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. Forward-Looking Statements 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, 2022 and in subsequent reports that we file with the U.S. Securities and Exchange Commission (the "SEC"). Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. We do not intend, and undertake no obligation, to update any forward-looking statement, except as required by law. 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, 2022, filed with the SEC on June 27, 2022. References to fiscal 2023 and fiscal 2022 in this Management's Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal year ending March 31, 2023, and fiscal year ended March 31, 2022, respectively.
Impact of COVID-19 on Our Business
Collectability of Receivables. We had accounts receivable of $4.0 million as of September 30, 2022, out of which $3.9 million had been received through November 1, 2022. Two major customers have started to offer early payment alternatives since May and July 2021, which have shortened payment terms to below 10 days from submission of documents. See "-Liquidity and Capital Resources" for more details.
Inventory. We had inventory of $36.4 million as of September 30, 2022, substantially for orders scheduled to be shipped within fiscal 2023.
Investments and Capital Expenditures. We acquired two pieces of land in fiscal
2020 for the construction of dormitory and production facilities. Due to the
COVID-19 pandemic, management previously decided to hold off the construction to
wait for a clearer picture on customer demand. As customer orders recovered to a
satisfactory level, in April 2021, management decided to resume the preparation
work for the dormitory construction, which is expected to be completed and ready
for use in fiscal 2023. In June and July 2021, we entered into two Sale and
Purchase Contracts to acquire a garment factory and the factory land. The
acquisition of the factory operation was completed in October 2021, while the
acquisition of the entity holding the land and building where the factory
operation is located, Kawkab Venus, was completed in August 2022. On June 22,
2022, Treasure Success entered into a Sale and Purchase Agreement with Wong Bing
Lun and Chow Lai Ming (the "Sellers"). Pursuant to the agreement, the Sellers
agreed to sell, and Treasure Success agreed to purchase, 100% of the ownership
interests and the Sellers' benefit of the shareholder/director loans in Ever
Winland for a consideration of HKD39.6 million (approximately $5.1 million).
Ever Winland holds office premises, which are leased to Treasure Success. The
acquisition was completed on August 29, 2022.
21
Revenue. For the quarter ended September 30, 2022, our sales were $37.8 million,
which represented an approximate 17% decrease from that of the same period in
fiscal 2022. We continue to proactively communicate with our existing customers
to reconfirm their orders and shipment schedules for the rest of fiscal 2023.
The decrease was mainly because of a decrease in sales to two of our major
customers in the U.S.
Liquidity/Going Concern. As of September 30, 2022, we had approximately $24.5
million of cash and restricted cash and net current assets of approximately
$47.5 million with a current ratio of 3.2 to 1. In addition, we had banking
facilities with aggregate limits of $5.0 million with approximately $1.1 million
outstanding as of September 30, 2022. Given the above, we believe that we will
have sufficient financial resources to maintain as a going concern in fiscal
2023.
Results of Operations
Three months ended September 30, 2022 and 2021
The following table summarizes the results of our operations during the three-month periods ended September 30, 2022 and 2021, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
(All amounts, other than percentages, in thousands of U.S. dollars)
Three Months Ended Three Months Ended Period over Period
September 30, 2022 September 30, 2021 Increase (Decrease)Statement of Income As % As % Data: Amount of Sales Amount of Sales Amount % Revenue $ 37,825 100 % $ 45,711 100 % $ (7,886 ) (17 )% Cost of goods sold 30,908 82 % 35,606 78 % (4,698 ) (13 )% Gross profit 6,917 18 % 10,105 22 % (3,188 ) (32 )% Selling, general and administrative expenses 4,308 11 % 4,178 9 % 130 3 %
Stock-based
compensation expenses - - % 315 1 % (315 ) (100 )% Other expenses, net 105 0 % 121 0 % (16 ) (13 )% Net income before taxation $ 2,504 7 % $ 5,491 12 % $ (2,987 ) (54 )% Income tax expenses 712 2 % 1,050
2 % (338 ) (32 )%
Net income $ 1,792 5 % $ 4,441 10 % (2,649 ) (60 )%
Revenue. Revenue decreased by approximately $8 million, or 17%, to $37.8
million, for the three months ended September 30, 2022, from approximately $45.7
million for the same period in fiscal 2022. The decrease was mainly due to a
decrease in sales to two of our major export customers.
22
The following table outlines the dollar amount and percentage of total sales to our customers for the three months ended September 30, 2022 and 2021.
(All amounts, other than percentages, in thousands of U.S. dollars)
Three Months Ended Three Months Ended
September 30, 2022 September 30, 2021
Sales Sales
Amount % Amount %VF Corporation (1) $ 24,292 64 % $ 36,473 80 % Dynamic 3,979 11 % 169 0 % New Balance 3,881 10 % 6,468 14 % GIII 2,482 7 % 1,012 2 % Soriana 548 1 % 1,250 3 % Others 2,643 7 % 339 1 % Total $ 37,825 100 % $ 45,711 100 %
(1) A large portion of our products are sold under The North Face brand that is
owned by VF Corporation.
Revenue by Geographic Area
(All amounts, other than percentages, in thousands of U.S. dollars)
Three Months Ended Three Months Ended Period over Period
September 30, 2022 September 30, 2021 Increase (Decrease)
Region Amount % Amount % Amount %
United States $ 35,101 93 % $ 44,241 97 % $ (9,140 ) (21 )%
Jordan 1,278 3 % 141 0 % 1,137 806 %
Others 1,446 4 % 1,329 3 % 117 9 %
Total $ 37,825 100 % $ 45,711 100 % $ (7,886 ) (17 )%
Since January 2010, all apparel manufactured in Jordan can be exported to the
U.S. without customs duty being imposed, pursuant to the United States-Jordan
Free Trade Agreement entered into in December 2001. This free trade agreement
provides us with substantial competitiveness and benefit that allowed us to
expand our garment export business in the U.S.
The decrease of approximately 21% in sales to the U.S. during the three months
ended September 30, 2022, was mainly attributable to lower sales to two of our
major export customers and higher inflation and general inventory levels
reported in the U.S.
During the three months ended September 30, 2022, aggregate sales to Jordan and
other locations, such as Hong Kong and China, increased by 85% from
approximately $1.5 million to $2.7 million from the same period last year as
more domestic orders were received to fill up capacity released from lower
export demands.
Cost of goods sold. Following the decrease in sales revenue, our cost of goods
sold decreased by approximately $4.7 million, or 13%, to approximately $31.0
million, for the three months ended September 30, 2022, from approximately $35.6
million for the same period in fiscal 2022. As a percentage of revenue, the cost
of goods sold increased by approximately 4% points to 82% for the three months
ended September 30, 2022 from 78% for the same period in fiscal 2022. The
increase in cost of goods sold as a percentage of revenue was primarily
attributable to the higher proportion of domestic orders that typically generate
lower margin.
23
For the three months ended September 30, 2022, we purchased 23%, 20%, and 10% of
our raw materials from three major suppliers, respectively. For the three months
ended September 30, 2021, we purchased approximately 25% and of our garments
from one major supplier.
Gross profit margin. Gross profit margin was approximately 18% for the three
months ended September 30, 2022, which decreased by 4% points from 22% for the
same period in fiscal 2022. The decrease in gross profit margin was primarily
driven by the lower proportion of export orders that typically generate higher
margin.
Operating expenses. Operating expenses decreased 4% , or approximately $0.2 million, for the three months ended September 30, 2021, to approximately $4.3 million for the three months ended September 30, 2022, from approximately $4.5 million for the same period in fiscal 2022. The decrease was primarily due to stock-based compensation expenses of approximately $315,000 in fiscal 2022 while there was $nil in the quarter in fiscal 2023, offsetting by an increase in expenses in relation to foreign worker travelling expenses for the expansion in total group workforce.
Other expenses, net. Other expenses, net was approximately $105,000 for the three months ended September 30, 2022, as compared to other expenses, net of approximately $121,000 for the same period in fiscal 2022. The decrease was primarily due to government subsidies to Jiangmen Treasure Success and Treasure Success by offsetting the increase in interest expenses. Income tax expenses. Income tax expenses for the three months ended September 30, 2022 were approximately $712,000 compared to income tax expenses of $1,050,000 for the same period in fiscal 2022. The increase in the effective tax rate mainly resulted from the increase of corporate income tax rate in Jordan from a combined rate of 17% to 19% or 20% since January 1, 2022, and the increase in valuation allowance provided on deferred tax assets related to increased operating losses in our U.S entities. The effective tax rate was up to 28.4% for the three months ended September 30, 2022, as compared to 19.1% for the three months ended September 30, 2021.
Net income. Net income for the three months ended September 30, 2022 was approximately $1.8 million compared to net income of approximately $4.4 million for the same period in fiscal 2022. The decrease was mainly attributable to lower sales to two of our major export customers.
Six months ended September 30, 2022 and 2021
The following table summarizes the results of our operations during the six-month periods ended September 30, 2022 and 2021, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
(All amounts, other than percentages, in thousands of U.S. dollars)
Six Months Ended Six Months Ended Period over Period
September 30, 2022 September 30, 2021 Increase (Decrease)Statement of Income As % As % Data: Amount of Sales Amount of Sales Amount % Revenue $ 71,262 100 % $ 75,600 100 % $ (4,338 ) (6 )% Cost of goods sold 57,722 81 % 59,864 79 % (2,142 ) (4 )% Gross profit 13,540 19 % 15,736 21 % (2,196 ) (14 )%
Selling, general, and administrative expenses 8,327 12 % 7,463 10 % 864 12 % Stock-based compensation expenses 295 0 % 316 1 % (21 ) (7 )% Other expenses, net 133 0 % 113 0 % 20 18 % Net income before taxation $ 4,785 7 % $ 7,844 10 % $ (3,059 ) (39 )% Income tax expenses 1,272 2 % 1,468
2 % (196 ) (13 )%
Net income $ 3,513 5 % $ 6,376 8 % $ (2,863 ) (45 )%
Revenue. Revenue decreased by approximately $4.3 million, or 6%, to $71.3
million, for the six months ended September 30, 2022, from approximately $75.6
million for the same period in fiscal 2022. The decrease was mainly due to the
decrease in sales to two of our major customers in the U.S.
24
The following table outlines the dollar amount and percentage of total sales to our customers for the six months ended September 30, 2022 and 2021, respectively.
(All amounts, other than percentages, in thousands of U.S. dollars)
Six Months Ended Six Months Ended
September 30, 2022 September 30, 2021
Sales Sales
Amount % Amount %
VF Corporation(1) $ 46,359 65 % $ 56,683 75 %
New Balance 11,478 16 % 15,685 21 %
Dynamic 4,073 6 % 195 0 %
GIII 3,952 6 % 1,012 1 %
Soriana 954 1 % 1,250 2 %
Others 4,446 6 % 775 1 %
Total $ 71,262 100 % $ 75,600 100 %
(1) A large portion of our products are sold under The North Face brand that is
owned by VF Corporation.
Revenue by Geographic Area
(All amounts, other than percentages, in thousands of U.S. dollars)
Six Months Ended Six Months Ended Period over Period
September 30, 2022 September 30, 2021 Increase (Decrease)
Region Amount % Amount % Amount %
United States $ 66,508 93 % $ 73,693 97 % $ (7,185 ) (10 )%
Jordan 2,756 4 % 301 1 % 2,455 816 %
Others 1,998 3 % 1,606 2 % 392 24 %
Total $ 71,262 100 % $ 75,600 100 % $ (4,338 ) (6 )%
Since January 2010, all apparel manufactured in Jordan can be exported to the
U.S. without customs duty being imposed, pursuant to the United States-Jordan
Free Trade Agreement entered into in December 2001. This free trade agreement
provides us with substantial competitiveness and benefit that allowed us to
expand our garment export business in the U.S.
The decrease of approximately 10% in sales to the U.S. during the six months
ended September 30, 2022 was mainly attributable to the decrease in sales to our
two major customers in the U.S. and higher inflation and general inventory
levels.
During the six months ended September 30, 2022, aggregate sales to Jordan and
other locations, such as Hong Kong and China, increased by 149% from
approximately $1.9 million to $4.8 million from the same period last year as our
factories took up more domestic orders to the fill up the production capacity
released from lower demands from the U.S.
25
Cost of goods sold. Following the decrease in sales revenue, our cost of goods
sold decreased by approximately $2.1 million, or 4%, to approximately $57.8
million for the six months ended September 30, 2022 from approximately $59.9
million for the same period in fiscal 2022. As a percentage of revenue, the cost
of goods sold increased by approximately 2% points to 81% for the six months
ended September 30, 2022 from 79% for the same period in fiscal 2022. The
increase in cost of goods sold as a percentage of revenue was primarily
attributable to a higher proportion of domestic orders that typically generate
lower margin.
For the six months ended September 30, 2022, we purchased 15% and 13% of our raw materials from two major suppliers, respectively. For the six months ended September 30, 2021, we purchased 16% of our garments from one major supplier.
Gross profit margin. Gross profit margin was approximately 19% for the six months ended September 30, 2022, which decreased by 2% points from 21% for the same period in fiscal 2022. The decrease in gross profit margin was primarily driven by a lower proportion of export orders that typically generate higher gross margin.
Operating expenses. Operating expenses increased by approximately 11% from approximately $7.8 million for the six months ended September 30, 2021, to approximately $8.6 million for the six months ended September 30, 2022. The increase was primarily due to an increase in headcounts from the acquisition of MK Garments, and an increase in expenses in relation to foreign worker travelling expenses for the expansion in total group workforce to over 5,600 as of September 30, 2022.
Other expenses net. Other expenses, net was approximately $133,000 for the six months ended September 30, 2022, as compared to other expenses, net of approximately $113,000 for the same period in fiscal 2022. The increase in other expenses was primarily due to the increase in interest expenses by offsetting government subsidies to Jiangmen Treasure Success and Treasure Success. Income tax expenses. Income tax expenses for the six months ended September 30, 2022 were approximately $1.3 million compared to income tax expenses of approximately $1.5 million for the same period in fiscal 2022. The increase in the effective tax rate mainly resulted from the increase of corporate income tax rate in Jordan from a combined rate of 17% to 19% or 20% since January 1, 2022, and the increase in valuation allowance provided on deferred tax assets related to increased operating losses in our U.S entities. The effective tax rate was up to 26.6% for the six months ended September 30, 2022, compared to 18.7% for the six months ended September 30, 2021.
Net income. Net income for the six months ended September 30, 2022 was approximately $3.5 million compared to net income of approximately $6.4 million for the same period in fiscal 2022. The decrease was mainly attributable to lower sales to two of our major export customers.
Liquidity and Capital Resources
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.
26
As of September 30, 2022, we had cash of approximately $23.0 million and
restricted cash of approximately $1.4 million compared to cash of approximately
$25.2 million and restricted cash of approximately $1.4 million as of March 31,
2022. The decrease in total cash was mainly a result of increase in capital
expenditures and payments for dividend in this period.
Our current assets as of September 30, 2022 were approximately $68.7 million and
our current liabilities were approximately $21.1 million, which resulted in a
ratio of approximately 3.2 to 1. As of March 31, 2022, our current assets were
approximately $69.9 million and our current liabilities were $14.1 million,
resulting in a ratio of 4.9 to 1.
The primary drivers in the decrease in current assets were the decrease in cash for capital investments and dividend payments in this period.
The primary driver in the increase in current liabilities was an increase in accounts payable for raw material purchases.
Total equity as of September 30, 2022 was approximately $71.0 million compared to $69.3 million as of March 31, 2022.
We had net working capital of $47.5 million and $55.7 million as of September 30, 2022 and March 31, 2022, 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 of this Quarterly Report is released. 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 London Interbank Offered 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.
We have funded our working capital needs from our operations. Our working capital requirements are influenced by the level of our operations, the numerical and dollar volume of our sales contracts, the progress of execution on our customer contracts, and the timing of accounts receivable collections.
Credit Facilities
SCBHK Facility Letter
Pursuant to the SCBHK facility letter dated June 15, 2018, and issued to
Treasure Success by SCBHK, SCBHK offered to provide an import facility of up to
$3.0 million to Treasure Success. The SCBHK facility covered import invoice
financing and pre-shipment financing under export orders with a combined limit
of $3 million. SCBHK charged interest at 1.3% per annum over SCBHK's cost of
funds. The SCBHK facility was activated on January 31, 2019. In June 2022, we
were informed by SCBHK that the facility was cancelled due to persistently low
usage and zero loan outstanding.
DBSHK Facility Letter
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
agreement, 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. As of September 30, 2022
and March 31, 2022, we had approximately $1.1 million and $nil outstanding under
this DBSHK facility, respectively.
27
Six months ended September 30, 2022 and 2021
The following table sets forth a summary of our cash flows for the periods
indicated:
(All amounts in thousands of U.S. dollars)
Six months ended
September 30,
2022 2021
Net cash provided by operating activities $ 9,638 $ 10,223
Net cash used in investing activities (10,451 ) (5,075 ) Net cash used in financing activities (985 ) (1,746 ) Effect of exchange rate changes on cash (334 )
80
Net (decrease) increase in cash (2,132 )
3,482
Cash and restricted cash, beginning of six-month period 26,583 22,860 Cash and restricted cash, end of six-month period $ 24,451 $ 26,342
Operating Activities Net cash provided by operating activities was approximately $9.6 million for the six months ended September 30, 2022, compared to cash provided by operating activities of approximately $10.2 million for the same period in fiscal 2022. The decrease in net cash provided by operating activities was primarily attributable to the following factors:
? an increase in inventory of $8.2 million in the six months ended September 30,
2022 compared to a decrease of $4.5 million in the same period in fiscal 2022;
? a decrease in accounts receivable of $7.0 million in the six months ended
September 30, 2022 compared to an increase of $1.4 million in the same period
in fiscal 2022;
? an increase of advance to suppliers of $1.0 million compared to a decrease of
$1.1 million in the same period in fiscal 2022;
? an increase of accounts payable of $5.7 million in the six months ended
September 30, 2022 compared to a decrease of $3.4 million in the same period
in fiscal 2022; and
? a decrease of net income to $2.9 million in the six months ended September 30,
2022 from a net income of $6.4 million in the same period in fiscal 2022.
Investing Activities Net cash used in investing activities was approximately $10.5 million for the six months ended September 30, 2022, compared to approximately $5.1 million in the same period in fiscal 2022. The net cash used in investing activities in the six months ended September 30, 2022 was mainly used in investment in property, plant, and machinery including the ongoing construction of a dormitory and factory expansion, and considerations paid to acquire Ever Winland and Kawkab Venus. Financing Activities
Net cash used in financing activities was approximately $1 million for the six
months ended September 30, 2022, including dividend payments of approximately
$1.2 million, payments for share repurchase of approximately $0.5 million, and
settlement to a related party of approximately $0.3 million, offsetting by net
proceeds from short-term loans of approximately $1.1 million. There was a net
cash outflow of approximately $1.7 million in the same period in fiscal 2022
resulting from dividend payments and repayment of short-term loans.
28
Statutory Reserves
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 reserve was approximately
$0.4 million and approximately $0.3 million as of September 30, 2022 and 2021,
respectively.
The following table provides the amount of our statutory reserves, the amount of
restricted net assets, consolidated net assets, and the amount of restricted net
assets as a percentage of consolidated net assets, as of September 30, 2022 and
2021.
(All amounts, other than percentages, in thousands of U.S. dollars)
As of September 30,
2022 2021
Statutory Reserves $ 379 $ 346
Total Restricted Net Assets $ 379 $ 346
Consolidated Net Assets $ 70,987 $ 62,030 Restricted Net Assets as Percentage of Consolidated Net Assets 0.53 % 0.56 %
Total restricted net assets accounted for approximately 0.53% of our consolidated net assets as of September 30, 2022. 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. Capital Expenditures We had capital expenditures of approximately $10.3 million and approximately $1.6 million for the six months ended September 30, 2022 and 2021, for plant and machinery, the construction of a dormitory and factory expansion, and the acquisitions of Ever Winland and Kawkab Venus, respectively. For the six months ended September 30, 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 $0.4 million, $2.6 million, $2.2 million, and $5.1 million, respectively. For the six months ended September 30, 2021, payments for additional plant and machinery, and payments to additional properties and leasehold improvements amounted to approximately $0.4 million and $1 million, respectively. 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 and we plan to begin construction after a thorough and complete assessment of the impact of the current inflation on customer demands. 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). We expect to spend approximately $8.2 million in capital expenditures to build the dormitory. Due to the ongoing COVID-19 pandemic, management decided to put on hold the construction project in fiscal 2021 to retain financial resources to support our operations, and also to wait and see how the global economy and customer demand recover after the outbreak. The preparation work resumed in early 2021 and construction work commenced in April 2021. The dormitory is expected to be completed and ready for use in fiscal 2023. On July 14, 2021, we, through our wholly owned subsidiary Jerash Garments, entered into a Sale and Purchase Contract (the "Kawkab Agreement") with Kawkab Venus Dowalyah Lisenaet Albesah (the "Kawkab Seller"). Pursuant to the Kawkab Agreement, the Kawkab Seller agreed to sell, and Jerash Garments agreed to purchase, 100% ownership interests in Kawkab Venus for a consideration of $2.7 million. Kawkab Venus holds land with factory premises only, which are leased to MK Garments. Kawkab Venus had no other significant assets or liabilities and no operation activities or employees at the time of acquisition. We completed
this
acquisition in August 2022.
On June 22, 2022, Treasure Success entered into a Sale and Purchase Agreement
with the Sellers. Pursuant to the agreement, the Sellers agreed to sell, and
Treasure Success agreed to purchase, 100% of the ownership interests and the
Sellers' benefit of the shareholder/director loans in Ever Winland for a
consideration of HKD39.6 million (approximately $5.1 million). Ever Winland
holds office premises, which are leased to Treasure Success. Ever Winland had no
other significant assets or liabilities and no operation activities or employees
at the time of acquisition. The acquisition was completed on August 29, 2022.
29
We project that there will be an aggregate of approximately $16 million and $0.5 million of capital expenditures in the fiscal years ending March 31, 2023 and 2024, 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 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.
Off-balance Sheet Commitments and Arrangements
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.
Critical Accounting Policies
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.
We believe that our accounting policies involve a higher degree of judgment and
complexity in their application and require us to make significant accounting
estimates. Accordingly, the policies we believe are the most critical to
understanding and evaluating our consolidated financial condition and results of
operations are summarized in "Note 2-Summary of Significant Accounting Policies"
in the notes to our unaudited condensed consolidated financial statements.Recent Accounting Pronouncements
See "Note 3-Recent Accounting Pronouncements" in the notes to our unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements.
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