UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 12, 2024,
there were
Jerash Holdings (US), Inc.
Form 10-Q
For the Quarterly Period Ended September 30, 2024
Contents
i
JERASH HOLDINGS (US), INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2024 | March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Advance to suppliers, net | ||||||||
| Total Current Assets | ||||||||
| Restricted cash - non-current | ||||||||
| Long-term deposits | ||||||||
| Deferred tax assets, net | ||||||||
| Property, plant, and equipment, net | ||||||||
| Goodwill | ||||||||
| Operating lease right of use assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Credit facilities | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Income tax payable - current | ||||||||
| Other payables | ||||||||
| Deferred revenue | ||||||||
| Operating lease liabilities - current | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Income tax payable - non-current | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 16) | ||||||||
| Equity | ||||||||
| Preferred stock, $ | $ | $ | ||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, | ( | ) | ( | ) | ||||
| Statutory reserve | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Jerash Holdings (US), Inc. Stockholders’ Equity | ||||||||
| Noncontrolling interest | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Selling, general, and administrative expenses | ||||||||||||||||
| Stock-based compensation expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Income from Operations | ||||||||||||||||
| Other Income (Expenses): | ||||||||||||||||
| Interest expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ||||||||||||||||
| Total other expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) before provision for income taxes | ( | ) | ||||||||||||||
| Income tax expenses | ||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Net gain (loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||
| Net income (loss) attributable to Jerash Holdings (US), Inc.’s Common Stockholders | $ | $ | $ | ( | ) | $ | ||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | $ | ||||||||||
| Other Comprehensive Income (Loss): | ||||||||||||||||
| Foreign currency translation gain (loss) | ( | ) | ( | ) | ||||||||||||
| Total Comprehensive Income (Loss) | ( | ) | ||||||||||||||
| Comprehensive gain (loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||
| Comprehensive Income (Loss) Attributable to Jerash Holdings (US), Inc.’s Common Stockholders | $ | $ | $ | ( | ) | $ | ||||||||||
| Earnings (Loss) Per Share Attributable to Common Stockholders: | ||||||||||||||||
| Basic and diluted | $ | $ | $ | ( | ) | $ | ||||||||||
| Weighted Average Number of Shares | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Dividend per share | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
| Preferred Stock | Common Stock | Additional Paid-in | Treasury | Statutory | Retained | Accumulated Other Comprehensive Gain | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Reserve | Earnings | (Loss) | interest | Equity | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense for the restricted stock units issued under stock incentive plan | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Allocation of J&B shares | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Dividend payments | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Stock-based compensation expense for the restricted stock units issued under stock incentive plan | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividend payments | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
| Preferred Stock | Common Stock | Additional Paid-in | Treasury | Statutory | Retained | Accumulated Other Comprehensive Gain | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Reserve | Earnings | (Loss) | interest | Equity | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Stock-based compensation expense for the restricted stock units issued under the stock incentive plan | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Dividend payment | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Balance at June 30, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Stock-based compensation expense for the restricted stock units issued under stock incentive plan | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Dividend payment | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expenses | ||||||||
| Credit Loss (recovery) | ( | ) | ||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Changes in operating assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Bills receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Advance to suppliers | ( | ) | ( | ) | ||||
| Changes in operating liabilities: | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Other payables | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Income tax payable | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property, plant, and equipment | ( | ) | ( | ) | ||||
| Payments for construction of properties | ( | ) | ( | ) | ||||
| Payment for long-term deposits | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Dividend payments | ( | ) | ( | ) | ||||
| Investment of noncontrolling interest | ||||||||
| Repayment from short-term loan | ( | ) | ( | ) | ||||
| Proceeds from short-term loan | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND RESTRICTED CASH | ( | ) | ||||||
| NET INCREASE IN CASH AND RESTRICTED CASH | ||||||||
| CASH, AND RESTRICTED CASH, BEGINNING OF THE PERIOD | ||||||||
| CASH, AND RESTRICTED CASH, END OF THE PERIOD | $ | $ | ||||||
| CASH, AND RESTRICTED CASH, END OF THE PERIOD | $ | $ | ||||||
| LESS: NON-CURRENT RESTRICTED CASH | ||||||||
| CASH, END OF THE PERIOD | $ | $ | ||||||
| Supplemental disclosure information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Income tax paid | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Equipment obtained by utilizing long-term deposit | $ | $ | ||||||
| Operating lease right of use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
JERASH HOLDINGS (US), INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Jerash Holdings (US), Inc. (“Jerash Holdings”) was incorporated under the laws of the State of Delaware on January 20, 2016. Jerash Holdings is a holding company with no operations. Jerash Holdings and its subsidiaries 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
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
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
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
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
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
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” or “HK”), as a limited liability company for the primary purpose of employing staff from the 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.
6
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
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
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 HKD
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 unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the Company’s unaudited condensed consolidated financial statements. The consolidated balance sheet as of March 31, 2024 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024, as filed with the U.S. Securities and Exchange Commission (the “SEC”). Operating results for the six months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending March 31, 2025.
Principles of Consolidation
The unaudited condensed 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
All significant intercompany balances and transactions have been eliminated in consolidation.
7
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
Cash
The Company’s cash consists of cash on hand and cash deposited in financial institutions. The Company considers all highly liquid investment instruments with an original maturity of three months or less from the original date of purchase to be cash equivalents. As of September 30, 2024 and March 31, 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.
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 loss, current economic trends, and reasonable and supportable forecasts that affect the collectability of the future cash flows.
8
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are stated at the lower of cost or net realizable value. Inventories include cost of raw materials, freight, direct labor, and related production overhead. The cost of inventories is determined using the First-in, First-out method. The Company periodically reviews its inventories for excess or slow-moving items and makes provisions as necessary to properly reflect inventory value.
Advance to Suppliers, Net
Advance to suppliers consists of balances paid to suppliers for services or materials purchased that have not been provided or received. Advance to suppliers for services and materials is short-term in nature. Advance to suppliers is reviewed periodically to determine whether its carrying value has become impaired. The Company considers the assets to be impaired if the performance by the suppliers becomes doubtful. At each reporting date, the Company generally determines the adequacy of allowance for credit losses 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 consolidated financial statements.
The Company’s accounts receivable and other receivables, which are included in prepaid expenses and other current assets line items 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 unaudited condensed consolidated statements of operations and comprehensive income (loss). After all attempts to collect a receivable have failed, the receivable is written off against the allowance.
9
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
| Useful life | ||
| Land | ||
| Property and buildings | ||
| Equipment and machinery | ||
| Office and electronic equipment | ||
| Automobiles | ||
| Leasehold improvements |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation or amortization of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations and comprehensive income (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 progress of acquiring the materials for construction or development. The Company does not commence depreciating the asset in CIP account because the asset has not yet been placed in service. Once an asset is placed in service, all costs associated with the asset that are recorded in the CIP account are transferred to 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 six months ended September 30, 2024 and 2023.
10
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 September 30, 2024 and March 31, 2024,
the carrying amount of goodwill was $
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 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 $
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”).
11
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 $
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
Jerash Garments and its subsidiaries are subject
to local sales tax of
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, any changes in tax rates and the impact on deferred income taxes are recognized in the income statement in the period when the new rates are enacted. 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 of being sustained upon examination, based on the technical merits of the position. Recognized income
tax positions are measured at the largest amount that is greater than
12
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Translation
The reporting currency of the Company is the U.S. dollar (“US$” or “$”). The Company uses JOD in Jordan companies, HKD in Treasure Success, Ever Winland, J&B, and Jerash Newtech, and Chinese Yuan (“CNY”) in Jiangmen Treasure Success as the functional currency of each above-mentioned entity. The assets and liabilities of the Company have been translated into US$ using the exchange rates in effect at the balance sheet date, equity accounts have been translated at historical rates, and revenue and expenses have been translated into US$ using average exchange rates in effect during the reporting period. Cash flows are also translated at average translation rates for the periods. Therefore, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income or loss. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated statements of operations and comprehensive income (loss) as incurred, and the total amount of transaction gains and losses were immaterial for the six months ended September 30, 2024 and 2023.
The value of JOD against US$ and other currencies
may fluctuate and is affected by, among other things, changes in Jordan’s political and economic conditions. Any significant revaluation
of JOD, HKD, and CNY may materially affect the Company’s financial condition in terms of US$ reporting.
| September 30, 2024 |
March 31, 2024 | ||||
| Period-end spot rate | US$1=JOD |
US$1=JOD | |||
| US$1=HKD |
US$1=HKD | ||||
| US$1=CNY |
US$1=CNY | ||||
| Average rate | US$1=JOD |
US$1=JOD | |||
| US$1=HKD |
US$1=HKD | ||||
| US$1=CNY |
US$1=CNY |
Stock-Based Compensation
The Company measures compensation expense for stock-based awards based on the awards’ initial grant-date fair value. The estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method.
The Company estimates the fair value of stock options using a Black-Scholes model. This model is affected by the Company’s stock price on the date of the grant as well as assumptions regarding a number of variables. These variables include the expected term of the option, expected risk-free rates of return, the expected volatility of the Company’s common stock, and expected dividend yield, each of which is more fully described below. The assumptions for the expected term and expected volatility are the two assumptions that significantly affect the grant date fair value.
| ● | Expected Term: the expected term of a warrant or a stock option is the period of time that the warrant or a stock option is expected to be outstanding. |
| ● | Risk-free Interest Rate: the Company bases the risk-free interest rate used in the Black-Scholes model on the implied yield at the grant date of the U.S. Treasury zero-coupon issued with an equivalent term to the stock-based award being valued. Where the expected term of a stock-based award does not correspond with the term for which a zero-coupon interest rate is quoted, the Company uses the nearest interest rate from the available maturities. |
13
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| ● | Expected Stock Price Volatility: the Company utilizes the expected volatility of the Company’s common stock over the same period of time as the life of the warrant or stock option. When the Company’s own stock volatility information is unavailable for such period of time, the Company utilizes comparable public company volatility. |
| ● | Dividend Yield: Stock-based compensation awards granted prior to November 2018 assumed no dividend yield, while any subsequent stock-based compensation awards will be valued using the anticipated dividend yield. |
Earnings or Loss per Share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS (See “Note 14–Earnings (Loss) per Share”).
Comprehensive Income or Loss
Comprehensive income or loss consists of two components, net income or loss and other comprehensive income or loss. The foreign currency translation gain or loss resulting from translation of the financial statements expressed in JOD or HKD or CNY to US$ is reported in other comprehensive income or loss in the consolidated statements of operations and comprehensive income (loss).
Fair Value of Financial Instruments
ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 - Quoted prices in active markets for identical assets and liabilities. |
| ● | Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash, accounts receivable, other current assets, credit facilities, accounts payable, accrued expenses, income tax payables, other payables and operating lease liabilities to approximate the fair value of the respective assets and liabilities at September 30, 2024 and March 31, 2024 based upon the short-term nature of these assets and liabilities.
14
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations and Credit Risk
Credit risk
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash. As of September 30, 2024 and March 31, 2024, respectively,
$
Accounts receivable are typically unsecured and derived from revenue earned from customers, and therefore are exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Customer and vendor concentration risk
The Company’s sales are made primarily in
the United States. Its operating results could be adversely affected by U.S. government policies on importing business, foreign exchange
rate fluctuations, and changes in local market conditions. The Company has a concentration of its revenue and purchases with specific
customers and suppliers. For the three months ended September 30, 2024 and 2023, one customer accounted for
For the three and six months ended September 30,
2024, the Company purchased approximately
Risks and Uncertainties
The principal operations of the Company are located in Jordan. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in Jordan, as well as by the general state of the Jordanian economy. The Company’s operations in Jordan are subject to special considerations and significant risks not typically associated with companies in North America. These include risks associated with, among others, the political, economic, and legal environment, foreign currency exchange, and the recent conflict between Israel and Hamas. The Company’s results may be adversely affected by changes in the political, regulatory, and social conditions in Jordan. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.
Since the inception of the turmoil in the Middle East, the Company has been closely monitoring the situation and keeping its customers informed. Currently, production is ongoing as usual, with no changes to customer orders or commitments, and both ports that the Company uses for import and export, in Aqaba and Haifa, are operating normally. In order to provide flexibility, the Company has also been using the Port of Jebel Ali in the United Arab Emirates as an alternative route for raw material import since December 2023. However, in the event of any potential impact on the ports, the Company has prepared a contingency plan, approved by its major customers, to temporarily relocate production to alternate regions.
15
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which modifies the rules on income tax disclosures to require disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07,
“Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment
disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The purpose of the amendment is to
enable investors to better understand an entity’s overall performance and assess potential future cash flows. The guidance is effective
for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early
adoption permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Based on
management’s assessment, the Company has determined that it has only
Except for the above-mentioned pronouncements, there are no new recently issued accounting standards that will have a material impact on the consolidated financial position, statements of operations, and cash flows.
NOTE 4 – ACCOUNTS RECEIVABLE, NET
| As of September 30, 2024 (Unaudited) | As of March 31, 2024 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Less: allowances for credit losses | ||||||||
| Accounts receivable, net | $ | $ | ||||||
NOTE 5 – INVENTORIES
| As of September 30, 2024 (Unaudited) | As of March 31, 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-progress | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
As of September 30, 2024 and March 31, 2024, the
Company had $ inventories valuation reserve. This is because
16
NOTE 6 – ADVANCE TO SUPPLIERS, NET
| As of September 30, 2024 (Unaudited) | As of March 31, 2024 | |||||||
| Advance to suppliers | $ | $ | ||||||
| Less: allowances for credit losses | ||||||||
| Advance to suppliers, net | $ | $ | ||||||
NOTE 7 – LEASES
The Company has 44 operating leases for manufacturing facilities, offices and staff dormitories. Some leases include one or more options to renew, which is typically at the Company’s sole discretion. The Company regularly evaluates the renewal options, and, when it is reasonably certain of exercise, it will include the renewal period in its lease term. New lease modifications result in measurement of operating lease right of use assets and lease liability. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating lease right of use assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term.
All of the Company’s leases are classified as operating leases and primarily include office space and manufacturing facilities.
| As of September 30, 2024 (Unaudited) | As of March 31, 2024 | |||||||
| Operating lease right of use assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liabilities – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The weighted average remaining lease terms and discount rates for all of operating leases were as follows:
| For the period ended | ||||||||
| September 30, 2024 (Unaudited) | March 31, 2024 | |||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
During the three months ended September 30, 2024
and 2023, the Company incurred total operating lease expenses of $
17
NOTE 7 – LEASES (continued)
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Less: prepayments | ( | ) | ||
| Present value of lease liabilities | $ |
NOTE 8 – PROPERTY, PLANT, AND EQUIPMENT, NET
| As of September 30, 2024 (Unaudited) | As of March 31, 2024 | |||||||
| Land | $ | $ | ||||||
| Property and buildings (1) | ||||||||
| Equipment and machinery | ||||||||
| Office and electric equipment | ||||||||
| Automobiles | ||||||||
| Leasehold improvements | ||||||||
| Subtotal | ||||||||
| Construction in progress (2) | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property, plant, and equipment, net | $ | $ | ||||||
| (1) |
| (2) |
For the three months ended September 30, 2024
and 2023, depreciation and amortization expenses were $
18
NOTE 9 – EQUITY
Preferred Stock
The Company has
Common Stock
The Company had
Statutory Reserve
In accordance with the corporate law in Jordan,
Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, MK Garments, and Kawkab Venus 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
Dividends
During the six months ended September 30, 2024,
the Board of Directors declared a cash dividend of $
During the fiscal year ended March 31, 2024, the
Board of Directors declared a cash dividend of $
NOTE 10 – STOCK-BASED COMPENSATION
Warrants issued for services
From time to time, the Company issues warrants
to purchase its common stock. These warrants are valued using the Black-Scholes model and using the volatility, market price, exercise
price, risk-free interest rate, and dividend yield appropriate at the date the warrants were issued. A total of
Stock Options
On March 21, 2018, the Board of Directors adopted the Jerash Holdings (US), Inc. 2018 Stock Incentive Plan (the “Plan”), pursuant
to which the Company may grant various types of equity awards.
| Option to | Weighted Average | |||||||
| Acquire Shares | Exercise Price | |||||||
| Stock options outstanding at March 31, 2024 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired | ||||||||
| Stock options outstanding at September 30, 2024 | $ | |||||||
All these outstanding options were fully vested
and exercisable. As of September 30, 2024, there were
19
NOTE 10 – STOCK-BASED COMPENSATION (continued)
Restricted Stock Units (“RSUs”)
On February 9, 2023, the Board of Directors approved
the grant of
On March 25, 2024, the Board of Directors approved
the grant of
| Number of Shares | Weighted- Average Grant Date Fair Value Per Share | |||||||
| RSUs outstanding at March 31, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| RSUs outstanding at September 30, 2024 | $ | |||||||
Total expenses related to the RSUs issued were
$
NOTE 11 – RELATED PARTY TRANSACTIONS
| Name of Related Party | Relationship to the Company | Nature of Transactions | ||
| Yukwise Limited (“Yukwise”) | ||||
| Multi-Glory Corporation Limited (“Multi-Glory”) |
20
NOTE 11 – RELATED PARTY TRANSACTIONS (continued)
Consulting agreements
On January 12, 2018, Treasure Success and Yukwise
entered into a consulting agreement, pursuant to which Mr. Choi will serve as Chief Executive Officer and provide high-level advisory
and general management services for $
On January 16, 2018, Treasure Success and Multi-Glory
entered into a consulting agreement, pursuant to which Multi-Glory will provide high-level advisory, marketing, and sales services to
the Company for $
NOTE 12 – CREDIT FACILITIES
Starting from May and October 2021, the Company
has participated in a financing program with two customers, in which the Company may receive early payments for approved sales invoices
submitted by the Company through the bank the customer cooperates with. In March 2024, the Company joined a supply chain financing program
with one additional customer. For any early payments received, the Company is subject to an early payment charge imposed by the customer’s
bank, for which the rate is revised based on Secured Overnight Financing Rate (“SOFR”) plus a spread. In certain scenarios,
the Company submits the sales invoice and receives payments prior to the shipment of the relative products. In that case, instead of recording
the cash receipts as a reduction to accounts receivables, the Company records the cash receipts as receipts in advance from a customer
until products are entitled to transfer. The Company records the early payment charge in interest expenses on the consolidated statements
of operation and comprehensive income (loss). For the three months ended September 30, 2024 and 2023, the early payment charge was $
On January 12, 2022, DBS Bank (Hong Kong) Limited
(“DBSHK”) offered to provide a banking facility of up to $
As of September 30, 2024 and March 31, 2024, the
Company had $
21
NOTE 13 – NONCONTROLLING INTEREST
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 and P.T Eratex
(Hong Kong) Limited acquired
On October 10, 2023, Treasure Success and Newtech
Textile (HK) Limited entered into a Joint Venture and Shareholders’ Agreement, pursuant to which Treasure Success and Newtech Textile
(HK) Limited acquired
For the three months ended September 30, 2024,
the net income generated by J&B was $
NOTE 14 – EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share for the three and six months ended September 30, 2024 and 2023. As of September 30, 2024,
| Three Months Ended September 30, (Unaudited) | Six Months Ended September 30, (Unaudited) | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) attributable to Jerash Holdings (US), Inc.’s Common Stockholders | $ | $ | $ | ( | ) | $ | ||||||||||
| Denominator: | ||||||||||||||||
| Denominator for basic earnings per share (weighted-average shares) | ||||||||||||||||
| Dilutive securities – unexercised RSUs | ||||||||||||||||
| Denominator for diluted earnings per share (adjusted weighted-average shares) | ||||||||||||||||
| Basic and diluted earnings (loss) per share | $ | $ | $ | ( | ) | $ | ||||||||||
NOTE 15 – SEGMENT REPORTING
ASC 280, “Segment Reporting,” establishes
standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure
as well as information about geographical areas, business segments, and major customers in financial statements for details on the Company’s
business segments. The Company uses the “management approach” in determining reportable operating segments. The management
approach considers the internal organization and reporting used by the Company’s chief operating decision-maker for making operating
decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief
operating decision maker, reviews operation results by the revenue of the Company’s products. The Company’s major product
is outerwear. For the three months ended September 30, 2024 and 2023, outerwear accounted for approximately
22
NOTE 15 – SEGMENT REPORTING (continued)
For
the Three Months Ended | ||||||||
| (Unaudited) | ||||||||
| 2024 | 2023 | |||||||
| United States | $ | $ | ||||||
| China | ||||||||
| Hong Kong | ||||||||
| Germany | ||||||||
| Jordan | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
| For the Six Months Ended September 30, | ||||||||
| (Unaudited) | ||||||||
| 2024 | 2023 | |||||||
| United States | $ | $ | ||||||
| China | ||||||||
| Hong Kong | ||||||||
| Germany | ||||||||
| Jordan | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
As of September 30, 2024,
23
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Commitments
On August 28, 2019, Jiangmen Treasure Success
was incorporated under the laws of the People’s Republic of China in Jiangmen City, Guangdong Province, China, with a total registered
capital of HKD
Contingencies
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company’s management does not expect any liability from the disposition of such claims and litigation individually or in the aggregate would not have a material adverse impact on the Company’s consolidated financial position, results of operations, and cash flows.
NOTE 17 – INCOME TAX
Jerash Garments, Jerash Embroidery, Chinese Garments,
Paramount, Jerash The First, MK Garments, and Kawkab Venus are subject to the regulations of the Income Tax Department in Jordan. Effective
January 1, 2019, the Jordanian government reclassified the area where Jerash Garments and its subsidiaries are to a Development Zone.
In accordance with the Development Zone law, Jerash Garments and its subsidiaries were subject to income tax at income tax rate of
On December 22, 2017, the U.S. Tax Cuts and Jobs
Act (the “Tax Act”) was enacted. The Tax Act imposed tax on previously untaxed accumulated earnings and profits (“E&P”)
of foreign subsidiaries (the “Toll Charge”). The Toll Charge is based in part on the amount of E&P held in cash and other
specific assets as of December 31, 2017. The Toll Charge can be paid over an eight-year period, starting in 2018, and will not accrue
interest. Additionally, under the provisions of the Tax Act, for taxable years beginning after December 31, 2017, the foreign earnings
of Jerash Garments and its subsidiaries are subject to U.S. taxation at the Jerash Holdings level under the new Global Intangible Low-Taxed
Income (“GILTI”) regime. $
Interim income tax expenses or benefit is recognized
based on the Company’s estimated annual effective tax rate, which is based upon the tax rate expected for the full fiscal year applied
to the pretax income or loss of the interim period. The Company’s consolidated effective tax rate for the three and six months ended
September 30, 2024 was
NOTE 18 – SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through the date of the filing of this Quarterly Report on Form 10-Q with the SEC to ensure that this filing includes appropriate disclosure of events both recognized in the condensed consolidated financial statements as of September 30, 2024, and events which occurred subsequent to September 30, 2024 but were not recognized in the condensed consolidated financial statements. The Company has determined that there were no subsequent events that required recognition, adjustment to, or disclosure in the condensed consolidated financial statements, except for the following:
On November 8, 2024, the Board of Directors approved the payment of a dividend of $
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to: any projections of earnings, revenue, or other financial items; any statements regarding the adequacy, availability, and sources of capital, any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” or “anticipate,” and other similar words. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in the forward-looking statements include those factors set forth in the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 and in subsequent reports that we file with the SEC.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. We do not intend, and undertake no obligation, to update any forward-looking statement, except as required by law.
The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the SEC on June 28, 2024. References to fiscal 2025 and fiscal 2024 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal year ending March 31, 2025, and fiscal year ended March 31, 2024, respectively.
Results of Operations
Three months ended September 30, 2024 and 2023
The following table summarizes the results of our operations during the three-month periods ended September 30, 2024 and 2023, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Period over Period Increase (Decrease) | ||||||||||||||||||||||
| Statement of Income Data: | Amount | As % of Sales | Amount | As % of Sales | Amount | % | ||||||||||||||||||
| Revenue | $ | 40,240 | 100 | % | $ | 33,357 | 100 | % | $ | 6,883 | 21 | % | ||||||||||||
| Cost of goods sold | 33,182 | 82 | % | 27,985 | 84 | % | 5,197 | 19 | % | |||||||||||||||
| Gross profit | 7,058 | 18 | % | 5,372 | 16 | % | 1,686 | 31 | % | |||||||||||||||
| Selling, general, and administrative expenses | 5,450 | 14 | % | 4,241 | 13 | % | 1,209 | 29 | % | |||||||||||||||
| Stock-based compensation expenses | 474 | 1 | % | 243 | 1 | % | 231 | 95 | % | |||||||||||||||
| Other expenses, net | 364 | 1 | % | 167 | 0 | % | 197 | 118 | % | |||||||||||||||
| Net income before taxation | 770 | 2 | % | 721 | 2 | % | 49 | 7 | % | |||||||||||||||
| Income tax expenses | 106 | 0 | % | 352 | 1 | % | (246 | ) | (70 | )% | ||||||||||||||
| Net income | $ | 664 | 2 | % | $ | 369 | 1 | % | $ | 295 | 80 | % | ||||||||||||
25
Revenue. Revenue increased by approximately $6.9 million, or 21%, to $40.2 million, for the three months ended September 30, 2024, from approximately $33.4 million for the same period in fiscal 2024. The increase was mainly due to more shipments to our two major customers in the U.S. with some customers we obtained during the past two years.
The following table outlines the dollar amount and percentage of total sales to our customers for the three months ended September 30, 2024 and 2023.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | |||||||||||||||
| Sales | Sales | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| VF Corporation (1) | $ | 27,192 | 68 | % | $ | 24,403 | 73 | % | ||||||||
| New Balance | 3,524 | 9 | % | 1,388 | 4 | % | ||||||||||
| Suzhou Unitex | 2,941 | 7 | % | - | 0 | % | ||||||||||
| G-III | 1,695 | 4 | % | 2,533 | 8 | % | ||||||||||
| American Eagle Outfitter | 880 | 2 | % | 505 | 1 | % | ||||||||||
| Hugo Boss | 822 | 2 | % | 846 | 3 | % | ||||||||||
| Others | 3,186 | 8 | % | 3,682 | 11 | % | ||||||||||
| Total | $ | 40,240 | 100 | % | $ | 33,357 | 100 | % | ||||||||
| (1) | A large portion of our products are sold under The North Face, Timberland, and Vans brands owned by VF Corporation. |
Revenue by Geographic Area
(All amounts, other than percentages, in thousands of U.S. dollars)
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Period over Period Increase (Decrease) | ||||||||||||||||||||||
| Region | Amount | % | Amount | % | Amount | % | ||||||||||||||||||
| United States | $ | 34,531 | 86 | % | $ | 29,225 | 87 | % | $ | 5,306 | 18 | % | ||||||||||||
| China (including Hong Kong) | 3,258 | 8 | % | 2,630 | 8 | % | 628 | 24 | % | |||||||||||||||
| Jordan | 990 | 2 | % | 320 | 1 | % | 670 | 209 | % | |||||||||||||||
| Germany | 822 | 2 | % | 846 | 3 | % | (24 | ) | (3 | )% | ||||||||||||||
| Others | 639 | 2 | % | 336 | 1 | % | 303 | 90 | % | |||||||||||||||
| Total | $ | 40,240 | 100 | % | $ | 33,357 | 100 | % | $ | 6,883 | 21 | % | ||||||||||||
Since January 2010, all apparel manufactured in Jordan can be exported to the U.S. without customs duty being imposed, pursuant to the United States-Jordan Free Trade Agreement entered into in December 2001. This free trade agreement provides us with substantial competitiveness and benefit that allowed us to expand our garment export business in the U.S.
The increase of approximately 18% in sales to the U.S. during the three months ended September 30, 2024, was mainly attributable to more shipments delivered to our major customers in the U.S.
During the three months ended September 30, 2024, aggregate sales to China, Germany, Jordan, and other locations increased by 38% from $4.1 million to $5.7 million from the same period last year. This increase was mainly due to higher demands of our production facility in the period.
Cost of goods sold. Following the increase in sales revenue, our cost of goods sold increased by approximately $5.2 million, or 19%, to approximately $33.2 million, for the three months ended September 30, 2024, from approximately $28.0 million for the same period in fiscal 2024. As a percentage of revenue, the cost of goods sold decreased by approximately two percentage points, from 84% for the same period in fiscal 2024 to 82% for the three months ended September 30, 2024. The decrease in the cost of goods sold as a percentage of revenue was primarily attributable to economy of scale resulting from higher production volume and more shipments.
26
For the three months ended September 30, 2024, we purchased 10% of our total purchase in garments and raw materials from one major supplier.
For the three months ended September 30, 2023, we did not have a major supplier for our garments and raw materials.
Gross profit margin. Gross profit margin was approximately 18% for the three months ended September 30, 2024, which increased by two percentage points from approximately 16% for the same period in fiscal 2024. The increase in gross profit margin was primarily driven by higher production volume with more orders shipped to the U.S. that typically generate higher margin.
Operating expenses. Operating expenses increased by 32%, or approximately $1.4 million, from approximately $4.5 million for the three months ended September 30, 2023, to approximately $5.9 million for the three months ended September 30, 2024. The increase was primarily due to higher export logistic costs to catch up with garment shipment schedules of customers, higher shipment volume and more stock-based compensation expenses in the second quarter of fiscal 2025.
Other expenses, net. Other expenses, net were approximately $364,000 for the three months ended September 30, 2024, as compared to other expenses, net of approximately $167,000 for the same period in fiscal 2024. The increase was primarily due to higher interest expenses from customers’ supply chain financing programs and bank financing to support raw material purchases for the shipments in the latter half of the fiscal year.
Income tax expenses. Income tax expenses for the three months ended September 30, 2024, were approximately $106,000 compared to income tax expenses of approximately $352,000 for the same period in fiscal 2024. The decrease in the income tax expenses was mainly due to the reduced operating profit derived from our Jordan subsidiaries and improvement in Hong Kong subsidiaries. The effective tax rate declined to 13.7% for the three months ended September 30, 2024, as compared to 48.8% for the three months ended September 30, 2023.
Net income. Net income for the three months ended September 30, 2024, was approximately $0.7 million compared to net income of approximately $0.4 million for the same period in fiscal 2024. The increase in net income was mainly attributable to the increase in gross profit and the decrease in income tax expenses.
Six months ended September 30, 2024 and 2023
The following table summarizes the results of our operations during the six-month periods ended September 30, 2024 and 2023, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Six Months Ended September 30, 2024 | Six Months Ended September 30, 2023 | Period over Period Increase (Decrease) | ||||||||||||||||||||||
| Statement of Income Data: | Amount | As % of Sales | Amount | As % of Sales | Amount | % | ||||||||||||||||||
| Revenue | $ | 81,176 | 100 | % | $ | 68,093 | 100 | % | $ | 13,083 | 19 | % | ||||||||||||
| Cost of goods sold | 69,478 | 86 | % | 57,153 | 84 | % | 12,325 | 22 | % | |||||||||||||||
| Gross profit | 11,698 | 14 | % | 10,940 | 16 | % | 758 | 7 | % | |||||||||||||||
| Selling, general, and administrative expenses | 10,449 | 13 | % | 8,476 | 12 | % | 1,973 | 23 | % | |||||||||||||||
| Stock-based compensation expenses | 943 | 1 | % | 484 | 1 | % | 459 | 95 | % | |||||||||||||||
| Other expenses, net | 790 | 1 | % | 466 | 1 | % | 324 | 70 | % | |||||||||||||||
| Net (loss) / income before taxation | (484 | ) | (1 | )% | 1,514 | 2 | % | (1,998 | ) | (132 | )% | |||||||||||||
| Income tax expense | 218 | 0 | % | 650 | 1 | % | (432 | ) | (66 | )% | ||||||||||||||
| Net (loss) / income | $ | (702 | ) | (1 | )% | $ | 864 | 1 | % | $ | (1,566 | ) | (181 | )% | ||||||||||
27
Revenue. Revenue increased by approximately $13.1 million, or 19%, to $81.2 million, for the six months ended September 30, 2024, from approximately $68.1 million for the same period in fiscal 2024. The increase was mainly due to more shipments to one of our major customers in the U.S.
The following table outlines the dollar amount and percentage of total sales to our customers for the six months ended September 30, 2024 and 2023, respectively.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Six Months Ended September 30, 2024 | Six Months Ended September 30, 2023 | |||||||||||||||
| Sales | Sales | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| VF Corporation (1) | $ | 57,166 | 70 | % | $ | 47,183 | 69 | % | ||||||||
| New Balance | 7,590 | 9 | % | 8,680 | 13 | % | ||||||||||
| Suzhou Unitex | 4,219 | 5 | % | - | 0 | % | ||||||||||
| Hugo Boss | 1,942 | 2 | % | 1,290 | 2 | % | ||||||||||
| G-III | 1,725 | 2 | % | 4,715 | 7 | % | ||||||||||
| Dynamic | 1,430 | 2 | % | 167 | 0 | % | ||||||||||
| American Eagle Outfitter | 1,213 | 2 | % | 505 | 1 | % | ||||||||||
| Tharanco | 1,160 | 2 | % | - | 0 | % | ||||||||||
| Others | 4,731 | 6 | % | 5,553 | 8 | % | ||||||||||
| Total | $ | 81,176 | 100 | % | $ | 68,093 | 100 | % | ||||||||
| (1) | A large portion of our products are sold under The North Face, Timberland and Vans brands that are owned by VF Corporation. |
Revenue by Geographic Area
(All amounts, other than percentages, in thousands of U.S. dollars)
| Six Months Ended September 30, 2024 | Six Months Ended September 30, 2023 | Period over Period Increase (Decrease) | ||||||||||||||||||||||
| Region | Amount | % | Amount | % | Amount | % | ||||||||||||||||||
| United States | $ | 71,566 | 88 | % | $ | 61,887 | 91 | % | $ | 9,679 | 16 | % | ||||||||||||
| China (including Hong Kong) | 4,768 | 6 | % | 3,363 | 5 | % | 1,405 | 42 | % | |||||||||||||||
| Germany | 1,942 | 2 | % | 1,290 | 2 | % | 652 | 51 | % | |||||||||||||||
| Jordan | 1,730 | 2 | % | 625 | 1 | % | 1,105 | 177 | % | |||||||||||||||
| Others | 1,170 | 2 | % | 928 | 1 | % | 242 | 26 | % | |||||||||||||||
| Total | $ | 81,176 | 100 | % | $ | 68,093 | 100 | % | $ | 13,083 | 19 | % | ||||||||||||
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.
28
The increase of approximately 16% in sales to the U.S. during the six months ended September 30, 2024, was mainly attributable to the increase of shipment to one of our major customers in the U.S. with some customers we obtained during the past two years.
During the six months ended September 30, 2024, aggregate sales to China, Germany, Jordan, and other locations increased by 55% from approximately $6.2 million to $9.6 million from the same period last year as we were diversifying our customer bases to different geographic locations.
Cost of goods sold. Following the increase in sales revenue, our cost of goods sold increased by approximately $12.3 million, or 22%, to approximately $69.5 million, for the six months ended September 30, 2024, from approximately $57.2 million for the same period in fiscal 2024. As a percentage of revenue, the cost of goods sold increased by approximately 2% points to 86% for the six months ended September 30, 2024 from 84% for the same period in fiscal 2024. The increase in cost of goods sold as a percentage of revenue was primarily attributable to the higher import logistic costs and more overtime work incurred in the first quarter to catch up with the garment delivery schedules of customers.
For the six months ended September 30, 2024 and 2023, we purchased 11% of our garments and raw materials from one major supplier.
Gross profit margin. Gross profit margin was approximately 14% for the six months ended September 30, 2024, which decreased by 2% points from 16% for the same period in fiscal 2024. The decrease in gross profit margin was primarily driven by higher logistic costs and over time work incurred in the first quarter to catch up with garment delivery schedules of customers.
Operating expenses. Operating expenses for the six months ended September 30, 2024 increased by 27%, or approximately $2.4 million, to approximately $11.4 million, compared to the same period in fiscal 2024. The increase was primarily due to higher export logistic costs from more sales in the period and higher stock-based compensation expenses in fiscal 2025.
Other expenses, net. Other expenses, net was approximately $790,000 for the six months ended September 30, 2024, as compared to other expenses, net of approximately $466,000 for the same period in fiscal 2024. The increase was primarily due to higher interest expenses from customers’ supply chain financing programs.
Income tax expenses. Income tax expenses for the six months ended September 30, 2024 were approximately $0.2 million compared to income tax expenses of approximately $0.7 million for the same period in fiscal 2024. The decrease in the income tax expenses was mainly due to the reduced operating profit derived from our Jordan subsidiaries. The effective tax rate was declined to (44.9%) for the six months ended September 30, 2024, as compared to 42.9% for the six months ended September 30, 2023.
Net (loss)/income. Net loss for the six months ended September 30, 2024 was approximately $0.7 million compared to net income of approximately $0.9 million for the same period in fiscal 2024. The decrease in net income was mainly attributable to a decrease in profit margin due to the higher logistic costs amid the Red Sea turmoil and additional production costs to catch up with customers’ delivery schedules, as well as the higher stock-based compensation expenses during the period in fiscal 2025.
29
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 subsidiaries formed in Jordan and Hong Kong 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. The subsidiaries generate most of revenue in our group.
As of September 30, 2024, we had cash of approximately $16.3 million and restricted cash of approximately $1.5 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 was mainly a result of more sales in the six-month period and a higher credit facility balance.
Our current assets as of September 30, 2024 were approximately $51.6 million and our current liabilities were approximately $16.4 million, which resulted in a ratio of approximately 3.1 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 to 1.
The primary drivers in the increase in current assets were the increase in cash from more sales in the six-month period. The primary driver in the increase in current liabilities was the increase in credit facilities balance.
Total equity as of September 30, 2024 was approximately $63.5 million compared to $64.4 million as of March 31, 2024.
We had net working capital of $35.2 million and $36.1 million as of September 30, 2024 and March 31, 2024, respectively. Based on our current operating plan, we believe that cash on hand and cash generated from operating activities will be sufficient to support our working capital needs for the next 12 months from the date this Quarterly Report is released.
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 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 our operations. Our working capital requirements are influenced by the level of our operations, the numerical and dollar volume of our sales contracts, the progress of execution on our customer contracts, and the timing of accounts receivable collections.
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 September 30, 2024 and March 31, 2024, we had $3.6 million and $nil outstanding under this DBSHK facility, respectively.
30
Six months ended September 30, 2024 and 2023
The following table sets forth a summary of our cash flows for the periods indicated:
(All amounts in thousands of U.S. dollars)
| Six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by operating activities | $ | 2,426 | $ | 8,179 | ||||
| Net cash used in investing activities | (936 | ) | (3,459 | ) | ||||
| Net cash provided by (used in) financing activities | 2,341 | (1,198 | ) | |||||
| Effect of exchange rate changes on cash and restricted cash | 16 | (124 | ) | |||||
| Net increase in cash and restricted cash | 3,847 | 3,398 | ||||||
| Cash and restricted cash, beginning of six-month period | 14,037 | 19,412 | ||||||
| Cash and restricted cash, end of six-month period | $ | 17,884 | $ | 22,810 | ||||
Operating Activities
Net cash provided by operating activities was approximately $2.4 million for the six months ended September 30, 2024, compared to cash provided by operating activities of approximately $8.2 million for the same period in fiscal 2024. The decrease in net cash provided by operating activities was primarily attributable to the following factors:
| ● | a decrease in inventory of $7.0 million in the six months ended September 30, 2024, compared to a decrease of $13.9 million in the same period in fiscal 2024; |
| ● | an increase in accounts receivable of $0.4 million in the six months ended September 30, 2024, compared to an increase of $2.9 million in the same period in fiscal 2024; |
| ● | an increase in advance to suppliers of $2.9 million compared to an increase of $1.9 million in the same period in fiscal 2024; |
| ● | a decrease in accounts payable of $1.9 million in the six months ended September 30, 2024, compared to a decrease of $1.5 million in the same period in fiscal 2024; and |
| ● | a net loss of $ 0.7 million in the six months ended September 30, 2024, from net income of $0.9 million in the same period in fiscal 2024. |
Investing Activities
Net cash used in investing activities was approximately $0.9 million for the six months ended September 30, 2024, compared to approximately $3.5 million in the same period in fiscal 2024. The net cash used in investing activities during the six months ended September 30, 2024 was mainly for investment in property, plant, and machinery and construction of a dormitory. The net cash used in investing activities in the six months ended September 30, 2023 was mainly used in investment in property, plant, and machinery including the ongoing construction of a dormitory and factory expansion.
Financing Activities
Net cash provided by financing activities was approximately $2.3 million for the six months ended September 30, 2024, which was the net effect of proceeds from the DBSHK facility of approximately $3.6 million and the payments of $1.2 million of dividend. Net cash used in financing activities was approximately $1.2 million for the six months ended September 30, 2023, which was dividend payments in the period.
Statutory Reserves
In accordance with the corporate law in Jordan, subsidiaries of Jerash Holdings 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 $0.4 million as of September 30, 2024 and 2023.
The following table provides the amount of our statutory reserves, the amount of restricted net assets, consolidated net assets, and the amount of restricted net assets as a percentage of consolidated net assets, as of September 30, 2024 and 2023.
(All amounts, other than percentages, in thousands of U.S. dollars)
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Statutory Reserves | $ | 414 | $ | 411 | ||||
| Total Restricted Net Assets | $ | 414 | $ | 411 | ||||
| Consolidated Net Assets | $ | 63,459 | $ | 68,230 | ||||
| Restricted Net Assets as Percentage of Consolidated Net Assets | 0.65 | % | 0.60 | % | ||||
Total restricted net assets accounted for approximately 0.65% of our consolidated net assets as of September 30, 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.
31
Capital Expenditures
We had capital expenditures of approximately $0.9 million and $3.5 million for the six months ended September 30, 2024 and 2023, for plant and machinery and the construction of a dormitory in both periods. For the six months ended September 30, 2024, payments for additional plant and machinery and the construction of a dormitory amounted to approximately $0.6 million and $0.3 million respectively. For the six months ended September 30, 2023, payments for additional plant and machinery, and construction of a dormitory and factory expansion, amounted to approximately $0.9 million and $2.6 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 JOD 863,800 (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 JOD 313,501 (approximately $442,162). The dormitory is completed in second quarter of fiscal year 2025. We have spent approximately $9.8 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 $4.1 million and $8.8 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.
Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with accounting principles generally accepted by the United States of America (“U.S. GAAP”), which require us to make judgments, estimates, and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. We have not identified any critical accounting estimates.
Recent Accounting Pronouncements
See “Note 3—Recent Accounting Pronouncements” in the notes to our unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide this information.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rule 15d-15(e)) are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
32
Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), based on their evaluation of our disclosure controls and procedures as of September 30, 2024, concluded that our disclosure controls and procedures were ineffective as of that date based on reasons set forth below.
In the annual report for fiscal 2024 filed on June 28, 2024, the management concluded that, as of March 31, 2024, our internal control over financial reporting was not effective due to certain control deficiencies that are deemed as material weaknesses, including:
| - | We failed to maintain effective controls over period-end financial reporting, specifically related to income taxes and the reconciliation of account level balances that resulted in errors; and |
| - | There were ineffective information technology general controls in the areas of privileged user access and the review of user access over certain information technology systems that support our financial reporting processes. |
Remedial actions have then been implemented to address some of the issues. However, in the assessment in fiscal 2025, the management still concluded that, as of September 30, 2024, our internal control over financial reporting was not effective due to certain material control weaknesses particularly that we failed to maintain effective controls over period-end financial reporting related to income taxes and the reconciliation of account level balances that resulted in errors.
The Company has put in more resources to strengthen the internal control environment and plans to enhance the communication with external consultants who are assisting the Company in taxation and management information systems. As of the date of this report, we have implemented measures to address the weaknesses by:
| - | Enhanced communication with the U.S. GAAP advisor to strengthen compliance including but not limited to new promulgations. A review of the manpower structure and workflows is also undergoing to ensure sufficient resources are available to implement identified improvement actions; |
| - | Improved communication with external professional consultants to strengthen our work and review both U.S. tax and local issues in Jordan; and |
| - | Conducting a comprehensive review and strengthened processes on user authorization, access log control, password control mechanism, and documentation of control procedures for the information technology systems supporting our financial reporting processes. |
While we believe the Company’s remediation efforts to-date have improved and will continue to improve our disclosure controls and procedures, remediation of the material weaknesses will require validation and testing of the operating effectiveness of our disclosure controls over a sustained period of financial reporting cycles. As the Company continues to evaluate and work to improve its internal control over financial reporting, management may determine additional measures are necessary to address control deficiencies or determine that it is necessary to modify the remediation plan described above. Management cannot provide assurance as to when the Company will remediate such weaknesses, nor can management be certain of whether additional actions will be required or the costs of any such actions.
Our remediation efforts are ongoing and are subject to continued management review supported by ongoing design and testing. Notwithstanding the material weaknesses, our management has concluded that the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report present fairly, in all material respects, our financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America.
Changes in Internal Control Over Financial Reporting
Other than our ongoing remediation efforts with respect to our disclosure controls and procedures, which extend to our internal control over financial reporting, there were no changes in our internal control over financial reporting (as the term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
33
JERASH HOLDINGS (US), INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any material legal proceedings. From time-to-time we are, and we anticipate that we will be, involved in legal proceedings, claims, and litigation arising in the ordinary course of our business and otherwise. The ultimate costs to resolve any such matters could have a material adverse effect on our financial statements. We could be forced to incur material expenses with respect to these legal proceedings, and in the event that there is an outcome in any that is adverse to us, our financial position and prospects could be harmed.
Item 1A. Risk Factors
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
34
Item 6. Exhibits
The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.
Index to Exhibits
| Exhibit | Incorporated by Reference (Unless Otherwise Indicated) | |||||||||
| Number | Exhibit Title | Form | File | Exhibit | Filing Date | |||||
| 3.1 | Amended and Restated Certificate of Incorporation | POS AM | 333-222596 | 3.1 | September 19, 2018 | |||||
| 3.2 | Amended and Restated Bylaws | 8-K | 001-38474 | 3.1 | July 24, 2019 | |||||
| 4.1 | Specimen Certificate for Common Stock | S-1 | 333-218991 | 4.1 | June 27, 2017 | |||||
| 31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | — | — | — | Filed herewith | |||||
| 31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | — | — | — | Filed herewith | |||||
| 32.1* | Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | — | — | — | Furnished herewith | |||||
| 32.2* | Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | — | — | — | Furnished herewith | |||||
| 101.INS | Inline XBRL Instance Document | — | — | — | Filed herewith | |||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | — | — | — | Filed herewith | |||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | — | — | — | Filed herewith | |||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | — | — | — | Filed herewith | |||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | — | — | — | Filed herewith | |||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | — | — | — | Filed herewith | |||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | — | — | — | Filed herewith | |||||
| * | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act. |
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: November 13, 2024 | Jerash Holdings (US), Inc. | |
| By: | /s/ Gilbert K. Lee | |
| Gilbert K. Lee | ||
| Chief Financial Officer (Principal Financial Officer) | ||
36