Jerash Holdings(US:JRSH)2020-02-13 12:01Part I: Financial Information This part presents the company's unaudited financial statements, management's analysis, and procedural disclosures Item 1: Financial Statements Presents the unaudited condensed consolidated financial statements for the periods ended December 31, 2019 Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | Dec 31, 2019 | March 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $59,344,456 | $55,350,892 | | Total Assets | $67,142,131 | $59,251,097 | | Total Current Liabilities | $9,233,747 | $7,585,881 | | Total Liabilities | $11,168,852 | $8,988,968 | | Total Equity | $55,973,279 | $50,262,129 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $25,446,708 | $18,677,164 | $78,585,152 | $70,504,646 | | Gross Profit | $4,913,820 | $3,199,630 | $16,728,880 | $16,208,402 | | Net Income | $2,073,269 | $1,625,493 | $7,211,493 | $5,326,997 | | Diluted EPS | $0.18 | $0.14 | $0.63 | $0.47 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Nine Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,979,764 | $11,926,651 | | Net cash used in investing activities | ($3,752,669) | ($1,104,325) | | Net cash (used in) provided by financing activities | ($2,306,698) | $7,404,450 | | Net (decrease)/ increase in cash | ($65,787) | $18,195,631 | Note 1: Organization and Description of Business The company manufactures and exports customized ready-made outerwear for large brand-name retailers - The company, through its subsidiaries, manufactures and exports customized ready-made outerwear from knitted fabric for large brand-name retailers29 - The company consolidates Victory Apparel as a Variable Interest Entity (VIE) due to effective control by the company's president and significant stockholder, Mr Choi Lin Hung27 Note 2: Summary of Significant Accounting Policies Details significant accounting policies including revenue recognition, consolidation, and risk concentrations - Revenue is recognized upon shipment of goods, with contracts typically being short-term (less than one year)43 - For the nine months ended December 31, 2019, one end-customer accounted for 83% of total revenue, while for the three months ended, two customers accounted for 66% and 24%63 - For the three months ended December 31, 2019, the company purchased approximately 48% of its raw materials from one major supplier64 Note 3: Recent Accounting Pronouncements The company adopted the new lease standard (Topic 842) on April 1, 2019, with no material impact on earnings - The company adopted ASU No 2016-02 (Leases) on April 1, 2019, resulting in the recording of additional lease assets of approximately $1.3 million and lease liabilities of $0.9 million68 Note 7: Leases The company holds 33 operating leases for facilities and offices with a remaining term of 3.7 years Operating Lease Balances (Dec 31, 2019) | Account | Amount | | :--- | :--- | | Right-of-use assets | $1,262,633 | | Total operating lease liabilities | $923,434 | - The weighted average remaining lease term is 3.7 years, and the weighted average discount rate is 4.06%77 Note 8: Property, Plant and Equipment, Net Net property, plant, and equipment increased to $5.66 million, driven by land and machinery acquisitions - On August 7, 2019, the company purchased approximately three acres of land in Jordan for $1,218,347 to construct a dormitory80 - On June 18, 2019, the company acquired machinery and equipment from Paramount in an asset acquisition for $980,00081 Note 9: Equity The company has 11,325,000 shares outstanding and paid three cash dividends totaling approximately $1.7 million - The Board of Directors declared three separate cash dividends of $0.05 per share, totaling $1,698,750 for the nine-month period888990 Note 10: Stock-Based Compensation The company granted 50,000 stock options to its CFO and has over 1.4 million options and warrants outstanding - On November 27, 2019, the CFO was granted 50,000 nonqualified stock options at an exercise price of $6.50 per share98 Outstanding Equity Awards (as of Dec 31, 2019) | Award Type | Shares | Weighted Avg. Exercise Price | | :--- | :--- | :--- | | Stock Options | 1,189,500 | $6.87 | | Warrants | 264,410 | $6.35 | Note 12: Credit Facilities The HSBC credit facility was increased to $11 million, with minimal outstanding balance as of year-end - The HSBC credit facility was increased to $11,000,000 in August 2019, and personal guarantees from executives were released109111 - As of December 31, 2019, the company had $40,719 outstanding under its HSBC credit facilities and no outstanding amount under its SCBHK facility114115 Note 16: Income Tax A prior tax exemption expired, subjecting Jordanian subsidiaries to a 10% income tax rate from 2019 - A 10-year income tax exemption for the company's Jordanian operations expired on December 31, 2018125 - Effective January 1, 2019, Jordanian subsidiaries began paying corporate income tax at a rate of 10%, which will increase to 14% from January 1, 2020125 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial performance, highlighting revenue growth, margin changes, and capital expenditures Results of Operations - Three Months Ended December 31, 2019 Q3 revenue grew 36% year-over-year to $25.4 million, driven by strong U.S. sales and improved gross margin Q3 FY2020 vs Q3 FY2019 Performance | Metric | Q3 2019 | Q3 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $25.4M | $18.7M | +36% | | Gross Profit | $4.9M | $3.2M | +54% | | Gross Margin | 19% | 17% | +2 p.p. | | Net Income | $2.1M | $1.6M | +28% | - The increase in revenue was mainly due to increased sales to existing and new customers in the U.S, which grew 63% to $24.8 million133138 - VF Corporation accounted for 66% of sales in the quarter135 Results of Operations - Nine Months Ended December 31, 2019 Nine-month revenue grew 11% to $78.6 million, with net income boosted by lower stock compensation expense Nine Months FY2020 vs FY2019 Performance | Metric | 9M 2019 | 9M 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $78.6M | $70.5M | +11% | | Gross Profit | $16.7M | $16.2M | +3% | | Gross Margin | 21% | 23% | -2 p.p. | | Net Income | $7.2M | $5.3M | +35% | - The lower gross profit margin was attributable to relatively lower profit margins on some new customer orders and local orders159160 - Stock-based compensation expenses decreased by $3.2 million (94%), contributing significantly to the rise in net income148162 Liquidity and Capital Resources The company holds $27.0 million in cash and believes it has sufficient liquidity for the next 12 months - As of December 31, 2019, the company had cash of approximately $27.0 million and net working capital of $50.2 million169173 - Net cash provided by operating activities was approximately $6.0 million for the nine months ended December 31, 2019, a decrease from $11.9 million in the prior-year period183 - Management believes cash on hand and cash from operations will be sufficient to support working capital needs for the next 12 months174 Capital Expenditures Capital expenditures were $3.8 million for the nine-month period, with significant future investments planned - Capital expenditures totaled approximately $3.8 million for the nine months ended December 31, 2019188 - In August 2019, the company acquired land in Jordan for approximately $1.2 million to construct a dormitory and production facilities192 - The company projects approximately $7 million in capital expenditures for each of the fiscal years ending March 31, 2020 and 2021193 Item 3: Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, this information is not required - As a smaller reporting company, Jerash Holdings is not required to provide information for this item198 Item 4: Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2019200 - No material changes were made to the internal control over financial reporting during the quarter ended December 31, 2019201 Part II: Other Information This part covers legal proceedings, equity sales, risk factors, and exhibits Item 1: Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not currently involved in any material legal proceedings204 Item 1A: Risk Factors As a smaller reporting company, this information is not required - As a smaller reporting company, the company is not required to provide risk factor disclosures in its 10-Q205 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The company granted 50,000 stock options to its CFO under its 2018 Stock Incentive Plan - On November 27, 2019, the company granted its CFO an option to purchase 50,000 shares of common stock at an exercise price of $6.50 per share206 Item 6: Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data - The exhibits filed with the report include Sarbanes-Oxley Act certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files211