NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Jerash
Holdings (US), Inc. (“Jerash Holdings”) is a corporation incorporated under the laws of the State of Delaware on January
20, 2016. Jerash Holdings is a parent holding company with no operations. Jerash Holdings, and its subsidiaries and 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 150,000 Jordanian Dinar (“JOD”) (approximately US$212,000) as of September 30,
2020.
Jerash
for Industrial Embroidery Company (“Jerash Embroidery”) and Chinese Garments and Fashions Manufacturing Company Limited
(“Chinese Garments”) were both incorporated in Amman, Jordan, as limited liability companies on March 11, 2013 and
June 13, 2013, respectively, each with a declared capital of JOD50,000 as of September 30, 2020. Jerash Embroidery and Chinese
Garments are wholly owned subsidiaries of Jerash Garments.
Al-Mutafaweq
Co. for Garments Manufacturing Ltd. (“Paramount”) was a contract garment manufacturer that was incorporated in Amman,
Jordan, as a limited liability company on October 24, 2004 with a declared capital of JOD100,000. On December 11, 2018, Jerash
Garments and the sole stockholder of Paramount entered into an agreement pursuant to which Jerash Garments acquired all of the
outstanding shares of stock of Paramount. Jerash Garments assumed ownership of all of the machinery and equipment owned by Paramount.
Paramount had no other significant assets or liabilities and no operating activities or employees at the time of this acquisition,
so this transaction was accounted for as an asset acquisition. As of June 18, 2019, Paramount became a subsidiary of Jerash Garments.
Jerash
the First for Medical Supplies Manufacturing Company Limited (“Jerash the First”) was incorporated in Amman, Jordan,
as a limited liability company on July 6, 2020, with a registered capital of JOD150,000. Jerash the First is engaged in the production
of medical supplies in Jordan and is a wholly owned subsidiary of Jerash Garments.
Treasure
Success International Limited (“Treasure Success”) was incorporated on July 5, 2016 in Hong Kong, China, for the primary
purpose of employing staff from China to support Jerash Garments’ operations and is a wholly-owned subsidiary of Jerash
Holdings.
Victory
Apparel (Jordan) Manufacturing Company Limited (“Victory Apparel”) was incorporated as a limited liability company
in Amman, Jordan, on September 18, 2005 with a declared capital of JOD50,000. Victory Apparel has no significant assets or liabilities
or other operating activities of its own. Although Jerash Garments does not own the equity interest of Victory Apparel, the Company’s
president, director, and significant stockholder, Mr. Choi Lin Hung (“Mr. Choi”), is also a director of Victory Apparel
and controls all decision-making for Victory Apparel along with another significant stockholder of Jerash Garments, Mr. Lee Kian
Tjiauw (“Mr. Lee”), who has the ability to control Victory Apparel’s financial affairs. In addition, Victory
Apparel’s equity at risk is not sufficient to permit it to operate without additional subordinated financial support from
Jerash Garments. Based on these facts, the Company concluded that Jerash Garments has effective control over Victory Apparel due
to Mr. Choi’s roles at both organizations and therefore Victory Apparel is considered a VIE under Accounting Standards Codification
(“ASC”) 810-10-05-08A. Accordingly, Jerash Garments consolidates Victory Apparel’s operating results, assets,
and liabilities.
Jiangmen
Treasure Success Business Consultancy Company Limited (“Jiangmen Treasure Success”) was incorporated on August 28,
2019 under the laws of the People’s Republic of China (“China”) in Guangzhou City of Guangdong Province in China
with a total registered capital of 3 million Hong Kong Dollars (“HKD”) (approximately $385,000) to provide support
in sales and marketing, sample development, merchandising, procurement, and other areas. Treasure Success owns 100% of the equity
interests in Jiangmen Treasure Success.
The
Company is engaged in the manufacturing and exporting of customized, ready-made sport and outerwear from knitted fabric produced
in its facilities in Jordan and sold in the United States, Jordan, and other countries.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in
the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission (the “SEC”).
Principles
of Consolidation
The
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 six months ended September 30, 2020, and the net assets of the
VIE were approximately $0.3 million as of each of September 30, 2020 and March 31, 2020.
Use
of Estimates
The
preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.
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 considers all highly liquid investment instruments with an original maturity of three months or less from the original
date of purchase to be cash equivalents. As of September 30, 2020, and March 31, 2020, 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 non-current asset since the Company has no intention to terminate these bank facilities within one year.
Short-term
Investments
The Company’s short-term investments
consist of financial products purchased from banks. The bank invests the Company’s funds in certain financial instruments
including money market funds, bonds, and mutual funds, with an expected annual return of 5%. 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 operations and comprehensive income (loss) over the contractual terms of these investments. The Company exited the
investment before September 30, 2020.
The
Company had short-term investments of $Nil and $Nil as of September 30, 2020 and 2019, respectively. The Company recorded a realized
gain of $64,692 and $Nil for the six months ended September 30, 2020 and 2019, respectively.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts
Receivable
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 receivable 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. An allowance was recorded totaling $45,167 and $4,641 as of September 30, 2020
and March 31, 2020, respectively.
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
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 collectability of the advance becomes doubtful. The Company uses the aging
method to estimate the allowance for uncollectible 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. Allowance was $13,396 and $2,000 as of September 30, 2020 and March
31, 2020 respectively.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost, reduced by accumulated depreciation and amortization. Depreciation and amortization
expense related to property, plant and equipment is computed using the straight-line method based on estimated useful lives of
the assets, or in the case of leasehold improvements, the shorter of the initial lease term or the estimated useful life of the
improvements. The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation
are consistent with the expected pattern of economic benefits from items of property, plant and equipment. The estimated useful
lives of depreciation and amortization of the principal classes of assets are as follows:
|
Useful
life
|
Land
|
Infinite
|
Property and buildings
|
15
years
|
Equipment and machinery
|
3-5
years
|
Office and electronic
equipment
|
3-5
years
|
Automobiles
|
5
years
|
Leasehold improvements
|
Lesser
of useful life and lease term
|
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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment
of Long-Lived Assets
The
Company assesses its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset group may not be recoverable. Factors which may indicate potential impairment include
a significant underperformance relative to the historical or projected future operating results or a significant negative industry
or economic trend. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to the future undiscounted cash flows expected to be generated by that asset. If impairment is indicated, a loss is recognized
for any excess of the carrying value over the estimated fair value of the asset. The fair value is estimated based on the discounted
future cash flows or comparable market values, if available. The Company did not record any impairment loss during the six months
ended September 30, 2020 and 2019.
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 personal protective equipment. 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, and 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, and the contracts do not have significant financing components. Shipping and handling costs associated with outbound
freight 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 orders to the Company,
and the 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 six months ended September
30, 2020 and 2019, there was no revenue recognized from performance obligations related to prior periods. As of September 30,
2020, there was no revenue expected to be recognized in any future periods related to remaining performance obligations.
The
Company has one revenue generating reportable geographic segment under ASC Topic 280 “Segment Reporting” and derives
its sales primarily from its sales of customized ready-made outerwear. The Company believes disaggregation of revenue by geographic
region best depicts the nature, amount, timing, and uncertainty of its revenue and cash flows (see “Note 14—Segment
Reporting”).
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 $360,217 and $292,354 for the three months ended September 30, 2020 and 2019, respectively. Total shipping
and handling expenses were $544,130 and $501,136 for the six months ended September 30, 2020 and 2019, respectively.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income
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 is incorporated in the State of Delaware and is subject to federal income tax in the United
States of America. Treasure Success is registered in Hong Kong and has no operating 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. The corporate income tax rate
is 14% for the businesses classified within the industrial sector. In accordance with the Investment Encouragement Law, Jerash
Garments’ export sales to overseas customers were entitled to a 100% income tax exemption for a period of 10 years commencing
on the first day of production. This exemption had been extended for five years until December 31, 2018. Effective January 1,
2019, the Jordanian government changed some features of its tax incentive programs and Jerash Garments and its subsidiaries and
VIE are now qualified for incentives applicable to an industrial park that houses manufacturing operations in Jordan (“Development
Zone”), a change from the previous incentive program relating to Qualifying Industrial Zone. In accordance with Development
Zone law, Jerash Garments and its subsidiaries and VIE were subject to corporate income tax in Jordan at a rate of 10% plus a
1% social contribution. Effective January 1, 2020, that rate increased to 14% plus a 1% social contribution.
Jerash
Garments and its subsidiaries and VIE are subject to local sales tax of 16% on purchases. Jerash Garments was granted a sales
tax exemption from the Jordanian Investment Commission for the period from June 1, 2015 to June 1, 2018 that allowed Jerash Garments
to make purchases with no sales tax charge. This exemption has been extended to February 5, 2021.
The
Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” which requires the Company to use the
asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized
for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences
between financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit
carry forwards. Under this accounting standard, the effect on deferred income taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that
some portion, or all of, a deferred tax asset will not be realized.
ASC
740 clarifies the accounting for uncertainty in tax positions. This interpretation requires that an entity recognize in its financial
statements the impact of a tax position, if that position is more likely than not 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
50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs. The Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required,
as part of income tax expense in the consolidated statements of income and comprehensive income. No significant uncertainty in
tax positions relating to income taxes were incurred during six months ended September 30, 2020 and 2019.
Foreign
Currency Translation
The
reporting currency of the Company is the U.S. dollar (“US$” or “$”). The Company uses JOD as its functional
currency in Jordanian companies, HKD in Treasure Success, and Chinese Yuan (“CNY”) in Jiangmen Treasure Success as
functional currency of each abovementioned entity. The assets and liabilities of the Company have been translated into US$ 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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency Translation (Continued)
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. The following table outlines the currency exchange rates that were used in creating the consolidated
financial statements in this report:
|
|
September
30,
2020
|
|
March
31,
2020
|
Period-end
spot rate
|
|
US$1=JOD0.7090
|
|
US$1=JOD0.7090
|
|
|
US$1=HKD7.7501
|
|
US$1=HKD7.7529
|
|
|
US$1=CNY6.8033
|
|
US$1=CNY7.0896
|
Average
rate
|
|
US$1=JOD0.7090
|
|
US$1=JOD0.7090
|
|
|
US$1=HKD7.7510
|
|
US$1=HKD7.8163
|
|
|
US$1=CNY7.0012
|
|
US$1=CNY6.9642
|
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 sock option is the period of time that the warrant or 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 share-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 comparable public company volatility 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 are valued using the anticipated dividend yield.
|
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”).
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 payable, other
payables, and operating lease liabilities to approximate the fair value of the respective assets and liabilities at September
30, 2020 and March 31, 2020 based upon the short-term nature of these assets and liabilities.
Concentrations
and Credit Risk
Credit
risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. As
of September 30, 2020, and March 31, 2020, respectively, $8,678,214 and $6,894,641 of the Company’s cash was on
deposit at financial institutions in Jordan, where there currently is no rule or regulation requiring such financial
institutions to maintain insurance to cover bank deposits in the event of bank failure. As of September 30, 2020 and March
31, 2020, respectively, $9,941 and $125,830 of the Company’s cash was on deposit at financial institutions in China,
where there currently is no rule or regulation requiring such financial institutions to maintain insurance to cover bank
deposits in the event of bank failure. As of September 30, 2020 and March 31, 2020, respectively, $19,358,851 and $19,847,852
of the Company’s cash was on deposit at financial institutions in Hong Kong, which are insured by the Hong Kong Deposit
Protection Board subject to certain limitations. While management believes that these financial institutions are of high
credit quality, it also continually monitors their credit worthiness. As of September 30, 2020 and March 31, 2020,
respectively, $73,385 and $48,386 of the Company’s cash was on deposit in the United States and are insured by the
Federal Deposit Insurance Corporation up to $250,000.
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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations and Credit Risk (Continued)
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 exporting business, foreign
exchange rate fluctuations, and changes in local market conditions. The Company has a concentration of its revenue and purchases
with specific customers and suppliers. For the three months ended September 30, 2020 and 2019, one end-customer accounted for 74%
and 87% of the Company’s total revenue, respectively. For the six months ended September 30, 2020 and 2019, one end-customer
accounted for 76% and 91% of the Company’s total revenue, respectively. As of September 30, 2020, one end-customers accounted
for 78% of the Company’s total accounts receivable balance. As of March 31, 2020, four end-customers accounted for 42%, 20%,
20%, and 14% of the Company’s total accounts receivable balance, respectively.
For
the three months ended September 30, 2020, the Company purchased approximately 20% of its garments from one major supplier. For
the six months ended September 30, 2020, the Company purchased approximately 12% of its garments from one major supplier. For
the three months ended September 30, 2019, the Company purchased 18% and 13% of its raw materials from two major suppliers, respectively.
For the six months ended September 30, 2019, the Company purchased approximately 24% and 11% of its raw materials from two major
suppliers, respectively. As of September 30, 2020, accounts payable to the Company’s one major suppliers accounted for 47%
of the total accounts payable balance. As of March 31, 2020, accounts payable to the Company’s three major suppliers accounted
for 39%, 16%, and 10% of the total accounts payable balance, respectively.
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 sales declined in the first half of fiscal
2021. There is 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. Based on the assessment of the current economic environment, customer demand,
and sales trend, and the negative impact from the prolonged COVID-19 outbreak and spread, the Company’s revenue and operating
cash flows may be lower than expected for fiscal year 2021.
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. This ASU is effective for interim
and annual periods beginning after December 15, 2019. For all other entities, this guidance and its amendments will be effective
for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application will
be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
As an emerging growth company, the Company plans to adopt this guidance effective April 1, 2023. The Company is currently evaluating
the impact of adopting ASU 2016-13 on its consolidated financial statements.
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
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 does not expect adoption
of the new guidance to have a significant impact on its consolidated financial statements.
NOTE
4 – ACCOUNTS RECEIVABLE, NET
Accounts
receivable consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
2020
|
|
|
March 31,
2020
|
|
Trade accounts receivable
|
|
$
|
19,969,559
|
|
|
$
|
5,340,389
|
|
Less: allowances for doubtful accounts
|
|
|
(45,167
|
)
|
|
|
(4,641
|
)
|
Accounts receivable, net
|
|
$
|
19,924,392
|
|
|
$
|
5,335,748
|
|
NOTE
5 – INVENTORIES
Inventories
consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
2020
|
|
|
March 31,
2020
|
|
Raw materials
|
|
$
|
4,614,464
|
|
|
$
|
12,499,301
|
|
Work-in-progress
|
|
|
377,627
|
|
|
|
1,541,716
|
|
Finished goods
|
|
|
5,312,789
|
|
|
|
8,592,755
|
|
Total inventory
|
|
$
|
10,304,880
|
|
|
$
|
22,633,772
|
|
NOTE
6 – ADVANCE TO SUPPLIERS
Advance
to suppliers consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
2020
|
|
|
March 31,
2020
|
|
Advance to suppliers
|
|
$
|
2,807,178
|
|
|
$
|
2,118,367
|
|
Less: allowances for doubtful accounts
|
|
|
(13,396
|
)
|
|
|
(2,000
|
)
|
Advance to suppliers, net
|
|
$
|
2,793,782
|
|
|
$
|
2,116,367
|
|
NOTE
7 – LEASES
The
Company has 35 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:
|
|
September 30,
2020
|
|
Right-of-use assets
|
|
$
|
952,900
|
|
|
|
|
|
|
Operating lease liabilities - current
|
|
$
|
218,583
|
|
Operating lease liabilities - non-current
|
|
|
555,144
|
|
Total operating lease liabilities
|
|
$
|
773,727
|
|
The
weighted average remaining lease terms and discount rates for all of operating leases were as follows as of September 30, 2020:
Remaining lease term and discount rate:
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
2.9
|
|
Weighted average discount rate
|
|
|
4.06
|
%
|
During
the three months ended September 30, 2020 and 2019, the Company incurred total operation lease expenses of $535,568 and $402,950,
respectively. During the six months ended September 30, 2020 and 2019, the Company incurred total operation lease expenses of
$1,047,341 and $945,735, respectively.
The
following is a schedule, by fiscal years, of maturities of lease liabilities as of September 30, 2020:
2021
|
|
$
|
203,279
|
|
2022
|
|
|
372,363
|
|
2023
|
|
|
248,297
|
|
2024
|
|
|
186,854
|
|
Total lease payments
|
|
|
1,010,793
|
|
Less: imputed interest
|
|
|
(57,893
|
)
|
Less: prepayments
|
|
|
(179,173
|
)
|
Present value of lease
liabilities
|
|
$
|
773,727
|
|
NOTE
8 – PROPERTY, PLANT AND EQUIPMENT, NET
Property,
plant and equipment, net consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
2020
|
|
|
March 31,
2020
|
|
Land (1)
|
|
$
|
1,831,192
|
|
|
$
|
1,831,192
|
|
Property and buildings
|
|
|
432,562
|
|
|
|
432,562
|
|
Equipment and machinery (2)
|
|
|
8,029,899
|
|
|
|
7,630,255
|
|
Office and electric equipment
|
|
|
808,088
|
|
|
|
793,405
|
|
Automobiles
|
|
|
492,976
|
|
|
|
480,687
|
|
Leasehold improvements
|
|
|
2,767,274
|
|
|
|
2,765,610
|
|
Subtotal
|
|
|
14,361,991
|
|
|
|
13,933,711
|
|
Construction in progress (3)
|
|
|
194,752
|
|
|
|
194,752
|
|
Less: Accumulated depreciation and amortization (4)
|
|
|
(8,783,584
|
)
|
|
|
(7,954,299
|
)
|
Property and equipment, net
|
|
$
|
5,773,159
|
|
|
$
|
6,174,164
|
|
(1)
|
On
August 7, 2019 and February 6, 2020, the Company, through Jerash Garments, purchased 12,340 square meters (approximately three
acres) and 4,516 square meters (approximately 48,608 square feet) of land in Al Tajamouat Industrial City, Jordan (the “Jordan
Properties”), from third parties to construct a factory and a dormitory for the Company’s employees, respectively.
The aggregate purchase price of the Jordan Properties was JOD1,177,301 (approximately US$1.7 million).
|
(2)
|
On
June 18, 2019, the Company acquired all of the outstanding shares of Paramount, a contract manufacturer based in Amman, Jordan.
As a result, Paramount became a subsidiary of Jerash Garments, and the Company assumed ownership of all of the machinery and
equipment owned by Paramount. Paramount had no other significant assets or liabilities and no operating activities or employees
at the time of acquisition, so this transaction was accounted for as an asset acquisition. $980,000 was paid in cash to acquire
all of the machinery and equipment from Paramount and the machinery and equipment were transferred to the Company.
|
(3)
|
The
construction in progress account represents costs incurred for constructing a dormitory, which was previously planned to be
a sewing workshop. This dormitory is approximately 4,800 square feet in the Tafilah Governorate of Jordan. Construction was
temporarily suspended due to the COVID-19 pandemic. The dormitory
is expected to be completed and ready for use in fiscal 2022.
|
(4)
|
Depreciation
and amortization expenses were $417,231 and $386,136 for the three months ended September 30, 2020 and 2019, respectively.
Depreciation and amortization expenses were $829,285 and $724,778 for the six months ended September 30, 2020 and 2019, respectively.
|
NOTE
9 – EQUITY
Preferred
Stock
The Company had 500,000 shares of preferred
stock authorized with a par value of $0.001 per share; none were issued and outstanding as of September 30, 2020 and March 31,
2020. The preferred stock can be issued by the board of directors of Jerash Holdings (the “Board of Directors”) in
one or more classes or one or more series within any class, and such classes or series shall have such voting powers, full or
limited, or no voting powers, and such designations, preferences, rights, qualifications, limitations, or restrictions of such
rights as the Board of Directors may determine from time to time.
Common
Stock
The
Company had 11,325,000 shares common stock outstanding as of September 30, 2020 and March 31, 2020.
NOTE
9 – EQUITY (Continued)
Statutory
Reserve
In accordance with the Corporate Law in
Jordan, Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash the First, 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. 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. This reserve is not available for dividend distribution. In addition, PRC companies are required
to set aside at least 10% of their after-tax net profits each year, if any, to fund the statutory reserves until the balance of
the reserves reaches 50% of their registered capital. The statutory reserves are not distributable in the form of cash dividends
to the Company and can be used to make up cumulative prior year losses. The Company’s subsidiaries and VIE have already reserved
the maximum amount required.
Dividends
On
August 5, 2020, the Board of Directors declared a cash dividend of $0.05 per share of common stock. Cash dividends of $566,250
to the stockholders of the Company were paid in full on August 24, 2020.
On
May 15, 2020, the Board of Directors declared a cash dividend of $0.05 per share of common stock. Cash dividends of $566,250 to
the stockholders of the Company were paid in full on June 2, 2020.
On
each of February 5, 2020, November 4, 2019, July 29, 2019, and May 17, 2019, the Board of Directors declared cash dividends of
$0.05 per share of common stock. Cash dividends of $566,250 to the stockholders of the Company were paid in full on February 26,
2020, November 26, 2019, August 19, 2019, and June 5, 2019, respectively.
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.
Simultaneous
with the closing of the IPO, the Company issued to the underwriter and its affiliates warrants to purchase 57,200 shares of common
stock (“IPO Underwriter Warrants”) at an exercise price of $8.75 per share with an expiration date of May 2, 2023.
The shares underlying the IPO Underwriter Warrants were subject to a 180-day lock-up that expired on October 29, 2018.
The fair value of these warrants was estimated
as of the grant date using the Black-Scholes model with the major assumptions that the expected term is five years; risk-free
interest rate is 1.8-2.8%; and the expected volatility is 50.3-52.2%. There were 264,410 warrants outstanding as of September
30, 2020 and March 31, 2020 with a weighted average exercise price of $6.35. All of the outstanding warrants were fully vested
and exercisable as of September 30, 2020 and March 31, 2020.
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. 1,484,250 shares of common stock of the Company were reserved for issuance under the Plan. In
addition, on July 19, 2019, the Board of Directors approved an amendment and restatement of the Plan, which was approved by the
Company’s stockholders at its annual meeting of stockholders on September 16, 2019. The amended and restated Plan increased
the number of shares reserved for issuance under the Plan by 300,000, to 1,784,250, among other changes.
NOTE
10 – STOCK-BASED COMPENSATION (Continued)
On
April 9, 2018, the Board of Directors approved the issuance of 989,500 nonqualified stock options under the Plan to 13 executive
officers and employees of the Company in accordance with the Plan at an exercise price of $7.00 per share, and a term of five
years. The fair value of these options was estimated as of the grant date using the Black-Scholes model with the major assumptions
that expected terms is five years; risk-free interest rate is 2.6%; and the expected volatility is 50.3%. All these outstanding
options were fully vested and exercisable on issue date.
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 150,000 nonqualified stock options under the Plan in accordance with the Plan at an exercise price of $6.12 per share
and a term of 10 years. The fair value of these options was estimated as of the grant date using the Black-Scholes model with
the major assumptions that expected terms is 10 years; risk-free interest rate is 2.95%; and the expected volatility is 50.3%.
All these outstanding options were fully vested and exercisable in August 2019.
On
November 27, 2019, the Board of Directors granted the Company’s Chief Financial Officer 50,000 nonqualified stock options
under the amended and restated Plan in accordance with the amended and restated Plan at an exercise price of $6.50 per share and
a term of 10 years. All these outstanding options were fully vested and exercisable in May 2020.
The
fair value of the options granted on November 27, 2019 was $126,454. It is estimated as of the grant date using the Black-Scholes
model with the following assumptions:
|
|
|
|
|
|
Stock Options
November 27,
2019
|
|
Expected term (in years)
|
|
|
10.0
|
|
Risk-free interest rate (%)
|
|
|
1.77
|
%
|
Expected volatility (%)
|
|
|
48.59
|
%
|
Dividend yield (%)
|
|
|
3.08
|
%
|
All
stock option activities are summarized as follows:
|
|
|
|
|
|
|
|
|
Option to acquire
Shares
|
|
|
Weighted Average
Exercise
Price
|
|
Stock options outstanding at March 31, 2020
|
|
|
1,189,500
|
|
|
$
|
6.87
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Stock options outstanding at September 30, 2020
|
|
|
1,189,500
|
|
|
$
|
6.87
|
|
Total
expense related to the stock options issued was $Nil and $193,955 for the three months ended September 30, 2020 and 2019,
respectively. Total expense related to the stock options issued was $42,151 and $193,955 for the six months ended September
30, 2020 and 2019, respectively. As of September 30, 2020, all outstanding options were fully vested and
exercisable.
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
|
Ford Glory International Limited (“FGIL”)
|
|
Affiliate, subsidiary of Ford Glory Holdings
(“FGH”), which is 49% indirectly owned by the Company’s President, Chief Executive Officer and Chairman,
and a significant stockholder
|
|
Operating Lease
|
|
|
|
|
|
Yukwise Limited (“Yukwise”)
|
|
Wholly owned by the Company’s President,
Chief Executive Officer, and Chairman, and a significant stockholder
|
|
Consulting Services
|
|
|
|
|
|
Multi-Glory Corporation Limited (“Multi-Glory”)
|
|
Wholly owned by a significant stockholder
|
|
Consulting Services
|
|
|
|
|
|
Jiangmen V-Apparel Manufacturing Limited
|
|
Affiliate, subsidiary of FGH
|
|
Operating Lease
|
a.
|
Related party
lease and purchases agreement
|
On
October 3, 2018, Treasure Success and FGIL entered into a lease agreement, pursuant to which Treasure Success leases its office
space in Hong Kong from FGIL for a monthly rent in the amount of HKD119,540 (approximately $15,253) and for a one-year term with
an option to extend the term for an additional year at the same rent. On October 3, 2019, Treasure Success exercised the option
to extend the lease for an additional year at the same rent.
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 leases 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 CNY28,300 (approximately $4,000). The lease
has a one-year term and may be renewed with a one-month notice. The rental amount will be reviewed by and negotiated between both
parties according to the market rental rate annually.
On
July 15, 2019, the Company, through Treasure Success, entered into an agreement to purchase office space together with certain
parking spaces from FGIL for an aggregate purchase price of HKD63,000,000 (approximately $8.1 million). Pursuant to the agreement,
Treasure Success paid an initial deposit of HKD6,300,000 (approximately $0.8 million) upon signing the agreement. On October 31,
2019, this agreement was terminated pursuant to its terms because the conditions precedent to closing under the agreement were
not met. As a result of the termination, on November 7, 2019, FGIL repaid in full, without interest, the deposit Treasure Success
paid at the time the agreement was signed.
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 $300,000 per annum. The agreement renews automatically for
one-month terms. The agreement became effective as of January 1, 2018. Due to the COVID-19 pandemic, Multi-Glory’s compensation
was temporarily reduced to $20,000 per month from May 2020 to August 2020. For the three months ended September 30, 2020 and 2019,
total consulting fees under this agreement were $65,000 and $75,000, respectively. For the six months ended September 30, 2020
and 2019, total consulting fees under this agreement were $130,000 and $150,000, respectively.
NOTE
11 – RELATED PARTY TRANSACTIONS (Continued)
|
b.
|
Consulting agreements
(Continued)
|
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 $300,000 per annum. The agreement renews
automatically for one-month terms. This agreement became effective as of January 1, 2018. Due to the COVID-19 pandemic, Yukwise’s
compensation was temporarily reduced to $20,000 per month from May 2020 to August 2020. For the three months ended September 30,
2020 and 2019, total advisory and management expenses under this agreement were $65,000 and $75,000, respectively. For the six
months ended September 30, 2020 and 2019, total advisory and management expenses under this agreement were $130,000 and $150,000,
respectively.
Borrowings
under the HSBC Credit Facilities (as defined below) were previously secured by the personal guarantees of Mr. Choi and Mr. Ng
Tsze Lun (“Mr. Ng”). These guarantees were released as of August 12, 2019. (See “Note 12—Credit Facilities”).
NOTE
12 – CREDIT FACILITIES
Pursuant to a letter agreement dated May
29, 2017, Treasure Success entered into an $8,000,000 import credit facility with Hong Kong and Shanghai Banking Corporation (“HSBC”)
(the “2017 Facility Letter”), which was first amended pursuant to a letter agreement between HSBC, Treasure Success,
and Jerash Garments dated June 19, 2018 (the “2018 Facility Letter”), further amended pursuant to a letter agreement
dated August 12, 2019 (the “2019 Facility Letter”), and further amended pursuant to a letter agreement dated July
3, 2020 (the “2020 Facility Letter,” and together with the 2017 Facility Letter, 2018 Facility Letter, and 2019 Facility
Letter, the “HSBC Facility”). The 2020 Facility Letter extends the term of the HSBC Facility indefinitely. Pursuant
to the HSBC Facility, the Company has a total credit limit of $11,000,000.
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 $12,000,000 factoring facility for certain debt purchase services related
to Treasure Success’s accounts receivable.
The
HSBC Credit Facilities are guaranteed by Jerash Holdings, Jerash Garments, and Treasure Success. In addition, the HSBC Credit
Facilities required cash and other investment security collateral of $3,000,000 and were secured by the personal guarantees of
Mr. Choi and Mr. Ng. As of January 22, 2019, the security collateral of $3,000,000 had been released. HSBC also released the personal
guarantees of Mr. Choi and Mr. Ng on August 12, 2019. The HSBC Credit Facilities provide that drawings under the HSBC Credit Facilities
are charged interest at the Hong Kong Interbank Offered Rate plus 1.5% for drawings in HKD, and the London Interbank Offered Rate
plus 1.5% for drawings in other currencies. In addition, the HSBC Credit Facilities also contain certain service charges and other
commissions and fees.
Under
the HSBC Factoring Agreement, HSBC also provides credit protection and debt services related to each of the Company’s preapproved
customers. For any approved debts or collections assigned to HSBC, HSBC charges a flat fee of 0.35% on the face value of the invoice
for such debt or collection. The Company may assign debtor payments that are to be paid to HSBC within 90 days, defined as the
maximum terms of payment. The Company may receive advances on invoices that are due within 30 days of the delivery of its goods,
defined as the maximum invoicing period.
The
HSBC Credit Facilities are subject to review at any time, and HSBC has discretion on whether to renew the HSBC Facility. Either
party may terminate the HSBC Factoring Agreement subject to a 30-day notice period.
NOTE
12 – CREDIT FACILITIES (Continued)
As
of September 30, 2020 and March 31, 2020, the Company had made $932,152 and $235 in withdrawals, under the HSBC Credit
Facilities, which are due within 120 days of each borrowing date or upon demand by HSBC. As of September 30, 2020, $932,152
was outstanding under the HSBC Facility. As of March 31, 2020, $235 was outstanding under the HSBC Factoring
Agreement.
On
January 31, 2019, Standard Chartered Bank (Hong Kong) Limited (“SCBHK”) offered to provide an import facility of
up to $3.0 million to Treasure Success pursuant to a facility letter dated June 15, 2018. Pursuant to the agreement, SCBHK
agreed to finance import invoice financing and pre-shipment financing of export orders up to an aggregate of $3.0 million.
The SCBHK facility bears interest at 1.3% per annum over SCBHK’s cost of funds. As of September 30, 2020 and March 31,
2020, the Company had no outstanding amount, respectively, in import invoice financing under the SCBHK facility.
NOTE
13 – EARNINGS PER SHARE
The following table sets forth the computation
of basic and diluted earnings per share for the three and six months ended September 30, 2020 and 2019. As of September 30, 2020,
1,453,910 warrants and stock options were issued and outstanding. For the three and six months ended September 30, 2020, 1,403,910
warrants and stock options were excluded from the EPS calculation as containing anti-dilution provisions. For the three and six
months ended September 30, 2019, 57,200 warrants were excluded from the EPS calculation as containing anti-dilution provisions.
|
|
Three Months Ended
September 30,
(in $000s except share and
per share information)
|
|
|
Six Months Ended
September 30,
(in $000s except share and
per share information)
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Jerash Holdings (US), Inc.’s Common Stockholders
|
|
$
|
2,560
|
|
|
$
|
3,593
|
|
|
$
|
3,374
|
|
|
$
|
5,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share (weighted-average shares)
|
|
|
11,325,000
|
|
|
|
11,325,000
|
|
|
|
11,325,000
|
|
|
|
11,325,000
|
|
Dilutive securities – unexercised warrants and options
|
|
|
4,953
|
|
|
|
182,071
|
|
|
|
5,081
|
|
|
|
171,803
|
|
Denominator for diluted earnings per share (adjusted weighted-average shares)
|
|
|
11,329,953
|
|
|
|
11,507,071
|
|
|
|
11,330,081
|
|
|
|
11,496,803
|
|
Basic earnings per share
|
|
$
|
0.23
|
|
|
$
|
0.32
|
|
|
$
|
0.30
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.23
|
|
|
$
|
0.31
|
|
|
$
|
0.30
|
|
|
$
|
0.45
|
|
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 September 30, 2020 and 2019, outerwear accounted for approximately 87.5% and 94.8% of the Company’s
total revenue, respectively. For the six months ended September 30, 2020 and 2019, outerwear accounted for approximately 89.9%
and 95.5% of the Company’s total revenue, respectively. Based on management’s assessment, the Company has determined
that it has only one operating segment as defined by ASC 280.
NOTE
14 – SEGMENT REPORTING (Continued)
The
following table summarizes sales by geographic areas for the three months ended September 30, 2020 and 2019, respectively.
|
|
For the three months
ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
23,411,339
|
|
|
$
|
29,352,998
|
|
Jordan
|
|
|
2,302,615
|
|
|
|
1,094,707
|
|
Other
|
|
|
1,372,364
|
|
|
|
163,414
|
|
Total
|
|
$
|
27,086,318
|
|
|
$
|
30,611,119
|
|
The
following table summarizes sales by geographic areas for the six months ended September 30, 2020 and 2019, respectively.
|
|
For the six months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
40,992,512
|
|
|
$
|
51,393,943
|
|
Jordan
|
|
|
3,428,197
|
|
|
|
1,581,087
|
|
Other
|
|
|
1,372,364
|
|
|
|
163,414
|
|
Total
|
|
$
|
45,793,073
|
|
|
$
|
53,138,444
|
|
99.9%
of long-lived assets were located in Jordan as of September 30, 2020.
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 HKD3 million (approximately $385,000). The Company’s
subsidiary, Treasure Success, is required to contribute HKD3 million (approximately $385,000) as paid-in capital in exchange for
100% ownership interest in Jiangmen Treasure Success. As of September 30, 2020, Treasure Success had fully made its capital contribution.
Contingencies
From
time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues
costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred
in connection with loss contingencies are expensed as incurred. The Company’s management does not expect any liability from
the disposition of such claims and litigation individually or in the aggregate would not have a material adverse impact on the
Company’s consolidated financial position, results of operations, and cash flows.
NOTE
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 14% for the industrial sector. In accordance with the
Investment Encouragement Law, Jerash Garments’ export sales to overseas customers were entitled to a 100% income tax exemption
for a period of 10 years commencing on the first day of production. This exemption had been extended for five years until December
31, 2018. Effective January 1, 2019, Jordanian government has changed some features of Jerash Garments and its subsidiaries area
to a Development Zone. In accordance with Development Zone law, Jerash Garments and its subsidiaries and VIE began paying corporate
income tax in Jordan at a rate of 10% plus a 1% social contribution. Effective January 1, 2020, that rate increased to 14% plus
a 1% social contribution.
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.
NOTE
17 – SUBSEQUENT EVENTS
On
November 2, 2020, the Board of Directors approved the payments of a dividend of $0.05 per share payable on November 23, 2020 to
stockholders of record as of November 16, 2020.