Jerash Holdings(JRSH) - 2024 Q1 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements The financial statements for Q2 2023 show slight revenue growth, a significant profit decline due to higher costs, and positive operating cash flow with continued capital investments Condensed Consolidated Balance Sheets As of June 30, 2023, total assets slightly decreased to $82.4 million due to reduced inventories, while total liabilities also decreased, and total equity remained stable at $68.3 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | June 30, 2023 ($) | March 31, 2023 ($) | | :--- | :--- | :--- | | Total Current Assets | 54,800,520 | 57,284,226 | | Inventories | 23,800,407 | 32,656,833 | | Total Assets | 82,366,916 | 83,719,333 | | Total Current Liabilities | 13,337,565 | 14,446,442 | | Total Liabilities | 14,074,801 | 15,485,099 | | Total Equity | 68,292,115 | 68,234,234 Condensed Consolidated Statements of Comprehensive Income For Q2 2023, revenue grew 3.9% to $34.7 million, but a 9% rise in COGS led to a 15.9% gross profit decrease and a 71.2% drop in net income to $0.5 million Q1 FY2024 vs Q1 FY2023 Performance (Unaudited) | Metric | Three Months Ended June 30, 2023 ($) | Three Months Ended June 30, 2022 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue, net | 34,735,657 | 33,436,561 | +3.9% | | Gross Profit | 5,567,540 | 6,622,367 | -15.9% | | Income from Operations | 1,091,820 | 2,308,847 | -52.7% | | Net Income Attributable to Common Stockholders | 496,526 | 1,721,382 | -71.2% | | Basic and Diluted EPS | 0.04 | 0.14 | -71.4% | - The company maintained its quarterly dividend at $0.05 per share, consistent with the prior year's quarter[12] Condensed Consolidated Statements of Changes in Equity Total equity slightly increased from $68.23 million to $68.29 million, driven by net income and stock-based compensation, partially offset by dividends and foreign currency translation losses - A cash dividend of $614,742 was paid during the three months ended June 30, 2023[15] - Stock-based compensation expense for the quarter amounted to $240,802[15] Condensed Consolidated Statements of Cash Flows Net cash from operations significantly improved to $24,772, while investing activities used $1.8 million for construction, and financing provided $2.5 million, resulting in a net cash increase of $0.66 million Summary of Cash Flows (Unaudited) | Cash Flow Activity | Three Months Ended June 30, 2023 ($) | Three Months Ended June 30, 2022 ($) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 24,772 | (472,736) | | Net cash used in investing activities | (1,772,721) | (3,380,712) | | Net cash provided by financing activities | 2,502,595 | 213,164 | | Net Increase (Decrease) in Cash | 659,630 | (3,758,136) | - The positive operating cash flow was primarily driven by an $8.9 million decrease in inventories, which offset a $4.2 million increase in accounts receivable[17] Notes to Unaudited Condensed Consolidated Financial Statements This section details company structure, accounting policies, and financial items, noting significant customer concentration, ongoing dormitory construction, new credit facilities, and post-quarter events including a dividend and a potential new fabric facility - The company is highly dependent on a few major customers, with two customers accounting for 66% and 21% of total revenue for the three months ended June 30, 2023[70] - The company is constructing an employee dormitory in Jordan, expected to cost $8.8 million and be completed by the end of 2023, with approximately $7.4 million spent through June 30, 2023[85] - On August 4, 2023, the Board of Directors approved a dividend of $0.05 per share, and on July 12, 2023, the company entered into a non-binding MOU for the possible establishment of a fabric facility in Jordan[119][120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 4% revenue growth to increased U.S. shipments, but a less favorable product mix caused gross margin to decline to 16% and net income to drop 71%, while liquidity remains strong with $18.5 million cash and $41.5 million working capital, supporting ongoing capital expenditures Results of Operations Revenue increased 4% to $34.7 million, but COGS rose 9%, contracting gross margin to 16% and causing net income to decline to $0.5 million, with VF Corporation and New Balance remaining key customers Sales by Major Customer (in thousands) | Customer | Q1 FY2024 Sales ($) | % of Total | Q1 FY2023 Sales ($) | % of Total | | :--- | :--- | :--- | :--- | :--- | | VF Corporation | 22,780 | 66% | 22,067 | 66% | | New Balance | 7,292 | 21% | 7,597 | 23% | | G-III | 2,182 | 6% | 1,470 | 4% | | Others | 2,482 | 7% | 2,303 | 7% | | Total | 34,736 | 100% | 33,437 | 100% | - The decrease in gross profit margin from 20% to 16% was primarily driven by a shift in product mix towards orders that generate lower profit margins[139] - Net income decreased by 71% to $0.5 million, mainly due to the lower gross margin and increases in SG&A and interest expenses[143] Liquidity and Capital Resources As of June 30, 2023, the company maintained strong liquidity with $18.5 million cash and $41.5 million working capital, utilizing existing credit facilities and securing a new $10 million facility, with management confident in sufficient funds for the next 12 months - The company had cash of approximately $18.5 million and working capital of $41.5 million as of June 30, 2023[145][148] - The company had approximately $3.1 million outstanding under its $5.0 million DBSHK credit facility as of June 30, 2023[152] - A new $10 million credit facility with Capital Bank of Jordan was entered into on June 1, 2023, but is not yet effective[153] Capital Expenditures Capital expenditures for the quarter were $1.8 million, primarily for an employee dormitory nearing completion at an $8.8 million total cost, with projected expenditures of $2.6 million for FY2024 and $8.5 million for FY2025 to enhance production capacity - Capital expenditures for the quarter were approximately $1.8 million, mainly for the construction of a dormitory and factory expansion[163] - The employee dormitory is expected to be completed by the end of 2023[166] - Projected capital expenditures are approximately $2.6 million for fiscal 2024 and $8.5 million for fiscal 2025[167] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Jerash Holdings is exempt from providing disclosures on market risk - The company is exempt from this disclosure requirement due to its status as a smaller reporting company[172] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2023, due to identified material weaknesses in financial reporting and IT general controls, with ongoing remediation efforts - The CEO and CFO concluded that disclosure controls and procedures were ineffective as of June 30, 2023[174] - Material weaknesses were identified in controls over period-end financial reporting, specifically income taxes and account reconciliations, and IT general controls, particularly user access[178] - Remediation efforts are underway, including improving account reconciliation, consulting with tax professionals, and implementing better password controls[175] Part II - Other Information Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - As of the report date, there are no material legal proceedings involving the company[180] Item 1A. Risk Factors As a smaller reporting company, Jerash Holdings is exempt from providing disclosures on risk factors - The company is exempt from this disclosure requirement due to its status as a smaller reporting company[181] Item 5. Other Information On July 12, 2023, the company's subsidiary entered a non-binding MOU with Newtech Textile (HK) Limited for a potential fabric facility in Jordan - A non-binding MOU was signed with Newtech Textile (HK) Limited on July 12, 2023, to explore setting up a fabric facility in Jordan[184] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including officer certifications and Inline XBRL data files