Item 1. Financial Statements
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Jerash
Holdings (US), Inc. (“Jerash Holdings”) is a corporation established under the laws of the State of Delaware on
January 20, 2016. Jerash Holdings is a parent holding company with no operations.
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 declared capital of 150,000 Jordanian Dinar (“JOD”) (approximately US$212,000) as of December 31, 2019.
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 declared capital of JOD50,000 as of December 31, 2019. 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 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.
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 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, our 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 our other significant stockholder, Mr. Lee Kian Tjiauw, 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 Mr. Choi. Based on these facts, we 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 Variable Interest
Entity (“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 in Jiangmen 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.
Jerash
Holdings, and its subsidiaries and VIE (herein collectively referred to as the “Company”) are engaged in manufacturing
customized ready-made outerwear from knitted fabric and exporting produced apparel for large brand-name retailers. The Company
intends to diversify its range of products to include additional pieces such as trousers and urban styling outerwear using different
types of natural and synthetic materials. The Company also plans to expand its workforce in Jordan with workers from other countries,
including Bangladesh, Sri Lanka, India, Myanmar, and Nepal.
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”) and pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included
in annual financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations.
The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto for the fiscal year ended March 31, 2019.
In the opinion of management, all adjustments
(which include normal recurring adjustments) necessary to present a fair presentation of the Company's financial position as of
December 31, 2019, its results of operations for the three and nine months ended December 31, 2019 and 2018, and its cash
flows for the nine months ended December 31, 2019 and 2018, as applicable, have been made. The unaudited interim results of
operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
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.
In accordance
with accounting standards regarding the consolidation of variable interest entities, 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.
As described
in Note 1, management of the Company has concluded that Victory Apparel is a VIE, and that Jerash Garments is considered the primary
beneficiary because Mr. Choi, the Company’s president, director, and significant stockholder absorbs the risks and rewards
of Victory Apparel; therefore, the Company consolidates Victory Apparel for financial reporting purposes. Noncontrolling interests
result from the consolidation of Victory Apparel, which is 100% owned by Wealth Choice Limited.
As of December 31, and March 31,
2019, the total assets of Victory Apparel were $1,299 and $1,316, respectively, and
Victory Apparel had no liabilities as of December 31, and March 31, 2019. These amounts are included in the Company’s
consolidated balance sheets after elimination of intercompany transactions and balances. Victory Apparel was inactive for the nine
months ended December 31, 2019.
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 unaudited condensed consolidated financial statements, and the reported amounts of revenues 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 expense. 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 December 31, 2019 and March 31, 2019, the Company had no cash equivalents.
Restricted Cash
Restricted
cash consists of cash used as security deposits to secure custom 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.
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 credit to customers with good credit standing for a maximum of 90 days 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 unaudited
condensed 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. No allowance was considered necessary
as of December 31, 2019 and March 31, 2019.
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. No allowance was considered necessary as of December 31,
2019 and March 31, 2019.
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 unaudited condensed 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,
2019 and 2018.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Substantially
all of the Company’s revenue is derived from product sales, which consist of sales of the Company’s customized ready-made
outerwear for large brand-name retailers. The Company considers purchase orders to be a contract with a customer. Contracts with
customers are considered to be short-term when the time between order confirmation and satisfaction of the performance obligations
is equal to or less than one year, 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 30 to 60 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.
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 contract assets are recorded on the
unaudited condensed consolidated balance sheet as accounts receivable as of December 31, 2019 and March 31, 2019. For
the nine months ended December 31, 2019 and 2018, there was no revenue recognized from performance obligations related to
prior periods. As of December 31, 2019, 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).
Shipping and Handling
Proceeds
collected from customers for shipping and handling costs are included in revenues. 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 $168,580 and $177,071 for the three months ended December 31, 2019 and 2018, respectively. Total shipping
and handling expenses were $669,716 and $593,223 for the nine months ended December 31, 2019 and 2018, respectively.
Income Taxes
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. Deferred income taxes were immaterial as of December 31, 2019 and March 31,
2019.
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 the nine months ended December 31, 2019 and 2018.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency Translation
The reporting
currency of the Company is the U.S. dollar (“US$” or “$”). The Company uses JOD as its functional currency
in Jordanian companies, HKD in Treasure Success, and Chinese Yuan (“CNY”) in Jiangmen Treasure Success as functional
currency of each abovementioned entity. The assets and liabilities of the Company have been translated into US$ 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.
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 unaudited condensed consolidated
financial statements in this report:
|
|
December 31, 2019
|
|
March 31, 2019
|
December 31, 2018
|
Period-end spot rate
|
|
US$1=JOD0.7090
|
|
US$1=JOD0.7090
|
US$1=JOD0.7090
|
|
|
US$1=HKD7.7877
US$1=CNY6.9680
|
|
US$1=HKD7.8500
|
US$1=HKD7.8309
|
Average rate
|
|
US$1=JOD0.7090
|
|
US$1=JOD0.7091
|
US$1=JOD0.7091
|
|
|
US$1=HKD7.8314
US$1=CNY6.9587
|
|
US$1=HKD7.8420
|
US$1=HKD7.8431
|
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 and warrants 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 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 issue 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's 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: Until November 2018, the board of directors of Jerash Holdings (the “Board
of Directors”) had not declared, and the company had not yet paid, and dividends. Accordingly, stock-based compensation awards
granted prior to November 2018 assumed no dividend yield, while any subsequent stock-based compensation awards will be valued
using the anticipated dividend yield.
|
Earnings 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).
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 unaudited condensed consolidated
statements of income and comprehensive income.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, accounts payable, accrued expenses, other payables and short-term loan to approximate the fair value of the respective
assets and liabilities on December 31, 2019 and March 31, 2019 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 December 31, 2019 and March 31,
2019, $6,899,180 and $7,121,161, respectively, 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 December 31, 2019 and March 31, 2019, $20,987 and $0, respectively, 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 December 31, 2019 and March 31,
2019, $20,758,683 and $20,614,581, respectively, 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 December 31,
2019 and March 31, 2019, $89,831 and $98,726, respectively, of the Company’s cash was on deposit in the United States
and are insured by the Federal Deposit Insurance Corporation (“FDIC”) 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 policy on exporting business, foreign
exchange rate fluctuations, and change of local market conditions. The Company has a concentration of its revenues and purchases
with specific customers and suppliers. For the three months ended December 31, 2019, two end-customers accounted for 66% and
24%, respectively, of the Company’s total revenue. For the three months ended December 31, 2018, two end-customers accounted
for 82% and 12%, respectively, of the Company’s total revenue. For the nine months ended December 31, 2019 and 2018,
one end-customer accounted for 83% and 83%, respectively, of the Company’s total revenue. As of December 31, 2019 and
March 31, 2019, one end-customer accounted for 92% and 96% of the Company’s total accounts receivable balance, respectively.
For the three months ended December 31, 2019, the Company
purchased approximately 48% of its raw materials from one major supplier. For the nine months ended December 31, 2019, the
Company purchased approximately 23% and 17% of its raw materials from two major suppliers, respectively. For the three months ended
December 31, 2018, the Company purchased approximately 33% and 28% of its raw materials from two major suppliers, respectively.
For the nine months ended December 31, 2018, the Company purchased approximately 16%, 14%, 11%, and 10% of its raw materials
from four major suppliers, respectively. As of December 31, 2019, accounts payable to the Company’s two major suppliers
accounted for 41% and 22% of the total accounts payable balance, respectively. As of March 31, 2019, accounts payable to three
major suppliers separately accounted for 40%, 20%, and 14% of the total accounts payable balance, respectively.
A loss of any of these customers or suppliers could adversely
affect the operating results or cash flows of the Company.
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 the 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.
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.
New Accounting Pronouncements
Recently Adopted
The Company
adopted ASU No. 2016-02—Leases (Topic 842), as of April 1, 2019, using a modified retrospective transition method
permitted under ASU No. 2018-11. This transition approach provides a method for recording existing leases only at the date
of adoption and does not require previously reported balances to be adjusted. In addition, the Company elected the package of practical
expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry
forward the historical lease classification. Adoption of the new standard resulted in the recording of additional lease assets
and lease liabilities of approximately $1.3 million and $0.9 million, respectively, as of April 1, 2019. The standard did
not materially impact consolidated net earnings and had no impact on cash flows. (See Note 7).
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
New Accounting Pronouncements
Recently Not Adopted
In June 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, and early adoption is permitted. The Company adopted ASU 2016-13 and its related
amendments effective January 1, 2020, which did not have a material effect on its consolidated financial statements.
NOTE 4 – ACCOUNTS
RECEIVABLES
The Company’s
accounts receivable is as follows:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Trade accounts receivable
|
|
$
|
10,003,638
|
|
|
$
|
4,020,369
|
|
Less: allowances for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Accounts receivables, net
|
|
$
|
10,003,638
|
|
|
$
|
4,020,369
|
|
NOTE 5 – INVENTORIES
Inventories
consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Raw materials
|
|
$
|
8,996,421
|
|
|
$
|
11,601,262
|
|
Work-in-progress
|
|
|
806,481
|
|
|
|
1,889,329
|
|
Finished goods
|
|
|
4,329,149
|
|
|
|
7,583,652
|
|
Total inventory
|
|
$
|
14,132,051
|
|
|
$
|
21,074,243
|
|
NOTE 6 – ADVANCE TO SUPPLIERS
The Company’s advance to suppliers
is as follows:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Advance to suppliers
|
|
$
|
4,948,507
|
|
|
$
|
443,395
|
|
Less: allowances for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Advance to suppliers, net
|
|
$
|
4,948,507
|
|
|
$
|
443,395
|
|
NOTE 7 – LEASES
The Company has 33 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 remeasurement 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.
Effective
April 1, 2019, the Company adopted the new lease accounting standard using a modified retrospective transition method which
allowed the Company not to recast comparative periods presented in its unaudited condensed consolidated financial statements. In
addition, the Company elected the package of practical expedients, which allowed the Company to not reassess whether any existing
contracts contain a lease, to not reassess historical lease classification as operating or finance leases, and to not reassess
initial direct costs. The Company has not elected the practical expedient to use hindsight to determine the lease term for its
leases at transition. The Company combines the lease and non-lease components in determining the ROU assets and related lease obligation.
Adoption of this standard resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities
as disclosed below and had no impact on accumulated deficit as of December 31, 2019. ROU assets and related lease obligations
are recognized at commencement date based on the present value of remaining lease payments over the lease term.
NOTE 7 – LEASES (Continued)
All of the Company’s leases are
classified as operating leases and primarily include office space and manufacturing facilities. Operating lease ROU assets are
presented within other assets-net on the unaudited condensed consolidated balance sheet.
Supplemental
balance sheet information related to operating leases was as follows:
|
|
December 31,
2019
|
|
|
|
(unaudited)
|
|
Right-of-use assets
|
|
$
|
1,262,633
|
|
|
|
|
|
|
Operating lease liabilities - current
|
|
$
|
257,832
|
|
Operating lease liabilities - non-current
|
|
|
665,602
|
|
Total operating lease liabilities
|
|
$
|
923,434
|
|
The weighted
average remaining lease terms and discount rates for all of operating leases were as follows as of December 31, 2019:
Remaining lease term and discount rate:
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
3.7
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.06
|
%
|
During the three months ended December 31,
2019 and 2018, the Company incurred total operating lease expenses of $494,335 and $380,705, respectively. During the nine months
ended December 31, 2019 and 2018, the Company incurred total operating lease expenses of $1,440,070 and $1,070,334, respectively.
The following
is a schedule, by fiscal years, of maturities of lease liabilities as of December 31, 2019:
2020
|
|
$
|
140,988
|
|
2021
|
|
|
442,176
|
|
2022
|
|
|
311,615
|
|
2023
|
|
|
223,669
|
|
2024
|
|
|
171,384
|
|
Thereafter
|
|
|
80,669
|
|
Total lease payments
|
|
|
1,370,501
|
|
Less: imputed interest
|
|
|
(107,868
|
)
|
Less: prepayments
|
|
|
(339,199
|
)
|
Present value of lease liabilities
|
|
$
|
923,434
|
|
NOTE 8 – PROPERTY,
PLANT AND EQUIPMENT, NET
Property,
plant and equipment, net consisted of the following:
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Land (1)
|
|
$
|
1,389,030
|
|
|
$
|
61,078
|
|
Property and buildings
|
|
|
432,562
|
|
|
|
432,562
|
|
Equipment and machinery (2)
|
|
|
7,257,331
|
|
|
|
5,560,265
|
|
Office and electric equipment
|
|
|
771,726
|
|
|
|
550,738
|
|
Automobiles
|
|
|
444,671
|
|
|
|
367,332
|
|
Leasehold improvements
|
|
|
2,712,773
|
|
|
|
1,652,038
|
|
Subtotal
|
|
|
13,008,093
|
|
|
|
8,624,013
|
|
Construction in progress (3)
|
|
|
194,752
|
|
|
|
200,042
|
|
Less: Accumulated depreciation and amortization (4)
|
|
|
(7,546,023
|
)
|
|
|
(6,467,793
|
)
|
Property and equipment, net
|
|
$
|
5,656,822
|
|
|
$
|
2,356,262
|
|
(1) On August 7, 2019,
the Company, through Jerash Garments, closed a transaction to purchase 12,340 square meters (approximately three acres) of land
in Al Tajamouat Industrial City, Jordan (the “Jordan Property”), from a third party to construct a dormitory for the
Company’s employees. The aggregate purchase price of the Jordan Property was JOD863,800 (approximately US$1,218,347).
(2) On June 18, 2019,
the Company closed a transaction whereby it acquired all of the outstanding shares of Paramount, a contract manufacturer based
in Amman, Jordan. As a result, Paramount became of 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, located in the Tafilah Governorate of Jordan, and is expected to be operational in 2020.
(4) Depreciation and amortization
expense was $383,474 and $306,433 for the three months ended December 31, 2019 and 2018, respectively. Depreciation and amortization
expense was $1,108,252 and $959,975 for the nine months ended December 31, 2019 and 2018, respectively.
NOTE 9 – EQUITY
Preferred Stock
The Company
has 500,000 shares of preferred stock authorized, par value $0.001 per share, none of which was issued and outstanding as of December 31,
2019 and March 31, 2019. The preferred stock can be issued by 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
has 30,000,000 shares of common stock authorized, par value $0.001 per share, 11,325,000 shares of which were issued and outstanding
as of December 31, 2019 and March 31, 2019.
Statutory Reserve
In accordance
with the Corporate Law in Jordan, Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, 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. As of both December 31,
2019 and March 31, 2019, the consolidated balance of the statutory reserve was $212,739.
NOTE 9 –
EQUITY (Continued)
Dividends
On November 4,
2019, the Board of Directors declared a cash dividend of $0.05 per share of common stock, payable to stockholders of record at
the close of business on November 18, 2019. The dividend, equal to $566,250 in the aggregate, was paid on November 26,
2019.
On July 31,
2019, the Board of Directors declared a cash dividend of $0.05 per share of common stock, payable to stockholders of record at
the close of business on August 11, 2019. The dividend, equal to $566,250 in the aggregate, was paid on August 19, 2019.
On May 17, 2019, February 7,
2019, and November 1, 2018, the Board of Directors also declared a cash dividend of $0.05 per share of common stock. The cash
dividends of $566,250 were paid in full on June 5, 2019, February 27, 2019, and November 27, 2018, respectively.
Initial Public Offering
The registration
statement on Form S-1 (File No. 333-222596) for the Company’s initial public offering (the “IPO”) was
declared effective on March 14, 2018. On May 2, 2018, the Company issued 1,430,000 shares of common stock at $7.00 per
share and received gross proceeds of $10,010,000. The Company incurred underwriting commissions of $477,341, underwriter offering
expenses of $250,200, and additional underwriting expenses of $352,159, yielding net proceeds from the IPO of $8,930,300.
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 a 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.
As of
December 31, 2019, all of the outstanding warrants were fully vested and exercisable.
The fair
value of these warrants was estimated as of the grant date using the Black-Scholes model with the following assumptions:
|
|
Common Stock Warrants
|
|
|
|
December 31, 2019
|
|
Expected term (in years)
|
|
|
5.0
|
|
Risk-free interest rate (%)
|
|
|
1.8-2.8
|
%
|
Expected volatility (%)
|
|
|
50.3%-52.2
|
%
|
Dividend yield (%)
|
|
|
0.0
|
%
|
Warrant
activity is summarized as follows:
|
|
|
|
|
Weighted
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Warrants outstanding at March 31, 2018
|
|
|
264,410
|
|
|
$
|
6.35
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding at December 31, 2019
|
|
|
264,410
|
|
|
$
|
6.35
|
|
NOTE 10 - STOCK BASED COMPENSATION
(Continued)
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 the amended 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.
On April 9,
2018, the Board of Directors approved the issuance of 989,500 nonqualified stock options under the Plan in accordance with the
Plan at an exercise price of $7.00 per share, and a term of five years. As of December 31, 2019, all of these outstanding
stock options were fully vested and exercisable.
The fair
value of these options granted on April 9, 2018 was estimated as of the grant date using the Black-Scholes model with the
following assumptions:
|
|
Stock Options
|
|
|
|
December 31,
2019
|
|
Expected term (in years)
|
|
|
5.0
|
|
Risk-free interest rate (%)
|
|
|
2.6
|
%
|
Expected volatility (%)
|
|
|
50.3
|
%
|
Dividend yield (%)
|
|
|
0.0
|
%
|
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. As of December 31, 2019, these outstanding options were fully vested and exercisable.
The fair
value of the options granted on August 3, 2018 was estimated as of the grant date using the Black-Scholes model with the following
assumptions:
|
|
Stock Options
|
|
|
|
December 31,
2019
|
|
Expected term (in years)
|
|
|
10.0
|
|
Risk-free interest rate (%)
|
|
|
2.95
|
%
|
Expected volatility (%)
|
|
|
50.3
|
%
|
Dividend yield (%)
|
|
|
0.0
|
%
|
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. As of December 31,
2019, these outstanding options are not vested and not exercisable.
The fair value of the options granted on
November 27, 2019 was $193,697. It is estimated as of the grant date using the Black-Scholes model with the following assumptions:
|
|
Stock Options
|
|
|
|
December 31,
2019
|
|
Expected term (in years)
|
|
|
10.0
|
|
Risk-free interest rate (%)
|
|
|
1.77
|
%
|
Expected volatility (%)
|
|
|
48.59
|
%
|
Dividend yield (%)
|
|
|
3.08
|
%
|
Stock option activity is summarized as
follows:
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Stock options outstanding at March 31, 2019
|
|
|
1,139,500
|
|
|
$
|
6.88
|
|
Granted
|
|
|
50,000
|
|
|
|
6.50
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Stock options outstanding at December 31, 2019
|
|
|
1,189,500
|
|
|
$
|
6.87
|
|
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 Holdings (“FGH”)
|
|
Affiliate, 49% indirectly owned by our President, Chief Executive Officer and Chairman, a significant stockholder
|
|
ROU Asset, Purchase Agreement, Purchases
|
|
|
|
|
|
Ford Glory International Limited (“FGIL”)
|
|
Affiliate, subsidiary of FGH
|
|
ROU Asset, Purchase Agreement
|
|
|
|
|
|
Value Plus (Macao Commercial Offshore) Limited (“VPMCO”)
|
|
Affiliate, subsidiary of FGH
|
|
Purchases
|
|
|
|
|
|
Yukwise Limited (“Yukwise”)
|
|
Wholly owned by our President, Chief Executive Officer and Chairman, 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
|
|
ROU Asset
|
|
a.
|
Related party lease and purchase 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 August 31,
2019, Jiangmen Treasure Success and Jiangmen V-Apparel Manufacturing Limited entered into a lease agreement, which was a replacement
of a previous lease agreement between Treasure Success and Jiangmen V-Apparel Manufacturing Limited dated August 15, 2019,
pursuant to which Treasure Success leases its office space in Jiangmen, China from Jiangmen V-Apparel Manufacturing Limited for
a monthly rent in the amount of CNY6,200 (approximately $891). The lease has a 10-year term with a clause to increase the rental
amount by 5% annually between the third and fifth years of the lease term and the rental amount will be reviewed by and negotiated
between both parties according to the market rental rate.
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.
NOTE 11 – RELATED PARTY TRANSACTIONS (continued)
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. Total consulting fees under this agreement were $75,000 for the
three months ended December 31, 2019 and 2018 and $225,000 for the nine months ended December 31, 2019 and 2018, respectively.
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. Total advisory and management expenses under this
agreement were $75,000 for the three months ended December 31, 2019 and 2018 and $225,000 for the nine months ended December 31,
2019 and 2018, respectively.
Borrowings
under the Credit Facilities, with HSBC 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).
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 amended pursuant to a
letter agreement between HSBC, Treasure Success, and Jerash Garments dated June 19, 2018 (the “2018 Facility Letter”)
and increased to $11,000,000 pursuant to a letter agreement dated August 12, 2019 (the “2019 Facility Letter,”
and together with the 2018 Facility Letter and 2017 Facility Letter, the “HSBC Facility”).
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 the Invoice Discounting/Factoring Agreement (together, the “2017 Factoring Agreement”)
with HSBC for certain debt purchase services related to the Company’s accounts receivables. 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 receivables.
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 (“HIBOR”) plus 1.5% for drawings
in HKD, and the London Interbank Offered Rate (“LIBOR”) 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
December 31, 2019, and March 31, 2019, the Company had made $40,719 and $360,401 in withdrawals, respectively, under
the HSBC Credit Facilities, which are due within 120 days of each borrowing date or upon demand by HSBC. As of December 31,
2019, $40,719 was outstanding under the HSBC Factoring Agreement and no amounts were outstanding under the HSBC Facility. As of
March 31, 2019, $85,421 was outstanding under the HSBC Factoring Agreement and $274,980 outstanding under the HSBC Facility.
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 December 31, 2019, and March 31, 2019, the Company
had an outstanding amount of $0 and $288,310, 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 nine months ended December 31, 2019 and 2018. 57,200 IPO Underwriter Warrants
and 50,000 stock options to the Company’s current Chief Financial Officer were anti-dilutive for the three and nine months
ended December 31, 2019 and excluded from the EPS calculation. For the three and nine months ended December 31, 2018,
57,200 IPO Underwriter Warrants, 50,000 stock options to the Company’s then Chief Financial Officer and 100,000 stock options
to the Company’s then Head of U.S. Operations were anti-dilutive.
|
|
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)
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Jerash Holdings (US), Inc.’s Common Stockholders
|
|
$
|
2,073
|
|
|
$
|
1,626
|
|
|
$
|
7,215
|
|
|
$
|
5,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share (weighted-average shares)
|
|
|
11,325,000
|
|
|
|
11,325,000
|
|
|
|
11,325,000
|
|
|
|
11,158,600
|
|
Dilutive securities – unexercised warrants and options
|
|
|
125,707
|
|
|
|
68,179
|
|
|
|
152,344
|
|
|
|
125,212
|
|
Denominator for diluted earnings per share (adjusted weighted-average shares)
|
|
|
11,450,707
|
|
|
|
11,393,179
|
|
|
|
11,477,344
|
|
|
|
11,283,812
|
|
Basic earnings per share
|
|
$
|
0.18
|
|
|
$
|
0.14
|
|
|
$
|
0.64
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.18
|
|
|
$
|
0.14
|
|
|
$
|
0.63
|
|
|
$
|
0.47
|
|
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 operating results by the revenue of the Company’s products.
The Company’s major product is outerwear. For the three months ended December 31, 2019 and 2018, outerwear accounted
for approximately 73.4% and 81.6% of the Company’s total revenue, respectively. For the nine months ended December 31,
2019 and 2018, outerwear accounted for approximately 88.4% and 93.2% 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 December 31, 2019 and 2018, respectively.
|
|
For the Three months ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
United States
|
|
$
|
24,825,021
|
|
|
$
|
15,208,472
|
|
Jordan
|
|
|
621,687
|
|
|
|
3,432,201
|
|
Other countries
|
|
|
-
|
|
|
|
36,491
|
|
Total
|
|
$
|
25,446,708
|
|
|
$
|
18,677,164
|
|
The following
table summarizes sales by geographic areas for the nine months ended December 31, 2019 and 2018, respectively.
|
|
For the Nine months ended
|
|
|
|
December 31,
2019
|
|
|
December 30,
2018
|
|
United States
|
|
$
|
76,218,964
|
|
|
$
|
60,881,903
|
|
Jordan
|
|
|
2,202,774
|
|
|
|
8,531,198
|
|
Other countries
|
|
|
163,414
|
|
|
|
1,091,545
|
|
Total
|
|
$
|
78,585,152
|
|
|
$
|
70,504,646
|
|
All long-lived
assets were located in Jordan as of December 31, 2019 and March 31, 2019.
NOTE 15 – COMMITMENTS
AND CONTINGENCIES
Commitments
On
August 28, 2019, a new entity, 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 November 20, 2019, Treasure Success had made capital
contribution of HKD0.3 million (approximately $38,000). Pursuant to Jiangmen Treasure Success’s organizational documents,
the Company is required to complete the capital contribution before December 31, 2029.
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, 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 at the first day of production. This exemption had been extended for five years until December 31, 2018. The effect
of the tax exemption on the Company’s 2019 fiscal results is a tax savings of approximately $1,623,717, or $0.14 per share.
Effective January 1, 2019, the Hashemite Kingdom of Jordan 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 began paying
corporate income tax in Jordan at a rate of 10% plus a 1% social contribution. Effective January 1, 2020, this rate increased
to 14% plus a 1% social contribution.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted.
The Tax Act imposed a 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. The GILTI provisions have an effect of increasing the effective tax rate by absorbing
the current year loss generated by Jerash Holdings. However, Jerash Holdings is eligible to claim a deduction of up to 50% of
GILTI income and is eligible to claim a foreign tax credit on the foreign taxes paid by Jerash Garments and its subsidiaries which
are attributable to GILTI. Furthermore, the GILTI income is effectively exempt from tax in the states in which Jerash Holdings
operates. As a result of these provisions, Jerash Holdings is not expected to have an incremental U.S. cash tax cost as a result
of the GILTI rules during fiscal 2020.
NOTE 17 – SUBSEQUENT EVENTS
On February 5, 2020, the Board of Directors
approved the payment of a dividend of $0.05 per share payable on February 26, 2020 to stockholders of record as of the close of
business on February 19, 2020.