Jerash Holdings(JRSH) - 2024 Q2 - Quarterly Report

Part I: Financial Information Item 1. Financial Statements Jerash Holdings' unaudited financial statements for Q2 and H1 FY2024 show decreased assets, revenue, and net income Condensed Consolidated Balance Sheets Total assets decreased to $79.1 million by September 30, 2023, driven by a significant reduction in inventories Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (Unaudited) | Mar 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash | $21,202 | $17,802 | | Inventories | $18,714 | $32,657 | | Total Current Assets | $50,693 | $57,284 | | Property, plant and equipment, net | $24,683 | $22,356 | | Total Assets | $79,105 | $83,719 | | Liabilities & Equity | | | | Accounts payable | $4,252 | $5,783 | | Total Current Liabilities | $10,211 | $14,446 | | Total Liabilities | $10,875 | $15,485 | | Total Equity | $68,230 | $68,234 | Condensed Consolidated Statements of Income and Comprehensive Income Revenue and net income significantly declined for both Q2 and H1 FY2024 due to lower gross margins Performance Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Change | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $33,357 | $37,826 | -11.8% | $68,093 | $71,262 | -4.4% | | Gross Profit | $5,372 | $6,918 | -22.3% | $10,940 | $13,540 | -19.2% | | Income from Operations | $888 | $2,610 | -66.0% | $1,980 | $4,919 | -59.7% | | Net Income | $369 | $1,792 | -79.4% | $864 | $3,513 | -75.4% | | Basic and Diluted EPS | $0.03 | $0.14 | -78.6% | $0.07 | $0.28 | -75.0% | Condensed Consolidated Statements of Changes in Equity Total equity remained stable for H1 FY2024, influenced by net income, dividends, and stock-based compensation - Dividend payments of $1,229,484 were made during the six months ended September 30, 2023[13] - Stock-based compensation expense for the six-month period was $484,250[13] - The company established a noncontrolling interest of $33,281 related to its 51% stake in the J&B joint venture[13][34] Condensed Consolidated Statements of Cash Flows Operating cash flow decreased to $8.2 million for H1 FY2024, with significant cash used in investing and financing Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,179 | $9,638 | | Net cash used in investing activities | ($3,459) | ($10,451) | | Net cash used in financing activities | ($1,198) | ($985) | | Net increase (decrease) in cash | $3,398 | ($2,132) | - A significant source of cash from operations was a $13.9 million decrease in inventories[19] - Investing activities included $3.2 million for purchases and construction of property, plant, and equipment[19] Notes to Unaudited Condensed Consolidated Financial Statements Notes detail company structure, customer concentration, geopolitical risks, and subsequent events like a new joint venture - The company is primarily engaged in manufacturing and exporting customized sportswear and outerwear from its facilities in Jordan[31] - For the six months ended September 30, 2023, two customers accounted for 69% and 13% of total revenue, respectively[72] - The company has a contingency plan to relocate production to alternate regions if its shipping ports in Aqaba and Haifa are impacted by regional conflict[75] - On October 10, 2023, the company's subsidiary Treasure Success entered into an agreement to form a new joint venture, Jerash Newtech, to establish a fabric facility in Jordan with a forecasted capital expenditure of approximately $29.9 million[127] - On November 3, 2023, the Board of Directors approved a dividend of $0.05 per share[126] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue decline, gross margin contraction, strong liquidity, and capital expenditures for expansion Results of Operations Revenue decreased by 4% for H1 FY2024, driven by lower U.S. sales and a 3-point decline in gross profit margin Revenue by Customer (Six Months Ended Sep 30, in thousands) | Customer | 2023 Sales | % of Total | 2022 Sales | % of Total | | :--- | :--- | :--- | :--- | :--- | | VF Corporation | $47,183 | 69% | $46,359 | 65% | | New Balance | $8,680 | 13% | $11,478 | 16% | | G-III | $4,715 | 7% | $3,952 | 6% | Revenue by Geographic Area (Six Months Ended Sep 30, in thousands) | Region | 2023 Sales | % of Total | 2022 Sales | % of Total | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | United States | $61,887 | 91% | $66,508 | 93% | -7% | | Hong Kong | $2,556 | 4% | $742 | 1% | +244% | | Germany | $1,290 | 2% | $0 | 0% | N/A | | Jordan | $625 | 1% | $2,756 | 4% | -77% | - The decrease in gross profit margin from 19% to 16% for the six-month period was primarily driven by a shift in customer mix with more orders that generate lower profit margin[165] Liquidity and Capital Resources The company maintains strong liquidity with $21.2 million cash, pursuing new credit facilities, and investing in expansion - The company had cash of $21.2 million and net working capital of $40.5 million as of September 30, 2023[172][175] - The company is finalizing a $10 million credit facility with Capital Bank of Jordan, which was not yet effective as of the report date[179] - Capital expenditures for the six months ended September 30, 2023, were approximately $3.5 million, mainly for the construction of a dormitory and factory expansion[189] - A new employee dormitory, costing approximately $8.8 million, is expected to be completed and ready for use by the end of 2023[192] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Jerash Holdings is exempt from providing quantitative and qualitative market risk disclosures - The company is a smaller reporting company and is not required to provide information for this item[199] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were ineffective due to material weaknesses, with ongoing remediation efforts - The CEO and CFO concluded that disclosure controls and procedures were ineffective as of September 30, 2023[202] - Material weaknesses were identified in controls over period-end financial reporting (income taxes, account reconciliation) and IT general controls (user access)[206] - Remediation efforts are underway but require validation over a sustained period; financial statements are believed to be fairly presented despite weaknesses[203][204] Part II: Other Information Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The company reports no current material legal proceedings[208] Item 1A. Risk Factors As a smaller reporting company, Jerash Holdings is exempt from providing detailed risk factor disclosures - As a smaller reporting company, this item is not required[209] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities No unregistered sales of equity securities, use of proceeds, or issuer purchases were reported for the period - None reported for the period[210] Item 6. Exhibits The report includes standard officer certifications, XBRL data, and a Shareholders' Agreement for a new joint venture - Exhibits filed include CEO/CFO certifications under SOX 302 and 906, and Inline XBRL documents[217] - A Shareholders' Agreement with Newtech Textile (HK) Limited, dated October 10, 2023, was incorporated by reference[217]