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 February 11, 2022,
there were
Jerash Holdings (US), Inc.
Form 10-Q
For the Quarterly Period Ended December 31, 2021
Contents
i
JERASH HOLDINGS (US), INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JERASH HOLDINGS (US), INC.,
SUBSIDIARIES AND AFFILIATE
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, 2021 | March 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Tax recoverable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Investment deposits | ||||||||
| Advance to suppliers, net | ||||||||
| Total Current Assets | ||||||||
| Restricted cash - non-current | ||||||||
| Long-term deposits | ||||||||
| Deferred tax assets, net | ||||||||
| Property, plant and equipment, net | ||||||||
| Goodwill | - | |||||||
| Right of use assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Credit facilities | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Income tax payable - current | ||||||||
| Other payables | ||||||||
| Advance from a customer | - | |||||||
| Operating lease liabilities - current | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Income tax payable - non-current | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Equity | ||||||||
| Preferred stock, $ | $ | $ | ||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive gain (loss) | ( | ) | ||||||
| Total Jerash Holdings (US), Inc.'s Stockholder's 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.,
SUBSIDIARIES AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
| For the Three Months Ended December 31, | For the Nine Months Ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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 (Expense): | ||||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Net income before provision for income taxes | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net Income | ||||||||||||||||
| Net loss attributable to noncontrolling interest | ||||||||||||||||
| Net income attributable to Jerash Holdings (US), Inc.'s Common Stockholders | $ | $ | $ | $ | ||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||
| Other Comprehensive Income: | ||||||||||||||||
| Foreign currency translation gain | ||||||||||||||||
| Total Comprehensive Income | ||||||||||||||||
| Comprehensive income attributable to noncontrolling interest | ||||||||||||||||
| Comprehensive Income Attributable to Jerash Holdings (US), Inc.'s Common Stockholders | $ | $ | $ | $ | ||||||||||||
| Earnings Per Share Attributable to Common Stockholders: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| 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.,
SUBSIDIARIES AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 2021 AND 2020
| Additional | Accumulated Other | Non | ||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Statutory | Retained | Comprehensive | controlling | Total | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Reserve | Earnings | Gain (Loss) | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | - | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Stock-based compensation expense for the stock options issued under stock incentive plan | - | - | ||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividend payment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 (unaudited) | - | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | - | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Stock-based compensation expense for restricted stock units issued under stock incentive plan | - | - | ||||||||||||||||||||||||||||||||||||||
| Cashless exercise of warrants | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Common stock issued net of stock issuance costs of $ | - | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividend payment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 (unaudited) | - | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
FOR THE THREE MONTHS ENDED DECEMBER 31, 2021 AND 2020
| Additional | Accumulated Other | |||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Statutory | Retained | Comprehensive | Noncontrolling | Total | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Reserve | Earnings | Gain (Loss) | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance at September 30, 2020 (unaudited) | - | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividend payment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 (unaudited) | - | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Additional | Accumulated Other | |||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Statutory | Retained | Comprehensive | Noncontrolling | Total | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Reserve | Earnings | Gain | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance at September 30, 2021 (unaudited) | - | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense for the restricted stock units issued under stock incentive plan | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock issued net of stock issuance costs of $ | - | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividend payment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 (unaudited) | - | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
JERASH HOLDINGS (US), INC.,
SUBSIDIARIES AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expenses | ||||||||
| Bad debt expense | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Changes in operating assets: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Advance to suppliers | ( | ) | ||||||
| Changes in operating liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Other payables | ( | ) | ||||||
| Advance from a customer | - | |||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Income tax payable | ||||||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Acquisition of MK Garments | ( | ) | - | |||||
| Acquisition deposit | ( | ) | ||||||
| Payment for long-term deposits | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Dividend payment | ( | ) | ( | ) | ||||
| Repayment of short-term loan | ( | ) | ( | ) | ||||
| Proceeds from short-term loan | ||||||||
| Net proceeds from issuance of common stock | - | |||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ||||||||
| NET INCREASE IN CASH | ||||||||
| CASH, AND RESTRICTED CASH, BEGINNING OF THE PERIOD | ||||||||
| CASH, AND RESTRICTED CASH, END OF THE PERIOD | $ | $ | ||||||
| CASH AND RESTRICTED CASH, END OF PERIOD | ||||||||
| LESS: RESTRICTED CASH | ||||||||
| NON-CURRENT RESTRICTED CASH | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| Supplemental disclosure information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Income tax paid | $ | $ | ||||||
| Non-cash financing activities | ||||||||
| 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
NOTES TO 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 and its variable interest entity (“VIE”) 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 limited
liability company on July 6, 2020, with a registered capital of JOD
Victory
Apparel (Jordan) Manufacturing Company Limited (“Victory Apparel”) was established as a limited liability company in Amman,
Jordan, on September 18, 2005 with a declared capital of JOD
Treasure Success International Limited (“Treasure Success”) was organized on July 5, 2016 in Hong Kong, the People’s Republic of China (“China”), as a limited liability company for the primary purpose of employing staff from China to support Jerash Garments’ operations and is a wholly-owned subsidiary of Jerash Holdings.
Jiangmen
Treasure Success Business Consultancy Company Limited (“Jiangmen Treasure Success”) was organized on August 28, 2019 under
the laws of China in Guangzhou City of Guangdong Province in China with a total registered capital of
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 sport and outerwear and personal protective equipment (“PPE”) produced in its facilities in Jordan and sold in the United States, Jordan, and other countries.
6
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, 2021 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, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
Principles of Consolidation
The unaudited condensed consolidated financial statements include the financial statements of Jerash Holdings, and its subsidiaries and VIE. All significant intercompany balances and transactions have been eliminated in consolidation.
VIEs
are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties
or whose equity holders lack adequate decision making ability. All VIEs with which a company is involved must be evaluated to determine
the primary beneficiary of the risks and rewards of the VIEs. The primary beneficiary is required to consolidate the VIE for financial
reporting purposes. The Company’s VIE, Victory Apparel, was inactive for the nine months ended December 31, 2021, and the net assets
of the VIE were approximately $
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. The Company’s most significant estimates include allowance for doubtful accounts, valuation of inventory reserve, useful lives of buildings and other property, and the measurement of stock-based compensation expenses. Actual results could differ from these estimates.
Cash
The Company’s cash consists of cash on hand and cash deposited in financial institutions. The Company considers all highly liquid investment instruments with an original maturity of three months or less from the original date of purchase to be cash equivalents. As of December 31, 2021 and March 31, 2021, the Company had no cash equivalents.
Restricted Cash
Restricted cash consists of cash used as security deposits to obtain credit facilities from a bank and to secure customs clearance under the requirements of local regulations. The Company is required to keep certain amounts on deposit that are subject to withdrawal restrictions. These security deposits at the bank are refundable only when the bank facilities are terminated. The restricted cash is classified as a current asset if the Company intends to terminate these bank facilities within one year, and as a non-current asset if otherwise.
Short-term Investments
From time to time, the Company purchased financial products that can be readily converted into cash and accounted for such financial products as short-term investments. The financial products include money market funds, bonds, and mutual funds. The carrying values of the Company’s short-term investments approximate fair value because of their liquidity. The gain and interest earned are recognized in the consolidated statements of income over the contractual terms of these investments.
The
Company had no short-term investments as of December 31, 2021 and March 31, 2021. The Company recorded a realized gain of $ and $
7
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts Receivable, Net
Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts. The Company usually grants extended payment terms to customers with good credit standing and determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements of income and comprehensive income. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
Inventories
Inventories are stated at the lower of cost or net realizable value. Inventories include cost of raw materials, freight, direct labor and related production overhead. The cost of inventories is determined using the First in, First-out method. The Company periodically reviews its inventories for excess or slow-moving items and makes provisions as necessary to properly reflect inventory value.
Advance to Suppliers, Net
Advance to suppliers consists of balances paid to suppliers for services or materials purchased that have not been provided or received. Advance to suppliers for services and materials is short-term in nature. Advance to suppliers is reviewed periodically to determine whether its carrying value has become impaired. The Company considers the assets to be impaired if the performance by the suppliers becomes doubtful. The Company uses the aging method to estimate the allowance for the questionable balances. In addition, at each reporting date, the Company generally determines the adequacy of allowance for doubtful accounts by evaluating all available information, and then records specific allowances for those advances based on the specific facts and circumstances.
Property, Plant, and Equipment, 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 estimated useful lives of the assets, or in the case of leasehold improvements, the shorter of the initial lease term or the estimated useful life of the improvements. The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant, and equipment. The estimated useful lives of depreciation and amortization of the principal classes of assets are as follows:
| Useful life | ||
| Land | ||
| 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 income and comprehensive income.
Impairment of Long-Lived Assets
The Company assesses its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Factors which may indicate potential impairment include a significant underperformance relative to the historical or projected future operating results or a significant negative industry or economic trend. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by that asset. If impairment is indicated, a loss is recognized for any excess of the carrying value over the estimated fair value of the asset. The fair value is estimated based on the discounted future cash flows or comparable market values, if available. The Company did not record any impairment loss during the nine months ended December 31, 2021 and 2020.
8
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
Substantially all of the Company’s revenue is derived from product sales, which consist of sales of the Company’s customized ready-made outerwear for large brand-name retailers and PPE. The Company considers purchase orders to be a contract with a customer. Contracts with customers are considered to be short term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year. Virtually all of the Company’s contracts are short term. The Company recognizes revenue for the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due from customers within seven to 150 days of the invoice date. The contracts do not have significant financing components. Shipping and handling costs associated with outbound freight from Jordan export dock are not an obligation of the Company. Returns and allowances are not a significant aspect of the revenue recognition process as historically they have been immaterial.
The Company also derives revenue rendering cutting and making services to other apparel vendors who subcontract order to the Company. Revenue is recognized when the service is rendered. All of the Company’s contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as a price per unit. All estimates are based on the Company’s historical experience, complete satisfaction of the performance obligation, and the Company’s best judgment at the time the estimate is made. Historically, sales returns have not significantly impacted the Company’s revenue.
The Company does not have any contract assets since the Company has an unconditional right to consideration when the Company has satisfied its performance obligation and payment from customers is not contingent on a future event. For the nine months ended December 31, 2021 and 2020, there was no revenue recognized from performance obligations related to prior periods. As of December 31, 2021, there was no revenue expected to be recognized in any future periods related to remaining performance obligations.
The
Company has
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 is registered in Hong Kong and has no accumulated profit. Jiangmen Treasure Success is incorporated in China
and is subject to corporate income tax in China. Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and
Victory Apparel are subject to income tax in Jordan, unless an exemption is granted.
Jerash
Garments and its subsidiaries and VIE 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, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
9
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income and Sales Taxes (continued)
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
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, and Chinese Yuan (“CNY”) in Jiangmen Treasure Success as functional currency of each abovementioned 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 results of operations as incurred.
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 may materially affect the Company’s financial condition in terms of US$ reporting.
Stock-Based Compensation
The Company measures compensation expense for stock-based awards to non-employee contractors and directors based upon 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 highly complex and subjective 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 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. |
| ● | 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. |
| ● | 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. |
10
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings 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 13–Earnings per Share”).
Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income. 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 in the consolidated statements of income and comprehensive income.
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, including restricted cash, accounts receivable, other receivables, 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 December 31, 2021 and March 31, 2021 based upon the short-term nature of these assets and liabilities.
11
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 December 31, 2021 and March 31, 2021, 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 December 31, 2021, two end-customers accounted
for
For
the three months ended December 31, 2021, 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 and foreign currency exchange. 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.
The spread of COVID-19 around the world since March 2020 has caused significant volatility in U.S. and international markets. The Company’s operations were negatively impacted during the first three quarters of the fiscal year ended March 31, 2021 due to COVID-19 related shutdowns, global logistics disruptions, and order cancelations and shipment delays. However, sales growth resumed in the fourth quarter of the prior fiscal year and has extended well into the current fiscal year. The Company does not believe the COVID-19 pandemic had a significant impact on its operations during the nine months ended December 31, 2021.
There is still significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. The Company currently expects that its operation results for the fiscal year ending March 31, 2022 would not be significantly impacted by COVID-19. However, given the dynamic nature of these circumstances, should there be resurgence of COVID-19 cases globally and should the U.S. government or the Jordan government implement new restrictions to contain the spread, the Company’s business would be negatively impacted.
12
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Company’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In November 2019, the FASB issued ASU 2019-10, which amended the effective dates of ASU 2016-13. For public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies (“SRC”) as defined by the SEC, ASU 2016-13 will become effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 will become effective for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an SRC, the Company plans to adopt this ASU effective April 1, 2023. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company adopted this new ASU in April 2021 and the adoption of the new ASU did not have a significant impact on its consolidated financial statements.
NOTE 4 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
| As of | As of | |||||||
| December 31, 2021 | March 31, 2021 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Less: allowances for doubtful accounts | ||||||||
| Accounts receivable, net | $ | $ | ||||||
NOTE 5 – INVENTORIES
Inventories consisted of the following:
| As of | As of | |||||||
| December 31, 2021 | March 31, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-progress | ||||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
13
NOTE 6 – ADVANCE TO SUPPLIERS, NET
Advance to suppliers consisted of the following:
| As of | As of | |||||||
| December 31, 2021 | March 31, 2021 | |||||||
| Advance to suppliers | $ | $ | ||||||
| Less: allowances for doubtful accounts | ||||||||
| Advance to suppliers, net | $ | $ | ||||||
NOTE 7 – LEASES
The Company has 47 operating leases for manufacturing facilities and offices. 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 the right of use (“ROU”) assets and lease liability. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. ROU 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.
Supplemental balance sheet information related to operating leases was as follows:
| As of December 31, 2021 | ||||
| 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 as of December 31, 2021:
| Remaining lease term and discount rate: | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
During
the three months ended December 31, 2021 and 2020, the Company incurred total operation lease expenses of $
14
NOTE 7 – LEASES (continued)
The following is a schedule, by fiscal years, of maturities of lease liabilities as of December 31, 2021:
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Less: prepayments | ( | ) | ||
| Present value of lease liabilities | $ |
NOTE 8 – PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment, net consisted of the following:
| As of | As of | |||||||
| December 31, 2021 | March 31, 2021 | |||||||
| Land | $ | $ | ||||||
| Property and buildings | ||||||||
| Equipment and machinery | ||||||||
| Office and electric equipment | ||||||||
| Automobiles | ||||||||
| Leasehold improvements | ||||||||
| Subtotal | ||||||||
| Construction in progress (1) | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
| (1) |
15
NOTE 9 – EQUITY
Preferred Stock
The
Company has
Common Stock
The
Company had
Statutory Reserve
In
accordance with the corporate laws in Jordan, Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, MK Garments,
and Victory Apparel are required to make appropriations to certain reserve funds, based on net income determined in accordance with generally
accepted accounting principles of Jordan.
Dividends
During
the fiscal year ending March 31, 2022,
During
the fiscal year ended March 31, 2021,
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.
The major assumptions used in the Black Scholes model included the followings: the expected term is
All stock warrants activities are summarized as follows:
| Option to Acquire Shares | Weighted Average Exercise Price | |||||||
| Stock warrants outstanding at March 31, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Stock warrants outstanding at December 31, 2021 | $ | |||||||
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.
16
NOTE 10 – STOCK-BASED COMPENSATION (continued)
Stock Options (continued)
On April 9, 2018, the Board of Directors approved
the issuance of
On August 3, 2018, the Board of Directors granted
the Company’s then Chief Financial Officer and Head of U.S. Operations a total of
On
November 27, 2019, the Board of Directors granted the Company’s Chief Financial Officer
All stock option activities are summarized as follows:
| Option to Acquire Shares | Weighted Average Exercise Price | |||||||
| Stock options outstanding at March 31, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Stock options outstanding at December 31, 2021 | $ | |||||||
Restricted Stock Units
Total
stock-based expenses were $
NOTE 11 – RELATED PARTY TRANSACTIONS
The relationship and the nature of related party transactions are summarized as follow:
| Name of Related Party | Relationship to the Company | Nature of Transactions | ||
| Yukwise Limited (“Yukwise”) | ||||
| Multi-Glory Corporation Limited (“Multi-Glory”) | ||||
| Jiangmen V-Apparel Manufacturing Limited |
17
NOTE 11 – RELATED PARTY TRANSACTIONS (continued)
| a. | Related party lease and purchases agreement |
On
October 3, 2018,
On
July 1, 2020, Jiangmen Treasure Success and Jiangmen V-Apparel Manufacturing Limited entered into a factory lease agreement, which was
a replacement of a previous lease agreement between Treasure Success and Jiangmen V-Apparel Manufacturing Limited dated August 31, 2019,
pursuant to which Treasure Success leased additional space for office and sample production purposes in Jiangmen, China from Jiangmen
V-Apparel Manufacturing Limited for a monthly rent in the amount of CNY
| b. | 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
Pursuant
to a letter agreement dated May 29, 2017, Treasure Success entered into an initial $
In
addition, on June 5, 2017, Treasure Success entered into an Offer Letter - Invoice Discounting/Factoring Agreement, and on August 21,
2017, Treasure Success entered into an Invoice Discounting/Factoring Agreement (together, the “2017 Factoring Agreement”)
with HSBC for certain debt purchase services related to the Company’s accounts receivable. On June 14, 2018, Treasure Success and
Jerash Garments entered into another Offer Letter-Invoice Discounting/Factoring Agreement with HSBC, which amended the 2017 Factoring
Agreement (the “2018 Factoring Agreement, and together with the 2017 Factoring Agreement, the “HSBC Factoring Agreement,”
and together with the HSBC Facility, the “HSBC Credit Facilities”). Pursuant to the HSBC Factoring Agreement, HSBC offered
to provide Treasure Success with a $
The
HSBC Credit Facilities were guaranteed by Jerash Holdings, Jerash Garments, and Treasure Success. In addition, the HSBC Credit Facilities
required cash and other investment security collateral of $
Under
the HSBC Factoring Agreement, HSBC also provided credit protection and debt services related to each of the Company’s preapproved
customers. For any approved debts or collections assigned to HSBC, HSBC charged a flat fee of
18
NOTE 12 – CREDIT FACILITIES (continued)
The HSBC Credit Facilities were subject to review at any time, and HSBC had discretion on whether to renew the HSBC Facility. Either party could terminate the HSBC Factoring Agreement subject to a 30-day notice period.
On
March 30, 2021, HSBC informed Treasure Success that the debts purchase services under the HSBC Factoring Agreement were terminated with
immediate effect. As of December 31, 2021 and March 31, 2021, the Company had made $ and $ in withdrawals under the HSBC Credit
Facilities, which were due within
On
January 31, 2019, Standard Chartered Bank (Hong Kong) Limited (“SCBHK”) offered to provide an import facility of up to $
Starting from May and July 2021, the Company has
participated in a financing program with
NOTE 13 – EARNINGS PER SHARE
The
following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended December 31, 2021
and 2020. As of December 31, 2021,
| Three Months Ended December 31, (in $000s except share and per share information) | Nine months Ended December 31, (in $000s except share and per share information) | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income attributable to Jerash Holdings (US), Inc.’s Common Stockholders | $ | $ | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||||
| Denominator for basic earnings per share (weighted-average shares) | ||||||||||||||||
| Dilutive securities – unexercised RSUs, warrants and options | ||||||||||||||||
| Denominator for diluted earnings per share (adjusted weighted-average shares) | ||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||
NOTE 14 – 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 December 31, 2021 and 2020, outerwear accounted
for approximately
19
NOTE 14 – SEGMENT REPORTING (continued)
The following table summarizes sales by geographic areas for the three months ended December 31, 2021 and 2020, respectively.
| For the three months Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| United States | $ | $ | ||||||
| Jordan | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
The following table summarizes sales by geographic areas for the nine months ended December 31, 2021 and 2020, respectively.
| For the nine months ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| United States | $ | $ | ||||||
| Jordan | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
NOTE 15 – 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
On
July 14, 2021, the Company through its wholly owned subsidiary Jerash Garments, entered into a Sale and Purchase Contract (the “Kawkab
Agreement”) with Kawkab Venus Dowalyah Lisenaet Albesah (the “Seller”). Pursuant to the Kawkab Agreement, the Seller
agreed to sell, and Jerash Garments agreed to purchase,
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.
20
NOTE 16 – INCOME TAX
Jerash
Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and Victory Apparel are subject to the regulations of the
Income Tax Department in Jordan. The corporate income tax rate is
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 of 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 nine months ended December 31, 2021 was
NOTE 17 – ACQUISITION
On October 7, 2021, the Company acquired
NOTE 18 – SUBSEQUENT EVENT
On
February 4, 2022, the Board of Directors approved the payment of a dividend of $
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2021 and in subsequent reports that we file with the U.S. Securities and Exchange Commission (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, 2021, filed with the SEC on June 23, 2021. References to fiscal 2022 and fiscal 2021 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal year ending March 31, 2022, and fiscal year ended March 31, 2021, respectively.
Impact of COVID-19 on Our Business
Collectability of receivables. We had accounts receivable of $8.1 million as of December 31, 2021, out of which $5.7 million had been received through February 7, 2022. Two major customers have started to offer early payment alternatives since May and July 2021, which have shortened payment terms to below 10 days from submission of documents. See “—Liquidity and Capital Resources” for more details.
Inventory. We had inventory of 21.5 million as of December 31, 2021, substantially for orders scheduled to be shipped in fiscal 2022 and early fiscal 2023.
Investments. We acquired two pieces of land in fiscal 2020 for the construction of dormitory and production facilities. Due to the COVID-19 outbreak, management previously decided to hold off the construction to wait for a clearer picture on customer demand. As customer orders recovered to a satisfactory level, in April 2021, management decided to resume the preparation work for the dormitory construction, which is expected to be completed and ready for use in fiscal 2023. In June and July 2021, we entered into two Sale and Purchase Contracts to acquire a garment factory and the physical land and building that the factory was leasing. The acquisition of the garment factory was completed on October 7, 2021. We accounted for the acquisition under the acquisition method of accounting. The operating results of this garment factory since the completion of the acquisition and the assets of this garment factory are included in our unaudited condensed consolidated financial statements as of and for the period ended December 31, 2021. The acquisition of the land and building of the factory is expected to close before the end of March 2022 due to personal reasons of the seller in relation to health and quarantine requirements. See “Note 15—Commitments and Contingencies—Commitments.”
Revenue. For the quarter ended December 31, 2021, our sales were $36.8 million, which represented an approximate 78.2% increase from that of the same period in fiscal 2021. We continue to proactively communicate with our existing customers to reconfirm their orders and shipment schedules for the rest of fiscal 2022. However, the operating results for the rest of fiscal 2022 is still subject to the progress of ongoing reopening of economies in the U.S. and the EU that would significantly impact both order fulfilment and delivery schedules.
22
Liquidity/Going Concern. As of December 31, 2021, we had approximately $33.1 million of cash and net current assets of approximately $68.4 million with a current ratio of 6.4 to 1. In addition, we had banking facilities with aggregate limits of $3.0 million with $Nil outstanding as of December 31, 2021. Given the above, we believe that we will have sufficient financial resources to maintain as a going concern in fiscal 2022. On October 4, 2021, we completed the placement of one million new shares to independent investors with a net proceed of approximately $6.3 million to further bolster our financial position for further growth.
Capital Expenditures. In fiscal 2021, management decided to put on hold the construction projects on the land acquired in fiscal 2020 to retain financial resources to support our operations, and also to wait and see how the global economy and customer demand recover after the COVID-19 pandemic. As customer orders recovered to a satisfactory level, management decided to restart the preparation work for the construction of the dormitory in April 2021. The dormitory is expected to be completed and ready for use in fiscal 2023.
Results of Operations
Three months ended December 31, 2021 and 2020
The following table summarizes the results of our operations during the three-month periods ended December 31, 2021 and 2020, 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 December 31, 2021 | Three Months Ended December 31, 2020 | Period over Period Increase (Decrease) | ||||||||||||||||||||||
| Statement of Income Data: | Amount | As % of Sales | Amount | As % of Sales | Amount | % | ||||||||||||||||||
| Revenue | $ | 36,815 | 100 | % | $ | 20,664 | 100 | % | $ | 16,151 | 78 | % | ||||||||||||
| Cost of goods sold | 29,904 | 81 | % | 18,253 | 88 | % | 11,651 | 64 | % | |||||||||||||||
| Gross profit | 6,911 | 19 | % | 2,411 | 12 | % | 4,500 | 187 | % | |||||||||||||||
| Selling, general and administrative expenses | 4,260 | 12 | % | 2,363 | 11 | % | 1,897 | 80 | % | |||||||||||||||
| Stock-based compensation expenses | 319 | 1 | % | - | 0 | % | 319 | - | % | |||||||||||||||
| Other income (expenses), net | (7 | ) | 0 | % | 66 | 0 | % | (73 | ) | (111 | )% | |||||||||||||
| Net income before taxation | $ | 2,325 | 6 | % | $ | 114 | 1 | % | $ | 2,211 | 1,939 | % | ||||||||||||
| Taxation | 651 | 1 | % | 20 | 0 | % | 631 | 3,155 | % | |||||||||||||||
| Net income | $ | 1,674 | 5 | % | $ | 94 | 1 | % | $ | 1,580 | 1,681 | % | ||||||||||||
Revenue. Revenue increased by approximately $16.2 million, or 78%, to $36.8 million, for the three months ended December 31, 2021, from approximately $20.7 million for the same period in fiscal 2021. The increase was mainly due to an increase in export sales to two of our major U.S. customers. Strong recovery in the U.S. markets along with our continued expansion of the cooperation with these two major customers generated substantial order increases. All factories, including MK Garments and Paramount (acquired in mid-2019), are fully booked until July 2022 and were operating at or near capacity during the quarter.
23
The following table outlines the dollar amount and percentage of total sales to our customers for the three months ended December 31, 2021 and 2020, respectively.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Three Months Ended December 31, 2021 | Three Months Ended December 31, 2020 | |||||||||||||||
| Sales | Sales | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| VF Corporation(1) | $ | 19,624 | 53 | % | $ | 6,506 | 31 | % | ||||||||
| New Balance | 9,905 | 27 | % | 3,820 | 18 | % | ||||||||||
| Jiangsu Guotai Huasheng Industrial Co (HK)., Ltd | 3,245 | 9 | % | 2,982 | 14 | % | ||||||||||
| Dynamic Design Enterprise, Inc | 2,013 | 5 | % | 3,288 | 16 | % | ||||||||||
| G-III | 1,422 | 4 | % | 1,122 | 5 | % | ||||||||||
| Others | 606 | 2 | % | 2,946 | 16 | % | ||||||||||
| Total | $ | 36,815 | 100 | % | $ | 20,664 | 100 | % | ||||||||
| (1) | A large portion of our products are sold under The North Face brand that is owned by VF Corporation. |
Revenue by Geographic Area
(All amounts, other than percentages, in thousands of U.S. dollars)
| Three Months Ended December 31, 2021 | Three Months Ended December 31, 2020 | Period over Period Increase (decrease) | ||||||||||||||||||||||
| Region | Amount | % | Amount | % | Amount | % | ||||||||||||||||||
| United States | $ | 32,964 | 90 | % | $ | 15,460 | 75 | % | $ | 17,504 | 113 | % | ||||||||||||
| Jordan | 268 | 0 | % | 1,645 | 8 | % | (1,377 | ) | (84 | %) | ||||||||||||||
| Others | 3,583 | 10 | % | 3,559 | 17 | % | 24 | 1 | % | |||||||||||||||
| Total | $ | 36,815 | 100 | % | $ | 20,664 | 100 | % | $ | 16,151 | 78 | % | ||||||||||||
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 in sales to the U.S. of approximately 113% during the three months ended December 31, 2021, was mainly attributable to an increase in sales to two of our major customers in the U.S.
For the three months ended December 31, 2021, aggregate sales to Jordan and other locations, such as Hong Kong and China, decreased by 26% from approximately $5.2 million to $3.9 million from the same period last year as more production capacity has been allocated to export orders, which typically have a higher profit margin.
Cost of goods sold. Following the increase in sales revenue, our cost of goods sold increased by approximately $11.7 million, or 64%, to approximately $29.9 million, for the three months ended December 31, 2021, compared to approximately $18.3 million for the same period in fiscal 2021. As a percentage of revenue, the cost of goods sold decreased by approximately 7% points to 81% for the three months ended December 31, 2021 from 88% for the same period in fiscal 2021. The decrease in cost of goods sold as a percentage of revenue was primarily attributable to a higher proportion of export orders, which typically have a higher profit margin.
For the three months ended December 31, 2021, we purchased 53% and 22% of our garments and raw materials from two major suppliers, respectively. For the three months ended December 31, 2020, we purchased 20% and 11% of our raw materials and garments from two major suppliers, respectively.
Gross profit margin. Gross profit margin was approximately 19% for the three months ended December 31, 2021, which increased by 7% points from the same period in fiscal 2021. The increase in gross profit margin was primarily driven by the higher proportion of export orders, which typically have a higher profit margin.
Selling, general, and administrative expenses. Selling, general, and administrative expenses increased by approximately 94% from approximately $2.4 million for the three months ended December 31, 2020, to approximately $4.6 million for the three months ended December 31, 2021. The increase was primarily due to (i) an increase in headcounts after completion of an acquisition of a subsidiary in October 2021, (ii) the inclusion of approximately $319,000 of stock-based payment expenses, and (iii) increased costs for employing additional migrant workers in the quarter ended December 31, 2021.
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Other income/(expenses), net. Other expenses, net were approximately $7,000 for the three months ended December 31, 2021, as compared to other income, net of approximately $66,000 for the same period in fiscal 2021. The increase in net expenses was primarily due to the absence of a realized gain from short-term investments in the current period, compare with a $60,197 realized gain from short-term investments in the corresponding period of fiscal 2021.
Taxation. Income tax expenses for the three months ended December 31, 2021 were approximately $651,000 compared to income tax expenses of approximately $20,000 for the same period in fiscal 2021. The increase in the effective tax rate mainly resulted from the increase of net income before tax in Jordan, the increase of 2% in the local tax rate in Jordan since January 1, 2021, and the increase in loss in U.S. entities. The effective tax rate increased to 28.0% for the three months ended December 31, 2021, compared to 17.7% for the three months ended December 31, 2020.
Net income. Net income for the three months ended December 31, 2021 was approximately $1.7 million compared to net income of approximately $94,000 for the same period in fiscal 2021. The increase was mainly attributable to the increase in sales and the improvement in the gross profit margin.
Nine months ended December 31, 2021 and 2020
The following table summarizes the results of our operations during the nine-month periods ended December 31, 2021 and 2020, 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)
| Nine Months Ended December 31, 2021 | Nine Months Ended December 31, 2020 | Period over Period Increase (Decrease) | ||||||||||||||||||||||
| Statement of Income Data: | Amount | As % of Sales | Amount | As % of Sales | Amount | % | ||||||||||||||||||
| Revenue | $ | 112,415 | 100 | % | $ | 66,457 | 100 | % | $ | 45,958 | 69 | % | ||||||||||||
| Cost of goods sold | 89,769 | 80 | % | 55,112 | 83 | % | 34,657 | 63 | % | |||||||||||||||
| Gross profit | 22,646 | 20 | % | 11,345 | 17 | % | 11,301 | 100 | % | |||||||||||||||
| Selling, general and administrative expenses | 11,798 | 10 | % | 7,067 | 11 | % | 4,731 | 67 | % | |||||||||||||||
| Stock-based compensation expenses | 635 | 1 | % | 42 | 0 | % | 593 | 1,412 | % | |||||||||||||||
| Other income (expense), net | (45 | ) | 0 | % | 126 | 0 | % | (171 | ) | (136 | %) | |||||||||||||
| Net income before taxation | $ | 10,168 | 9 | % | $ | 4,362 | 6 | % | $ | 5,806 | 133 | % | ||||||||||||
| Taxation | 2,119 | 2 | % | 894 | 1 | % | 1,225 | 137 | % | |||||||||||||||
| Net income | $ | 8,049 | 7 | % | $ | 3,468 | 5 | % | $ | 4,581 | 132 | % | ||||||||||||
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Revenue. Revenue increased by approximately $46.0 million, or 69%, to $112.4 million, for the nine months ended December 31, 2021, from approximately $66.5 million for the same period in fiscal 2021. The increase was mainly due to the increase in export sales to two of our major customers in the U.S. Strong recovery in the U.S. markets along with our continued expansion of the cooperation with these two major customers generated substantial order increases. All factories, including MK Garments and Paramount (acquired in mid-2019), are fully booked until July 2022 and were operating at or near capacity during the first nine months of the fiscal year.
The following table outlines the dollar amount and percentage of total sales to our customers for the nine months ended December 31, 2021 and 2020, respectively.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Nine Months Ended December 31, 2021 | Nine Months Ended December 31, 2020 | |||||||||||||||
| Sales | Sales | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| VF Corporation(1) | $ | 76,308 | 68 | % | $ | 41,124 | 62 | % | ||||||||
| New Balance | 25,589 | 23 | % | 6,592 | 10 | % | ||||||||||
| Jiangsu Guotai Huasheng Industrial Co (HK)., Ltd | 3,245 | 3 | % | 2,982 | 4 | % | ||||||||||
| G-III | 2,434 | 2 | % | 2,400 | 4 | % | ||||||||||
| Dynamic Design Enterprise, Inc | 2,207 | 2 | % | 3,529 | 5 | % | ||||||||||
| Soriana | 1,487 | 1 | % | - | 0 | % | ||||||||||
| Others | 1,145 | 1 | % | 9,830 | 15 | % | ||||||||||
| Total | $ | 112,415 | 100 | % | $ | 66,457 | 100 | % | ||||||||
| (1) | A large portion of our products are sold under The North Face brand that is owned by VF Corporation. |
Revenue by Geographic Area
(All amounts, other than percentages, in thousands of U.S. dollars)
| Nine Months Ended December 31, 2021 | Nine Months Ended December 31, 2020 | Period over Period Increase (decrease) | ||||||||||||||||||||||
| Region | Amount | % | Amount | % | Amount | % | ||||||||||||||||||
| United States | $ | 106,657 | 95 | % | $ | 56,452 | 85 | % | $ | 50,205 | 89 | % | ||||||||||||
| Jordan | 569 | 0 | % | 5,074 | 8 | % | (4,505 | ) | (89 | %) | ||||||||||||||
| Others | 5,189 | 5 | % | 4,931 | 7 | % | 258 | 5 | % | |||||||||||||||
| Total | $ | 112,415 | 100 | % | $ | 66,457 | 100 | % | $ | 45,958 | 69 | % | ||||||||||||
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 89% in sales to the U.S. during the nine months ended December 31, 2021 was mainly attributable to the increase in the export sales to two of our major customers in the U.S.
During the nine months ended December 31, 2021, aggregate sales to Jordan and other locations, such as Hong Kong and China, decreased by 42% from approximately $10.0 million to $5.8 million from the same period last year as more production capacity has been allocated to export orders, which typically have a higher profit margin.
Cost of goods sold. Following the increase in sales revenue, our cost of goods sold increased by approximately $34.7 million, or 63%, to approximately $89.8 million for the nine months ended December 31, 2021 from approximately $55.1 million for the same period in fiscal 2021. As a percentage of revenue, the cost of goods sold decreased by approximately 3% points to 80% for the nine months ended December 31, 2021 from 83% for the same period in fiscal 2021. The decrease in cost of goods sold as a percentage of revenue was primarily attributable to the higher proportion of export orders, which typically have a higher profit margin.
For the nine months ended December 31, 2021, we purchased 20% and 10% of our garments and raw materials from two major suppliers, respectively. For the nine months ended December 31, 2020, we purchased 14% and 11% of our raw materials and garments from two major suppliers, respectively.
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Gross profit margin. Gross profit margin was approximately 20% for the nine months ended December 31, 2021, which increased by 3% points from 17% for the same period in fiscal 2021. The increase in gross profit margin was primarily driven by a higher proportion of export orders, which typically have a higher profit margin.
Selling, general, and administrative expenses. Selling, general, and administrative expenses increased by approximately 75% from approximately $7.1 million for the nine months ended December 31, 2020, to approximately $12.4 million for the nine months ended December 31, 2021. The increase was primarily due to (i) increased costs for employing additional migrant workers, (ii) the inclusion of approximately $0.6 million of stock-based payment expenses, and (iii) an increase in headcounts from the completion of acquisition of a subsidiary in October 2021.
Other income / (expenses), net. Other expenses, net were approximately $45,000 for the nine months ended December 31, 2021, as compared to other income, net of approximately $126,000 for the same period in fiscal 2021. The increase in net expenses was primarily due to the absence of a realized gain from short-term investments in the current period, compare with a $124,889 realized gain from short-term investments in the corresponding period of fiscal 2021.
Taxation. Income tax expenses for the nine months ended December 31, 2021 were approximately $2.1 million compared to income tax expenses of approximately $900,000 for the same period in fiscal 2021. The increase in the effective tax rate mainly resulted from the higher loss in China and U.S. The effective tax rate was up to 20.8% for the nine months ended December 31, 2021, compared to 20.5% for the nine months ended December 31, 2020.
Net income. Net income for the nine months ended December 31, 2021 was approximately $8.0 million compared to net income of approximately $3.5 million for the same period in fiscal 2021. The increase was mainly attributable to the increase in sales and the improvement in the gross profit margin discussed above.
Liquidity and Capital Resources
We are a holding company incorporated in Delaware. As a holding company, we rely on dividends and other distributions from our Jordanian subsidiaries to satisfy our liquidity requirements. Current Jordanian regulations permit our Jordanian subsidiaries and variable interest entity (“VIE”) 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 and VIE 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 and VIE (which generate revenue) to meet our obligations to date. To the extent payments are due in U.S. dollars, we have occasionally paid such amounts in JOD to an entity controlled by our management capable of paying such amounts in U.S. dollars. Such transactions have been made at prevailing exchange rates and have resulted in immaterial losses or gains on currency exchange but no other profit.
As of December 31, 2021, we had cash of approximately $33.1 million and restricted cash of approximately $1.3 million, compared to cash of approximately $21.1 million and restricted cash of approximately $1.7 million as of March 31, 2021. The increase in total cash was mainly a result of (i) the completion of a placement in October 2021 that resulted in net proceeds of approximately $6.3 million, and (ii) the introduction of supply chain finance programs by two of our major customers that reduce payment terms from 60 to 90 days to within 10 days from shipments.
Our current assets as of December 31, 2021 were approximately $68.4 million and our current liabilities were approximately $10.7 million, which resulted in a ratio of approximately 6.4 to 1. As of March 31, 2021, our current assets were approximately $64.7 million and our current liabilities were $14.5 million, resulting in a ratio of 4.5 to 1.
The primary drivers in the increase in current assets were the increase in cash as a result of a share placement completed in October 2021 and the increase in operating profit in the current quarter.
The primary driver in the decrease in current liabilities was the decrease in accounts payable due to the decrease in inventory as of December 31, 2021.
Total equity as of December 31, 2021 was approximately $70.0 million, compared to $56.7 million as of March 31, 2021.
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We had net working capital of $57.7 million and $50.1 million as of December 31, 2021, and March 31, 2021, 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 of this Quarterly Report. On October 4, 2021, we completed the placement of one million new shares to independent investors with a net proceed of approximately $6.3 million to further bolster our financial position for further growth.
Since May and October 2021, we have participated in supply chain financing programs of two of our major customers, respectively. The programs allow us to receive early payments for approved sales invoices submitted by us through the bank the customer cooperates with. For any early payments received, we are subject to an early payment charge imposed by the customer’s bank, for which the rate is London Interbank Offered Rate (“LIBOR”) plus a spread. The arrangement allows us to have better liquidity without the need to incur administrative charges and handling fees as in bank financing.
We have funded our working capital needs from 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
SCBHK Facility Letter
Pursuant to the Standard Chartered Hong Kong (“SCBHK”) facility letter dated June 15, 2018, and issued to Treasure Success by SCBHK, SCBHK offered to provide an import facility of up to $3.0 million to Treasure Success. The SCBHK facility covers import invoice financing and pre-shipment financing under export orders with a combined limit of $3 million. Borrowings under the SCBHK facility are due within 90 days of each invoice or financing date. SCBHK charges interest at 1.3% per annum over SCBHK’s cost of funds. In consideration for arranging the SCBHK facility, Treasure Success paid SCBHK HKD50,000. We were informed by SCBHK on January 31, 2019 that the SCBHK facility had been activated. As of December 31, 2021, there was no outstanding balance under the SCBHK facility.
Nine months ended December 31, 2021 and 2020
The following table sets forth a summary of our cash flows for the periods indicated:
(All amounts in thousands of U.S. dollars)
| Nine months ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Net cash provided by operating activities | $ | 14,574 | $ | 3,705 | ||||
| Net cash used in investing activities | (7,062 | ) | (519 | ) | ||||
| Net cash provided by (used in) financing activities | 3,907 | (892 | ) | |||||
| Effect of exchange rate changes on cash | 122 | 17 | ||||||
| Net increase in cash | 11,541 | 2,311 | ||||||
| Cash, beginning of nine-month period | 22,862 | 26,917 | ||||||
| Cash, end of nine-month period | $ | 34,403 | $ | 29,228 | ||||
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Operating Activities
Net cash provided by operating activities was approximately $14.6 million for the nine months ended December 31, 2021, compared to cash provided by operating activities of approximately $3.7 million for the same period in fiscal 2021. The increase in net cash provided in operating activities was primarily attributable to the following factors:
| ● | a decrease in inventory of $3.6 million during the nine months ended December 31, 2021, compared to a decrease of $3.4 million in the same period in fiscal 2021; |
| ● | a decrease in accounts receivable of $3.7 million during the nine months ended December 31, 2021, compared to an increase of $5.0 million in the same period in fiscal 2021; |
| ● | an increase in prepaid expenses and other current assets of $0.9 million, compared to a decrease of $0.2 million the same period in fiscal 2021; |
| ● | a decrease in advance to suppliers of $1.2 million, compared to an increase of $2.0 million in the same period in fiscal 2021; |
| ● | a decrease in accounts payable of $5.0 million during the nine months ended December 31, 2021, compared to an increase of $1.6 million in the same period in fiscal 2021; and |
| ● | an increase of net income to $8.0 million during the nine months ended December 31, 2021 from a net income of $3.5 million in the same period in fiscal 2021. |
Investing Activities
Net cash used in investing activities was approximately $7.1 million for the nine months ended December 31, 2021, compared to approximately $0.5 million in the same period in fiscal 2021. The net cash used in investing activities during the nine months ended December 31, 2021 included amounts paid for the acquisition of a garment factory and the deposit paid for the acquisition of the factory building and the land, the construction of dormitory and production facilities, and the acquisitions of properties and machineries.
Financing Activities
Net cash provided by financing activities was approximately $3.9 million for the nine months ended December 31, 2021, from the net proceeds of $6.3 million in a placement completed in October 2021 and outflows of dividend payments of approximately $1.8 million and repayments of short-term loans of approximately $0.6 million. There was a net cash outflow of $0.9 million in the same period in fiscal 2021 resulting from dividend payments and proceeds from short-term loans.
Statutory Reserves
In accordance with the corporate laws in Jordan, our subsidiaries and VIE in Jordan are required to make appropriations to certain reserve funds, based on net income determined in accordance with generally accepted accounting principles in 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 $346,000 and $212,739 as of December 31, 2021 and 2020, respectively.
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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 December 31, 2021 and 2020.
(All amounts, other than percentages, in thousands of U.S. dollars)
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Statutory Reserves | $ | 346 | $ | 213 | ||||
| Total Restricted Net Assets | $ | 346 | $ | 213 | ||||
| Consolidated Net Assets | $ | 70,020 | $ | 56,580 | ||||
| Restricted Net Assets as Percentage of Consolidated Net Assets | 0.49 | % | 0.38 | % | ||||
Total restricted net assets accounted for approximately 0.50% of our consolidated net assets as of December 31, 2021. As our subsidiaries and VIE in Jordan are only required to set aside 10% of net profits to fund the statutory reserves, we believe the potential impact of such restricted net assets on our liquidity is limited.
Capital Expenditures
We had capital expenditures of approximately $5.0 million and approximately $553,000 for the nine months ended December 31, 2021 and 2020, respectively, mainly for plant and machinery and properties. Additions in plant and machinery amounted to approximately $1.9 million and $502,000 for the nine months ended December 31, 2021 and 2020, respectively. Additions to properties and leasehold improvements amounted to approximately $2.3 million and $2,000 for the nine months ended December 31, 2021 and 2020, respectively.
In 2015, we commenced a project to build a 4,800 square foot workshop in the Tafilah Governorate of Jordan, which was initially intended to be used as a sewing workshop for Jerash Garments, but which we now intend to use as a dormitory to house management and supervisory staff for the 54,000 square foot workshop in Al-Hasa County. Construction was temporarily suspended in March 2020 due to the COVID-19 pandemic but subsequently completed, and the building was ready for use as of September 30, 2021.
In 2018, we commenced another project to build a 54,000 square foot workshop in Al-Hasa County in the Tafilah Governorate of Jordan, which started operation in November 2019 with approximately 240 workers. Provided that we satisfy certain employment requirements over certain time periods, we do not anticipate incurring any significant costs for the project, which was constructed in conjunction with the Jordanian Ministry of Labor and the Jordanian Education and Training Department. In the event we breach our agreement with these government agencies, we will have to pay such agencies JOD250,000, or approximately $353,000.
On August 7, 2019, we completed a transaction to acquire 12,340 square meters (approximately three acres) of land in Al Tajamouat Industrial City, Jordan, from a third party to construct a dormitory for our employees with aggregate purchase price JOD863,800 (approximately $1,218,303). Management has revised the plan to construct both dormitory and production facilities on the land in order to capture the increasing demand for our capacity. We are conducting engineering design and study on this project and we plan to begin construction in early 2022. On February 6, 2020, we completed a transaction to acquire 4,516 square meters (approximately 48,608 square feet) of land in Al Tajamouat Industrial City, Jordan, from a third party to construct a dormitory for our employee with aggregate purchase price JOD313,501 (approximately $442,162). We expect to spend approximately $8.2 million in capital expenditures to build the dormitory. Due to the ongoing COVID-19 pandemic, management decided to put on hold the construction project in fiscal 2021 to retain financial resources to support our operations, and also to wait and see how the global economy and customer demand recover after the outbreak. The preparation work resumed in early 2021 and construction work commenced in April 2021. The dormitory is expected to be completed and ready for use in fiscal 2023.
We project that there will be an aggregate of approximately $21 million and $14 million of capital expenditures in the fiscal years ending March 31, 2023 and 2024, respectively, for further enhancement of production capacity to meet future sales growth. We expect that our capital expenditures will increase in the future as our business continues to develop and expand. We have used cash generated from operations of our subsidiaries and VIE to fund our capital commitments in the past and anticipate using such funds to fund capital expenditure commitments in the future.
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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 shareholders’ equity, or that are not reflected in our consolidated financial statements.
Critical Accounting Policies
We prepare our 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 believe that our accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations are summarized in “Note 2—Summary of Significant Accounting Policies” in the notes to our unaudited condensed consolidated financial statements.
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 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.
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 December 31, 2021, concluded that our disclosure controls and procedures were effective as of that date.
Changes in 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 December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 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 and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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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 | S-1 | 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 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statements of Changes in Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags | — | — | — | 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. |
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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: February 11, 2022 | Jerash Holdings (US), Inc. | |
| By: | /s/ Gilbert K. Lee | |
| Gilbert K. Lee | ||
| Chief Financial Officer (Principal Financial Officer) | ||
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