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.
20
Results of Operations
The following table presents certain information
from our consolidated statements of operations and comprehensive income (loss) for the fiscal years ended March 31, 2024 and 2023 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. Our revenue was $117.2
million for fiscal 2024, compared to $138.1 million for fiscal 2023, a decrease of $20.9 million, or 15%, primarily due to reduced shipments
to two of our major customers in the U.S., which is our main export market.
The following table outlines the dollar amount
and percentage of total sales to our customers for the fiscal years ended March 31, 2024 and 2023, respectively.
(All amounts, other than percentages, in thousands
of U.S. dollars)
Fiscal Year Ended March 31, 2024 Fiscal Year Ended March 31, 2023
Sales Sales
Amount % Amount %
Jiangsu Guotai Huasheng Industrial Co (HK)., Ltd 2,774 2.4 % 9,454 6.8 %
Easy Long International Limited 2,436 2.1 % - - %
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 decrease of approximately 16% in sales to
the U.S. during fiscal 2024 was mainly attributable to the reduced shipments to our major customers in the U.S., which is our main export
market. This decline was influenced by higher inflation and uncertain retail sentiment as well as the supply chain logistics disruptions
with the Red Sea crisis.
During fiscal 2024, aggregate sales to Jordan,
Hong Kong, Germany, and other locations, such as mainland China, decreased by 7% from approximately $15.7 million in fiscal 2023 to $14.7
million. This decline can be attributed to a decrease in shipments sent to a major customer in Hong Kong, which was not fully offset by
the increase in sales to a customer in Germany.
Cost of goods sold. Our cost
of goods sold experienced a decrease of approximately $16.0 million to approximately $100.3 million in fiscal 2024 from approximately
$116.3 million in fiscal 2023. As a percentage of revenue, the cost of goods sold increased by approximately two percentage points to
86% in fiscal 2024 from 84% in fiscal 2023. The increase in the cost of goods sold as a percentage of revenue was primarily attributable
to changes in the product mix of one of our major customers, which led to more sales of lower margin items. In addition, the reduced shipments
to another U.S. customer in fiscal 2024 was only partially offset by new customers with lower margin.
For the fiscal year ended March 31, 2024 and 2023,
we purchased approximately 10% and 11%, respectively, of our garments from one major supplier.
Gross profit margin. Our gross profit
margin was approximately 14% in fiscal 2024, representing a decrease by approximately two percentage points from 16% in fiscal 2023. The
decrease in gross profit margin was primarily influenced by the lower margin on orders from new customers, introduced to compensate the
decrease in shipments to our two major customers in the U.S.
Selling, general, and administrative expenses.
Selling, general, and administrative expenses increased slightly and remained almost the same at approximately $17.4 million
and $17.6 million in fiscal 2023 and fiscal 2024. The slight increase was mainly attributable to penalties of approximately $180,000
in aggregate in two legal cases. One case was in relation to the implementation of LED facilities without completing all necessary official
procedures. The other case was in relation to the movement of raw materials across tax zones in Jordan without prior customs notification
and completing official procedures for our cut-and-make orders.
Other expenses, net. Other
expenses, net were approximately $0.7 million in fiscal 2024, compared to other expenses, net of approximately $0.3 million in fiscal
2023. The increase in other expenses from fiscal 2023 to fiscal 2024 was primarily due to an increase in financing costs arisen from the
supply chain financing programs of two major customers, which was only partially offset by the interest income from fixed deposit in banks.
Taxation. Income tax expenses for fiscal 2024 were approximately $0.7 million, compared to income tax expenses of approximately $1.7 million for
fiscal 2023. The effective tax rate for fiscal 2024 decreased to -49.1%, compared to 40.7% for fiscal 2023. The decrease in the effective
tax rate mainly resulted from a higher proportion of the operating loss of a Hong Kong subsidiary and our holding company, and the decrease
in operating profit in Jordan companies. In addition, Jordan increased the corporate income tax rate from a combined rate of 18% as of
January 1, 2022 to 21% effective on January 1, 2024, which further reduced the effective tax rate as we had a net operating loss in fiscal
2024.
Net loss. Net loss for fiscal 2024
was $2.0 million, compared to net profit of approximately $2.4 million for fiscal 2023. The net loss mainly attributable to lower sales
and gross margins 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 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.
As of March 31, 2024, our cash balance was approximately
$12.4 million and restricted cash was approximately $1.6 million, compared to cash of approximately $17.8 million and restricted cash
of approximately $1.6 million as of March 31, 2023. The decrease in total cash during fiscal 2024 was primarily due to dividend payments
of $2.5 million and payment of $4.8 million on additional property, plant, and equipment and construction of properties in fiscal 2024.
Our current assets as of March 31, 2024 were approximately
$50.9 million, and our current liabilities were approximately $14.8 million, which resulted in a current ratio of approximately 3.4 to
1. 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. For fiscal 2024, the decrease in current assets were primarily due to the decrease
in inventory and cash, which was partially offset by the increase in accounts receivable and advances to suppliers. The decrease in current
liabilities was primarily driven by the decrease in income tax payable and deferred revenue, which was partially compensated by the increase
in accounts payables, accruals, and other payables.
We had net working capital of $36.1 million and
$42.8 million as of March 31, 2024 and 2023, 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 Secured Overnight Financing Rate (“SOFR”) 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
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, which was amended pursuant to a facility letter dated
January 4, 2024. Pursuant to the amended agreement, DBSHK agreed to finance cargo receipt, trust receipt, account payable financing, and
certain type of import and export 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 HIBOR for HKD bills and 1.1% to 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, 2024
and 2023, we had $nil outstanding under this DBSHK facility.
23
Fiscal Years ended March 31, 2024 and 2023
The following table sets forth a summary of our
cash flows for the fiscal years ended March 31, 2024 and 2023.
(All amounts in thousands of U.S. dollars)
For the fiscal years ended March 31,
Net cash provided by operating activities $ 2,485 $ 10,807
Net cash used in investing activities (5,143 ) (13,775 )
Net cash used in financing activities (2,428 ) (3,953 )
Effect of exchange rate changes on cash (289 ) (250 )
Net decrease in cash and restricted cash (5,375 ) (7,171 )
Cash and restricted cash, beginning of year 19,412 26,583
Cash and restricted cash, end of year $ 14,037 $ 19,412
Supplemental disclosure information
Cash paid for interest $ 1,204 $ 768
Non-cash investing and financing activities
Equipment obtained by utilizing long-term deposit $ 355 $ 237
Acquisition of Kawkab Venus by utilizing long-term deposit $ - $ 500
Operating Activities
Net cash provided by operating activities was
approximately $2.5 million in fiscal 2024, compared to net cash provided by operating activities of approximately $10.8 million in fiscal
2023. The decrease in net cash provided by operating activities was primarily attributable to the following factors:
24
Investing Activities
Net cash used in investing activities was approximately
$5.1 million and $13.8 million for fiscal 2024 and 2023, respectively. The net cash used in investing activities in the fiscal year ended
March 31, 2024 was used in investment in property, plant, and machinery, including construction of a dormitory and factory expansion.
The decrease in net cash used in fiscal 2024 compared to fiscal 2023 was primarily because $7.3 million was used in the acquisition of
Ever Winland and Kawkab Venue in fiscal 2023.
Financing Activities
Cash used in financing activities was $2.4 million
in fiscal 2024, which was primarily related to dividend payments in the period. 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.
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 $413,821 and $410,847 as of March 31, 2024 and 2023, 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, 2024 and 2023.
(All amounts, other than percentages, in thousands
of U.S. dollars)
As of March 31,
Total Restricted Net Assets $ 414 $ 411
Restricted Net Assets as Percentage of Consolidated Net Assets 0.64 % 0.60 %
Total restricted net assets accounted for approximately
0.64% of our consolidated net assets as of March 31, 2024. 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 $5.1
million and $13.8 million in fiscal 2024 and 2023, respectively. For the fiscal year ended March 31, 2024, payments for additional plant
and machinery, and construction of a dormitory and factory expansion, amounted to approximately $1.2 million and $3.6 million, respectively.
For the fiscal 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.
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 with the business growth potential brought 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). The dormitory is expected to be
fully completed in second quarter of fiscal year 2025. We have spent approximately $9.3 million in capital expenditures to build the dormitory.
The dormitory’s kitchen is under construction at an estimated cost of approximately $0.9 million.
We project that there will be an aggregate of
approximately $12.6 million and $14.9 million of capital expenditures in the fiscal years ending March 31, 2025 and 2026, respectively,
for further enhancement of production capacity to meet future sales growth. The realization of these investments depends on the progress
of our business development, including expanding our client base and securing increased commitments from existing customers. 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, 2023 and 2022, please see our Annual Report on Form 10-K for the fiscal year ended March 31, 2023,
filed with the SEC on June 28, 2023.
Critical Accounting Estimates
We prepare our consolidated 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 have not identified any critical accounting
estimates.
Recent Accounting Pronouncements
See “Note 3—Recent Accounting Pronouncements”
in the notes to our audited consolidated 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
Consolidated Balance Sheets as of March 31, 2024 and 2023 F-3
Notes to Consolidated Financial Statements F-7–F-25
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholders and Board of Directors of
Jerash Holdings (US), Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Jerash Holdings (US), Inc. (the “Company”) as of March 31, 2024 and 2023, the related consolidated statements
of operations and comprehensive income (loss), changes in stockholders’ equity and cash flows for the two years in the period ended
March 31, 2024, 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, 2024 and 2023, and the results
of its operations and its cash flows for each of the two years in the period ended March 31, 2024, 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 audits 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.
Critical Audit Matters
Critical audit matters are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/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).
Costa Mesa, CA
June 28, 2024
F-2
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets:
LIABILITIES AND EQUITY
Current Liabilities:
Commitments and Contingencies (Note 16)
Equity
Noncontrolling interest 44,341 -
The accompanying notes are an integral part of these consolidated financial statements.
F-3
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
For the Fiscal Years Ended March 31
Other Income (Expenses):
Net (loss) income before provision for income taxes (1,369,431 ) 4,083,733
Net loss attributable to noncontrolling interest 36,024 -
Other Comprehensive Income (Loss):
Comprehensive loss attributable to noncontrolling interest 36,024 -
(Loss) Earnings Per Share Attributable to Common Stockholders:
Basic and diluted $ (0.16 ) $ 0.19
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
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE FISCAL YEARS ENDED MARCH 31, 2024 AND 2023
Accumulated Other
-
Statutory Reserve - - - - - - 31,524 (31,524 ) - - -
Foreign currency translation loss - - - - - - - - (250,374 ) - (250,374 )
Allocation of J&B shares - - - - - - - - - 31,365 31,365
Allocation of Jerash Newtech shares - - - - - - - - - 49,000 49,000
Statutory Reserve - - - - - - 2,974 (2,974 ) - - -
Foreign currency translation loss - - - - - - - - (369,090 ) - (369,090 )
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 759,764 989,220
Changes in operating assets:
Changes in operating liabilities:
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment (1,241,226 ) (722,770 )
Acquisition of Ever Winland - (5,100,000 )
Acquisition of Kawkab Venus - (2,200,000 )
CASH FLOWS FROM FINANCING ACTIVITIES
Investment of noncontrolling interest 31,365 -
Repayment to a related party - (300,166 )
Supplemental disclosure information:
Non-cash investing and financing activities
Equipment obtained by utilizing long-term deposit $ 354,917 $ 237,412
Acquisition of Kawkab Venus by utilizing long-term deposit $ - $ 500,000
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 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-7
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS (CONTINUED)
J&B International Limited (“J&B”)
is a joint venture company established in Hong Kong on January 10, 2023. On March 20, 2023, Treasure Success and P. T. Eratex (Hong Kong)
Limited entered into a Joint Venture and Shareholders’ Agreement, pursuant to which Treasure Success acquired 51% of the equity
interests in J&B on April 11, 2023. The declared capital is HK$500,000 (approximately $64,000). J&B engages in the garment trading
and manufacturing business for orders from customers.
Jerash Newtech (Hong Kong) Holdings Limited (“Jerash
Newtech”) is a joint venture company established in Hong Kong on November 3, 2023. On October 10, 2023, Treasure Success and Newtech
Textile (HK) Limited entered into a Joint Venture and Shareholder’s Agreement to establish a new joint venture for the establishment
of a fabric facility in Jordan. On November 3, 2023, Jerash Newtech was established according to the aforementioned Joint Venture and
Shareholder’s Agreement. Treasure Success owns 51% of the equity interests in Jerash Newtech. The Company plans to invest approximately
$29.9 million to establish the fabric facility in Jordan. Treasure Success and Newtech Textile (HK) Limited will contribute capital in
two installments according to their respective shareholding proportions and conditions. The declared capital of Jerash Newtech is $100,000.
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.
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, its wholly owned subsidiaries, and two non-wholly owned subsidiaries.
Non-wholly owned subsidiaries are entities that
the reporting parent entity does not own equity interests in full. Noncontrolling interest is evaluated with a depiction of the portion
of a non-wholly owned subsidiary’s net assets, net income, and net comprehensive income that is attributable to holders of equity
classified ownership interests other than the reporting parent entity. As mentioned in Note 1, the Company holds 51% of equity interest
in J&B and Jerash Newtech through its wholly owned subsidiary, Treasure Success. The Company consolidates J&B and Jerash Newtech
and reports noncontrolling interest to reflect the portion of their equity that is not attributable to the Company as the controlling
shareholder. As of March 31, 2024, noncontrolling interest was $44,341.
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, 2024 and 2023, 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, labor import requirements, and other 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-8
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 credit loss. The Company usually grants extended payment terms to customers
with good credit standing and determines the adequacy of credit losses based on the historical level of credit losses, current economic
trends, and reasonable and supportable forecasts that affect the collectability of the future cash flows.
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 of the suppliers becomes doubtful. At each reporting date, the Company
generally determines the adequacy of impairment by evaluating all available information, and then records specific allowances for those
advances based on the specific facts and circumstances.
Credit Loss
On April 1, 2023, the Company adopted Accounting
Standards Update (“ASU”) 2016-13 “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses
on Financial Instruments,” by using a modified retrospective transition method, which replaces the incurred loss impairment methodology
with an expected loss methodology that is referred to as the current expected credit loss methodology. The expected credit loss impairment
model requires the entity to recognize its estimate of expected credit losses for affected financial assets using an allowance for credit
losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The adoption
of ASU 2016-13 did not have a material impact on the Company’s financial statements.
The Company’s accounts receivable and other
receivables which are included in prepaid expenses and other current assets line item in the consolidated balance sheet are within the
scope of ASC Topic 326. The Company measures expected credit losses of account receivables and other receivables, on a collective basis
when similar risk characteristics exist. The Company makes estimates of expected credit and collectability trends for the allowance for
credit losses based upon assessment of various factors, including historical experience, the age of the receivables, creditworthiness
of the customers and other debtors, current economic conditions, reasonable and supportable forecasts of future economic conditions, and
other factors that may affect its ability to collect from the customers and other debtors. The Company also provides specific provisions
for allowance when facts and circumstances indicate that the receivable is unlikely to be collected.
Expected credit losses are included in general
and administrative expenses in the consolidated statements of income operations and comprehensive income (loss). After all attempts to
collect a receivable have failed, the receivable is written off against the allowance.
Property, Plant, and Equipment, net
Property, plant, and equipment are recorded at
cost, reduced by accumulated depreciation. 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-9
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
that 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
operations and comprehensive income (loss).
Construction in Progress (“CIP”) is
recorded at cost for property, plant, and equipment where the asset is in construction or development. CIP accumulates the cost of construction
and transaction costs involved in the process of acquiring the materials for construction or development. The Company does not commence
depreciating the asset in the 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 is recorded in the CIP account are transferred to property, 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 that 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, 2024 and 2023.
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, 2024 and 2023, 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 fiscal years ended March 31, 2024 and 2023.
F-10
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 has minimal incremental costs of obtaining a contract, which are expensed
when incurred. The cost is normally immaterial. 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 14
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 from rendering
cutting and making services to other apparel vendors who subcontract orders 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 to
the accounts receivable from customers is not contingent on a future event. The Company had contract liabilities of $10,200 and $928,393
as of March 31, 2024 and 2023, respectively. For the fiscal years ended March 31, 2024 and 2023, there was no revenue recognized from performance
obligations satisfied in prior periods. As of March 31, 2024, $10,200 deferred revenue was expected to be recognized within fiscal 2025.
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 15—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 $1,748,317 and $1,856,218 for the
fiscal years ended March 31, 2024 and 2023, 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,
Ever Winland, J&B and Jerash Newtech 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 18% plus a 1% social
contribution starting from January 1, 2022 to December 31, 2022. The income tax rate increased to 19% or 20% plus a 1% social contribution
starting from January 1, 2023. Effective January 1, 2024, the income tax rate increased to 20%, plus a 1% social contribution.
F-11
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income and Sales Taxes (continued)
Jerash Garments and its subsidiaries are subject
to a 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, which allowed Jerash Garments to make purchases with no sales tax charge. The exemption
has been extended to February 5, 2025.
The Company accounts for income taxes in accordance
with ASC 740, “Income Taxes,” which requires the Company to use the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases of
existing assets and liabilities and operating loss and tax credit carry forwards. Under this accounting standard, the effect on deferred
income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is
recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
ASC 740 clarifies the accounting for uncertainty
in tax positions. This interpretation requires that an entity recognize in its financial statements the impact of a tax position, if that
position is more likely than not to be sustained upon examination, based on the technical merits of the position. Recognized income tax
positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement
are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and penalties related
to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of income (loss) and
comprehensive income (loss). No significant uncertainty in tax positions relating to income taxes was incurred during the fiscal years