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 annual report.
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.
Results of Operations
The following table presents certain information
from our consolidated statements of operations and comprehensive loss for the fiscal years ended March 31, 2025 and 2024 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 annual report.
20
(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 $145.8
million for fiscal 2025, compared to $117.2 million for fiscal 2024, an increase of $28.6 million, or 24%, primarily due to increases
in 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, 2025 and 2024, respectively.
(All amounts, other than percentages, in thousands
of U.S. dollars)
Sales Sales
(Amount) % (Amount) %
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. Effective from April 5, 2025, the U.S. imposed a baseline tariff of 10% on imports from almost all
countries, including Jordan. Then, effective from April 9, 2025, it had announced “reciprocal” tariffs of imports from specified
countries, amongst them Jordan with a prevailing rate of then 20%. These “reciprocal” tariffs are postponed for 90 days, whilst
the 10% baseline tariff persists. Up to the date of this annual report, the 90 days postponement of the “reciprocal” tariff
has not expired. Impact of the tariff would also be affected by the comparative levels of the tariffs of Jordan and other countries.
The increase of approximately 25% in sales to
the U.S. during fiscal 2025 was mainly attributable to increases in shipments to two of our major customers in the U.S. Some shipments
deferred to the first quarter of fiscal 2025, from the fourth quarter of fiscal 2024 due to disruptions in the logistic route in the Red
Sea turmoil.
During fiscal 2025, aggregate sales to Jordan,
China and Hong Kong, Germany, and other locations, such as Mexico and Indonesia, increased by 18% from approximately $14.7 million in
fiscal 2024 to $17.2 million. This increase can be attributed to growth in businesses with customers in these countries introduced in
the past few years.
Cost of goods sold. Our cost
of goods sold experienced an increase of approximately $23.2 million to approximately $123.5 million in fiscal 2025 from approximately
$100.3 million in fiscal 2024. As a percentage of revenue, the cost of goods sold decreased by approximately 1 percentage point to 85%
in fiscal 2025 from 86% in fiscal 2024. The decrease in the cost of goods sold as a percentage of revenue was primarily attributable to
higher production and shipment volume that generated higher margin through economy of scale.
For the fiscal year ended March 31, 2025 and 2024,
we purchased approximately 10% of our garments from one major supplier.
Gross profit margin. Our gross profit
margin was approximately 15% in fiscal 2025, representing an increase by approximately 1 percentage point from 14% in fiscal 2024. The
increase in gross profit margin was primarily influenced by better planning and execution of logistic and production that resulted in
higher production and shipment volume that brought down unit cost of production.
Selling, general, and administrative expenses.
Selling, general, and administrative expenses increased by approximately 19% from approximately $17.6 million in fiscal 2024 to
$20.9 million in fiscal 2025. The increase was mainly attributable to higher shipment costs due to higher sales volume and also some air
shipping costs for garments in the first quarter of fiscal 2025 due to logistic hiccups in early 2024 and an increase in share-based compensation
expenses of $772,000.
Other expenses, net. Other
expenses, net were approximately $1.3 million in fiscal 2025, compared to other expenses, net of approximately $0.7 million in fiscal
2024. The increase in other expenses from fiscal 2024 to fiscal 2025 was primarily due to increase in interest expenses from the supply
chain financing programs of our major customers, more proceeds from short-term loan from credit facility and higher interest rate in fiscal
2025.
Taxation. Income tax expenses for
fiscal 2025 were approximately $1.0 million, compared to income tax expenses of approximately $0.7 million for fiscal 2024. The effective
tax rate for fiscal 2025 increased to 656%, compared to -49.1% for fiscal 2024. The increase in the effective tax rate mainly resulted
from the increase in operating profit in a Hong Kong subsidiary and $175,290 amendment of federal tax returns for the fiscal years ended
March 31, 2022 and March 31, 2023, related to the inclusion of Subpart F income during the fiscal year.
Net loss. Net loss for fiscal 2025
was $0.8 million, compared to net loss of approximately $2.0 million for fiscal 2024. The net loss mainly attributable to higher logistic
costs and labor costs incurred in early to mid-2024 arisen from the logistic hiccups in the short period after the Red Sea crisis broke
out.
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 until the reserve is equal to 100% of the entity’s
share capital, 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, 2025, our cash balance was approximately
$13.3 million and restricted cash was approximately $1.7 million, compared to cash of approximately $12.4 million and restricted cash
of approximately $1.6 million as of March 31, 2024. The increase in total cash during fiscal 2025 was primarily due to the utilization
of the supply chain financing programs of our major customers that expedited receivable collections and also the drawdown of $4.5 million
of short-term bank financing to support purchases of raw materials for orders to be shipped in fiscal 2026.
Our current assets as of March 31, 2025 were approximately
$54.4 million, and our current liabilities were approximately $19.8 million, which resulted in a current ratio of approximately 2.7 to
1. 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 3.4:1. For fiscal 2025, the increase in current assets were primarily due to increases
in advances to suppliers to support raw material purchases, prepaid expenses, cash, and inventory, which was offset partially by decreases
in accounts receivable balance due to the use of customers’ supply chain financing programs.
We had net working capital of $34.6 million and
$36.1 million as of March 31, 2025 and 2024, 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 Annual 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. In March 2024, we participated in an additional supply chain financing program with one customer.
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 types 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, 2025
and 2024, the outstanding balances were $4.5 million and $nil, respectively, under this DBSHK facility. The increase in short-term bank
financing was to support purchases of raw materials to support orders to be shipped in fiscal 2026.
23
Fiscal Years ended March 31, 2025 and 2024
The following table sets forth a summary of our
cash flows for the fiscal years ended March 31, 2025 and 2024.
(All amounts in thousands of U.S. dollars)
For the fiscal years ended March 31,
Net cash provided by operating activities $ 1,365 $ 2,485
Net cash used in investing activities (2,370 ) (5,143 )
Net cash provided by (used in) financing activities 2,053 (2,428 )
Effect of exchange rate changes on cash (21 ) (289 )
Net increase (decrease) in cash and restricted cash 1,027 (5,375 )
Cash and restricted cash, beginning of year 14,037 19,412
Cash and restricted cash, end of year $ 15,064 $ 14,037
Supplemental disclosure information
Non-cash investing and financing activities
Equipment obtained by utilizing long-term deposit $ 668 $ 355
Operating Activities
Net cash provided by operating activities was
approximately $1.4 million in fiscal 2025, compared to net cash provided by operating activities of approximately $2.5 million in fiscal
2024. The decrease in net cash provided by operating activities was primarily attributable to the following factors:
Investing Activities
Net cash used in investing activities was approximately
$2.4 million and $5.1 million for fiscal 2025 and 2024, respectively. The decrease in net cash used in fiscal year 2025 compared to 2024
was primarily due to the capital expenditures for the dormitory construction of $3.6 million and $1.1 million in fiscal 2024 and fiscal
2025, respectively. There was a slight decrease in capital expenditures in property, plant, and equipment for expansions in fiscal 2025.
Financing Activities
Cash provided by financing activities was $2.1
million in fiscal 2025, which was primarily related to the net draw down of short-term bank financing of $4.5 million, which was offset
by the distribution of dividends of $2.4 million. Net cash used in financing activities was approximately $2.4 million for fiscal 2024,
mainly due to dividend payments in the period.
24
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 as of March 31, 2025 and 2024.
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, 2025 and 2024.
(All amounts, other than percentages, in thousands
of U.S. dollars)
As of March 31,
Total Restricted Net Assets $ 414 $ 414
Restricted Net Assets as Percentage of Consolidated Net Assets 0.66 % 0.64 %
Total restricted net assets accounted for approximately
0.66% of our consolidated net assets as of March 31, 2025. As our subsidiaries in Jordan are only required to set aside 10% of net profits
to fund the statutory reserves with the maximum reserve equal to 100% of the entity’s capital, we believe the potential impact of
such restricted net assets on our liquidity is limited.
Capital Expenditures
We had capital expenditures of approximately $2.4
million and $5.1 million in fiscal 2025 and 2024, respectively. For the fiscal year ended March 31, 2025, our capital expenditures included
payments for additional plant and machinery of approximately $1.0 million and payments for construction of properties of approximately
$1.1 million. 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.
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 prospect of new customers to be introduced in the coming few years.
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
US$442,162). The dormitory and dormitory kitchen were completed in the second quarter and the fourth quarter of fiscal year 2025, respectively.
We have spent approximately $10.6 million in capital expenditures to build the dormitory and the dormitory kitchen.
We project that there will be an aggregate of
approximately $1.3 million and $7.8 million of capital expenditures in the fiscal years ending March 31, 2026 and 2027, 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.
25
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, 2024 and 2023, please see our Annual Report on Form 10-K for the fiscal year ended March 31, 2024,
filed with the SEC on June 28, 2024.
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, 2025 and 2024 F-4
Notes to Consolidated Financial Statements F-8–F-26
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 sheet of Jerash Holdings (US), Inc. (the “Company”) as of March 31, 2025, the related consolidated statements of operations
and comprehensive loss, changes in equity and cash flows for the year ended March 31, 2025, 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, 2025, and the results of its operations and its cash flows for the year ended March
31, 2025, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Notes 3 and 15 to the financial
statements, the Company adopted ASU 2023-07, Segment Reporting (Topic 280) as of March 31, 2025. We also have audited the adjustments
necessary to restate the segment information for the year ended March 31, 2024, and to reflect the adoption of ASU 2023-07, Segment Reporting
(Topic 280) to the segment information for the year ended March 31, 2024, as provided in Note 15. In our opinion, such adjustments are
appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the financial statements of
the Company for the year ended March 31, 2024, other than with respect to the adjustments and, accordingly, we do not express an opinion
or any other form of assurance on the financial statements for the year ended March 31, 2024 taken as a whole.
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.
Prior Period Financial Statements
The financial statements of the Company as of
and for the year ended March 31, 2024, were audited by Marcum LLP, whose report dated June 28, 2024, expressed an unmodified opinion on
those statements.
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/ CBIZ CPAs P.C.
CBIZ CPAs P.C.
We have served as the Company’s auditor since 2016 (such date
takes into account the acquisition of the attest business of Marcum LLP by CBIZ CPAs P.C. effective November 1, 2024).
Costa Mesa, CA
June 25, 2025
F-2
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 before the effects of the retrospective
adjustments to the disclosures for the adoption of ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
(“ASU 2023-07”) discussed in Notes 3 and 15 to the consolidated financial statements, the accompanying consolidated balance
sheet of Jerash Holdings (US), Inc. (the “Company”) as of March 31, 2024, the related consolidated statements of operations
and comprehensive loss, changes in equity and cash flows for the year ended March 31, 2024, and the related notes (collectively referred
to as the “financial statements”) (the FY2024 financial statements before the effects of the adjustments discussed in
Notes 3 and 15 to the financial statements are not presented herein). In our opinion, the financial statements, before the effects of
the retrospective adjustments to the disclosures for the adoption of ASU 2023-07 discussed in Notes 3 and 15 to the financial statements,
present fairly, in all material respects, the financial position of the Company as of March 31, 2024, and the results of its operations
and its cash flows for the year ended March 31, 2024, in conformity with accounting principles generally accepted in the United States
of America.
We were not engaged to audit, review, or apply
any procedures to the retrospective adjustments to the disclosures for the adoption of ASU 2023-07 discussed in Notes 3 and 15 to the
financial statements, and accordingly, we do not express an opinion or any form of assurance about whether such adjustments are appropriate
and have been properly applied. Those adjustments were audited by CBIZ CPAs P.C.
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 audit 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 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.
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 from 2016 to 2025.
Costa Mesa, CA
June 28, 2024
F-3
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
ASSETS
Current Assets:
Deferred tax assets, net - 158,329
LIABILITIES AND EQUITY
Current Liabilities:
Uncertain tax provision 175,290 -
Deferred tax liabilities, net 120 -
Income tax payable - non-current - 417,450
Commitments and Contingencies (Note 16)
Equity
The
accompanying notes are an integral part of these consolidated financial statements.
F-4
JERASH HOLDINGS (US),
INC.,
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Fiscal Years Ended March 31,
Other (Income) Expenses:
Net profit (loss) before provision for income taxes 151,191 (1,369,431 )
Net (profit) loss attributable to noncontrolling interest (8,440 ) 36,024
Other Comprehensive Income (Loss):
Loss Per Share Attributable to Common Stockholders:
Basic and diluted $ (0.07 ) $ (0.16 )
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 EQUITY
FOR
THE FISCAL YEARS ENDED MARCH 31, 2025 AND 2024
Shares Amount Shares Amount Capital Stock Reserve Earnings Loss interest Equity
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 )
Foreign currency translation loss - - - - - - - - (20,803 ) - (20,803 )
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
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of operating lease right-of-use assets 591,961 759,764
Uncertain tax provision 175,290 -
Changes in operating assets:
Changes in operating liabilities:
Deferred tax liabilities 120 -
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment (951,112 ) (1,241,226 )
CASH FLOWS FROM FINANCING ACTIVITIES
Investment of noncontrolling interest - 31,365
Net cash provided by (used in) financing activities 2,053,494 (2,427,603 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND RESTRICTED CASH (21,028 ) (288,738 )
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH 1,027,172 (5,374,736 )
Supplemental disclosure information:
Non-cash investing and financing activities
Equipment obtained by utilizing long-term deposit $ 667,567 $ 354,917
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 (approximately US$71,000). 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 (approximately US$141,000). 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 (approximately US$212,000). 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 (approximately US$141,000). 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
(approximately US$71,000). 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 Special Administrative Region of the People’s Republic of China (“Hong
Kong”) as a limited liability company for the primary purpose of employing staff from People’s Republic of China (“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, 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)
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 500,000 Hong Kong Dollars (“HKD”) (approximately US$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 US$100,000.
Jiangmen Treasure Success Business Consultancy
Company Limited (“Jiangmen Treasure Success”) was organized on August 28, 2019 under the laws of China in Jiangmen City of
Guangdong Province in China with a total registered capital of HKD15 million (approximately US$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 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, 2025 and 2024, noncontrolling interest was $52,781 and $44,341, respectively.
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, 2025 and 2024, 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-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 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 allowance for impairment by evaluating all available information, and then records specific allowances
for those advances based on the specific facts and circumstances.
Credit Loss
The Company maintains 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 Company’s accounts receivable and other
receivables which are included in prepaid expenses and other current assets line item in the consolidated balance sheets 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 operations and comprehensive 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 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
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 loss.
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 process 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 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 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, 2025 and 2024.
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, 2025 and 2024, the carrying
amount of goodwill was $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, 2025 and 2024.
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.
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 Company recognizes revenue for the transfer of promised goods to customers in an amount that reflects the consideration