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
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.
19
Results of Operations
The following table presents certain information from our statements
of income and comprehensive income for fiscal 2023 and 2022 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,
As % of As % of Year over Year
Statement of Income Data: Amount Sales Amount Sales Amount %
Revenue. Revenue decreased by approximately
$5.3 million, or 4%, to approximately $138.1 million in fiscal 2023 from approximately $143.4 million in fiscal 2022. This slight decrease
was mainly due to a decline in export sales to two major U.S. customers. Despite receiving orders from new customers and observing an
increase in shipments to other existing customers, these efforts were not enough to offset the shortfall in sales.
The following table outlines the dollar amount
and percentage of total sales to our customers for the fiscal years ended March 31, 2023 and 2022, respectively.
(All amounts, other than percentages, in thousands
of U.S. dollars)
Fiscal Year Ended March 31, 2023 Fiscal Year Ended March 31, 2022
Sales Sales
Amount % Amount %
Jiangsu Guotai Huasheng Industrial Co (HK)., Ltd 9,454 6.8 % 3,245 2.3 %
20
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 decrease of approximately 10% in sales to the U.S. during fiscal
year ended March 31, 2023 was mainly attributable to the decrease in the export sales to two major customers in the U.S. due to challenges
related to inflation, which impacted customer demand for new orders.
During the fiscal year ended March 31, 2023, aggregate
sales to Jordan, Hong Kong, and other locations, such as mainland China, increased significantly by 116% from approximately $7.3 million
to $15.7 million. This surge in sales can be attributed to receiving more orders from these regions to fill up the production capacity
released from the decrease in shipments to the aforementioned two major customers in the U.S.
Cost of goods sold. Our cost
of goods sold experienced a slight increase of approximately $0.3 million to approximately $116.3 million in fiscal 2023 from approximately
$116.0 million in fiscal 2022, despite the decrease in sales. As a percentage
of revenue, the cost of goods sold increased by approximately 3 percentage points to 84% in fiscal 2023 from 81% in fiscal 2022. The increase
in the cost of goods sold as a percentage of revenue was primarily attributable to a lower proportion of export orders to our two major
customers in the U.S., which typically generated higher profit margin for the company.
For the fiscal year ended March 31, 2023, we purchased
approximately 11% of our garments from one major supplier. 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.
Gross profit margin. Our gross profit
margin was approximately 16% in fiscal 2023, representing a decrease by approximately 3 percentage points from 19% in fiscal 2022. The
decrease in gross profit margin was primarily influenced by a lower proportion of export orders from our two major customers in the U.S.,
which typically generated higher profit margin.
Selling, general, and administrative expenses.
Selling, general, and administrative expenses increased by approximately 3% from approximately $16.8 million in fiscal 2022 to approximately
$17.4 million in fiscal 2023. The increase was mainly attributable to (i) the acquisition of MK Garments, resulting in higher headcounts,
and (ii) increased travelling costs for migrant workers.
Other expenses, net. Other
expenses, net were approximately $0.3 million in fiscal 2023 and other expenses, net was approximately $45,000 in fiscal 2022. The increase
in other expenses was primarily due to the increase in net interest expenses.
21
Taxation. Income tax expenses for
the fiscal 2023 were approximately $1.7 million, compared to income tax expenses of approximately $2.5 million for fiscal 2022. The effective
tax rate for fiscal 2023 increased to 40.7%, compared to 24.2% for fiscal 2022. The increase in the effective tax rate mainly resulted
from lower operating profit in Jordanian companies, operating loss in Jerash Holdings during the fiscal year, increases in the foreign
statutory tax rates, and prior year adjustments. In addition, the higher corporate income tax rate in Jordan, which increased from a combined
rate of 17% to 20% or 21% since January 1, 2023.
Net income. Net income for fiscal
2023 decreased by 69.4% to approximately $2.4 million, compared to approximately $7.9 million for fiscal 2022. The decrease in net income
was mainly attributable to lower sales to two of our major export customers.
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, 2023, our cash balance was approximately
$17.8 million and restricted cash was approximately $1.6 million, compared to cash of approximately $25.2 million and restricted cash
of approximately $1.4 million as of March 31, 2022. The decrease in total cash was primarily due to (i) the acquisition of Ever Winland
and Kawkab Venus for approximately $5.1 million and $2.2 million, respectively (ii) investment in the construction of a new dormitory
building and extension of one of our major factory buildings, and purchases of property, plant, and machinery, which amounted to a total
of approximately $5.8 million, (iii) dividends distribution of $2.5 million, and (iv) a share repurchase program totaling $1.2 million.
Our current assets as of March 31, 2023 were approximately
$57.3 million, and our current liabilities were approximately $14.4 million, which resulted in a current ratio of approximately 4.0:1.
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. The decrease in current assets were primarily due to (i) reduced accounts receivable
resulting from the adoption of supply chain financing programs for two of our major customers, which shortened the payment lead time from
90 days to around 10 days, and (ii) decreased cash due to the investment in the construction of a new dormitory building, the extension
in one of our major factory buildings, and the acquisition in Ever Winland and Kawkab Venus. The primary driver in the increase in current
liabilities was the increased accounts payable due to the increase in inventory levels with credit terms from suppliers.
We had net working capital of $42.8 million and
$55.7 million as of March 31, 2023 and 2022, 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.
22
Credit Facilities
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,
subject to certain financial covenants. 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. As of March 31, 2023 and 2022, we had $nil outstanding under this DBSHK facility.
Capital Bank of Jordan Credit Facility
Jerash Garments recently received documents from
Capital Bank of Jordan for a credit facility of $10 million. Our board of directors has reviewed the documents and approved to enter into
the credit facility on June 1, 2023. Execution is still in process and the credit facility is not effective as of the date of this annual
report. Details of the credit facility will be provided after execution is complete and the facility is effective.
Fiscal Years ended March 31, 2023 and 2022
The following table sets forth a summary of our
cash flows for the fiscal years ended March 31, 2023 and 2022.
(All amounts in thousands of U.S. dollars)
For the fiscal years ended March 31,
Net cash provided by operating activities $ 10,807 $ 8,963
Net cash used in investing activities (13,775 ) (8,673 )
Net cash (used in) provided by financing activities (3,953 ) 3,289
Effect of exchange rate changes on cash (250 ) 144
Net (decrease) increase in cash and restricted cash (7,171 ) 3,723
Cash and restricted cash, beginning of year 26,583 22,860
Cash and restricted cash, end of year $ 19,412 $ 26,583
Supplemental disclosure information
Cash paid for interest $ 768 $ 211
Non-cash investing and financing activities
Equipment obtained by utilizing long-term deposit $ 237 $ 322
Acquisition of Kawkab Venus by utilizing long-term deposit $ 500 $ -
Operating Activities
Net cash provided by operating activities was approximately $10.8 million
in fiscal 2023, compared to net cash provided by operating activities of approximately $9.0 million in fiscal 2022. The increase in net
cash provided by operating activities was primarily attributable to the following factors:
23
Investing Activities
Net cash used in investing activities was approximately
$13.8 million and $8.7 million for fiscal 2023 and 2022, respectively. The increase in net cash used in investing activities was mainly
attributable to (i) the acquisition of Ever Winland and Kawkab Venus, amounting to $5.1 million and $2.2 million, respectively, (ii) $5.1
million of payments for construction in progress, including the building of a dormitory building and an extension in one of our major
factory buildings, and (iii) $0.7 million used for the acquisition of plant and machinery.
Financing Activities
Net cash used in financing activities was approximately $4.0 million
for fiscal 2023, mainly due to dividend payments of approximately $2.5 million and payments for a share repurchase program of approximately
$1.2 million this fiscal year. There was a net cash inflow of $3.3 million in fiscal 2022 resulting 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.
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 $410,847 and $379,323 as of March 31, 2023 and 2022, 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, 2023 and 2022.
(All amounts, other than percentages, in thousands
of U.S. dollars)
As of March 31,
Total Restricted Net Assets $ 411 $ 379
Restricted Net Assets as Percentage of Consolidated Net Assets 0.60 % 0.55 %
Total restricted net assets accounted for approximately
0.60% of our consolidated net assets as of March 31, 2023. 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 $13.8 million and $8.7
million in fiscal 2023 and 2022, respectively. For the year ended March 31, 2023, our capital expenditures included investments in additional
plant and machinery, the construction of a dormitory and factory expansion, the acquisition of Kawkab Venus, and the acquisition of Ever
Winland, which totaled approximately $0.7 million, $5.1 million, $2.2 million, and $5.1 million, respectively. For the year ended March
31, 2022, payments for the construction of a dormitory and factory expansion amounted to $2.1 million, and payments for the acquisition
of all the share capital of MK Garment was 2.7 million.
24
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.
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 with the business growth potential bought about by the new business collaboration with Busana Apparel Group.
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 August 2023.
We project that there will be an aggregate of
approximately $2.6 million and $8.5 million of capital expenditures in the fiscal years ending March 31, 2024 and 2025, 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, 2022 and 2021, please see our Annual Report on Form 10-K for the fiscal year ended March 31, 2022,
filed with the SEC on June 27, 2022.
Critical Accounting Policies and Estimates
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.
25
Item 8. Financial Statements and Supplementary Data.
JERASH HOLDINGS (US), INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Consolidated Balance Sheets as of March 31, 2023 and 2022 F-4
Notes to Consolidated Financial Statements F-8–F-25
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 consolidated
balance sheet of Jerash Holdings (US), Inc. (the “Company”) as of March 31, 2023, the related consolidated statements of comprehensive
income, changes in stockholders’ equity, and cash flows for the year ended March 31, 2023, 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, 2023, and the results of its operations and its cash flows for the year ended March
31, 2023, 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 audit. 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 audit 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2016 (such date
takes into account the acquisition of certain assets of Friedman LLP by Marcum LLP effective September 1, 2022).
Marlton, New Jersey
June 28, 2023
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Jerash Holdings (US), Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
balance sheet of Jerash Holdings (US), Inc. (the “Company”) as of March 31, 2022, the related consolidated statements of income
and comprehensive income, changes in stockholders’ equity and cash flows for the year 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 the results of its operations and its cash flows for
year ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated 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 audit. 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 audit 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ Friedman LLP
We have served as the Company’s auditor from 2016 to 2022.
New York, New York
June 27, 2022
F-3
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Credit facilities $ - $ -
Amount due to a related party - 300,166
Commitments and Contingencies (Note 15)
Stockholders’ Equity
Accumulated other comprehensive (loss) gain (123,229 ) 127,145
The
accompanying notes are an integral part of these consolidated financial statements.
F-4
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Fiscal Years Ended March 31,
Other Income (Expenses):
Other Comprehensive Income (Loss):
Foreign currency translation (loss) income (250,374 ) 143,046
Earnings Per Share Attributable to Common Stockholders:
Basic and diluted $ 0.19 $ 0.67
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-5
JERASH HOLDINGS (US),
INC.,
AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED MARCH 31, 2023 AND 2022
Shares Amount Shares Amount Capital Stock Reserve Earnings Gain (Loss) Equity
Cashless exercise of warrants - - 1,344 1 (1 ) - - - - -
Foreign currency translation gain - - - - - - - - 143,046 143,046
Foreign currency translation loss - - - - - - - - (250,374 ) (250,374 )
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
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 989,220 803,056
Changes in operating assets:
Bills receivable (87,573 ) -
Changes in operating liabilities:
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (722,770 ) (2,955,328 )
Acquisition of MK Garments - (2,700,000 )
Acquisition of Ever Winland (5,100,000 ) -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loan 7,197,995 -
Net proceeds from issuance of common stock - 6,270,000
Net cash (used in) provided by financing activities (3,953,339 ) 3,288,738
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND RESTRICTED CASH (250,529 ) 143,990
NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH (7,171,885 ) 3,723,025
Supplemental disclosure information:
Non-cash investing and financing activities
Equipment obtained by utilizing long-term deposit $ 237,412 $ 321,862
Acquisition of Kawbab Venus by utilizing long-term deposit $ 500,000 $ -
The
accompanying notes are an integral part of these consolidated financial statements.
F-7
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 JOD
50,000. 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 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 a 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.
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 JOD 100,000. 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.
As of October 7, 2021, MK Garments became a subsidiary of Jerash Garments.
Kawkab Venus Dowalyah Lisenaet Albesah (“Kawkab
Venus”) was established in Amman, Jordan, as a limited liability company on January 15, 2015 with a declared capital of JOD 50,000.
It holds land with factory premises, which are leased to MK Garments. On July 14, 2021, Jerash Garments and the sole shareholder of Kawkab
Venus entered into an agreement, pursuant to which Jerash Garments acquired all of the outstanding stock of Kawkab Venus. Apart from the
land and factory premises, Kawkab Venus had no other significant assets or liabilities and no operation activities or employees at the
time of acquisition, so the acquisition was accounted for an asset acquisition. As of August 21, 2022, Kawkab Venus 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.
Ever Winland Limited (“Ever Winland”)
was organized in Hong Kong, China, as a limited liability company. It holds office premises, which are leased to Treasure Success. On
June 22, 2022, Treasure Success and the shareholders of Ever Winland entered into an agreement, pursuant to which Treasure Success acquired
all of the outstanding stock of Ever Winland. Apart from the office premises used by Treasure Success, Ever Winland 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 August 29, 2022, Ever Winland became a subsidiary of Treasure Success.
F-8
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS (CONTINUED)
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 sportwear and outerwear and personal protective equipment (“PPE”) produced in its
facilities in Jordan and sold in the United States, Jordan, and other countries.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements
are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and
pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
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. 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, 2023 and 2022, 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 and labor import requirements 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.
F-9
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable, Net
Accounts receivable are recognized and carried
at the 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 creditworthiness 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 the 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 the 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 15-25 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
F-10
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.
Construction in Progress
Construction in Progress (“CIP”) is
recorded at cost for property, plant, and equipment where the asset is in construction or development. CIP accumulates cost of construction
and transaction costs involved in the progress of acquiring the materials for construction or development. The Company does not commence
depreciating the asset in CIP account because the asset has not yet been placed in service. Once an asset is placed in service, all costs
associated with the asset that are recorded in the CIP account are transferred to plant, plant, and equipment for the asset.
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, 2023 and 2022.
Asset Acquisition
An asset acquisition is an acquisition
of an asset, or a group of assets, that does not meet the definition of a business, as substantially all of the fair value of the gross
assets acquired are concentrated in a single or group of similar, identifiable assets. Asset acquisitions are accounted for by using the
cost accumulation model, whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired
on a relative fair value basis. Determining and valuing intangible assets requires judgment.
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, 2023 and 2022, the carrying
amount of goodwill was both $499,282. 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, 2023 and 2022.
F-11
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. The Company had contract liabilities of $928,393 and $nil as of March 31, 2023 and 2022.
For the fiscal years ended March 31 2023 and 2022, there was no revenue recognized from performance obligations related to prior periods.
As of March 31, 2023, $928,393 deferred revenue was expected to be recognized within fiscal 2024.
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”).
As of March 31, 2023 and 2022, there was $928,393
and $nil receipts in advance from a customer. The Company recorded the receipts in advance as deferred revenue on the consolidated balance
sheet as of March 31, 2023. These advances arose from early settlements from a customer’s supply chain program that arranged for
payments in accordance to estimated shipment dates before March 31, 2023 while the actual shipments dates were after the fiscal year end.
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 $1,856,218 and $1,864,202 for the
fiscal years ended March 31, 2023 and 2022, 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
and Ever Winland are registered in Hong Kong and are subject to profit 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,
MK Garments, and Kawkab Venus 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 16% plus a 1% social contribution
between January 1, 2021 and December 31, 2021. The income tax rate increased to 18% or 20% plus a 1% social contribution starting from
January 1, 2022. Effective January 1, 2023, the income tax rate increased to 19% or 20%, plus a 1% social contribution.
F-12
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income and Sales Taxes (continued)
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