Jerash Holdings US Inc

Previous wording

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).

Previous wording

This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to: any projections of earnings, revenue, or other financial items; any statements regarding the adequacy, availability, and sources of capital, any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” or “anticipate,” and other similar words. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in the forward-looking statements include those factors set forth in the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 and in subsequent reports that we file with the U.S. Securities and Exchange Commission (the “SEC”).

Current wording

This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to: any projections of earnings, revenue, or other financial items; any statements regarding the adequacy, availability, and sources of capital, any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” or “anticipate,” and other similar words. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in the forward-looking statements include those factors set forth in the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 and in subsequent reports that we file with the SEC.

Previous wording

The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, filed with the SEC on June 28, 2023 and amended on October 5, 2023. References to fiscal 2024 and fiscal 2023 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal year ending March 31, 2024, and fiscal year ended March 31, 2023, respectively.

Current wording

The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the SEC on June 28, 2024. References to fiscal 2025 and fiscal 2024 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal year ending March 31, 2025, and fiscal year ended March 31, 2024, respectively.

Previous wording

During the three months ended December 31, 2023, aggregate sales to Hong Kong, Germany, Jordan, and other locations decreased by 49% from approximately $9.9 million to $5.1 million compared to the same period last year. This was due to fewer shipments delivered to the customers in those regions with lower economic growths.

Current wording

During the three months ended June 30, 2024, aggregate sales to Germany and other locations increased by 88% from $2.1 million to $3.9 million from the same period last year. This significant increase was mainly due to our expanded business relationships with customers we acquired in these regions over the past one to two years.

Previous wording

Cost of goods sold. Following the decrease in sales revenue, our cost of goods sold for the three months ended December 31, 2023 decreased by approximately $14.2 million, or 38%, to approximately $23.1 million, from approximately $37.2 million for the same period in 2022. As a percentage of revenue, the cost of goods sold decreased by approximately 3% points to 84% for the three months ended December 31, 2023, from 87% for the same period in 2022. The decrease in cost of goods sold as a percentage of revenue was primarily attributable to the higher proportion of shipments to one of our major customers in the U.S. that typically generate higher profit margin.

Current wording

Cost of goods sold. Following the increase in sales revenue, our cost of goods sold increased by approximately $7.1 million, or 24%, to approximately $36.3 million, for the three months ended June 30, 2024, from approximately $29.2 million for the same period in fiscal 2024. As a percentage of revenue, the cost of goods sold increased by approximately 5 percentage points, from 84% for the same period in fiscal 2024 to 89% for the three months ended June 30, 2024. The increase in the cost of goods sold as a percentage of revenue was primarily attributable to the higher logistic costs for importing raw material amid the Red Sea turmoil. Furthermore, we incurred extra production costs to adhere to customers’ delivery schedules and mitigate the impact of delayed arrivals of raw materials caused by the aforementioned logistic disruption. During the three months ended June 30, 2024, we did not experience substantial delays in shipments of products to our customers.

Previous wording

For the three months ended December 31, 2023, we purchased 17% and 14% of garments and raw materials from two suppliers, respectively. For the three months ended December 31, 2022, we purchased 28% of our garments from one major supplier.

Current wording

For the three months ended June 30, 2024, we purchased 12% and 11% of our total purchase in garments and raw materials from two major suppliers, respectively.

Previous wording

Gross profit margin. Gross profit margin was approximately 16% for the three months ended December 31, 2023, representing an increased by 3% points from 13% for the same period in 2022. The increase in gross profit margin was primarily driven by the higher proportion of shipments to one of our major customers in the U.S. that typically generate higher profit margin.

Current wording

Gross profit margin. Gross profit margin was approximately 11% for the three months ended June 30, 2024, which decreased by 5 percentage points from 16% for the same period in fiscal 2024. The decrease in gross profit margin was primarily driven by the higher raw material import costs caused by the Red Sea shipping disruption and the additional costs incurred to catch up with garment delivery schedules to our customers.

Previous wording

Other expenses, net. Other expenses, net were approximately $105,000 for the three months ended December 31, 2023, as compared to other expenses, net of approximately $112,000 for the same period in fiscal 2023. The decrease was primarily due to higher interest incomes from fixed deposits in banks, offset by the interest expenses arising from participating in the supply chain financing programs of a customer.

Current wording

Other expenses, net. Other expenses, net were approximately $0.4 million for the three months ended June 30, 2024, as compared to other expenses, net of approximately $0.3 million for the same period in fiscal 2024. The increase was primarily due to higher interest expenses resulting from the supply chain financing programs introduced by our major customers. These programs allow us to receive fund early from invoices submitted to customers, and this arrangement typically incurs an interest expense in return for early receipt of payment.

Previous wording

***Income tax expenses.***Income tax expenses for the nine months ended December 31, 2023 were approximately $0.7 million compared to income tax expenses of $1.6 million for the same period in fiscal 2023. The increase in the effective tax rate mainly resulted from the higher proportion of the operating loss of a Hong Kong subsidiary and our holding company in our group profit and the increase of corporate income tax rate in Jordan form a combined rate of 19% to 20% or 21% since January 1, 2023. The effective tax rate was up to 38.6% for the nine months ended December 31, 2023, as compared to 26.6% for the nine months ended December 31, 2022.

Current wording

***Income tax expenses.***Income tax expenses for the three months ended June 30, 2024, were approximately $0.1 million compared to income tax expenses of $0.3 million for the same period in fiscal 2024. The decrease in the income tax expenses was mainly due to the reduced operating profit derived from our Jordanian subsidiaries. The effective tax rate declined to (9%) for the three months ended June 30, 2024, as compared to 38% for the three months ended June 30, 2023.

Previous wording

Jerash Holdings (US), Inc. is a holding company incorporated in Delaware. As a holding company, we rely on dividends and other distributions from our Jordanian and Hong Kong subsidiaries to satisfy our liquidity requirements. Current Jordanian regulations permit our Jordanian subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Jordanian accounting standards and regulations. In addition, our Jordanian subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends. We have relied on direct payments of expenses by our subsidiaries (which generate revenue) to meet our obligations to date. To the extent payments are due in U.S. dollars, we have occasionally paid such amounts in JOD to an entity controlled by our management capable of paying such amounts in U.S. dollars. Such transactions have been made at prevailing exchange rates and have resulted in immaterial losses or gains on currency exchange but no other profit.

Current wording

Jerash Holdings is a holding company incorporated in Delaware. As a holding company, we rely on dividends and other distributions from our subsidiaries formed in Jordan and Hong Kongto satisfy our liquidity requirements. Current Jordanian regulations permit our Jordanian subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Jordanian accounting standards and regulations. In addition, our Jordanian subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends. We have relied on direct payments of expenses by our subsidiaries to meet our obligations to date. The subsidiaries generate most of revenue in our group.

Previous wording

As of December 31, 2023, we had cash of approximately $19.6 million and restricted cash of approximately $1.6 million. Compared to cash of approximately $17.8 million and restricted cash of approximately $1.6 million as of March 31, 2023, the increase in total cash was mainly a result of a net profit of approximately $1.1 million and the conversion of inventory to collections, offset by dividends paid during the nine months ended December 31, 2023.

Current wording

As of June 30, 2024, we had cash of approximately $11.4 million and restricted cash of approximately $1.6 million compared to cash of approximately $12.4 million and restricted cash of approximately $1.6 million as of March 31, 2024. The decrease in total cash was mainly a result of an operational loss of $1.4 million and a dividend payment of $0.6 million, offset by proceeds from short-term loans.

Previous wording

Our current assets as of December 31, 2023 were approximately $49.4 million and our current liabilities were approximately $8.9 million, which resulted in a ratio of approximately 5.5 to 1. As of March 31, 2023, our current assets were approximately $ 57.3 million and our current liabilities were $ 14.4 million, resulting in a ratio of 4.0 to 1.

Current wording

Our current assets as of June 30, 2024 were approximately $47.6 million and our current liabilities were approximately $13.1 million, which resulted in a ratio of approximately 3.6 to 1. Our current assets as of March 31, 2024 were approximately $50.9 million, and our current liabilities were approximately $14.8 million, which resulted in a current ratio of approximately 3.4 to 1.

Previous wording

Total equity as of December 31, 2023 was approximately $68.2 million compared to $68.2 million as of March 31, 2023.

Current wording

Total equity as of June 30, 2024 was approximately $62.9 million compared to $64.4 million as of March 31, 2024.

Previous wording

We had net working capital of $40.5 million and $42.8 million as of December 31, 2023 and March 31, 2023, respectively. Based on our current operating plan, we believe that cash on hand and cash generated from our operating activities will be sufficient to support our working capital needs for the next 12 months from the date this Quarterly Report is released.

Current wording

We had net working capital of $34.5 million and $36.1 million as of June 30, 2024 and March 31, 2024, respectively. Based on our current operating plan, we believe that cash on hand and cash generated from operating activities will be sufficient to support our working capital needs for the next 12 months from the date this Quarterly Report is released.

Previous wording

Since May and October 2021, we have participated in supply chain financing programs of two of our major customers, respectively. The programs allow us to receive early payments for approved sales invoices submitted by us through the bank the customer cooperates with. For any early payments received, we are subject to an early payment charge imposed by the customer’s bank, for which the rate is Secured Overnight Financing Rate plus a spread. The arrangement allows us to have better liquidity without the need to incur administrative charges and handling fees as in bank financing. Due to the rising interest rate, we have suspended our participation in one of the above supply chain financing programs.

Current wording

Since May and October 2021, we have participated in supply chain financing programs of two of our major customers, respectively. The programs allow us to receive early payments for approved sales invoices submitted by us through the bank the customer cooperates with. For any early payments received, we are subject to an early payment charge imposed by the customer’s bank, for which the rate is SOFR plus a spread. The arrangement allows us to have better liquidity without the need to incur administrative charges and handling fees as in bank financing. In March 2024, we participated in an additional supply chain financing program with one customer.

Previous wording

Pursuant to the DBSHK facility letter dated January 12, 2022, DBSHK provided a bank facility of up to $5.0 million to Treasure Success. Pursuant to the facility, DBSHK agreed to finance cargo receipt, trust receipt, account payable financing, and certain type of import invoice financing up to an aggregate of $5.0 million. The DBSHK facility bears interest at 1.5% per annum over Hong Kong Interbank Offered Rate for HKD bills and 1.3% per annum over DBSHK’s cost of funds for foreign currency bills. The facility is guaranteed by Jerash Holdings and became available to the Company on June 17, 2022. We had nil outstanding under this DBSHK facility as of both of December 31, 2023 and March 31, 2023. The DBSHK facility is reviewed annually.

Current wording

Pursuant to the DBS facility letter dated January 12, 2022, DBSHK provided a bank facility of up to $5.0 million to Treasure Success, which was amended pursuant to a facility letter dated January 4, 2024. Pursuant to the amended agreement, DBSHK agreed to finance cargo receipt, trust receipt, account payable financing, and certain type of import and export invoice financing up to an aggregate of $5.0 million, subject to certain financial covenants. The DBSHK facility bears interest at 1.5% per annum over HIBOR for HKD bills and 1.1% to 1.3% per annum over DBSHK’s cost of funds for foreign currency bills. The facility is guaranteed by Jerash Holdings and became available to the Company on June 17, 2022. As of June 30, 2024 and March 31, 2024, we had $2.1 million and $nil outstanding under this DBSHK facility, respectively.

Previous wording

Net cash provided by operating activities was approximately $7.9 million for the nine months ended December 31, 2023, compared to cash provided by operating activities of approximately $9.9 million for the same period in fiscal 2023. The decrease in net cash provided by operating activities was primarily attributable to the following factors:

Current wording

Net cash used in operating activities was approximately $2.2 million for the three months ended June 30, 2024, compared to cash provided by operating activities of approximately $25,000 for the same period in fiscal 2024. The decrease in net cash provided by operating activities was primarily attributable to the following factors:

Previous wording

Net cash used in investing activities was approximately $4.3 million for the nine months ended December 31, 2023, compared to approximately $11.4 million in the same period in fiscal 2023. The net cash used in investing activities in the nine months ended December 31, 2023 was mainly used in investment in property, plant, and machinery including the ongoing construction of a dormitory and factory expansion. The net cash used in investing activities in the nine months ended December 31, 2022 also included the acquisitions of Ever Winland and Kawkab Venus for $7.3 million.

Current wording

Net cash used in investing activities was approximately $0.4 million for the three months ended June 30, 2024, compared to approximately $1.8 million in the same period in fiscal 2024. The net cash used in investing activities during the three months ended June 30, 2024 was mainly for purchases of property, plant, and equipment and deposits for fixed assets.

Previous wording

In accordance with the corporate law in Jordan, our subsidiaries in Jordan are required to make appropriations to certain reserve funds, based on net income determined in accordance with generally accepted accounting principles of Jordan. Appropriations to the statutory reserve are required to be 10% of net income until the reserve is equal to 100% of the entity’s share capital. Jiangmen Treasure Success is required to set aside 10% of its net income as statutory surplus reserve until such reserve is equal to 50% of its registered capital, in accordance with corporate laws in China. These reserves are not available for dividend distribution. The statutory reserves were approximately $0.4 million and approximately $0.4 million as of December 31, 2023 and 2022, respectively.

Current wording

In accordance with the corporate law in Jordan, subsidiaries of Jerash Holdings in Jordan are required to make appropriations to certain reserve funds, based on net income determined in accordance with generally accepted accounting principles of Jordan. Appropriations to the statutory reserve are required to be 10% of net income until the reserve is equal to 100% of the entity’s share capital. Jiangmen Treasure Success is required to set aside 10% of its net income as statutory surplus reserve until such reserve is equal to 50% of its registered capital. These reserves are not available for dividend distribution. The statutory reserve was $413,821 and $410,847 as of June 30, 2024 and 2023, respectively.

Previous wording

Total restricted net assets accounted for approximately 0.60% of our consolidated net assets as of December 31, 2023. As our subsidiaries in Jordan are only required to set aside 10% of net profits to fund the statutory reserves, we believe the potential impact of such restricted net assets on our liquidity is limited.

Current wording

Total restricted net assets accounted for approximately 0.66% of our consolidated net assets as of June 30, 2024. As our subsidiaries in Jordan are only required to set aside 10% of net profits to fund the statutory reserves, we believe the potential impact of such restricted net assets on our liquidity is limited.

Previous wording

We had capital expenditures of approximately $4.3 million and approximately $11.3 million for the nine months ended December 31, 2023 and 2022, for plant and machinery, the construction of a dormitory and factory expansion in both periods, and the acquisitions of Ever Winland and Kawkab in fiscal 2023. For the nine months ended December 31, 2023, payments for additional plant and machinery, and construction of a dormitory and factory expansion, amounted to approximately $0.8 million and $3.2 million, respectively. For the nine months ended December 31, 2022, payments for additional plant and machinery, construction of a dormitory and factory expansion, the acquisition of Kawkab Venus, and the acquisition of Ever Winland amounted to approximately $0.6 million, $3.4 million, $2.2 million, and $5.1 million, respectively.

Current wording

We had capital expenditures of approximately $0.4 million and $1.8 million for the three months ended June 30, 2024 and 2023, for plant and machinery and the construction of a dormitory in both periods. For the three months ended June 30, 2024, payments for additional plant and machinery amounted to approximately $0.4 million. For the three months ended June 30, 2023, payments for additional plant and machinery, and construction of a dormitory and factory expansion, amounted to approximately $338,000 and $1.4 million, respectively.

Previous wording

On August 7, 2019, we completed a transaction to acquire 12,340 square meters (approximately three acres) of land in Al Tajamouat Industrial City, Jordan, from a third party to construct a dormitory for our employees with aggregate purchase price JOD863,800 (approximately $1,218,303). Management has revised the plan to construct both dormitory and production facilities on the land in order to capture the increasing demand for our capacity. We are conducting engineering design and study on this project with the business growth potential brought about by the new business collaboration with Busana Apparel Group.

Current wording

On August 7, 2019, we completed a transaction to acquire 12,340 square meters (approximately three acres) of land in Al Tajamouat Industrial City, Jordan, from a third party to construct a dormitory for our employees with aggregate purchase price JOD863,800 (approximately $1,218,303). Management has revised the plan to construct both dormitory and production facilities on the land in order to capture the increasing demand for our capacity. We are conducting engineering design and study on this project with the business growth potential brought about by the new business collaboration with Busana Apparel Group. On February 6, 2020, we completed a transaction to acquire 4,516 square meters (approximately 48,608 square feet) of land in Al Tajamouat Industrial City, Jordan, from a third party to construct a dormitory for our employee with aggregate purchase price JOD313,501 (approximately $442,162). The dormitory is expected to be fully completed in second quarter of fiscal year 2025. We have spent approximately $9.3 million in capital expenditures to build the dormitory. The dormitory’s kitchen is under construction at an estimated cost of approximately $0.9 million.

Previous wording

We project that there will be an aggregate of approximately $4.7 million and $12.6 million of capital expenditures in the fiscal years ending March 31, 2024 and 2025, respectively, for further enhancement of production capacity to meet future sales growth. We expect that our capital expenditures will increase in the future as our business continues to develop and expand. We have used cash generated from the operations of our subsidiaries to fund our capital commitments in the past and anticipate using such funds to fund capital expenditure commitments in the future.

Current wording

We project that there will be an aggregate of approximately $4.1 million and $8.8 million of capital expenditures in the fiscal years ending March 31, 2025 and 2026, respectively, for further enhancement of production capacity to meet future sales growth. The realization of these investments depends on the progress of our business development, including expanding our client base and securing increased commitments from existing customers. We expect that our capital expenditures will increase in the future as our business continues to develop and expand. We have used cash generated from operations of our subsidiaries to fund our capital commitments in the past and anticipate using such funds to fund capital expenditure commitments in the future.

Previous wording

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our consolidated financial statements.

Current wording

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as stockholders’ equity, or that are not reflected in our consolidated financial statements.

Previous wording

We prepare our financial statements in conformity with accounting principles generally accepted by the United States of America (“U.S. GAAP”), which require us to make judgments, estimates, and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

Current wording

We prepare our consolidated financial statements in conformity with accounting principles generally accepted by the United States of America (“U.S. GAAP”), which require us to make judgments, estimates, and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. We have not identified any critical accounting estimates.