Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion of our financial condition
and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere
in this filing.
EXECUTIVE OVERVIEW
Overview
Through our wholly owned operating subsidiaries,
we are principally engaged in the manufacturing and exporting of customized, ready-made sportswear and outerwear from knitted fabric and
PPE produced in our facilities in Jordan.
We are an approved manufacturer of many well-known
brands and retailers, such as Walmart, Costco, New Balance, G-III (which owns brands such as Calvin Klein, Tommy Hilfiger, DKNY, and Guess),
American Eagle, VF Corporation (which operates brands such as The North Face, Timberland, and Vans). Our production facilities are made
up of six factories and four warehouses and currently employ approximately 5,700 people. The total annual capacity at our facilities is
approximately 14.0 million pieces (average for product categories including t-shirts, polo shirts, pants, shorts, and jackets, and excluding
PPE).
Impact of COVID-19 on Our Business
Collectability of receivables. We
had accounts receivable of $11.0 million as of March 31, 2022, out of which $10.4 million had been received through June 23, 2022. Two
major customers have offered 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 $28.3
million as of March 31, 2022, substantially for orders scheduled to be shipped within fiscal 2023.
19
Investments. We acquired two pieces
of land in fiscal 2020 for the construction of dormitory and production facilities. Due to the COVID-19 pandemic, 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 begin 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 physical
land and building that the factory was leasing. The acquisition of the garment factory was completed on October 7, 2021. We accounted
for the acquisition under the acquisition method of accounting. The operating results of this garment factory since the completion of
the acquisition and the assets of this garment factory are included in the consolidated financial statements as of and for the fiscal
year ended March 31, 2022 included in elsewhere in this annual report. The acquisition of the land and building of the factory is expected
to close in the second quarter of fiscal 2023 due to personal reasons of the seller in relation to health and quarantine requirements.
See “Note 15—Commitments and Contingencies—Commitments.”
Revenue. For fiscal 2022, our sales
were $143.4 million, which represented an approximate 58.9% increase from $90.2 million for fiscal 2021. We have been proactively communicating
with our existing customers to reconfirm their orders and shipment schedules for fiscal 2023. However, our operating results are still
subject to the economies in the U.S. and the EU that would have significant impact on both order fulfilment and delivery schedules and
our operating results may be adversely affected by the negative impact on the global economy and capital markets resulting from the conflict
in Ukraine or any other geopolitical tensions, inflation, and a potential recession.
Liquidity/Going Concern. As of March
31, 2022, we had approximately $25.2 million of cash and net current assets of approximately $69.9 million with a current ratio of 4.9
to 1. In addition, we had banking facilities with aggregate limits of $3 million with $nil outstanding as of March 31, 2022. Given the
above, we believe that we will have sufficient financial resources to maintain as a going concern in fiscal 2023. 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. In fiscal 2022, the Company acquired five car
parking spaces.
Seasonality of Sales
A significant portion of our revenue is received
during the first six months of our fiscal year. The majority of our VF Corporation orders are derived from winter season fashions, the
sales of which occur in Spring and Summer and are merchandized by VF Corporation during the months of September through November. As such,
the second half of our fiscal years reflect lower sales in anticipation of the spring and summer seasons. One of our strategies is to
increase sales with other customers where clothing lines are stronger during the spring months. This strategy also reflects our current
plan to increase our number of customers to mitigate our current concentration risk with VF Corporation.
20
Results of Operations
The following table presents certain information
from our statement of income for fiscal years 2022 and 2021 and should be read, along with all of the information in this management’s
discussion and analysis, in conjunction with the consolidated financial statements and related notes included elsewhere in this filing.
(All amounts, other than percentages, in thousands
of U.S. dollars)
Fiscal Years Ended March 31,
Statement of Income Data: Amount As % of Sales Amount As % of Sales Amount %
Revenue. Revenue increased by approximately
$53.1 million, or 59%, to approximately $143.4 million in fiscal 2022 from approximately $90.2 million in fiscal 2021. The increase was
mainly due to an increase in export sales to two of our major U.S. customers. Strong recovery in the U.S. markets along with our continued
expansion of the cooperation with these two major customers generated substantial order increases. All factories, including MK Garments
and Paramount (acquired in mid-2019), are fully booked until December 2022 and were operating at or near capacity during fiscal 2022.
The following table outlines the dollar amount
and percentage of total sales to our customers for the fiscal years ended March 31, 2022 and 2021, respectively.
(All amounts, other than percentages, in thousands
of U.S. dollars)
Fiscal Year Ended March 31, 2022 Fiscal Year Ended March 31, 2021
Sales Sales
Amount % Amount %
Jiangsu Guotai Huasheng Industrial Co (HK)., Ltd 3,245 2.3 % 2,982 3.3 %
Onset Time Limited - - 1,672 1.9 %
21
Revenue by Geographic Area
(All amounts, other than percentages, in thousands
of U.S. dollars)
Fiscal Years Ended March 31,
Region Amount % Amount % Amount %
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 72% in sales to
the U.S. during fiscal year ended March 31, 2022 was mainly attributable to the increase in the export sales to two of our major customers
in the U.S.
During the fiscal year ended March 31, 2022, aggregate
sales to Jordan and other locations, such as Hong Kong and China, decreased by 34% from approximately $11.0 million to $7.3 million during
the fiscal year ended March 31, 2022 as more production capacity was allocated to export orders, which typically have a higher profit
margin.
Cost of goods sold. Following the
increase in sales revenue, our cost of goods sold increased by approximately $41.8 million, or 56%, to approximately $116.0 million in
fiscal 2022 from approximately $74.2 million in fiscal 2021. As a percentage of revenue, the cost of goods sold decreased by approximately
1% points to 81% in fiscal 2022 from 82% in fiscal 2021. The decrease in cost of goods sold as a percentage of revenue was primarily attributable
to a full resumption of production and a higher proportion of export orders in fiscal 2022.
For the fiscal year ended March 31, 2022, we purchased
approximately 20% and 11% of our garments and raw materials from two major suppliers, respectively. For the fiscal year ended March 31,
2021, we purchased approximately 13% of our garments from one major supplier.
Gross profit margin. Gross profit
margin was approximately 19% in fiscal 2022, which increased by approximately 1% points from 18% in fiscal 2021. The increase in gross
profit margin was primarily driven by higher proportion of export orders that typically have higher margin.
Selling, general, and administrative expenses.
Selling, general, and administrative expenses increased by approximately 59% from approximately $10.6 million in fiscal 2021 to
approximately $16.8 million in fiscal 2022. The increase was mainly attributable to (i) increased costs for employing additional migrant
workers, (ii) the inclusion of approximately $0.9 million of stock-based compensation expenses, (iii) an increase in headcounts from the
completion of acquisition of MK Garment in October 2021, and (iv) an increase in export expenses in proportion to growth in sales in fiscal
2022.
Other (expenses)/ income, net. Other
expenses, net were approximately $45,000 in fiscal 2022 and other income, net was approximately $109,000 in fiscal 2021. The increase
in other expenses was primarily due to the absence of a realized gain from short-term investments in the current period, compare with
a $124,889 realized gain from short-term investments in the corresponding period of fiscal 2021.
Taxation. Income tax expenses for
the fiscal 2022 were approximately $2.5 million compared to income tax expenses of approximately $1.3 million for fiscal 2021. The effective
tax rate was slightly down to 24.2% for fiscal 2022, compared to 24.5% for the fiscal 2021 as Treasure Success started to report profit
and the tax rate in Hong Kong is 16.5%, which is lower than 18% to 20% of Jordan.
Net income. Net income for fiscal
2022 was approximately $7.9 million, a 91% increase from approximately $4.1 million for fiscal 2021. The increase was mainly attributable
to the increase in sales and the improvement in the gross profit margin discussed above.
22
Liquidity and Capital Resources
Jerash Holdings is a holding company incorporated
in Delaware. As a holding company, we rely on dividends and other distributions from our Jordanian and Hong Kong subsidiaries to satisfy
our liquidity requirements. Current Jordanian regulations permit our Jordanian subsidiaries 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
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 (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 March 31, 2022, we had cash of approximately
$25.2 million and restricted cash of approximately $1.4 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 (i) the completion of a placement in
October 2021 that resulted in net proceeds of approximately $6.3 million, and (ii) the introduction of supply chain finance programs by
two of our major customers that reduce payment terms from 60 to 90 days to within 10 days from shipments, offsetting approximately $8.7
million used for the MK Garments acquisition, purchases of property, plant, and machinery, and payments for dormitory construction.
Our current assets as of March 31, 2022 were approximately
$69.9 million, and our current liabilities were approximately $14.1 million, which resulted in a current ratio of approximately 4.9:1.
Our current assets as of March 31, 2021 were approximately $64.7 million, and our current liabilities were approximately $14.8 million,
which resulted in a current ratio of approximately 4.4:1. The primary drivers in the increase in current assets were the increase in cash
as a result of a share placement completed in October 2021 and the increase in operating profit in the year. The primary driver in the
decrease in current liabilities was the decrease in accounts payable due to the earlier payments to newly appointed suppliers, particularly
for new customers introduced in recent years, and the repayment of short-term bank loans in light of the strong cash position. Total equity
as of March 31, 2022 was approximately $69.3 million, compared to $56.4 million as of March 31, 2021.
We had net working capital of $55.7 million and
$49.8 million as of March 31, 2022 and 2021, respectively. Based on our current operating plan, we believe that cash on hand and cash
generated from operation will be sufficient to support our working capital needs for the next 12 months from the date of this Annually
Report.
Since May and October 2021, we have participated
in supply chain financing programs of two of our major customers, respectively. The programs allow 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
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.
Credit Facilities
SCBHK Facility Letter
Pursuant to the 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 March 31, 2022, there was no amount outstanding under the
SCBHK facility. In June 2022, we were informed by SCBHK that the facility was cancelled due to persistently low usage and zero loan outstanding.
DBS Facility Letter
Pursuant to the DBS facility letter dated January
12, 2022, DBSHK provided a bank facility of up to $5.0 million to Treasure Success. Pursuant to the agreement, DBSHK agreed to finance
cargo receipt, trust receipt, account payable financing, and certain type of import invoice financing up to an aggregate of $5.0 million.
The DBSHK facility bears interest at 1.5% per annum over Hong Kong Interbank Offered Rate (“HIBOR”) for HKD bills and 1.3%
per annum over DBSHK’s cost of funds for foreign currency bills. The facility is guaranteed by Jerash Holdings and became available
to the Company on June 17, 2022.
23
Fiscal Years ended March 31, 2022 and 2021
The following table sets forth a summary of our
cash flows for the fiscal years ended March 31, 2022 and 2021.
(All amounts in thousands of U.S. dollars)
For the fiscal years ended March 31,
Net cash provided by (used in) operating activities $ 8,963 $ (1,499 )
Net cash used in investing activities (8,673 ) (894 )
Net cash provided by (used in) financing activities 3,289 (1,654 )
Effect of exchange rate changes on cash 144 (8 )
Net increase (decrease) in cash 3,723 (4,055 )
Cash and restricted cash, beginning of year 22,860 26,915
Cash and restricted cash, end of year $ 26,583 $ 22,860
Cash paid for interest 211 -
Non-cash financing activities
Operating Activities
Net cash provided by operating activities was
approximately $9.0 million in fiscal 2022, compared to net cash used in operating activities of approximately $1.5 million in fiscal 2021.
The increase in net cash provided by operating activities was primarily attributable to the following factors:
Investing Activities
Net cash used in investing activities was approximately
$8.7 million and $0.9 million for fiscal 2022 and 2021, respectively. The increase in net cash used in investing activities was mainly
attributable to $3.0 million used in the acquisition of property, plant and machinery, $2.1 million for payments for the construction
of a dormitory, and $2.7 million for the acquisition of all the share capital of MK Garments.
24
Financing Activities
Net cash provided by financing activities was
approximately $3.3 million for fiscal 2022, from the net proceeds of $6.3 million in a placement completed in October 2021 and outflows
of dividend payments of approximately $2.4 million and repayments of short-term loans of approximately $0.6 million. There was a net cash
outflow of $1.7 million in fiscal 2021 resulting from dividend payments and proceeds from short-term loans.
Statutory Reserves
In accordance with the corporate Law in Jordan,
Jerash Holdings’ subsidiaries in Jordan 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. 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 $379,323 and $346,315 as of March 31, 2022 and 2021, 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 March 31, 2022 and 2021.
(All amounts, other than percentages, in thousands
of U.S. dollars)
As of March 31,
Total Restricted Net Assets $ 379 $ 346
Restricted Net Assets as Percentage of Consolidated Net Assets 0.55 % 0.61 %
Total restricted net assets accounted for approximately
0.55% of our consolidated net assets as of March 31, 2022. As our subsidiaries 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 $8.7
million and $1.0 million in fiscal 2022 and 2021, respectively, for property, plant, and machinery, the construction of a dormitory, and
the acquisition of MK Garment. Additions in property, plant, and machinery amounted to approximately $3.0 million and $0.8 million in
fiscal 2022 and 2021, respectively. Payments for construction of a dormitory and factory expansion amounted to $2.1 million in fiscal
2022, and payment made for the acquisition of all the share capital of MK Garment was $2.7 million in fiscal 2022.
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 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.
In 2018, we commenced another project to build
a 54,000 square-foot factory in Al-Hasa County in the Tafilah Governorate of Jordan, which started operation in November 2019 with
approximately 240 workers. This project was constructed in conjunction with the Jordanian Ministry of Labor and the Jordanian Education
and Training Department.
25
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.
The dormitory is expected to be completed and ready for use in fiscal 2023.
We project that there will be an aggregate of
approximately $16 million and $0.5 million of capital expenditures in the fiscal years ending March 31, 2023 and 2024, respectively, 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 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 stockholders’ equity, or that are not reflected in our consolidated financial
statements.
For Management’s Discussion and Analysis
of the fiscal years ended March 31, 2021 and 2020, please see our Annual Report on Form 10-K for the fiscal year ended March 31, 2021,
filed with the SEC on June 23, 2021.
Critical Accounting Policies
We prepare our financial statements in conformity
with accounting principles generally accepted by the United States of America, 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 two 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 certain accounting policies involve
a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. The policies
that 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 audited financial statements.
Recent Accounting Pronouncements
See “Note 3—Recent Accounting Pronouncements”
in the notes to our audited financial statements for a discussion of recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
26
Item 8. Financial Statements and Supplementary Data.
JERASH HOLDINGS (US), INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID # 711) F-2
Consolidated Balance Sheets as of March 31, 2022 and 2021 F-3
Notes to Consolidated Financial Statements F-7 – F-24
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of Jerash Holdings (US), Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of Jerash Holdings (US), Inc. and Subsidiaries (collectively, the “Company”) as of March 31, 2022 and 2021, and the related
statements of income and comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended March
31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations
and its cash flows for each of the years in the two-year period ended March 31, 2022, in conformity with accounting principles generally
accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Friedman LLP
We have served as the Company’s auditor since 2016.
New York, New York
F-2
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Credit facilities $ - $ 612,703
Commitments and Contingencies
Stockholders’ Equity
Accumulated other comprehensive gain (loss) 127,145 (15,901 )
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
JERASH HOLDINGS (US),
INC.,
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Fiscal Years Ended March 31,
Other (Expense) Income:
Other Comprehensive Income:
Foreign currency translation gain (loss) 143,046 (7,577 )
Earnings Per Share Attributable to Common Stockholders:
Basic and diluted $ 0.67 $ 0.37
Weighted Average Number of Shares
Dividend per share $ 0.20 $ 0.20
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED MARCH 31, 2022 AND 2021
Shares Amount Shares Amount Capital Reserve Earnings Gain (Loss) Equity
Share issued - - 7,974 8 (8 ) - - - -
Foreign currency translation loss - - - - - - - (7,577 ) (7,577 )
Cashless exercise of warrants - - 1,344 1 (1 ) - - - -
Foreign currency translation gain - - - - - - - 143,046 143,046
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
JERASH
HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES
Amortization of operating lease right-of-use assets 803,056 933,959
Gain from sales of short-term investments - (124,889 )
Changes in operating assets:
Changes in operating liabilities:
Net cash provided by (used in) operating activities 8,963,545 (1,498,645 )
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investment - (9,686,091 )
Proceeds of short-term investment - 9,810,980
Purchases of property, plant and equipment (2,955,328 ) (890,462 )
Payments for construction of properties (2,098,323 ) -
Acquisition of MK Garments (2,700,000 ) -
Acquisition deposit (500,000 ) -
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment from short-term loan (612,703 ) (235 )
Repayment of advance from a related party (1,763 ) (1,763 )
Proceeds from short-term loan - 612,703
Net proceeds from issuance of common stock 6,270,000 -
Net cash provided by (used in) financing activities 3,288,738 (1,654,295 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH 143,990 (7,763 )
LESS: RESTRICTED CASH - 714,844
-
Supplemental disclosure information:
Cash paid for interest $ 210,576 $ -
Non-cash financing activities
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
JERASH HOLDINGS (US), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Jerash Holdings (US), Inc. (“Jerash Holdings”)
was incorporated under the laws of the State of Delaware on January 20, 2016. Jerash Holdings is a holding company with no operations.
Jerash Holdings and its subsidiaries are herein collectively referred to as the “Company.”
Jerash Garments and Fashions Manufacturing Company
Limited (“Jerash Garments”) is a wholly owned subsidiary of Jerash Holdings and was established in Amman, the Hashemite Kingdom
of Jordan (“Jordan”), as a limited liability company on November 26, 2000 with a declared capital of 150,000 Jordanian Dinar
(“JOD”) (approximately US$212,000).
Jerash for Industrial Embroidery Company (“Jerash
Embroidery”) and Chinese Garments and Fashions Manufacturing Company Limited (“Chinese Garments”) were both established
in Amman, Jordan, as limited liability companies on March 11, 2013 and June 13, 2013, respectively, each with a declared capital of JOD50,000.
Jerash Embroidery and Chinese Garments are wholly owned subsidiaries of Jerash Garments.
Al-Mutafaweq Co. for Garments Manufacturing Ltd.
(“Paramount”) is a contract garment manufacturer that was established in Amman, Jordan, as a limited liability company on
October 24, 2004 with a declared capital of JOD100,000. On December 11, 2018, Jerash Garments and the sole shareholder of Paramount entered
into an agreement pursuant to which Jerash Garments acquired all of the outstanding shares of stock of Paramount. Jerash Garments assumed
ownership of all of the machinery and equipment owned by Paramount. Paramount had no other significant assets or liabilities and no operating
activities or employees at the time of this acquisition, so this transaction was accounted for as an asset acquisition. On June 18, 2019,
Paramount became a subsidiary of Jerash Garments.
Jerash The First for Medical Supplies Manufacturing
Company Limited (“Jerash The First”) was established in Amman, Jordan, as limited liability company on July 6, 2020, with
a registered capital of JOD150,000. Jerash The First is engaged in the production of medical supplies in Jordan and is a wholly owned
subsidiary of Jerash Garments.
Mustafa and Kamal Ashraf Trading Company (Jordan)
for the Manufacture of Ready-Make Clothes LLC (“MK Garments”) is a garment manufacturer that was established in Amman, Jordan,
as a limited liability company on January 23, 2003 with a declared capital of JOD100,000. On June 24, 2021, Jerash Garments and the sole
shareholder of MK Garments entered into an agreement, pursuant to which Jerash Garments acquired all of the outstanding stock of MK Garments.
On October 7, 2021, MK Garments became a subsidiary of Jerash Garments.
Treasure Success International Limited (“Treasure
Success”) was organized on July 5, 2016 in Hong Kong, the People’s Republic of China (“China”), as a limited liability
company for the primary purpose of employing staff from China to support Jerash Garments’ operations and is a wholly-owned subsidiary
of Jerash Holdings.
Jiangmen Treasure Success Business Consultancy
Company Limited (“Jiangmen Treasure Success”) was organized on August 28, 2019 under the laws of China in Guangzhou City of
Guangdong Province in China with a total registered capital of 15 million Hong Kong Dollars (“HKD”) (approximately $1.9 million)
to provide support in sales and marketing, sample development, merchandising, procurement, and other areas. Treasure Success owns 100%
of the equity interests in Jiangmen Treasure Success.
Jerash Supplies, LLC (“Jerash Supplies”)
was formed under the laws of the State of Delaware on November 20, 2020. Jerash Supplies is engaged in the trading of personal protective
equipment products and is a wholly owned subsidiary of Jerash Holdings.
The Company is engaged primarily in the manufacturing
and exporting of customized, ready-made sportswear and outerwear and personal protective equipment (“PPE”) produced in its
facilities in Jordan and sold in the United States, Jordan, and other countries.
F-7
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements
are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and
pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
The consolidated financial statements include
the financial statements of Jerash Holdings and its subsidiaries. All significant intercompany balances and transactions have been eliminated
in consolidation.
Use of Estimates
The preparation of the consolidated financial
statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported
amounts of revenue and expenses during the reporting period. The Company’s most significant estimates include allowance for doubtful
accounts, valuation of inventory reserve, useful lives of buildings and other property, and the measurement of stock-based compensation
expenses. Actual results could differ from these estimates.
Cash
The Company’s cash consists of cash on hand
and cash deposited in financial institutions. The Company considers all highly liquid investment instruments with an original maturity
of three months or less from the original date of purchase to be cash equivalents. As of March 31, 2022 and 2021, the Company had no cash
equivalents.
Restricted Cash
Restricted cash consists of cash used as security
deposits to obtain credit facilities from a bank and to secure customs clearance under the requirements of local regulations. The Company
is required to keep certain amounts on deposit that are subject to withdrawal restrictions. These security deposits at the bank are refundable
only when the bank facilities are terminated. The restricted cash is classified as a current asset if the Company intends to terminate
these bank facilities within one year, and as a non-current asset if otherwise.
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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Short-term Investments
From time to time, the Company purchased financial
products that can be readily converted into cash and accounted for such financial products as short-term investments. The financial products
include money market funds, bonds, and mutual funds. The carrying values of the Company’s short-term investments approximate fair
value because of their liquidity. The gain and interest earned are recognized in the consolidated statements of comprehensive income over
the contractual terms of these investments.
The Company had no short-term investments as of
March 31, 2022 and 2021. The Company recorded a realized gain of $nil and $124,889 for the fiscal years ended March 31, 2022 and 2021,
respectively.
Accounts Receivable, Net
Accounts receivable are recognized and carried
at original invoiced amount less an estimated allowance for uncollectible accounts. The Company usually grants extended payment terms
to customers with good credit standing and determines the adequacy of reserves for doubtful accounts based on individual account analysis
and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the
Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual
exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances,
with a corresponding charge recorded in the consolidated statements of comprehensive income. Actual amounts received may differ from management’s
estimate of credit worthiness and the economic environment. Delinquent account balances are written off against the allowance for doubtful
accounts after management has determined that the likelihood of collection is not probable.
Inventories
Inventories are stated at the lower of cost or
net realizable value. Inventories include cost of raw materials, freight, direct labor and related production overhead. The cost of inventories
is determined using the First in, First-out method. The Company periodically reviews its inventories for excess or slow-moving items and
makes provisions as necessary to properly reflect inventory value.
Advance to Suppliers, Net
Advance to suppliers consists of balances paid
to suppliers for services or materials purchased that have not been provided or received. Advance to suppliers for services and materials
is short-term in nature. Advance to suppliers is reviewed periodically to determine whether its carrying value has become impaired. The
Company considers the assets to be impaired if the performance by the suppliers becomes doubtful. The Company uses the aging method to
estimate the allowance for the questionable balances. In addition, at each reporting date, the Company generally determines the adequacy
of allowance for doubtful accounts by evaluating all available information, and then records specific allowances for those advances based
on the specific facts and circumstances.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at
cost, reduced by accumulated depreciation and amortization. Depreciation and amortization expense related to property, plant, and equipment
is computed using the straight-line method based on estimated useful lives of the assets, or in the case of leasehold improvements, the
shorter of the initial lease term or the estimated useful life of the improvements. The useful life and depreciation method are reviewed
periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items
of property, plant, and equipment. The estimated useful lives of depreciation and amortization of the principal classes of assets are
as follows:
Useful life
Land Infinite
Property and buildings 15 years
Equipment and machinery 3-5 years
Office and electronic equipment 3-5 years
Automobiles 5 years
Leasehold improvements Lesser of useful life and lease term
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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Expenditures for maintenance and repairs, which
do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments
which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation or amortization of
assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of
comprehensive income.
Impairment of Long-Lived Assets
The Company assesses its long-lived assets, including
property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group
may not be recoverable. Factors which may indicate potential impairment include a significant underperformance relative to the historical
or projected future operating results or a significant negative industry or economic trend. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by that
asset. If impairment is indicated, a loss is recognized for any excess of the carrying value over the estimated fair value of the asset.
The fair value is estimated based on the discounted future cash flows or comparable market values, if available. The Company did not record
any impairment loss during the fiscal years ended March 31, 2022 and 2021.
Goodwill
Goodwill represents the excess purchase price paid over the fair value
of the net assets of acquired companies. Goodwill is not amortized. As of March 31, 2022 and 2021, the carrying amount of goodwill was
$499,282 and $nil, respectively. Goodwill is tested for impairment on an annual basis, or in interim periods if indicators of potential
impairment exist, based on the one reporting unit. The Company has the option to perform a qualitative assessment to determine whether
it is necessary to perform the quantitative goodwill impairment test. When performing the quantitative impairment test, the Company compares
the fair value of its only reporting unit with the carrying amounts. The Company would recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value. The Company concluded that no impairment of its goodwill occurred
for the year ended March 31, 2022.
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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Substantially all of the Company’s revenue
is derived from product sales, which consist of sales of the Company’s customized ready-made outerwear for large brand-name retailers
and PPE. The Company considers purchase orders to be a contract with a customer. Contracts with customers are considered to be short term
when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year. Virtually
all of the Company’s contracts are short term. The Company recognizes revenue for the transfer of promised goods to customers in
an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. The Company typically
satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due from customers
within ten to 150 days of the invoice date. The contracts do not have significant financing components. Shipping and handling costs associated
with outbound freight are not an obligation of the Company. Returns and allowances are not a significant aspect of the revenue recognition
process as historically they have been immaterial.
The Company also derives revenue rendering cutting
and making services to other apparel vendors who subcontract order to the Company. Revenue is recognized when the service is rendered.
All of the Company’s contracts have a single performance obligation satisfied at a point in time and the transaction price is stated
in the contract, usually as a price per unit. All estimates are based on the Company’s historical experience, complete satisfaction
of the performance obligation, and the Company’s best judgment at the time the estimate is made. Historically, sales returns have
not significantly impacted the Company’s revenue.
The Company does not have any contract assets
since the Company has an unconditional right to consideration when the Company has satisfied its performance obligation and payment from
customers is not contingent on a future event. The Company did not have any contract liabilities as of March 31, 2022 and 2021. For the
fiscal year ended March 31 2022 and 2021, there was no revenue recognized from performance obligations related to prior periods. As of
March 31, 2022, there was no revenue expected to be recognized in any future periods related to remaining performance obligations.
The Company has one revenue generating reportable
geographic segment under ASC Topic 280 “Segment Reporting” and derives its sales primarily from its sales of customized ready-made
outerwear. The Company believes disaggregation of revenue by geographic region best depicts the nature, amount, timing, and uncertainty
of its revenue and cash flows (see “Note 14—Segment Reporting”).
Shipping and Handling
Proceeds collected from customers for shipping and handling costs are
included in revenue. Shipping and handling costs are expensed as incurred and are included in operating expenses, as a part of selling,
general, and administrative expenses. Total shipping and handling expenses were $1,864,202 and $1,108,659 for the fiscal years ended March
31, 2022 and 2021, respectively.
Income and Sales Taxes
The Company is subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled. Jerash Holdings and Jerash Supplies
are incorporated in the State of Delaware and are subject to federal income tax in the United States of America. Treasure Success is registered
in Hong Kong and is subject to profits tax in Hong Kong. Jiangmen Treasure Success is incorporated in China and is subject to corporate
income tax in China. Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and MK Garments are subject to
income tax in Jordan, unless an exemption is granted. In accordance with Development Zone law, Jerash Garments and its subsidiaries were
subject to corporate income tax in Jordan at a rate of 14% plus a 1% social contribution as of January 1, 2020. The income tax rate increased
to 16% plus a 1% social contribution starting from January 1, 2021. Effective January 1, 2022, income rate increased to 18% or 20%, plus
a 1% social contribution.
Jerash Garments and its subsidiaries are subject
to local sales tax of 16% on purchases. Jerash Garments was granted a sales tax exemption from the Jordanian Investment Commission for
the period from June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases with no sales tax charge. The exemption has
been extended to February 5, 2023.
The Company accounts for income taxes in accordance
with ASC 740, “Income Taxes,” which requires the Company to use the asset and liability method of accounting for income taxes.