| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The Company’s unaudited condensed consolidated
financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.
GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included in the Company’s unaudited condensed consolidated financial
statements. The consolidated balance sheet as of March 31, 2022 has been derived from the audited consolidated balance sheet at that date
but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated
financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022, as filed with the U.S. Securities
and Exchange Commission (the “SEC”). The unaudited condensed consolidated financial
statements include the financial statements of Jerash Holdings, and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation. Use of Estimates The preparation of the unaudited condensed consolidated
financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements,
and the reported amounts of revenue and expenses during the reporting period. The Company’s most significant estimates include
allowance for doubtful accounts, valuation of inventory reserve, useful lives of buildings and other property, and the measurement of
stock-based compensation expenses. Actual results could differ from these estimates. Cash The Company’s cash consists of cash on hand
and cash deposited in financial institutions. The Company considers all highly liquid investment instruments with an original maturity
of three months or less from the original date of purchase to be cash equivalents. As of June 30, 2022 and March 31, 2022, the Company
had no cash equivalents. Restricted Cash Restricted cash consists of cash used as security
deposits to obtain credit facilities from a bank and to secure customs clearance under the requirements of local regulations. The Company
is required to keep certain amounts on deposit that are subject to withdrawal restrictions. These security deposits at the bank are refundable
only when the bank facilities are terminated. The restricted cash is classified as a current asset if the Company intends to terminate
these bank facilities within one year, and as a non-current asset if otherwise. Accounts Receivable, Net Accounts receivable are recognized and carried
at original invoiced amount less an estimated allowance for uncollectible accounts. The Company usually grants extended payment terms
to customers with good credit standing and determines the adequacy of reserves for doubtful accounts based on individual account analysis
and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the
Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual
exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances,
with a corresponding charge recorded in the consolidated statements of comprehensive income. Actual amounts received may differ from management’s
estimate of credit worthiness and the economic environment. Delinquent account balances are written off against the allowance for doubtful
accounts after management has determined that the likelihood of collection is not probable. Inventories Inventories are stated at the lower of cost or
net realizable value. Inventories include cost of raw materials, freight, direct labor and related production overhead. The cost of inventories
is determined using the First in, First-out method. The Company periodically reviews its inventories for excess or slow-moving items and
makes provisions as necessary to properly reflect inventory value. Advance to Suppliers, Net Advance to suppliers consists of balances paid
to suppliers for services or materials purchased that have not been provided or received. Advance to suppliers for services and materials
is short-term in nature. Advance to suppliers is reviewed periodically to determine whether its carrying value has become impaired. The
Company considers the assets to be impaired if the performance by the suppliers becomes doubtful. The Company uses the aging method to
estimate the allowance for the questionable balances. In addition, at each reporting date, the Company generally determines the adequacy
of allowance for doubtful accounts by evaluating all available information, and then records specific allowances for those advances based
on the specific facts and circumstances. Property, Plant, and Equipment Property, plant, and equipment are recorded at
cost, reduced by accumulated depreciation and amortization. Depreciation and amortization expense related to property, plant, and equipment
is computed using the straight-line method based on estimated useful lives of the assets, or in the case of leasehold improvements, the
shorter of the initial lease term or the estimated useful life of the improvements. The useful life and depreciation method are reviewed
periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items
of property, plant, and equipment. The estimated useful lives of depreciation and amortization of the principal classes of assets are
as follows:
Useful life
Land Infinite
Property and buildings 15-25 years
Equipment and machinery 3-5 years
Office and electronic equipment 3-5 years
Automobiles 5 years
Leasehold improvements Lesser of useful life and lease term Expenditures for maintenance and repairs, which
do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments
which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation or amortization of
assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of
comprehensive income. Impairment of Long-Lived Assets The Company assesses its long-lived assets, including
property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group
may not be recoverable. Factors which may indicate potential impairment include a significant underperformance relative to the historical
or projected future operating results or a significant negative industry or economic trend. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by that
asset. If impairment is indicated, a loss is recognized for any excess of the carrying value over the estimated fair value of the asset.
The fair value is estimated based on the discounted future cash flows or comparable market values, if available. The Company did not record
any impairment loss during the three months ended June 30, 2022 and 2021. Goodwill Goodwill represents the excess purchase price
paid over the fair value of the net assets of acquired companies. Goodwill is not amortized. As of June 30, 2022 and March 31, 2022, the
carrying amount of goodwill was $499,282. Goodwill is tested for impairment on an annual basis, or in interim periods if indicators of
potential impairment exist, based on the one reporting unit. The Company has the option to perform a qualitative assessment to determine
whether it is necessary to perform the quantitative goodwill impairment test. When performing the quantitative impairment test, the Company
compares the fair value of its only reporting unit with the carrying amounts. The Company would recognize an impairment charge for the
amount by which the carrying amount exceeds the reporting unit’s fair value. The Company concluded that no impairment of its goodwill
occurred for the three months ended June 30, 2022. Revenue Recognition Substantially all of the Company’s revenue
is derived from product sales, which consist of sales of the Company’s customized ready-made outerwear for large brand-name retailers
and PPE. The Company considers purchase orders to be a contract with a customer. Contracts with customers are considered to be short term
when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year. Virtually
all of the Company’s contracts are short term. The Company recognizes revenue for the transfer of promised goods to customers in
an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. The Company typically
satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due from customers
within seven to 150 days of the invoice date. The contracts do not have significant financing components. Shipping and handling costs
associated with outbound freight from Jordan export dock are not an obligation of the Company. Returns and allowances are not a significant
aspect of the revenue recognition process as historically they have been immaterial. The Company also derives revenue rendering cutting
and making services to other apparel vendors who subcontract order to the Company. Revenue is recognized when the service is rendered.
All of the Company’s contracts have a single performance obligation satisfied at a point in time and the transaction price is stated
in the contract, usually as a price per unit. All estimates are based on the Company’s historical experience, complete satisfaction
of the performance obligation, and the Company’s best judgment at the time the estimate is made. Historically, sales returns have
not significantly impacted the Company’s revenue. The Company does not have any contract assets
since the Company has an unconditional right to consideration when the Company has satisfied its performance obligation and payment from
customers is not contingent on a future event. The Company had contract liabilities of $137,982 and $ nil The Company has one revenue generating reportable
geographic segment under ASC Topic 280 “Segment Reporting” and derives its sales primarily from its sales of customized ready-made
outerwear. The Company believes disaggregation of revenue by geographic region best depicts the nature, amount, timing, and uncertainty
of its revenue and cash flows (see “Note 14—Segment Reporting”). Shipping and Handling Proceeds collected from customers for shipping
and handling costs are included in revenue. Shipping and handling costs are expensed as incurred and are included in operating expenses,
as a part of selling, general and administrative expenses. Total shipping and handling expenses were $409,189 and $354,165 for the three
months ended June 30, 2022 and 2021, respectively. Income and Sales Taxes The Company is subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled. Jerash Holdings and Jerash Supplies
are incorporated/formed in the State of Delaware and are subject to federal income tax in the United States of America. Treasure Success
is registered in Hong Kong and is subject to profit tax in Hong Kong. Jiangmen Treasure Success is incorporated in China and is subject
to corporate income tax in China. Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and MK Garments are
subject to income tax in Jordan, unless an exemption is granted. In accordance with Development Zone law, Jerash Garments and its subsidiaries
were subject to corporate income tax in Jordan at a rate of 16% plus a 1% social contribution between January 1, 2021 and December 31,
2021. Effective January 1, 2022, the income tax rate increased to 18% or 20%, plus a 1% social contribution. Jerash Garments and its subsidiaries are subject
to local sales tax of 16% on purchases. Jerash Garments was granted a sales tax exemption from the Jordanian Investment Commission for
the period from June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases with no sales tax charge. The exemption has
been extended to February 5, 2023. The Company accounts for income taxes in accordance
with ASC 740, “Income Taxes,” which requires the Company to use the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases of
existing assets and liabilities and operating loss and tax credit carry forwards. Under this accounting standard, the effect on deferred
income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is
recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized. ASC 740 clarifies the accounting for uncertainty
in tax positions. This interpretation requires that an entity recognize in its financial statements the impact of a tax position, if that
position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement
are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and penalties related
to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of comprehensive income.
No significant uncertainty in tax positions relating to income taxes were incurred during the three months ended June 30, 2022 and 2021. Foreign Currency Translation The reporting currency of the Company
is the U.S. dollar (“US$” or “$”). The Company uses JOD in Jordan companies, HKD in Treasure Success, and Chinese
Yuan (“CNY”) in Jiangmen Treasure Success as functional currency of each abovementioned entity. The assets and liabilities
of the Company have been translated into US$ using the exchange rates in effect at the balance sheet date, equity accounts have been translated
at historical rates, and revenue and expenses have been translated into US$ using average exchange rates in effect during the reporting
period. Cash flows are also translated at average translation rates for the periods. Therefore, amounts related to assets and liabilities
reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated
balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate
component of accumulated other comprehensive income or loss. Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are included in the consolidated statements of comprehensive
income as incurred. The value of JOD against US$ and other currencies may fluctuate and
is affected by, among other things, changes in Jordan’s political and economic conditions. Any significant revaluation of JOD, HKD,
and CNY may materially affect the Company’s financial condition in terms of US$ reporting. The following table outlines the currency
exchange rates that were used in creating the consolidated financial statements in this report:
June 30, March 31,
Period-end spot rate US$1=JOD0.7090 US$1=JOD0.7090
US$1=HKD7.8467 US$1=HKD7.8325
US$1=CNY6.6977 US$1=CNY6.3393
Average rate US$1=JOD0.7090 US$1=JOD0.7090
US$1=HKD7.8463 US$1=HKD7.7844
US$1=CNY6.6078 US$1=CNY6.4180 Stock-Based Compensation The Company measures compensation expense
for stock-based awards based upon the awards’ initial grant-date fair value. The estimated grant-date fair value of the award is
recognized as expense over the requisite service period using the straight-line method. The Company estimates the fair value of stock
options using a Black-Scholes model. This model is affected by the Company’s stock price on the date of the grant as well as assumptions
regarding a number of highly complex and subjective variables. These variables include the expected term of the option, expected risk-free
rates of return, the expected volatility of the Company’s common stock, and expected dividend yield, each of which is more fully
described below. The assumptions for expected term and expected volatility are the two assumptions that significantly affect the grant
date fair value.
● Expected Term: the expected term of a warrant or a stock option is the period of time that the warrant or a stock option is expected to be outstanding.
● Risk-free Interest Rate: the Company bases the risk-free interest rate used in the Black-Scholes model on the implied yield at the grant date of the U.S. Treasury zero-coupon issued with an equivalent term to the stock-based award being valued. Where the expected term of a stock-based award does not correspond with the term for which a zero-coupon interest rate is quoted, the Company uses the nearest interest rate from the available maturities.
● Expected Stock Price Volatility: the Company utilizes the expected volatility of the Company’s common stock over the same period of time as the life of the warrant or stock option. When the Company’s own stock volatility information is unavailable for such period of time, the Company utilizes comparable public company volatility.
● Dividend Yield: Stock-based compensation awards granted prior to November 2018 assumed no dividend yield, while any subsequent stock-based compensation awards will be valued using the anticipated dividend yield. Earnings per Share The Company computes earnings per share
(“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with
complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common
shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential
common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS (See “Note 13 – Comprehensive Income Comprehensive income consists of two components,
net income and other comprehensive income. The foreign currency translation gain or loss resulting from translation of the financial statements
expressed in JOD or HKD or CNY to US$ is reported in other comprehensive income in the consolidated statements of comprehensive income. Fair Value of Financial Instruments ASC 825-10 requires certain disclosures regarding
the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes
the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of
unobservable inputs. The three levels of inputs used to measure fair value are as follows:
● Level 1 - Quoted prices in active markets for identical assets and liabilities.
● Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
● Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The Company considers the recorded value of its
financial assets and liabilities, which consist primarily of cash, including restricted cash, accounts receivable, other current assets,
credit facilities, accounts payable, accrued expenses, income tax payables, other payables, amounts due to a related party and operating
lease liabilities to approximate the fair value of the respective assets and liabilities at June 30, 2022 and March 31, 2022 based upon
the short-term nature of these assets and liabilities. Concentrations and Credit Risk Credit risk Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash. As of June 30, 2022, and March 31, 2022, respectively, $7,452,838 and $12,735,486
of the Company’s cash was on deposit at financial institutions in Jordan, where there currently is no rule or regulation requiring
such financial institutions to maintain insurance to cover bank deposits in the event of bank failure. As of June 30, 2022, and March
31, 2022, $156,503 and $351,255 of the Company’s cash was on deposit at financial institutions in China, respectively. Cash maintained
in banks within China of less than CNY 0.5 million (equivalent to $75,670) per bank are covered by “deposit insurance regulation”
promulgated by the State Council of the People’s Republic of China. As of June 30, 2022, and March 31, 2022, $15,003,688 and $13,311,340
of the Company’s cash was on deposit at financial institutions in Hong Kong, respectively, which are insured by the Hong Kong Deposit
Protection Board subject to certain limitations. While management believes that these financial institutions are of high credit quality,
it also continually monitors their credit worthiness. As of June 30, 2022, and March 31, 2022, $51,578 and $37,342 of the Company’s
cash was on deposit in the United States, respectively and are insured by the Federal Deposit Insurance Corporation up to $250,000. Accounts receivable are typically unsecured and
derived from revenue earned from customers, and therefore are exposed to credit risk. The risk is mitigated by the Company’s assessment
of its customers’ creditworthiness and its ongoing monitoring of outstanding balances. Customer and vendor concentration risk The Company’s sales are made primarily in
the United States. Its operating results could be adversely affected by U.S. government policies on importing business, foreign exchange
rate fluctuations, and changes in local market conditions. The Company has a concentration of its revenue and purchases with specific
customers and suppliers. For the three months ended June 30, 2022, two end-customers accounted for 66% and 23% of the Company’s
total revenue, respectively. For the three months ended June 30, 2021, two end-customers accounted for 68% and 31% of the Company’s
total revenue, respectively. As of June 30, 2022, two end-customers accounted of 74% and 12% of the Company’s total accounts receivable
balance, respectively. As of March 31, 2022, one end-customer accounted for 89% of the Company’s total accounts receivable balance. For the three months ended June 30, 2022, the Company purchased approximately
11% of its garments from one major supplier. For the three months ended June 30, 2021, the Company purchased approximately 17%, 13%, and
12% of its garments and raw materials from three major suppliers, respectively. As of June 30, 2022, accounts payable to the Company’s
two major suppliers accounted for 19% and 12% of the total accounts payable balance, respectively. As of March 31, 2022, accounts payable
to the Company’s three major suppliers accounted for 11%, 11%, and 10% of the total accounts payable balance, respectively. Risks and Uncertainties The principal operations of the Company are located
in Jordan. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic,
and legal environments in Jordan, as well as by the general state of the Jordanian economy. The Company’s operations in Jordan are
subject to special considerations and significant risks not typically associated with companies in North America. These include risks
associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results
may be adversely affected by changes in the political, regulatory and social conditions in Jordan. Although the Company has not experienced
losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure
disclosed in Note 1, this may not be indicative of future results. The spread of COVID-19 around the world since
March 2020 has caused significant volatility in U.S. and international markets. However, sales growth of the Company resumed in the fourth
quarter of fiscal year 2021 and has extended well into fiscal year 2022. Since fiscal 2022, the Company’s production facilities
resumed full operation with additional medical and hygienic measures in place. The Company does not believe the COVID-19 pandemic had
a significant impact on its operations during the three months ended June 30, 2022. There is still significant uncertainty around
the breadth and duration of business disruptions related to the COVID-19 pandemic, as well as its impact on the U.S. and international
economies. The Company currently expects that its operation results for the fiscal year ending March 31, 2023 would not be significantly
impacted by the COVID-19 pandemic. However, given the dynamic nature of these circumstances, should there be resurgence of COVID-19 cases
globally and should the U.S. government or the Jordan government implement new restrictions to contain the spread, the Company’s
business would be negatively impacted. Reclassification Certain prior period amounts have been reclassified
to conform to the current period presentation. Such reclassifications had no effect on net income or cash flows as previously reported. |
