 2029 as Treasure Success’ available funds permit.
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, Jerash The First, and Victory Apparel are subject to the regulations of the Income Tax Department in Jordan. The corporate
income tax rate is 16% for the industrial sector. In accordance with the Investment Encouragement Law, Jerash Garments’ export sales
to overseas customers were entitled to a 100% income tax exemption for a period of 10 years commencing on the first day of production.
This exemption had been extended for five years until December 31, 2018. Effective January 1, 2019, the Jordanian government reclassified
the area where Jerash Garments and its subsidiaries are to a Development Zone. In accordance with the Development Zone law, Jerash Garments
and its subsidiaries and VIE began paying corporate income tax in Jordan at a rate of 10% plus a 1% social contribution. The income tax
rate increased to 14% plus a 1% social contribution from January 1, 2020. Effective January 1, 2021, this rate increased to 16% plus a
1% social contribution.
On December 22, 2017, the U.S. Tax Cuts and Jobs
Act (the “Tax Act”) was enacted. The Tax Act imposed tax on previously untaxed accumulated earnings and profits (“E&P”)
of foreign subsidiaries (the “Toll Charge”). The Toll Charge is based in part of the amount of E&P held in cash and other
specific assets as of December 31, 2017. The Toll Charge can be paid over an eight-year period, starting in 2018, and will not accrue
interest. Additionally, under the provisions of the Tax Act, for taxable years beginning after December 31, 2017, the foreign earnings
of Jerash Garments and its subsidiaries are subject to U.S. taxation at the Jerash Holdings level under the new Global Intangible Low-Taxed
Income (“GILTI”) regime.
Income tax payable consisted of the following:
|
|
As of
March 31,
2021
|
|
|
As of
March 31,
2020
|
|
Income tax payable – current
|
|
$
|
1,803,175
|
|
|
$
|
1,088,497
|
|
Income tax payable – non-current
|
|
|
1,094,048
|
|
|
|
1,227,632
|
|
|
|
$
|
2,897,223
|
|
|
$
|
2,316,129
|
|
The provision for income taxes consisted of the
following:
|
|
For the fiscal years ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Domestic and foreign components of income (loss) before income taxes
|
|
|
|
|
|
|
Domestic
|
|
$
|
(1,163,505
|
)
|
|
$
|
(1,811,749
|
)
|
Foreign
|
|
|
6,657,775
|
|
|
|
9,456,015
|
|
Total
|
|
$
|
5,494,270
|
|
|
$
|
7,644,266
|
|
|
|
For the fiscal years ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
Current tax:
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
10,574
|
|
|
$
|
4,002
|
|
U.S. state and local
|
|
|
1,550
|
|
|
|
50
|
|
Foreign
|
|
|
1,342,290
|
|
|
|
1,229,000
|
|
Total Current Tax
|
|
|
1,354,414
|
|
|
|
1,233,052
|
|
Deferred tax:
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(8,768
|
)
|
|
|
(58,434
|
)
|
Total deferred tax
|
|
|
(8,768
|
)
|
|
|
(58,434
|
)
|
Total tax
|
|
$
|
1,345,646
|
|
|
$
|
1,174,618
|
|
|
|
|
|
|
|
|
|
|
Effective tax rates
|
|
|
24.5
|
%
|
|
|
15.4
|
%
|
NOTE 16 – INCOME TAX (continued)
A reconciliation of the effective tax rate was as follows:
|
|
For the fiscal years ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Tax at statutory rate
|
|
$
|
1,158,858
|
|
|
$
|
1,605,296
|
|
State tax, net of federal benefit
|
|
|
632
|
|
|
|
40
|
|
Non-deductible expenses
|
|
|
17
|
|
|
|
29
|
|
Non-taxable income
|
|
|
(564
|
)
|
|
|
(10,151
|
)
|
Global Intangible Low-Taxed Income
|
|
|
767,729
|
|
|
|
1,130,422
|
|
Tax Credits
|
|
|
(536,999
|
)
|
|
|
(808,407
|
)
|
Foreign tax rate differential
|
|
|
(58,304
|
)
|
|
|
(804,026
|
)
|
Valuation Allowance
|
|
|
3,026
|
|
|
|
57,413
|
|
Provision to return adjustments
|
|
|
11,251
|
|
|
|
4,002
|
|
Total
|
|
$
|
1,345,646
|
|
|
$
|
1,174,618
|
|
The Company’s deferred tax assets and liabilities
at March 31, 2021 and 2020 consisted of the following:
Deferred tax assets
|
|
As of
March 31, 2021
|
|
|
As of
March 31,
2020
|
|
Stock based compensation
|
|
$
|
148,663
|
|
|
$
|
139,895
|
|
Net operating losses carried forward
|
|
|
151,246
|
|
|
|
148,220
|
|
Less: valuation allowance
|
|
|
(151,246
|
)
|
|
|
(148,220
|
)
|
Deferred tax assets, net
|
|
$
|
148,663
|
|
|
$
|
139,895
|
|
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, 2021 and 2020, the allowance for deferred tax assets was $151,246 and $148,220 respectively.
As of March 31, 2021, the Company had
cumulative book-tax basis differences in its foreign subsidiaries of approximately $20.9 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 $4.4 million.
The Company files income tax returns
in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject
to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to December 31, 2016.
NOTE 17 – SUBSEQUENT EVENTS
On April 19, 2021, the Company announced
that it commenced the construction of a 189,000 square-foot housing facility for its multi-national workforce, situated on a 49,000
square-foot site owned by the Company, in Al Tajamouat Industrial City, Jordan. Completion and occupancy of the new building is
anticipated by mid-2022.
On April 30, 2021, the factory lease agreement
between Jiangmen Treasure Success and Jiangmen V-apparel Manufacturing Limited was terminated.
On May 11, 2021, Treasure Success entered
into a three-year lease agreement with an independent third party, pursuant to which Treasure Success leased a staff quarter in Hong
Kong for a monthly rent in the amount of HK $75,000 (approximately $9,615) for the first year and HKD $82,500 (approximately
$10,577) starting from the second year. The staff quarter is occupied by Mr. Ng.
On May 14, 2021, the Board of Directors approved
the payment of a dividend of $0.05 per share payable on June 2, 2021, to stockholders of record as of the close of business on May 25,
2021.