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Jerash Holdings (US), Inc. - Quarter Report: 2021 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                 

 

Commission File Number: 001-38474

 

Jerash Holdings (US), Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   81-4701719
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

277 Fairfield Road, Suite 338

Fairfield, New Jersey 07004

(Address of principal executive offices) (Zip Code)

 

(214) 906-0065

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each Class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.001 per share   JRSH   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of November 11, 2021, there were 12,334,318 shares of common stock, par value $0.001 per share, outstanding.

 

 

 

 

 

 

Jerash Holdings (US), Inc.

 

Form 10-Q

 

For the Quarterly Period Ended September 30, 2021

 

Contents

 

Part I Financial Information 1
   
Item 1 Financial Statements 1
     
  Condensed Consolidated Balance Sheets as of September 30, 2021 and March 31, 2021 1
 

Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended September 30, 2021 and 2020

2
 

Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended September 30, 2021 and 2020

3
 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2021 and 2020

5
  Notes to Condensed Consolidated Financial Statements 6
     
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
     
Item 3 Quantitative and Qualitative Disclosures about Market Risk 32
     
Item 4 Controls and Procedures 32
     
Part II Other Information 33
     
Item 1 Legal Proceedings 33
     
Item 1A Risk Factors 33
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 33
     
Item 3 Defaults Upon Senior Securities 33
     
Item 4 Mine Safety Disclosures 33
     
Item 5 Other Information 33
     
Item 6 Exhibits 34
     
Signature 35

 

i

 

  

JERASH HOLDINGS (US), INC.

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

JERASH HOLDINGS (US), INC.,

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30,
2021
   March 31,
2021
 
   (Unaudited)     
         
ASSETS    
Current Assets:        
Cash  $25,042,220   $21,126,090 
Restricted cash   
-
    714,844 
Accounts receivable, net   13,416,125    12,033,268 
Tax recoverable   1,079    379,719 
Inventories   20,560,272    25,035,966 
Prepaid expenses and other current assets   2,833,962    2,329,289 
Investment deposits   3,200,000    
-
 
Advance to suppliers, net   1,886,856    3,036,693 
Total Current Assets   66,940,514    64,655,869 
           
Restricted cash - non-current   1,301,588    1,020,777 
Long-term deposits   268,255    128,690 
Deferred tax assets, net   148,663    148,663 
Property, plant and equipment, net   6,554,481    5,699,506 
Right of use assets   1,601,671    1,596,600 
Total Assets  $76,815,172   $73,250,105 
           
LIABILITIES AND EQUITY          
           
Current Liabilities:          
Credit facilities  $
-
   $612,703 
Accounts payable   4,535,255    7,922,839 
Accrued expenses   3,460,886    2,332,867 
Income tax payable - current   1,519,978    1,803,175 
Other payables   1,076,251    1,455,208 
Receipt in advance from a customer   1,474,932    - 
Operating lease liabilities - current   550,099    400,043 
Total Current Liabilities   12,617,401    14,526,835 
           
Operating lease liabilities - non-current   905,710    935,773 
Income tax payable - non-current   961,048    1,094,048 
Total Liabilities   14,484,159    16,556,656 
           
Commitments and Contingencies   
 
    
 
 
           
Equity          
Preferred stock, $0.001 par value; 500,000 shares authorized; none issued and outstanding  $
-
   $
-
 
Common stock, $0.001 par value; 30,000,000 shares authorized; 11,334,318 and 11,332,974 shares issued and outstanding respectively   11,334    11,333 
Additional paid-in capital   15,617,080    15,301,268 
Statutory reserve   346,315    346,315 
Retained earnings   45,991,062    40,748,314 
Accumulated other comprehensive gain (loss)   63,824    (15,901)
Total Jerash Holdings (US), Inc.’s Stockholder’s Equity   62,029,615    56,391,329 
           
Noncontrolling interest   301,398    302,120 
Total Equity   62,331,013    56,693,449 
           
Total Liabilities and Equity  $76,815,172   $73,250,105 

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1

 

  

JERASH HOLDINGS (US), INC.,

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

 

   For the Three Months Ended
September 30,
   For the Six Months Ended
September 30,
 
   2021   2020   2021   2020 
                 
Revenue, net  $45,711,166   $27,086,318   $75,599,858   $45,793,073 
Cost of goods sold   35,606,587    21,203,568    59,864,337    36,858,753 
Gross Profit   10,104,579    5,882,750    15,735,521    8,934,320 
                     
Selling, general and administrative expenses   4,223,671    2,853,679    7,537,902    4,704,506 
Stock-based compensation expenses   315,296    
-
    315,813    42,151 
Total Operating Expenses   4,538,967    2,853,679    7,853,715    4,746,657 
                     
Income from Operations   5,565,612    3,029,071    7,881,806    4,187,663 
                     
Other (Expense) Income:                    
Other (expense) income, net   (74,557)   62,917    (38,276)   60,178 
Total other (expense) income, net   (74,557)   62,917    (38,276)   60,178 
                     
Net income before provision for income taxes   5,491,055    3,091,988    7,843,530    4,247,841 
                     
Income tax expense   1,050,330    531,896    1,468,139    873,896 
                     
Net Income   4,440,725    2,560,092    6,375,391    3,373,945 
                     
Net loss attributable to noncontrolling interest   705    8    722    14 
Net income attributable to Jerash Holdings (US), Inc.’s Common Stockholders  $4,441,430   $2,560,100   $6,376,113   $3,373,959 
                     
Net Income  $4,440,725   $2,560,092   $6,375,391   $3,373,945 
                     
Other Comprehensive Income:                    
Foreign currency translation (loss) gain   (263)   712    79,725    159 
Total Comprehensive Income   4,440,462    2,560,804    6,455,116    3,374,104 
Comprehensive income attributable to noncontrolling interest   
-
    
-
    
-
    
-
 
Comprehensive Income Attributable to Jerash Holdings (US), Inc.’s Common Stockholders  $4,440,462   $2,560,804   $6,455,116   $3,374,104 
                     
Earnings Per Share Attributable to Common Stockholders:                    
Basic and diluted  $0.39   $0.23   $0.56   $0.30 
                     
Weighted Average Number of Shares                    
Basic   11,334,318    11,325,000    11,333,907    11,325,000 
Diluted   11,512,533    11,329,953    11,403,931    11,330,081 
                     
Dividend per share  $0.05   $0.05   $0.10   $0.10 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2

 

 

JERASH HOLDINGS (US), INC.,

SUBSIDIARIES AND AFFILIATE

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

 

           Additional           Accumulated Other         
   Preferred Stock   Common Stock   Paid-in   Statutory   Retained   Comprehensive   Noncontrolling   Total 
   Shares   Amount   Shares   Amount   Capital   Reserve   Earnings   Gain (Loss)   Interest   Equity 
Balance at March 31, 2020   
-
   $
-
    11,325,000   $11,325   $15,235,025   $212,739   $38,997,177   $(8,324)  $303,209   $54,751,151 
                                                   
Stock-based compensation expense for the stock options issued under stock incentive plan   
-
    
-
    
-
    
-
    42,151    
-
    
-
    
-
    
-
    42,151 
Net income (loss)   -    
-
    -    
-
    
-
    
-
    3,373,959    
-
    (14)   3,373,945 
Dividend payment   -    
-
    -    
-
    
-
    
-
    (1,132,500)   
-
    
-
    (1,132,500)
Foreign currency translation gain   -    
-
    -    
-
    
-
    
-
    
-
    159    
-
    159 
                                                   
Balance at September 30, 2020 (unaudited)   
-
   $
-
    11,325,000   $11,325   $15,277,176   $212,739   $41,238,636   $(8,165)  $303,195   $57,034,906 
                                                   
Balance at March 31, 2021   
-
   $
-
    11,332,974   $11,333   $15,301,268   $346,315   $40,748,314   $(15,901)  $302,120   $56,693,449 
                                                   
Stock-based compensation expense for the restricted stock units issued under stock incentive plan   
-
    
-
    
-
    
-
    315,813    
-
    
-
    
-
    
-
    315,813 
Cashless exercise of warrants   -    
-
    1,344    1    (1)   
-
    
-
    
-
    
-
    
-
 
Net income (loss)   -    
-
    -    
-
    
-
    
-
    6,376,113    
-
    (722)   6,375,391 
Dividend payment   -    
-
    -    
-
    
-
    
-
    (1,133,365)   
-
    
-
    (1,133,365)
Foreign currency translation gain   -    
-
    -    
-
    
-
    
-
    
-
    79,725    
-
    79,725 
                                                   
Balance at September 30, 2021 (unaudited)   
        -
   $
        -
    11,334,318   $11,334   $15,617,080   $346,315   $45,991,062   $63,824   $301,398   $62,331,013 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

 

FOR THE THREE MONTHS ENDED SEPTERMBER 30, 2021 AND 2020

 

           Additional           Accumulated
Other
         
   Preferred Stock   Common Stock   Paid-in   Statutory   Retained   Comprehensive   Noncontrolling   Total 
   Shares   Amount   Shares   Amount   Capital   Reserve   Earnings   Loss   Interest   Equity 
Balance at June 30, 2020 (unaudited)   
-
   $
-
    11,325,000   $11,325   $15,277,176   $212,739   $39,244,786   $(8,877)  $303,203   $55,040,352 
                                                   
Net income (loss)   -    
-
    -    
-
    
-
    
-
    2,560,100    
-
    (8)   2,560,092 
Dividend payment   
-
    
-
    -    
-
    
-
    
-
    (566,250)   
-
    
-
    (566,250)
Foreign currency translation gain   -    
-
    -    
-
    
-
    
-
    
-
    712    
-
    712 
                                                   
Balance at September 30, 2020 (unaudited)   
     -
   $
        -
    11,325,000   $11,325   $15,277,176   $212,739   $41,238,636   $(8,165)  $303,195   $57,034,906 

 

   Preferred Stock   Common Stock   Additional Paid-in   Statutory   Retained   Accumulated Other Comprehensive   Noncontrolling   Total 
   Shares   Amount   Shares   Amount   Capital   Reserve   Earnings   Gain (Loss)   Interest   Equity 
Balance at June 30, 2021 (unaudited)   
-
   $
-
    11,334,318   $11,334   $15,301,784   $346,315   $42,116,348   $64,087   $302,103   $58,141,971 
                                                   
Stock-based compensation expense for the restricted stock units issued under stock incentive plan   
-
    
-
    
-
    
-
    315,296    -    
-
    
-
    
                      -
    315,296 
Net income (loss)   -    
-
    -    
-
    
-
    
-
    4,441,430    
-
    (705)   4,440,725 
Dividend payment   
-
    
-
    
-
    
-
    
-
    
-
    (566,716)   
-
    
-
    (566,716)
Foreign currency translation loss   -    
-
    -    
-
    
-
    
-
    
-
    (263)   
-
    (263)
                                                   
Balance at September 30, 2021 (unaudited)   
      -
   $
      -
    11,334,318   $11,334   $15,617,080   $346,315   $45,991,062   $63,824   $301,398   $62,331,013 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

  

JERASH HOLDINGS (US), INC.,

SUBSIDIARIES AND AFFILIATE

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For the Six Months Ended
September 30,
 
   2021   2020 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net Income  $6,375,391   $3,373,945 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   880,135    829,285 
Stock-based compensation expenses   315,813    42,151 
Bad debt expense   
-
    58,563 
Amortization of operating lease right-of-use assets   356,030    365,478 
Changes in operating assets:          
Accounts receivable   (1,382,857)   (14,588,644)
Inventories   4,475,694    12,328,893 
Prepaid expenses and other current assets   (504,673)   659,257 
Advance to suppliers   1,149,836    (677,415)
Changes in operating liabilities:          
Accounts payable   (3,387,584)   (1,423,796)
Accrued expenses   1,128,019    240,129 
Other payables   (378,957)   212,586 
Receipt in advance from a customer   1,474,932    
-
 
Operating lease liabilities   (241,107)   (257,577)
Income tax payable   (37,442)   550,033 
Net cash provided by operating activities   10,223,230    1,712,888 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of property, plant and equipment   (1,606,419)   (428,280)
Acquisition deposit   (3,200,000)   
-
 
Payment for long-term deposits   (268,255)   
-
 
Receipt of long-term deposits   
-
    119,687 
Net cash used in investing activities   (5,074,674)   (308,593)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Dividend payment   (1,133,365)   (1,132,500)
Repayment from short-term loan   (612,703)   (235)
Proceeds from short-term loan   
-
    932,152 
Net cash used in financing activities   (1,746,068)   (200,583)
           
EFFECT OF EXCHANGE RATE CHANGES ON CASH   79,609    (30)
           
NET INCREASE IN CASH   3,482,097    1,203,682 
           
CASH, AND RESTRICTED CASH, BEGINNING OF THE PERIOD   22,861,711    26,916,709 
           
CASH, AND RESTRICTED CASH, END OF THE PERIOD  $26,343,808   $28,120,391 
           
CASH AND RESTRICTED CASH, END OF PERIOD   26,343,808    28,120,391 
LESS: NON-CURRENT RESTRICTED CASH   1,301,588    786,298 
CASH, END OF PERIOD  $25,042,220   $27,334,093 
    -      
Supplemental disclosure information:          
Cash paid for interest  $74,401   $
-
 
Income tax paid  $1,512,215   $347,689 
           
Non-cash financing activities          
Right of use assets obtained in exchange for operating lease obligations  $353,611   $172,413 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

  

JERASH HOLDINGS (US), INC

  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Jerash Holdings (US), Inc. (“Jerash Holdings”) was incorporated under the laws of the State of Delaware on January 20, 2016. Jerash Holdings is a holding company with no operations. Jerash Holdings and its subsidiaries and its variable interest entity (“VIE”) are herein collectively referred to as the “Company.”

 

Jerash Garments and Fashions Manufacturing Company Limited (“Jerash Garments”) is a wholly owned subsidiary of Jerash Holdings and was established in Amman, the Hashemite Kingdom of Jordan (“Jordan”), as a limited liability company on November 26, 2000 with a declared capital of 150,000 Jordanian Dinar (“JOD”) (approximately US$212,000).

 

Jerash for Industrial Embroidery Company (“Jerash Embroidery”) and Chinese Garments and Fashions Manufacturing Company Limited (“Chinese Garments”) were both established in Amman, Jordan, as limited liability companies on March 11, 2013 and June 13, 2013, respectively, each with a declared capital of JOD 50,000. Jerash Embroidery and Chinese Garments are wholly owned subsidiaries of Jerash Garments.

 

Al-Mutafaweq Co. for Garments Manufacturing Ltd. (“Paramount”) was a contract garment manufacturer that was established in Amman, Jordan, as a limited liability company on October 24, 2004 with a declared capital of JOD 100,000. On December 11, 2018, Jerash Garments and the sole shareholder of Paramount entered into an agreement pursuant to which Jerash Garments acquired all of the outstanding shares of stock of Paramount. Jerash Garments assumed ownership of all of the machinery and equipment owned by Paramount. Paramount had no other significant assets or liabilities and no operating activities or employees at the time of this acquisition, so this transaction was accounted for as an asset acquisition. As of June 18, 2019, Paramount became a subsidiary of Jerash Garments.

 

Jerash The First for Medical Supplies Manufacturing Company Limited (“Jerash The First”) was established in Amman, Jordan, as limited liability company on July 6, 2020, with a registered capital of JOD 150,000. Jerash The First is engaged in the production of medical supplies in Jordan and is a wholly owned subsidiary of Jerash Garments.

 

Victory Apparel (Jordan) Manufacturing Company Limited (“Victory Apparel”) was established as a limited liability company in Amman, Jordan, on September 18, 2005 with a declared capital of JOD 50,000. Victory Apparel has no significant assets or liabilities or other operating activities of its own. Although Jerash Garments does not own the equity interest of Victory Apparel, the Company’s president, director, and significant shareholder, Mr. Choi Lin Hung (“Mr. Choi”), is also a director of Victory Apparel and controls all decision-making for Victory Apparel along with another significant shareholder of Jerash Garments, Mr. Lee Kian Tjiauw (“Mr. Lee”), who has the ability to control Victory Apparel’s financial affairs. In addition, Victory Apparel’s equity at risk is not sufficient to permit it to operate without additional subordinated financial support from Jerash Garments. Based on these facts, the Company concluded that Jerash Garments has effective control over Victory Apparel due to Mr. Choi’s roles at both organizations and therefore Victory Apparel is considered a VIE under Accounting Standards Codification (“ASC”) 810-10-05-08A. Accordingly, Jerash Garments consolidates Victory Apparel’s operating results, assets, and liabilities.

 

Treasure Success International Limited (“Treasure Success”) was organized on July 5, 2016 in Hong Kong, the People’s Republic of China (“China”), as a limited liability company for the primary purpose of employing staff from China to support Jerash Garments’ operations and is a wholly-owned subsidiary of Jerash Holdings.

 

Jiangmen Treasure Success Business Consultancy Company Limited (“Jiangmen Treasure Success”) was organized on August 28, 2019 under the laws of China in Guangzhou City of Guangdong Province in China with a total registered capital of 15 million Hong Kong Dollars (“HKD”) (approximately $1.9 million) to provide support in sales and marketing, sample development, merchandising, procurement, and other areas. Treasure Success owns 100% of the equity interests in Jiangmen Treasure Success.

 

Jerash Supplies, LLC (“Jerash Supplies”) was formed under the laws of the State of Delaware on November 20, 2020. Jerash Supplies is engaged in the trading of personal protective equipment products and is a wholly owned subsidiary of Jerash Holdings. 

 

The Company is engaged primarily in the manufacturing and exporting of customized, ready-made sport and outerwear and personal protective equipment (“PPE”) produced in its facilities in Jordan and sold in the United States, Jordan, and other countries. 

 

6

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the Company’s unaudited condensed consolidated financial statements. The consolidated balance sheet as of March 31, 2021 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”).

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the financial statements of Jerash Holdings, and its subsidiaries and VIE. All significant intercompany balances and transactions have been eliminated in consolidation.

 

VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which a company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIEs. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. The Company’s VIE, Victory Apparel, was inactive for the six months ended September 30, 2021, and the net assets of the VIE were approximately $0.3 million as each of September 30, 2021 and March 31, 2021.

 

Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company’s most significant estimates include allowance for doubtful accounts, valuation of inventory reserve, useful lives of buildings and other property, and the measurement of stock-based compensation expenses. Actual results could differ from these estimates.

 

Cash

 

The Company’s cash consists of cash on hand and cash deposited in financial institutions. The Company considers all highly liquid investment instruments with an original maturity of three months or less from the original date of purchase to be cash equivalents. As of September 30, 2021 and March 31, 2021, the Company had no cash equivalents.

 

Restricted Cash

 

Restricted cash consists of cash used as security deposits to obtain credit facilities from a bank and to secure customs clearance under the requirements of local regulations. The Company is required to keep certain amounts on deposit that are subject to withdrawal restrictions. These security deposits at the bank are refundable only when the bank facilities are terminated. The restricted cash is classified as a current asset if the Company intends to terminate these bank facilities within one year, and as a non-current asset if otherwise.

 

Short-term Investments

 

From time to time, the Company purchased financial products that can be readily converted into cash and accounted for such financial products as short-term investments. The financial products include money market funds, bonds, and mutual funds. The carrying values of the Company’s short-term investments approximate fair value because of their liquidity. The gain and interest earned are recognized in the consolidated statements of income over the contractual terms of these investments.

 

The Company had no short-term investments as of September 30, 2021 and March 31, 2021. The Company recorded a realized gain of $Nil and $64,692 for the six months ended September 30, 2021 and 2020, respectively.

 

7

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Accounts Receivable, Net

 

Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts. The Company usually grants extended payment terms to customers with good credit standing and determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements of income and comprehensive income. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value. Inventories include cost of raw materials, freight, direct labor and related production overhead. The cost of inventories is determined using the First in, First-out method. The Company periodically reviews its inventories for excess or slow-moving items and makes provisions as necessary to properly reflect inventory value.

 

Advance to Suppliers, Net

 

Advance to suppliers consists of balances paid to suppliers for services or materials purchased that have not been provided or received. Advance to suppliers for services and materials is short-term in nature. Advance to suppliers is reviewed periodically to determine whether its carrying value has become impaired. The Company considers the assets to be impaired if the performance by the suppliers becomes doubtful. The Company uses the aging method to estimate the allowance for the questionable balances. In addition, at each reporting date, the Company generally determines the adequacy of allowance for doubtful accounts by evaluating all available information, and then records specific allowances for those advances based on the specific facts and circumstances.

 

Property, Plant, and Equipment, Net

 

Property, plant, and equipment are recorded at cost, reduced by accumulated depreciation and amortization. Depreciation and amortization expense related to property, plant, and equipment is computed using the straight-line method based on estimated useful lives of the assets, or in the case of leasehold improvements, the shorter of the initial lease term or the estimated useful life of the improvements. The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant, and equipment. The estimated useful lives of depreciation and amortization of the principal classes of assets are as follows:

 

    Useful life
Land   Infinite
Property and buildings   15 years
Equipment and machinery   3-5 years
Office and electronic equipment   3-5 years
Automobiles   5 years
Leasehold improvements   Lesser of useful life and lease term

 

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation or amortization of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and comprehensive income.

 

Impairment of Long-Lived Assets

 

The Company assesses its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Factors which may indicate potential impairment include a significant underperformance relative to the historical or projected future operating results or a significant negative industry or economic trend. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by that asset. If impairment is indicated, a loss is recognized for any excess of the carrying value over the estimated fair value of the asset. The fair value is estimated based on the discounted future cash flows or comparable market values, if available. The Company did not record any impairment loss during the six months ended September 30, 2021 and 2020. 

 

8

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue Recognition

 

Substantially all of the Company’s revenue is derived from product sales, which consist of sales of the Company’s customized ready-made outerwear for large brand-name retailers and PPE. The Company considers purchase orders to be a contract with a customer. Contracts with customers are considered to be short term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year. Virtually all of the Company’s contracts are short term. The Company recognizes revenue for the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due from customers within seven to 150 days of the invoice date. The contracts do not have significant financing components. Shipping and handling costs associated with outbound freight from Jordan export dock are not an obligation of the Company. Returns and allowances are not a significant aspect of the revenue recognition process as historically they have been immaterial.

  

The Company also derives revenue rendering cutting and making services to other apparel vendors who subcontract order to the Company. Revenue is recognized when the service is rendered. All of the Company’s contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as a price per unit. All estimates are based on the Company’s historical experience, complete satisfaction of the performance obligation, and the Company’s best judgment at the time the estimate is made. Historically, sales returns have not significantly impacted the Company’s revenue.

 

The Company does not have any contract assets since the Company has an unconditional right to consideration when the Company has satisfied its performance obligation and payment from customers is not contingent on a future event. For the six months ended September 30, 2021 and 2020, there was no revenue recognized from performance obligations related to prior periods. As of September 30, 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 $631,414 and $360,217 for the three months ended September 30, 2021 and 2020, respectively. Total shipping and handling expenses were $985,579 and $544,130 for the six months ended September 30, 2021 and 2020, respectively.

 

Income and Sales Taxes

 

The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

 

Jerash Holdings and Jerash Supplies are incorporated/formed in the State of Delaware and are subject to federal income tax in the United States of America. Treasure Success is registered in Hong Kong and has no 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, the income tax rate increased to 16% and plus a 1% social contribution.

 

Jerash Garments and its subsidiaries and VIE are subject to local sales tax of 16% on purchases. Jerash Garments was granted a sales tax exemption from the Jordanian Investment Commission for the period from June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases with no sales tax charge. The exemption has been extended to February 5, 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.

 

9

 

 

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 six months ended September 30, 2021 and 2020.

 

Foreign Currency Translation

 

The reporting currency of the Company is the U.S. dollar (“US$” or “$”). The Company uses JOD in Jordan companies, HKD in Treasure Success, and Chinese Yuan (“CNY”) in Jiangmen Treasure Success as functional currency of each abovementioned entity. The assets and liabilities of the Company have been translated into US$ using the exchange rates in effect at the balance sheet date, equity accounts have been translated at historical rates, and revenue and expenses have been translated into US$ using average exchange rates in effect during the reporting period. Cash flows are also translated at average translation rates for the periods. Therefore, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income or loss. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

The value of JOD against US$ and other currencies may fluctuate and is affected by, among other things, changes in Jordan’s political and economic conditions. Any significant revaluation of JOD may materially affect the Company’s financial condition in terms of US$ reporting.

 

Stock-Based Compensation

 

The Company measures compensation expense for stock-based awards to non-employee contractors and directors based upon the awards’ initial grant-date fair value. The estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method.

 

The Company estimates the fair value of stock options using a Black-Scholes model. This model is affected by the Company’s stock price on the date of the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected term of the option, expected risk-free rates of return, the expected volatility of the Company’s common stock, and expected dividend yield, each of which is more fully described below. The assumptions for expected term and expected volatility are the two assumptions that significantly affect the grant date fair value.

 

  Expected Term: the expected term of a warrant or a stock option is the period of time that the warrant or a stock option is expected to be outstanding.

 

  Risk-free Interest Rate: the Company bases the risk-free interest rate used in the Black-Scholes model on the implied yield at the grant date of the U.S. Treasury zero-coupon issued with an equivalent term to the stock-based award being valued. Where the expected term of a stock-based award does not correspond with the term for which a zero-coupon interest rate is quoted, the Company uses the nearest interest rate from the available maturities.

 

  Expected Stock Price Volatility: the Company utilizes the expected volatility of the Company’s common stock over the same period of time as the life of the warrant or stock option.

 

  Dividend Yield: Stock-based compensation awards granted prior to November 2018 assumed no dividend yield, while any subsequent stock-based compensation awards will be valued using the anticipated dividend yield.

 

10

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Earnings per Share

 

The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS (See “Note 13Earnings 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 September 30, 2021 and March 31, 2021 based upon the short-term nature of these assets and liabilities.

 

11

 

 

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 September 30, 2021 and March 31, 2021, respectively, $5,896,542 and $5,122,292 of the Company’s cash was on deposit at financial institutions in Jordan, where there currently is no rule or regulation requiring such financial institutions to maintain insurance to cover bank deposits in the event of bank failure. As of September 30, 2021, and March 31, 2021, respectively, $129,457 and $2,036,147 of the Company’s cash was on deposit at financial institutions in China. Cash maintained in banks within China of less than CNY0.5 million (equivalent to $77,420) per bank are covered by “deposit insurance regulation” promulgated by the State Council of the People’s Republic of China. As of September 30, 2021, and March 31, 2021, respectively, $20,169,417 and $15,622,051 of the Company’s cash was on deposit at financial institutions in Hong Kong, which are insured by the Hong Kong Deposit Protection Board subject to certain limitations. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness. As of September 30, 2021, and March 31, 2021, respectively, $64,778 and $81,221 of the Company’s cash was on deposit in the United States and are insured by the Federal Deposit Insurance Corporation up to $250,000.

 

Accounts receivable are typically unsecured and derived from revenue earned from customers, and therefore are exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.

 

Customer and vendor concentration risk

 

The Company’s sales are made primarily in the United States. Its operating results could be adversely affected by U.S. government policies on importing business, foreign exchange rate fluctuations, and changes in local market conditions. The Company has a concentration of its revenue and purchases with specific customers and suppliers. For the three and six months ended September 30, 2021, two end-customers accounted for 80% and 14%, and 75% and 21% of the Company’s total revenue, respectively. For the three and six months ended September 30, 2020, one end customer accounted for 74% and 76% of the Company’s total revenue, respectively. As of September 30, 2021, two end-customers accounted for 80% and 10% of the Company’s total accounts receivable balance, respectively. As of March 31, 2021, two end-customers accounted for 68% and 24% of the Company’s total accounts receivable balance, respectively.

 

For the three and six months ended September 30, 2021, the Company purchased approximately 25% and 16%, respectively, of its garments from one major supplier. For the three and six months ended September 30, 2020, the Company purchased approximately 20% and 12%, respectively, of its garments from one major suppliers. As of September 30, 2021, accounts payable to the Company’s three major suppliers accounted for 14%, 12%, and 10% of its total accounts payable balance, respectively. As of March 31, 2021, accounts payable to the Company’s four major suppliers accounted for 19%, 11%, 11%, and 10% of its total accounts payable balance, respectively. 

 

Risks and Uncertainties

 

The principal operations of the Company are located in Jordan. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in Jordan, as well as by the general state of the Jordanian economy. The Company’s operations in Jordan are subject to special considerations and significant risks not typically associated with companies in North America. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in Jordan. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.

 

The spread of COVID-19 around the world since March 2020 has caused significant volatility in U.S. and international markets. The Company’s operations were negatively impacted during the first three quarters of the fiscal year ended March 31, 2021 due to COVID-19 related shutdowns, global logistics disruptions, and order cancelations and shipment delays. However, sales growth resumed in the fourth quarter of the prior fiscal year and has extended well into the current fiscal year. The Company does not believe the COVID-19 pandemic had a significant impact on its operations during the six months ended September 30, 2021.

 

There is still significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. The Company currently expects that its operation results for the fiscal year ending March 31, 2022 would not be significantly impacted by COVID-19. However, given the dynamic nature of these circumstances, should there be resurgence of COVID-19 cases globally and should the U.S. government or the Jordan government implement new restrictions to contain the spread, the Company’s business would be negatively impacted.

 

12

 

 

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

 

The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.

 

In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Company’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In November 2019, the FASB issued ASU 2019-10, which amended the effective dates of ASU 2016-13. For public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies (“SRC”) as defined by the SEC, ASU 2016-13 will become effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 will become effective for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an SRC, the Company plans to adopt this ASU effective April 1, 2023. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company adopted this new ASU in April 2021 and the adoption of the new ASU did not have a significant impact on its consolidated financial statements.

 

NOTE 4 – ACCOUNTS RECEIVABLE, NET

 

Accounts receivable consisted of the following:

 

   As of   As of 
   September 30,
2021
   March 31,
2021
 
Trade accounts receivable  $13,416,125   $12,033,268 
Less: allowances for doubtful accounts   
    
 
Accounts receivable, net  $13,416,125   $12,033,268 

 

NOTE 5 – INVENTORIES

 

Inventories consisted of the following:

 

   As of   As of 
   September 30,
2021
   March 31,
2021
 
Raw materials  $9,955,385   $13,293,628 
Work-in-progress   1,456,121    2,057,986 
Finished goods   9,148,766    9,684,352 
Total inventory  $20,560,272   $25,035,966 

  

13

 

 

NOTE 6 – ADVANCE TO SUPPLIERS, NET

 

Advance to suppliers consisted of the following:

 

   As of   As of 
   September 30,
2021
   March 31,
2021
 
Advance to suppliers  $1,886,856   $3,036,693 
Less: allowances for doubtful accounts   
    
 
Advance to suppliers, net  $1,886,856   $3,036,693 

 

NOTE 7 – LEASES

 

The Company has 49 operating leases for manufacturing facilities and offices. Some leases include one or more options to renew, which is typically at the Company’s sole discretion. The Company regularly evaluates the renewal options, and, when it is reasonably certain of exercise, it will include the renewal period in its lease term. New lease modifications result in measurement of the right of use (“ROU”) assets and lease liability. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. ROU assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term.

 

All of the Company’s leases are classified as operating leases and primarily include office space and manufacturing facilities.

 

Supplemental balance sheet information related to operating leases was as follows:

 

   As of September 30,
2021
 
Right-of-use assets  $1,601,671 
      
Operating lease liabilities – current  $550,099 
Operating lease liabilities - non-current   905,710 
Total operating lease liabilities  $1,455,809 

 

The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of September 30, 2021:

 

Remaining lease term and discount rate:    
     
Weighted average remaining lease term (years)   2.7 
      
Weighted average discount rate   4.06%

 

During the three months ended September 30, 2021 and 2020, the Company incurred total operation lease expenses of $607,013 and $535,568, respectively. During the six months ended September 30, 2021 and 2020, the Company incurred total operation lease expenses of $1,191,750 and $1,047,341, respectively.

 

14

 

 

NOTE 7 – LEASES (continued)

 

The following is a schedule, by fiscal years, of maturities of lease liabilities as of September 30, 2021:

 

2022  $371,729 
2023   659,543 
2024   432,486 
2025   135,396 
2026   97,093 
Thereafter   
-
 
Total lease payments   1,696,247 
Less: imputed interest   (94,576)
Less: prepayments   (145,862)
Present value of lease liabilities  $1,455,809 

 

NOTE 8 – PROPERTY, PLANT, AND EQUIPMENT, NET

 

Property, plant, and equipment, net consisted of the following:

 

   As of   As of 
   September 30,
2021
   March 31,
2021
 
Land  $1,831,192   $1,831,192 
Property and buildings   1,398,017    432,562 
Equipment and machinery   8,938,277    8,532,813 
Office and electric equipment   878,478    825,013 
Automobiles   781,525    512,209 
Leasehold improvements   3,178,471    2,943,797 
Subtotal   17,005,960    15,077,586 
Construction in progress (1)   
    194,752 
Less: Accumulated depreciation and amortization   (10,451,479)   (9,572,832)
Property and equipment, net  $6,554,481   $5,699,506 

 

(1)The construction in progress account represents costs incurred for constructing a dormitory, which was previously planned to be a sewing workshop. This dormitory is approximately 4,800 square feet in the Tafilah Governorate of Jordan. Construction was temporarily suspended in March 2020 due to the COVID-19 pandemic but was subsequently completed, and the dormitory ready for use as of September 30, 2021.

 

15

 

 

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 September 30, 2021 and March 31, 2021. The preferred stock can be issued by the board of directors of Jerash Holdings (the “Board of Directors”) in one or more classes or one or more series within any class, and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, rights, qualifications, limitations, or restrictions of such rights as the Board of Directors may determine from time to time.

 

Common Stock

 

The Company had 11,334,318 and 11,332,974 shares of common stock outstanding as of September 30, 2021 and March 31, 2021, respectively.

 

Statutory Reserve

 

In accordance with the corporate laws in Jordan, Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and Victory Apparel are required to make appropriations to certain reserve funds, based on net income determined in accordance with generally accepted accounting principles of Jordan. Appropriations to the statutory reserve are required to be 10% of net income until the reserve is equal to 100% of the entity’s share capital. This reserve is not available for dividend distribution. In addition, PRC companies are required to set aside at least 10% of their after-tax net profits each year, if any, to fund the statutory reserves until the balance of the reserves reaches 50% of their registered capital. The statutory reserves are not distributable in the form of cash dividends to the Company and can be used to make up cumulative prior year losses. The Company’s subsidiaries and VIE have reserved the maximum amount required.

 

Dividends

 

During the fiscal year ending March 31, 2022, on August 5 and May 14, 2021, the Board of Directors declared a cash dividend of $0.05 per share of common stock, respectively. The cash dividends of $566,716 and $566,649 were paid in full on August 24 and June 2, 2021, respectively.

 

During the fiscal year ended March 31, 2021, on February 5, 2021, November 2, 2020, August 5, 2020, and May 15, 2020, the Board of Directors declared a cash dividend of $0.05 per share of common stock, respectively. The cash dividends of $566,250 were paid in full on February 23, 2021, November 23, 2020, August 24, 2020, and June 2, 2020, respectively.

 

NOTE 10 – STOCK-BASED COMPENSATION

 

Warrants issued for services

 

From time to time, the Company issues warrants to purchase its common stock. These warrants are valued using the Black-Scholes model and using the volatility, market price, exercise price, risk-free interest rate, and dividend yield appropriate at the date the warrants were issued. The major assumptions used in the Black Scholes model included the followings: the expected term is five years; risk-free interest rate is 1.8% to 2.8%; and the expected volatility is 50.3% to 52.2%. For the six months ended September 30, 2021, 20,000 warrants were exercised on a cashless basis. There were 194,410 warrants outstanding as of September 30, 2021 with a weighted average exercise price of $6.71. All of the outstanding warrants were fully vested and exercisable as of September 30, 2021 and March 31, 2021.

  

All stock warrants activities are summarized as follows:

 

   Option to
Acquire Shares
   Weighted
Average
Exercise
Price
 
Stock warrants outstanding at March 31, 2021   214,410   $6.67 
Granted   
    
 
Exercised   20,000    6.25 
Stock warrants outstanding at September 30, 2021   194,410   $6.71 

 

Stock Options

 

On March 21, 2018, the Board of Directors adopted the Jerash Holdings (US), Inc. 2018 Stock Incentive Plan (the “Plan”), pursuant to which the Company may grant various types of equity awards. 1,484,250 shares of common stock of the Company were reserved for issuance under the Plan. In addition, on July 19, 2019, the Board of Directors approved an amendment and restatement of the Plan, which was approved by the Company’s stockholders at its annual meeting of stockholders on September 16, 2019. The amended and restated Plan increased the number of shares reserved for issuance under the Plan by 300,000, to 1,784,250, among other changes.

 

16

 

 

NOTE 10 – STOCK-BASED COMPENSATION (continued)

 

Stock Options (continued)

 

On April 9, 2018, the Board of Directors approved the issuance of 989,500 nonqualified stock options under the Plan to 13 executive officers and employees of the Company in accordance with the Plan at an exercise price of $7.00 per share, and a term of five years. The fair value of these options was estimated as of the grant date using the Black-Scholes model with the major assumptions that expected terms is five years; risk-free interest rate is 2.6%; and the expected volatility is 50.3%. All these outstanding options were fully vested and exercisable on issue date. 3,000 options 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
Acquire Shares
   Weighted
Average
Exercise
Price
 
Stock options outstanding at March 31, 2021   1,136,500   $6.90 
Granted   
    
 
Exercised   
    
 
Forfeited   
    
 
Stock options outstanding at September 30, 2021   1,136,500   $6.90 

  

Restricted Stock Units

 

On June 24, 2021, the Board of Directors approved the grant of 200,000 Restricted Stock Units (“RSUs”) under the Plan to 32 executive officers and employees of the Company, with a one-year vesting period. The fair value of these RSUs on June 24, 2021 was $1,266,000, based on the market price of the Company’s common stock as of the date of the grant. As of September 30, 2021, there were $926,088 unrecognized stock-based compensation expenses to be recognized in the future.

 

Total stock-based expenses were $315,296 and $Nil for the three months ended September 30, 2021 and 2020, respectively. Total stock-based expenses were $315,813 and $42,151 for the six months ended September 30, 2021 and 2020, respectively.

 

NOTE 11 – RELATED PARTY TRANSACTIONS

 

The relationship and the nature of related party transactions are summarized as follow:

 

Name of Related Party   Relationship to the Company   Nature of Transactions
         
Ford Glory International Limited (“FGIL”)
  Affiliate, subsidiary of Ford Glory Holdings (“FGH”), which is 49% indirectly owned by the Company’s President, Chief Executive Officer, and Chairman, and a significant stockholder   Operating Lease
         
Yukwise Limited (“Yukwise”)   Wholly owned by the Company’s President, Chief Executive Officer, and Chairman, and a significant stockholder   Consulting Services
         
Multi-Glory Corporation Limited (“Multi-Glory”)   Wholly owned by a significant stockholder   Consulting Services
         
Jiangmen V-Apparel Manufacturing Limited   Affiliate, subsidiary of FGH   Operating Lease

 

17

 

  

NOTE 11 – RELATED PARTY TRANSACTIONS (continued)

 

a.Related party lease and purchases agreement

 

On October 3, 2018, Treasure Success and FGIL entered into a lease agreement, pursuant to which Treasure Success leased its office space in Hong Kong from FGIL for a monthly rent in the amount of HKD119,540 (approximately $15,253) and for a one-year term with an option to extend the term for an additional year at the same rent. On October 3, 2019, Treasure Success exercised the option to extend the lease for an additional year at the same rent. On December 15, 2020, Treasure Success and FGIL renewed the lease agreement with the same term and lease amount. On February 25, 2021, the lease agreement was terminated, and Ford Glory disposed of the property that was subject of the lease agreement between Treasure Success and Ford Glory.

 

On July 1, 2020, Jiangmen Treasure Success and Jiangmen V-Apparel Manufacturing Limited entered into a factory lease agreement, which was a replacement of a previous lease agreement between Treasure Success and Jiangmen V-Apparel Manufacturing Limited dated August 31, 2019, pursuant to which Treasure Success leased additional space for office and sample production purposes in Jiangmen, China from Jiangmen V-Apparel Manufacturing Limited for a monthly rent in the amount of CNY 28,300 (approximately $4,400). The lease had one-year term and could be renewed with a one-month notice. On April 30, 2021, the factory lease agreement between Jiangmen Treasure Success and Jiangmen V-apparel Manufacturing Limited was terminated.

 

b.Consulting agreements

 

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 September 30, 2021 and 2020, total consulting fees under this agreement were $75,000 and $65,000, respectively. For the six months ended September 30, 2021 and 2020, total consulting fees under this agreement were $150,000 and $130,000, 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 September 30, 2021 and 2020, total advisory and management expenses under this agreement were $75,000 and $65,000, respectively. For the six months ended September 30, 2021 and 2020, total advisory and management expenses under this agreement were $150,000 and $130,000, respectively.

 

NOTE 12 – CREDIT FACILITIES

 

Pursuant to a letter agreement dated May 29, 2017, Treasure Success entered into an initial $8,000,000 import credit facility with Hong Kong and Shanghai Banking Corporation (“HSBC”) (the “2017 Facility Letter”), which was first amended pursuant to a letter agreement between HSBC, Treasure Success, and Jerash Garments dated June 19, 2018 (the “2018 Facility Letter”), further amended pursuant to a letter agreement dated August 12, 2019 (the “2019 Facility Letter”), and further amended pursuant to a letter agreement dated July 3, 2020 (the “2020 Facility Letter,” and together with the 2017 Facility Letter, 2018 Facility Letter, and 2019 Facility Letter, the “HSBC Facility”). The 2020 Facility Letter extended the term of the HSBC Facility indefinitely. Pursuant to the HSBC Facility, the Company had a total credit limit of $11,000,000.

 

In addition, on June 5, 2017, Treasure Success entered into an Offer Letter - Invoice Discounting/Factoring Agreement, and on August 21, 2017, Treasure Success entered into an Invoice Discounting/Factoring Agreement (together, the “2017 Factoring Agreement”) with HSBC for certain debt purchase services related to the Company’s accounts receivable. On June 14, 2018, Treasure Success and Jerash Garments entered into another Offer Letter-Invoice Discounting/Factoring Agreement with HSBC, which amended the 2017 Factoring Agreement (the “2018 Factoring Agreement, and together with the 2017 Factoring Agreement, the “HSBC Factoring Agreement,” and together with the HSBC Facility, the “HSBC Credit Facilities”). Pursuant to the HSBC Factoring Agreement, HSBC offered to provide Treasure Success with a $12,000,000 factoring facility for certain debt purchase services related to Treasure Success’s accounts receivable.

  

The HSBC Credit Facilities were guaranteed by Jerash Holdings, Jerash Garments, and Treasure Success. In addition, the HSBC Credit Facilities required cash and other investment security collateral of $3,000,000 and were secured by the personal guarantees of Mr. Choi and Mr. Ng Tsze Lun (“Mr. Ng”). As of January 22, 2019, the security collateral of $3,000,000 had been released. HSBC also released the personal guarantees of Mr. Choi and Mr. Ng on August 12, 2019. The HSBC Credit Facilities provide that drawings under the HSBC Credit Facilities were charged interest at the Hong Kong Interbank Offered Rate plus 1.5% for drawings in HKD, and the London Interbank Offered Rate plus 1.5% for drawings in other currencies. In addition, the HSBC Credit Facilities also contained certain service charges and other commissions and fees.

 

Under the HSBC Factoring Agreement, HSBC also provided credit protection and debt services related to each of the Company’s preapproved customers. For any approved debts or collections assigned to HSBC, HSBC charged a flat fee of 0.35% on the face value of the invoice for such debt or collection. The Company may assign debtor payments that are to be paid to HSBC within 90 days, defined as the maximum terms of payment. The Company may receive advances on invoices that are due within 30 days of the delivery of its goods, defined as the maximum invoicing period.

 

18

 

 

NOTE 12 – CREDIT FACILITIES (continued)

 

The HSBC Credit Facilities were subject to review at any time, and HSBC had discretion on whether to renew the HSBC Facility. Either party could terminate the HSBC Factoring Agreement subject to a 30-day notice period.

 

On March 30, 2021, HSBC informed Treasure Success that the debts purchase services under the HSBC Factoring Agreement were terminated with immediate effect. As of September 30, 2021 and March 31, 2021, the Company had made $nil and $nil in withdrawals under the HSBC Credit Facilities, which were due within 120 days of each borrowing date or upon demand by HSBC. On June 30, 2021, the Company terminated the HSBC Facilities with immediately effect.

 

On January 31, 2019, Standard Chartered Bank (Hong Kong) Limited (“SCBHK”) offered to provide an import facility of up to $3.0 million to Treasure Success pursuant to a facility letter dated June 15, 2018. Pursuant to the agreement, SCBHK agreed to finance import invoice financing and pre-shipment financing of export orders up to an aggregate of $3.0 million. The SCBHK facility bears interest at 1.3% per annum over SCBHK’s cost of funds. As of September 30, 2021 and March 31, 2021, the Company had $nil and $612,703 outstanding amount, respectively, in import invoice financing under the SCBHK facility.

 

Starting from May 2021, the Company has participated in a financing program with one customer, in which the Company may receive early payments for approved sales invoices submitted by the Company through the bank the customer cooperates with. For any early payments received, the Company is subject to an early payment charge imposed by the customer’s bank, for which the rate is based on London Interbank Offered Rate (“LIBOR”) plus a spread. In certain scenarios, the Company submits the sales invoice and receives payments prior to the shipment of the relative products. In that case, instead of recording the cash receipts as a reduction to accounts receivables, the Company records the cash receipts as receipts in advance from a customer until products are entitled to transfer. The Company records the early payment charge in interest expenses in the unaudited condensed consolidated statements of income and comprehensive income. For the three and six months ended September 30, 2021, the early payment charge was $45,765 and $74,401, respectively. As of September 30, 2021 and March 31, 2021, receipts in advance from a customer was $1,474,932 and $Nil, respectively.

 

NOTE 13 – EARNINGS PER SHARE

 

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended September 30, 2021 and 2020. As of September 30, 2021, 1,530,910 RSUs, warrants, and stock options were outstanding. For the three and six months ended September 30, 2021, 57,200 warrants were excluded from the EPS calculation as containing anti-dilution provisions. For the three and six months ended September 30, 2020, 1,403,910 warrants and stock options were excluded from the EPS calculation as containing anti-dilution provisions. 

  

   Three Months Ended
September 30,
(in $000s except share and
per share information)
   Six Months Ended
September 30,
(in $000s except share and
per share information)
 
   2021   2020   2021   2020 
Numerator:                
Net income attributable to Jerash Holdings (US), Inc.’s Common Stockholders  $4,441   $2,560   $6,376   $3,374 
                     
Denominator:                    
Denominator for basic earnings per share (weighted-average shares)   11,334,318    11,325,000    11,333,907    11,325,000 
Dilutive securities – unexercised RSUs, warrants and options   178,215    4,953    70,024    5,081 
Denominator for diluted earnings per share (adjusted weighted-average shares)   11,512,533    11,329,953    11,403,931    11,330,081 
Basic and diluted earnings per share  $0.39   $0.23   $0.56   $0.30 

  

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 September 30, 2021 and 2020, outerwear accounted for approximately 96.4% and 87.5% of the Company’s total revenue, respectively. For the six months ended September 30, 2021 and 2020, outerwear accounted for approximately 97.2% and 89.9% of the Company’s total revenue, respectively. Based on management’s assessment, the Company has determined that it has only one operating segment as defined by ASC 280.

 

19

 

 

NOTE 14 – SEGMENT REPORTING (continued)

 

The following table summarizes sales by geographic areas for the three months ended September 30, 2021 and 2020, respectively.

 

   For the three months Ended
September 30,
 
   2021   2020 
United States  $44,241,524   $23,411,339 
Jordan   141,001    2,302,615 
Others   1,328,641    1,372,364 
Total  $45,711,166   $27,086,318 

 

The following table summarizes sales by geographic areas for the six months ended September 30, 2021 and 2020, respectively.

 

    For the six months ended
September 30,
 
    2021     2020  
United States   $ 73,693,401     $ 40,992,512  
Jordan     300,840       3,428,197  
Others     1,605,617       1,372,364  
Total   $ 75,599,858     $ 45,793,073  

 

78.8% and 15.1% of long-lived assets were located in Jordan and Hong Kong, respectively, as of September 30, 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 June 30, 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.

 

On June 24, 2021, the Company, through its wholly owned subsidiary Jerash Garments, entered into a Sale and Purchase Contract (the “MK Agreement”) with MK Garments MFG Co. Jordan (“MK Garments”). Pursuant to the MK Agreement, MK Garments agreed to sell, and Jerash Garments agreed to purchase, 100% of the ownership interests in Mustafa and Kamal Ashraf Trading Company (Jordan) for the Manufacture of Ready-Made Clothes LLC for a consideration of $2.8 million. The MK Agreement contains customary representations and warranties of Jerash Garments and MK Garments, customary conditions to closing, other obligations and rights of the parties, and termination provisions. The Company completed this acquisition in October 2021. As of September 30, 2021, the Company had paid $2.7 million. The Company expects to pay the remaining $100,000 in December 2021.

  

On July 14, 2021, the Company through its wholly owned subsidiary Jerash Garments, entered into a Sale and Purchase Contract (the “Kawkab Agreement”) with Kawkab Venus Dowalyah Lisenaet Albesah (the “Seller”). Pursuant to the Kawkab Agreement, the Seller agreed to sell, and Jerash Garments agreed to purchase, 100% ownership interests in Kawkab Venus Al Dowalyah for Garment Manufacturing LLC for a consideration of $2.7 million. Kawkab Venus Al Dowalyah for Garment Manufacturing LLC holds a land with factory premises, which it leases to MK Garments. The Kawkab Agreement contains customary representations and warranties of Jerash Garments and the Seller, customary conditions to closing, other obligations and rights of the parties, and termination provisions. The Company will complete this acquisition in December 2021. As of September 30, 2021, the Company paid $500,000. The Company will pay the remaining $2.2 million upon the acquisition closing.

 

Contingencies

 

From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company’s management does not expect any liability from the disposition of such claims and litigation individually or in the aggregate would not have a material adverse impact on the Company’s consolidated financial position, results of operations, and cash flows.

  

20

 

 

NOTE 16 – INCOME TAX 

 

Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and Victory Apparel are subject to the regulations of the Income Tax Department in Jordan. The corporate income tax rate is 16% for the industrial sector. In accordance with the Investment Encouragement Law, Jerash Garments’ export sales to overseas customers were entitled to a 100% income tax exemption for a period of 10 years commencing on the first day of production. This exemption had been extended for five years until December 31, 2018. Effective January 1, 2019, the Jordanian government reclassified the area where Jerash Garments and its subsidiaries are to a Development Zone. In accordance with the Development Zone law, Jerash Garments and its subsidiaries and VIE began paying corporate income tax in Jordan at a rate of 10% plus a 1% social contribution. The income tax rate increased to 14% plus a 1% social contribution from January 1, 2020. Effective January 1, 2021, this rate increased to 16% plus a 1% social contribution.

 

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act imposed tax on previously untaxed accumulated earnings and profits (“E&P”) of foreign subsidiaries (the “Toll Charge”). The Toll Charge is based in part of the amount of E&P held in cash and other specific assets as of December 31, 2017. The Toll Charge can be paid over an eight-year period, starting in 2018, and will not accrue interest. Additionally, under the provisions of the Tax Act, for taxable years beginning after December 31, 2017, the foreign earnings of Jerash Garments and its subsidiaries are subject to U.S. taxation at the Jerash Holdings level under the new Global Intangible Low-Taxed Income (“GILTI”) regime.

 

Interim income tax expenses or benefit is recognized based on the Company’s estimated annual effective tax rate, which is based upon the tax rate expected for the full fiscal year applied to the pretax income or loss of the interim period. The Company’s consolidated effective tax rate for the three and six months ended September 30, 2021 was 19.1% and 18.7%, respectively, and differed from the effective statutory federal income tax rate of 21.0%, primarily due to GILTI adjustments, foreign tax rate differentials, and valuation allowance adjustments.

 

NOTE 17 – SUBSEQUENT EVENTS

 

On November 2, 2021, the Board of Directors approved the payment of a dividend of $0.05 per share, payable on November 29, 2021 to stockholders of record as of the close of business on November 22, 2021.

 

On October 4, 2021, the Company completed its public offering of 1,400,000 shares of its common stock at a public offering price of $7.00 per share (the “Offering”). Of the 1,400,000 shares of the Company’s common stock, 1,000,000 shares were issued and sold by the Company and 400,000 shares were sold by a selling stockholder. The Company received net proceeds of approximately $6.25 million from the Offering, after deducting the underwriting discount and estimated offering expenses payable by the Company. On October 7, 2021, the underwriters exercised their over-allotment option and purchased 210,000 additional shares of the Company’s common stock from the selling stockholder. The Company did not receive any of the proceeds from the sale of shares of its common stock by the selling stockholder.

 

Starting from October 19, 2021, the Company has participated in a financing program offered by a customer. The Company is able to receive early payments for approved sales invoice submitted by the Company from the bank the customer cooperates with. For any early payments received under the program, the Company is subject to an early payment charge, for which the rate is based on LIBOR or Euro Interbank Offered Rate plus a spread.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements 

 

This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to: any projections of earnings, revenue, or other financial items; any statements regarding the adequacy, availability, and sources of capital, any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” or “anticipate,” and other similar words. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in the forward-looking statements include those factors set forth in the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 and in subsequent reports that we file with the Securities and Exchange Commission (the “SEC”).

 

Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. We do not intend, and undertake no obligation, to update any forward-looking statement, except as required by law.

 

The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed with the SEC on June 23, 2021. References to fiscal 2022 and fiscal 2021 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal year ending March 31, 2022, and fiscal year ended March 31, 2021, respectively.

 

Impact of COVID-19 on Our Business

 

Collectability of receivables. We had accounts receivable of $13.4 million as of September 30, 2021, out of which $9.8 million had been received through November 4, 2021. Two major customers have started to offer early payment alternatives since May and July 2021, which have shortened payment terms to below 10 days from submission of documents. See “—Liquidity and Capital Resources” for more details.

 

Inventory. We had inventory of $20.6 million as of September 30, 2021, substantially for orders scheduled to be shipped within fiscal 2022.

 

Investments. We acquired two pieces of land in fiscal 2020 for the construction of dormitory and production facilities. Due to the COVID-19 outbreak, management previously decided to hold off the construction to wait for a clearer picture on customer demand. As customer orders recovered to a satisfactory level, in April 2021, management decided to resume the preparation work for the dormitory construction, which is expected to be completed and ready for use in fiscal 2023. In June and July 2021, we entered into two Sale and Purchase Contracts to acquire a garment factory and the factory land. The acquisition of the garment factory was completed on October 7, 2021 and the acquisition of the factory land and building is expected to close in December 2021. See “Note 15—Commitments and Contingencies—Commitments.”

 

Revenue. For the quarter ended September 30, 2021, our sales were $45.7 million, which represented an approximate 69% increase from that of the same period in fiscal 2021. We continue to proactively communicate with our existing customers to reconfirm their orders and shipment schedules for the rest of fiscal 2022. However, the operating results for the rest of fiscal 2022 is still subject to the progress of ongoing reopening of economies in the U.S. and the EU that would significantly impact both order fulfilment and delivery schedules.

 

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Liquidity/Going Concern. As of September 30, 2021, we had approximately $25.0 million of cash and net current assets of approximately $66.9 million with a current ratio of 5.3 to 1. In addition, we had banking facilities with aggregate limits of $3 million with $0 outstanding as of September 30, 2021. Given the above, we believe that we will have sufficient financial resources to maintain as a going concern in fiscal 2022. On October 4, 2021, we completed the placement of one million new shares to independent investors with a net proceed of approximately $6.3 million to further bolster our financial position for further growth.

 

Capital Expenditures. In fiscal 2021, management decided to put on hold the construction projects on the land acquired in fiscal 2020 to retain financial resources to support our operations, and also to wait and see how the global economy and customer demand recover after the COVID-19 pandemic. As customer orders recovered to a satisfactory level, management decided to restart the preparation work for the construction of the dormitory in April 2021. The dormitory is expected to be completed and ready for use in fiscal 2023.

 

Results of Operations

 

Three months ended September 30, 2021 and 2020

 

The following table summarizes the results of our operations during the three-month periods ended September 30, 2021 and 2020, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

 

(All amounts, other than percentages, in thousands of U.S. dollars)

 

   Three Months Ended
September 30,
2021
   Three Months Ended
September 30,
2020
   Period over Period
Increase (Decrease)
 
Statement of Income Data:  Amount   As % of
Sales
   Amount   As % of
Sales
   Amount   % 
Revenue  $45,711    100%  $27,086    100%  $18,625    69%
Cost of goods sold   35,606    78%   21,204    78%   14,402    68%
Gross profit   10,105    22%   5,882    22%   4,223    72%
                               
Selling, general and administrative expenses   4,224    9%   2,853    11%   1,371    48%
Stock-based compensation expenses   315    1%   -    0%   315    - 
Other income (expenses), net   (75)   0%   63    0%   (138)   (219)%
Net income before taxation  $5,491    12%  $3,092    11%  $2,399    78%
Taxation   1,050    2%   532    2%   518    97%
Net income  $4,441    10%  $2,560    9%  $1,881    73%

 

Revenue. Revenue increased by approximately $18.6 million, or 69%, to $45.7 million, for the three months ended September 30, 2021, from approximately $27.1 million for the same period in fiscal 2021. The increase was mainly due to the increase in sales to our two major customers in the U.S.

 

The following table outlines the dollar amount and percentage of total sales to our customers for the three months ended September 30, 2021 and 2020, respectively.

 

(All amounts, other than percentages, in thousands of U.S. dollars)

 

   Three Months Ended
September 30,
2021
   Three Months Ended
September 30,
2020
 
   Sales       Sales     
   Amount   %   Amount   % 
VF Corporation(1)  $36,473    80%  $20,071    74%
New Balance   6,468    14%   1,322    5%
Soriana   1,250    3%   -    -%
G-III   1,012    2%   907    3%
Others   508    1%   4,786    18%
Total  $45,711    100%  $27,086    100%

 

(1) A large portion of our products are sold under The North Face brand that is owned by VF Corporation.

 

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Revenue by Geographic Area 

(All amounts, other than percentages, in thousands of U.S. dollars)

 

   Three Months Ended
September 30,
2021
   Three Months Ended
September 30,
2020
  

Period over Period

Increase (decrease)

 
Region  Amount   %   Amount   %   Amount   % 
United States  $44,241    97%  $23,411    86%  $20,830    89%
Jordan   141    -%   2,303    9%   (2,162)   (94)%
Others   1,329    3%   1,372    5%   (43)   (3)%
Total  $45,711    100%  $27,086    100%  $18,625    69%

 

Since January 2010, all apparel manufactured in Jordan can be exported to the U.S. without customs duty being imposed, pursuant to the United States-Jordan Free Trade Agreement entered into in December 2001. This free trade agreement provides us with substantial competitiveness and benefit that allowed us to expand our garment export business in the U.S.

 

The increase in sales to the U.S. of approximately 89% in the three months ended September 30, 2021, was mainly attributable to the increase in sales to our two major customers in the U.S. following the stronger demand amid the reopening of the U.S. economy.

 

For the three months ended September 30, 2021, aggregate sales to Jordan and other locations, such as Hong Kong and China, decreased by 60% from approximately $3.7 million to $1.5 million from the same period last year as our factories took up more export orders to the U.S., which typically provide higher profit margin.

 

Cost of goods sold. Following the increase in sales revenue, our cost of goods sold increased by approximately $14.4 million, or 68%, to approximately $35.6 million, for the three months ended September 30, 2021, compared to approximately $21.2 million for the same period in fiscal 2021. As a percentage of revenue, the cost of goods sold was approximately 78% for the three months ended September 30, 2021 with a slight decrease of 40 basis points comparing to the same period in fiscal 2021. The slight decrease in cost of goods sold as a percentage of revenue was primarily attributable to the higher proportion of export sales, which typically provide higher profit margin.

 

For the three months ended September 30, 2021 and 2020, we purchased 25% and 20% of our garments from one major supplier, respectively.

 

Gross profit margin. Gross profit margin was approximately 22% for the three months ended September 30, 2021, which was slightly higher by 40 basis points from the same period in fiscal 2021. The slight increase in gross profit margin was primarily driven by a higher proportion of export orders, which typically provide higher profit margin.

 

Selling, general, and administrative expenses. Selling, general, and administrative expenses increased by approximately 48% from approximately $2.9 million for the three months ended September 30, 2020, to approximately $4.2 million for the three months ended September 30, 2021. The increase was primarily due to an increase in carriage outward following the increase in exports, an increase in expenses in relation to bringing in new foreign workers, and an increase in general medical expenses related to the pandemic precautions.

 

Other expenses, net. Other expenses, net were approximately $75,000 for the three months ended September 30, 2021, as compared to other income, net of approximately $63,000 for the same period in fiscal 2021. The increase in net expenses was primarily due to foreign transaction losses recognized and no realized gain from short-term investments for the three months ended September 30, 2021.

  

Taxation. Income tax expenses for the three months ended September 30, 2021 were approximately $1.1 million compared to income tax expenses of approximately $532,000 for the same period in fiscal 2021. The increase in effective tax rates mainly resulted from the increase of net income before tax in Jordan, and the increase of 2% of local tax rate in Jordan since January 1, 2021. The effective tax rate increased to 19.1% for the three months ended September 30, 2021, compared to 17.2% for the three months ended September 30, 2020.

 

Net income. Net income for the three months ended September 30, 2021 was approximately $4.4 million compared to net income of approximately $2.6 million for the same period in fiscal 2021. The increase was mainly attributable to the increase in sales and slight improvement in gross profit margin discussed above.

 

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Six months ended September 30, 2021 and 2020

 

The following table summarizes the results of our operations during the six-month periods ended September 30, 2021 and 2020, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

 

(All amounts, other than percentages, in thousands of U.S. dollars)

 

   Six Months Ended
September 30,
2021
   Six Months Ended
September 30,
2020
   Period over Period
Increase (Decrease)
 
Statement of Income Data:  Amount   As % of
Sales
   Amount   As % of
Sales
   Amount   % 
Revenue  $75,600    100%  $45,793    100%  $29,807    65%
Cost of goods sold   59,864    79%   36,859    80%   23,005    62%
Gross profit   15,736    21%   8,934    20%   6,802    76%
                               
Selling, general and administrative expenses   7,538    10%   4,704    11%   2,834    60%
Stock-based compensation expenses   316    1%   42    0%   274    652%
Other income (expense), net   (38)   0%   60    0%   (98)   (163)%
Net income before taxation  $7,844    10%  $4,248    9%  $3,596    85%
Taxation   1,468    2%   874    2%   594    68%
Net income  $6,376    8%  $3,374    7%  $3,002    89%

 

Revenue. Revenue increased by approximately $29.8 million, or 65%, to $75.6 million, for the six months ended September 30, 2021, from approximately $45.8 million for the same period in fiscal 2021. The increase was mainly because of the increase in sales to our two major customers in the U.S.

 

The following table outlines the dollar amount and percentage of total sales to our customers for the six months ended September 30, 2021 and 2020, respectively.

 

(All amounts, other than percentages, in thousands of U.S. dollars)

 

   Six Months Ended
September 30,
2021
   Six Months Ended
September 30,
2020
 
   Sales       Sales     
   Amount   %   Amount   % 
VF Corporation(1)  $56,683    75%  $34,619    76%
New Balance   15,685    21%   2,772    6%
Soriana   1,250    2%   -    - 
G-III   1,012    1%   1,278    3%
Others   970    1%   7,124    15%
Total  $75,600    100%  $45,793    100%

 

(1) A large portion of our products are sold under The North Face brand that is owned by VF Corporation.

  

Revenue by Geographic Area

(All amounts, other than percentages, in thousands of U.S. dollars)

 

   Six Months Ended
September 30,
2021
   Six Months Ended
September 30,
2020
  

Period over Period

Increase (decrease)

 
Region  Amount   %   Amount   %   Amount   % 
United States  $73,693    97%  $40,993    90%  $32,700    80%
Jordan   301    1%   3,428    7%   (3,127)   (91)%
Others   1,606    2%   1,372    3%   234    17%
Total  $75,600    100%  $45,793    100%  $29,807    65%

 

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Since January 2010, all apparel manufactured in Jordan can be exported to the U.S. without customs duty being imposed, pursuant to the United States-Jordan Free Trade Agreement entered into in December 2001. This free trade agreement provides us with substantial competitiveness and benefit that allowed us to expand our garment export business in the U.S.

 

The increase of approximately 80% in sales to the U.S. during the six months ended September 30, 2021 was mainly attributable to the increase in sales to our two major customers in the U.S. following the stronger demand amid the reopening of the U.S. economy.

 

During the six months ended September 30, 2021, aggregate sales to Jordan and other locations, such as Hong Kong and China, decreased by 60% from approximately $4.8 million to $1.9 million from the same period last year as our factories took up more export orders to the U.S., which typically provide higher profit margin.

 

Cost of goods sold. Following the increase in sales revenue, our cost of goods sold increased by approximately $23.0 million, or 62%, to approximately $59.9 million for the six months ended September 30, 2021 from approximately $36.9 million for the same period in fiscal 2021. As a percentage of revenue, the cost of goods sold decreased by approximately 1% points to 79% for the six months ended September 30, 2021 from 80% for the same period in fiscal 2021. The decrease in cost of goods sold as a percentage of revenue was primarily attributable to the higher proportion of export orders, which typically provide higher profit margin.

 

For the six months ended September 30, 2021 and 2020, we purchased 16% and 12% of our garments and raw materials from one major supplier, respectively.

 

Gross profit margin. Gross profit margin was approximately 21% for the six months ended September 30, 2021, which increased by 1% points from 20% for the same period in fiscal 2021. The increase in gross profit margin was primarily driven by the higher proportion of export orders, which typically provide higher profit margin.

 

Selling, general, and administrative expenses. Selling, general, and administrative expenses increased by approximately 60% from approximately $4.7 million for the six months ended September 30, 2020, to approximately $7.5 million for the six months ended September 30, 2021. The increase was primarily due to the increase in recruitment expenses and medical expenses, and the increase in carriage outward following the increase in export sales.

 

Other expenses, net. Other expenses, net were approximately $38,000 for the six months ended September 30, 2021, as compared to other income, net of approximately $60,000 for the same period in fiscal 2021. The increase in net expenses was primarily due to no realized gain from short-term investments in the current period, compare with a $64,692 realized gain from short-term investments in the corresponding period of fiscal 2021.

  

Taxation. Income tax expenses for the six months ended September 30, 2021 were approximately $1.5 million compared to income tax expenses of approximately $874,000 for the same period in fiscal 2021. The decrease in the effective tax rate mainly resulted from the lower proportion of loss in China, Hong Kong, and the U.S. The effective tax rate was down to 18.7% for the six months ended September 30, 2021, compared to 20.6% for the six months ended September 30, 2020.

 

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Net income. Net income for the six months ended September 30, 2021 was approximately $6.4 million compared to net income of approximately $3.4 million for the same period in fiscal 2021. The increase was mainly attributable to the increase in sales and improvement in gross profit margin discussed above.

 

Liquidity and Capital Resources

 

We are a holding company incorporated in Delaware. As a holding company, we rely on dividends and other distributions from our Jordanian subsidiaries to satisfy our liquidity requirements. Current Jordanian regulations permit our Jordanian subsidiaries and variable interest entity (“VIE”) to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Jordanian accounting standards and regulations. In addition, our Jordanian subsidiaries and VIE are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends. We have relied on direct payments of expenses by our subsidiaries and VIE (which generate revenue) to meet our obligations to date. To the extent payments are due in U.S. dollars, we have occasionally paid such amounts in JOD to an entity controlled by our management capable of paying such amounts in U.S. dollars. Such transactions have been made at prevailing exchange rates and have resulted in immaterial losses or gains on currency exchange but no other profit.

 

As of September 30, 2021, we had cash of approximately $25.0 million and restricted cash of approximately $1.3 million compared to cash of approximately $21.1 million and restricted cash of approximately $1.7 million as of March 31, 2021. The increase in total cash was mainly a result of the increase in sales and the early payment arrangement and supplier chain financing program with our two major customers.

 

Our current assets as of September 30, 2021 were approximately $66.9 million and our current liabilities were approximately $12.6 million, which resulted in a ratio of approximately 5.3 to 1. As of March 31, 2021, our current assets were approximately $64.7 million and our current liabilities were $14.5 million, resulting in a ratio of 4.5 to 1.

 

The primary drivers in the increase in current assets were the increase in operating profit in the six months and the increase in investment deposits for acquisitions.

 

The primary drivers in the decrease in current liabilities were the full repayment of all bank borrowings and the decrease in accounts payable.

 

Total equity as of September 30, 2021 was approximately $62.3 million compared to $56.7 million as of March 31, 2021.

 

We had net working capital of $54.3 million and $50.1 million as of September 30, 2021, and March 31, 2021, respectively. Based on our current operating plan, we believe that cash on hand and cash generated from operating activities will be sufficient to support our working capital needs for the next 12 months from the date of this Quarterly Report. On October 4, 2021, we completed the placement of one million new shares to independent investors with a net proceed of approximately $6.3 million to further bolster our financial position for further growth.

 

Since May 2021, we have participated in a supply chain financing program of one of our major customers. The program allows us to receive early payments for approved sales invoices submitted by us through the bank the customer cooperates with. For any early payments received, we are subject to an early payment charge imposed by the customer’s bank, for which the rate is London Interbank Offered Rate (“LIBOR”) plus a spread. The arrangement allows us to have better liquidity without the need to incur administrative charges and handling fees as in bank financing.

 

We have funded our working capital needs from our operations. Our working capital requirements are influenced by the level of our operations, the numerical and dollar volume of our sales contracts, the progress of execution on our customer contracts, and the timing of accounts receivable collections.

 

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Credit Facilities

 

HSBC Facility

 

On May 29, 2017, our wholly owned subsidiary, Treasure Success International Limited (“Treasure Success”), entered into a facility letter (“2017 Facility Letter”) with Hong Kong and Shanghai Banking Corporation (“HSBC”) to provide credit to us, which was first amended by an offer letter between HSBC, Treasure Success, and Jerash Garments and Fashions Manufacturing Company Limited (“Jerash Garments”) dated June 19, 2018 (“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, the 2018 Facility Letter, and the 2019 Facility Letter, the “HSBC Facility”). The 2020 Facility Letter extended the term of the HSBC Facility indefinitely, subject to review at any time by HSBC. Pursuant to the HSBC Facility, we had a total credit limit of $11,000,000.

 

The HSBC Facility provided us with various credit facilities for importing and settling payment for goods purchased from our suppliers. The available credit facilities as described in greater detail below included an import facility, import facilities with loan against import, trust receipts, clean import loan, and advances to us against purchase orders. HSBC charged an interest rate of 1.5% per annum over LIBOR or HIBOR, as applicable, for credit related to the release of goods immediately on our documentary credit. HSBC charged a commission of: i) 0.25% for the first $50,000, ii) 0.125% for the balance in excess of $50,000 and up to $100,000, and iii) 0.0625% for balance in excess of $100,000 and an interest rate of 1.5% per annum over LIBOR or HIBOR, as applicable, for credit related to trust receipts whereby HSBC had title to the goods or merchandise released immediately to us. HSBC approved certain of our suppliers that were eligible to use clean import loans. HSBC charged a commission of: i) 0.25% for the first $50,000, ii) 0.125% for the balance in excess of $50,000 and up to $100,000, and iii) 0.0625% for balance in excess of $100,000 and an interest of 1.5% per annum over LIBOR or HIBOR, as applicable, for credit services related to clean import loans or release of the goods or merchandise based on evidence of delivery or invoice. HSBC would advance up to 70% of the purchase order value in our favor. HSBC charged a handling fee of 0.25% and an interest rate of 1.5% per annum over LIBOR or HIBOR, as applicable, for credit services related to advances. Previously, the HSBC Facility was secured by collateral provided by us, Jerash Garments, Treasure Success, and the personal guarantees of Mr. Choi Lin Hung, our Chief Executive Officer, and Mr. Ng Tsze Lun, one of our significant stockholders. The personal guarantees were released by HSBC in August 2019. Jerash Garments was also required to maintain an account at HSBC for receiving payments from VF Sourcing Asia S.A.R.L. and its related companies.

 

Borrowings under the HSBC Facility are due upon demand by HSBC or within 120 days of each borrowing date. On June 30, 2021, we terminated the HSBC Facility with immediately effect.

 

HSBC Factoring Agreement

 

On June 5, 2017, Treasure Success entered into an Offer Letter - Invoice Discounting/Factoring Agreement, and on August 21, 2017, Treasure Success entered into the Invoice Discounting/Factoring Agreement (together, the “2017 Factoring Agreement”) with HSBC for certain debt purchase services related to our accounts receivable. On June 14, 2018, Treasure Success and Jerash Garments entered into another Offer Letter - Invoice Discounting/Factoring Agreement with HSBC (the “2018 Factoring Agreement, and together with the 2017 Factoring Agreement, the “HSBC Factoring Agreement”), which amended the 2017 Factoring Agreement. The HSBC Factoring Agreement was effective through May 1, 2019. Under the terms of the HSBC Factoring Agreement, we could borrow up to $12,000,000. In exchange for advances on eligible invoices from HSBC for our approved customers, HSBC charged a fee to advance such payments at a discounting charge of 1.5% per annum over 2-month LIBOR or HIBOR, as applicable. Such fee accrues on a daily basis on the amount of funds in use. HSBC had final determination of the percentage amount available for prepayment from each of our approved customers. We may not prepay an amount from a customer in excess of 85% of the funds available for borrowing.

 

HSBC also provided credit protection and debt services related to each of our 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. 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. We may assign debtor payments that are to be paid to HSBC within 90 days, defined as the maximum terms of payment. We may receive advances on invoices that are due within 30 days of the delivery of our goods, defined as the maximum invoicing period. 

 

The advances made by HSBC were secured by collateral provided by us, Jerash Garments, and Treasure Success, and the personal guarantees of Mr. Choi and Mr. Ng. If we fail to pay any sum due to HSBC, HSBC may charge a default interest at the rate of 8.5% per annum over the best lending rate quoted by HSBC on such defaulted amount. In addition, to secure the Factoring Agreement, we had granted HSBC a charge of $3,000,000 over our deposits. Following the effectiveness of the 2018 Factoring Agreement, the security collateral of $3,000,000 was released as of January 22, 2019. HSBC released the personal guarantees of Mr. Choi and Mr. Ng in August 2019.

 

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The HSBC Factoring Agreement was subject to the review by HSBC at any time and HSBC had discretion on whether to renew the HSBC Factoring Agreement. Either party could terminate the agreement subject to a 30-day notice period. In fiscal 2021, Treasure Success had no transaction or balance in the invoice discounting/factoring facility granted by HSBC. In May 2021, Treasure Success received a letter from HSBC dated March 30, 2021 that the debts purchase services under the HSBC Factoring Agreement between Treasure Success and HSBC were terminated with immediate effect.

 

SCBHK Facility Letter

 

Pursuant to the Standard Chartered Hong Kong (“SCBHK”) facility letter dated June 15, 2018, and issued to Treasure Success by SCBHK, SCBHK offered to provide an import facility of up to $3.0 million to Treasure Success. The SCBHK facility covers import invoice financing and pre-shipment financing under export orders with a combined limit of $3 million. Borrowings under the SCBHK facility are due within 90 days of each invoice or financing date. SCBHK charges interest at 1.3% per annum over SCBHK’s cost of funds. In consideration for arranging the SCBHK facility, Treasure Success paid SCBHK HKD50,000. We were informed by SCBHK on January 31, 2019 that the SCBHK facility had been activated. As of September 30, 2021, there was no outstanding balance under the SCBHK facility.

 

Six months ended September 30, 2021 and 2020

 

The following table sets forth a summary of our cash flows for the periods indicated:

 

(All amounts in thousands of U.S. dollars)

 

    Six months ended
September 30,
 
    2021     2020  
Net cash provided by operating activities   $ 10,223     $ 1,713  
Net cash used in investing activities     (5,075     (309
Net cash used in financing activities     (1,746     (200
Effect of exchange rate changes on cash     80       -  
Net increase in cash     3,482       1,204  
Cash, beginning of six-month period     22,862       26,917  
Cash, end of six-month period   $ 26,344     $ 28,121  

 

Operating Activities

 

Net cash provided by operating activities was approximately $10.2 million for the six months ended September 30, 2021, compared to cash provided by operating activities of approximately $1.7 million for the same period in fiscal 2021. The increase in net cash used in operating activities was primarily attributable to the following factors:

  

a decrease in inventory of $4.5 million in the six months ended September 30, 2021 compared to a decrease of $12.3 million in the same period in fiscal 2021;

 

  an increase in accounts receivable of $1.4 million in the six months ended September 30, 2021 compared to an increase of $14.6 million in the same period in fiscal 2021;

 

  an increase in prepaid expenses and other current assets of $0.5 million compared to a decrease of $0.7 million the same period in fiscal 2021;

 

  a decrease in advance to suppliers of $1.1 million compared to an increase of $0.7 million in the same period in fiscal 2021;

 

  a decrease in accounts payable of $3.4 million in the six months ended September 30, 2021 compared to a decrease of $1.4 million in the same period in fiscal 2021; and

 

  an increase of net income to $6.4 million in the six months ended September 30, 2021 from a net income of $3.4 million in the same period in fiscal 2021.

 

29

 

 

Investing Activities

 

Net cash used in investing activities was approximately $5.1 million for the six months ended September 30, 2021, compared to approximately $0.3 million in the same period in fiscal 2021. The net cash used in investing activities in the six months ended September 30, 2021 included primarily deposits paid for the acquisition of a garment factory and the factory building and the land, and the acquisitions of properties and machineries. 

 

Financing Activities

 

Net cash used in financing activities was approximately $1.7 million for the six months ended September 30, 2021, including dividend payments of approximately $1.1 million and repayments of short-term loans of approximately $0.6 million. There was a net cash outflow of $0.2 million in the same period in fiscal 2021 resulting from dividend payments and proceeds from short-term loans.

 

Statutory Reserves

 

In accordance with the corporate laws in Jordan, our subsidiaries and VIE in Jordan are required to make appropriations to certain reserve funds, based on net income determined in accordance with generally accepted accounting principles in 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. Jiangmen Treasure Success is required to set aside 10% of its net income as statutory surplus reserve until such reserve is equal to 50% of its registered capital. These reserves are not available for dividend distribution. The statutory reserve was $346,000 and $213,000 as of September 30, 2021 and 2020, respectively.

 

The following table provides the amount of our statutory reserves, the amount of restricted net assets, consolidated net assets, and the amount of restricted net assets as a percentage of consolidated net assets, as of September 30, 2021 and 2020. 

 

(All amounts, other than percentages, in thousands of U.S. dollars)

 

   As of September 30, 
   2021   2020 
Statutory Reserves  $346   $213 
Total Restricted Net Assets  $346   $213 
Consolidated Net Assets  $62,331   $57,035 
Restricted Net Assets as Percentage of Consolidated Net Assets   0.56%   0.37%

 

Total restricted net assets accounted for approximately 0.56% of our consolidated net assets as of September 30, 2021. As our subsidiaries and VIE in Jordan are only required to set aside 10% of net profits to fund the statutory reserves, we believe the potential impact of such restricted net assets on our liquidity is limited.

 

Capital Expenditures

 

We had capital expenditures of approximately $1.6 million and $0.4 million for the six months ended September 30, 2021 and 2020, respectively, mainly for plant and machinery and properties. Additions in plant and machinery amounted to approximately $0.4 million for each of the six months ended September 30, 2021 and 2020. Additions to properties and leasehold improvements amounted to approximately $1 million and $2,000 for the six months ended September 30, 2021 and 2020 respectively.

 

In 2015, we commenced a project to build a 4,800 square foot workshop in the Tafilah Governorate of Jordan, which was initially intended to be used as a sewing workshop for Jerash Garments, but which we now intend to use as a dormitory to house management and supervisory staff for the 54,000 square foot workshop in Al-Hasa County. Construction was temporarily suspended in March 2020 due to the COVID-19 pandemic but subsequently completed, and the building was ready for use as of September 30, 2021.

 

30

 

 

In 2018, we commenced another project to build a 54,000 square foot workshop in Al-Hasa County in the Tafilah Governorate of Jordan, which started operation in November 2019 with approximately 240 workers. Provided that we satisfy certain employment requirements over certain time periods, we do not anticipate incurring any significant costs for the project, which was constructed in conjunction with the Jordanian Ministry of Labor and the Jordanian Education and Training Department. In the event we breach our agreement with these government agencies, we will have to pay such agencies JOD250,000 or approximately $353,000.

   

On August 7, 2019, we completed a transaction to acquire 12,340 square meters (approximately three acres) of land in Al Tajamouat Industrial City, Jordan, from a third party to construct a dormitory for our employees with aggregate purchase price JOD863,800 (approximately $1,218,303). Management has revised the plan to construct both dormitory and production facilities on the land in order to capture the increasing demand for our capacity. We are conducting engineering design and study on this project and we plan to begin construction in early 2022. On February 6, 2020, we completed a transaction to acquire 4,516 square meters (approximately 48,608 square feet) of land in Al Tajamouat Industrial City, Jordan, from a third party to construct a dormitory for our employee with aggregate purchase price JOD313,501 (approximately $442,162). We expect to spend approximately $8.2 million in capital expenditures to build the dormitory. Due to the ongoing COVID-19 pandemic, management decided to put on hold the construction project in fiscal 2021 to retain financial resources to support our operations, and also to wait and see how the global economy and customer demand recover after the outbreak. The preparation work resumed in early 2021 and construction work commenced in April 2021. 

 

We project that there will be an aggregate of approximately $27 million of capital expenditures in both the fiscal years ending March 31, 2022 and 2023 for further enhancement of production capacity to meet future sales growth. We expect that our capital expenditures will increase in the future as our business continues to develop and expand. We have used cash generated from operations of our subsidiaries and VIE to fund our capital commitments in the past and anticipate using such funds to fund capital expenditure commitments in the future.

 

Off-balance Sheet Commitments and Arrangements

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our consolidated financial statements.

 

Critical Accounting Policies

 

We prepare our financial statements in conformity with accounting principles generally accepted by the United States of America (“U.S. GAAP”), which require us to make judgments, estimates, and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

 

We believe that our accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations are summarized in “Note 2—Summary of Significant Accounting Policies” in the notes to our unaudited condensed consolidated financial statements.

 

31

 

 

Recent Accounting Pronouncements

 

See “Note 3—Recent Accounting Pronouncements” in the notes to our unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting company, we are not required to provide this information.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

Disclosure controls and procedures (as defined in Exchange Act Rule 15d-15(e)) are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), based on their evaluation of our disclosure controls and procedures as of September 30, 2021, concluded that our disclosure controls and procedures were effective as of that date.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as the term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

32

 

 

JERASH HOLDINGS (US), INC.

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not currently involved in any material legal proceedings. From time-to-time we are, and we anticipate that we will be, involved in legal proceedings, claims, and litigation arising in the ordinary course of our business and otherwise. The ultimate costs to resolve any such matters could have a material adverse effect on our financial statements. We could be forced to incur material expenses with respect to these legal proceedings, and in the event there is an outcome in any that is adverse to us, our financial position and prospects could be harmed.

 

Item 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

33

 

 

Item 6. Exhibits

 

The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.

 

Index to Exhibits

 

Exhibit       Incorporated by Reference
(Unless Otherwise Indicated)
Number   Exhibit Title   Form   File   Exhibit   Filing Date
                     
3.1   Amended and Restated Certificate of Incorporation   S-1   333-222596   3.1   September 19, 2018
                     
3.2   Amended and Restated Bylaws   8-K   001-38474   3.1   July 24, 2019
                     
4.1   Specimen Certificate for Common Stock   S-1   333-218991   4.1   June 27, 2017
                     
10.1   Sale and Purchase Contract dated June 24, 2021, by and between Jerash Garments and Kawkab Venus Al Dowalyah Lisenaet Albesah   8-K   001-38474   10.1   July 20, 2021
                     
31.1   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002         Filed herewith
                     
31.2   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002         Filed herewith
                     
32.1*   Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002         Furnished herewith
                     
 32.2*   Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   —     —   —    Furnished herewith 
                     
101   The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statements of Changes in Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags    —    —    —   Filed herewith
                     
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)    —    —    —   Filed herewith

 

*In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: November 12, 2021 Jerash Holdings (US), Inc.
   
  By: /s/ Gilbert K. Lee
    Gilbert K. Lee
    Chief Financial Officer
(Principal Financial Officer)

 

 

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