UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to
Commission file number 001-38474
Jerash Holdings (US), Inc.
(Exact name of registrant as specified in its charter)
277 Fairfield Road, Suite 338, Fairfield, New
Jersey07004
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code: (201)285-7973
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share JRSH The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark whether the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s
common stock, par value $0.001 per share, held by non-affiliates of the registrant, as computed by reference to the September 30, 2022
closing price reported by Nasdaq, was approximately $31,203,742.
The number of the registrant’s shares of
common stock, $0.001 par value per share, outstanding on June 27, 2023 was 12,294,840.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement
for its 2023 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K.
Table of Contents
Page
PART I 1
Item 1. Business 1
Item 1A. Risk Factors 6
Item 1B. Unresolved Staff Comments 17
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Mine Safety Disclosure 18
Item 6. [Reserved] 19
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 25
Item 8. Financial Statements and Supplementary Data F-1
Item 9A. Controls and Procedures 26
Item 9B. Other Information 27
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 27
PART III 28
Item 10. Directors, Executive Officers and Corporate Governance 28
Item 11. Executive Compensation 28
Item 14. Principal Accounting Fees and Services 28
Item 15. Exhibit and Financial Statement Schedules 29
Signatures 32
i
PART I
Item 1. Business.
Overview
Jerash Holdings (US), Inc. (“Jerash Holdings”),
through its wholly owned operating subsidiaries (together the “Group,” “we,” “us,” or “our”),
is principally engaged in the manufacturing and exporting of customized, ready-made sportswear and outerwear from knitted fabric and personal
protective equipment (“PPE”) produced in its facilities in the Hashemite Kingdom of Jordan (“Jordan”). Our website
address is http://www.jerashholdings.com. Information available on our website is not a part of, and is not incorporated into, this Annual
Report on Form 10-K.
We are a manufacturer for many well-known brands
and retailers, such as VF Corporation (which owns brands such as The North Face, Timberland, and Vans), New Balance, G-III (which licenses
brands such as Calvin Klein, Tommy Hilfiger, DKNY, and Guess), American Eagle, and Skechers. Our production facilities comprise six factories
and five warehouses and we currently employ approximately 5,000 people. The total annual capacity at our facilities was approximately
14 million pieces (average for product categories including t-shirts, polo shirts, pants, shorts, and jackets, and excluding PPE) as of
March 31, 2023.
Organizational Structure
Jerash Holdings is a holding company incorporated
in Delaware in January 2016. As of the date of this annual report, Jerash Holdings has the following wholly owned subsidiaries: (i) Jerash
Garments and Fashions Manufacturing Co., Ltd. (“Jerash Garments”), an entity formed under the laws of Jordan, (ii) Treasure
Success International Limited (“Treasure Success”), an entity formed under the laws of Hong Kong Special Administrative Region
of the People’s Republic of China (“Hong Kong” or “HK”), (iii) Chinese Garments and Fashions Manufacturing
Co., Ltd. (“Chinese Garments”), an entity formed under the laws of Jordan and a wholly owned subsidiary of Jerash Garments,
(iv) Jerash for Industrial Embroidery Co., Ltd. (“Jerash Embroidery”), an entity formed under the laws of Jordan and a wholly
owned subsidiary of Jerash Garments, (v) Al-Mutafaweq Co. for Garments Manufacturing Ltd. (“Paramount”), an entity formed
under the laws of Jordan and a wholly owned subsidiary of Jerash Garments, (vi) Mustafa and Kamal Ashraf Trading Company (Jordan) for
the Manufacture of Ready-Make Clothes LLC (“MK Garments”), an entity formed under the laws of Jordan and a wholly owned subsidiary
of Jerash Garments; (vii) Jiangmen Treasure Success Business Consultancy Co., Ltd. (“Jiangmen Treasure Success”), an entity
incorporated under the laws of the People’s Republic of China (“China” or the “PRC”) and a wholly owned
subsidiary of Treasure Success, (viii) Jerash The First Medical Supplies Manufacturing Company Limited (“Jerash The First”),
an entity formed under the laws of Jordan and a wholly owned subsidiary of Jerash Garments, (ix) Jerash Supplies, LLC (“Jerash Supplies”),
an entity formed under the laws of the State of Delaware, (x) Kawkab Venus Dowalyah Lisenaet Albesah (“Kawkab Venus”), a limited
liability company established in Amman, Jordan, and (xi) Ever Winland Limited (“Ever Winland”), a limited liability company
organized in Hong Kong. As of the date of this annual report, Treasure Success owns 51% of the equity interests in J&B International
Limited (“J&B”), a company with limited liability incorporated under the laws of Hong Kong. P. T. Eratex (Hong Kong) Limited
(“Eratex”), a company formed in Hong Kong, owns the remaining 49%.
1
This chart reflects our organizational structure as of the date of
this annual report:
Jerash Garments was established in Jordan on November
26, 2000 and operates out of our factory in Al Tajamouat Industrial City, a Development Zone in Amman, Jordan. Jerash Garments’
principal activities are to house management offices and to operate production lines and printing, sewing, ironing, packing, and quality
control units, as well as house our trims and finished products warehouses. We also operate our factory in Al-Hasa County (as discussed
below) under Jerash Garments.
Chinese Garments was established in Jordan on
June 13, 2013 and operates out of our factory in Al Tajamouat Industrial City. Chinese Garments’ principal activities are to house
administration, human resources, finance, and management offices and to operate additional production lines and sewing, ironing, and packing
units, as well as house our trims warehouse.
Jerash Embroidery was established in Jordan on
March 11, 2013 and operates out of our factory in Al Tajamouat Industrial City. Jerash Embroidery’s principal activities are to
perform the cutting and embroidery for our products.
Paramount was established in Jordan on October
24, 2004 and operates out of our factory in Al Tajamouat Industrial City. Paramount’s principal activities are to manufacture garments
per customer orders.
MK Garments was established in Jordan on January
23, 2003. On June 24, 2021, Jerash Garments and the sole shareholder of MK Garments entered into an agreement, pursuant to which Jerash
Garments acquired all of the outstanding stock of MK Garments. As of October 7, 2021, MK Garments became a subsidiary of Jerash Garments.
MK Garments operates out of our factory in Al Tajamouat Industrial City. MK Garments’ principal activities are to manufacture garments
per customer orders.
Treasure Success was established in Hong Kong
on July 5, 2016 and operates in Hong Kong. Treasure Success’s primary activities are sales of garments and to employ sales and merchandising
staff and supporting personnel in Hong Kong to support the business of Jerash Garments and its subsidiaries.
Jiangmen Treasure Success was established in Jiangmen
City of Guangdong Province in the PRC on August 28, 2019 and operates in the PRC. Jiangmen Treasure Success’s primary activities
are to provide support in sales and marketing, sample development, merchandising, procurement, and other areas.
Jerash The First was established in Jordan on
July 6, 2020 and operate out of our factory in Al-Hasa County. Jerash The First’s principal activities are to manufacture PPE products.
Jerash Supplies was formed in Delaware on November
20, 2020. Jerash Supplies is engaged in the trading of PPE products.
Kawkab Venus was established in Amman, Jordan,
on January 15, 2015 with a declared capital of JOD 50,000. It holds land with factory premises, which are leased to MK Garments. On July
14, 2021, Jerash Garments and the sole shareholder of Kawkab Venus entered into an agreement, pursuant to which Jerash Garments acquired
all of the outstanding stock of Kawkab Venus. Apart from the land and factory premises, Kawkab Venus had no other significant assets or
liabilities and no operation activities or employees at the time of acquisition, so the acquisition was accounted for an asset acquisition.
As of August 21, 2022, Kawkab Venus became a subsidiary of Jerash Garments.
2
Ever Winland was organized in Hong Kong on December
3, 2020. It holds office premises, which are leased to Treasure Success. On June 22, 2022, Treasure Success and the shareholders of Ever
Winland entered into an agreement, pursuant to which Treasure Success acquired all of the outstanding stock of Ever Winland. Apart from
the office premises used by Treasure Success, Ever Winland had no other significant assets or liabilities and no operating activities
or employees at the time of this acquisition, so this transaction was accounted for as an asset acquisition. As of August 29, 2022, Ever
Winland became a subsidiary of Treasure Success.
J&B is a joint venture company established
in Hong Kong on January 10, 2023. On March 20, 2023, Treasure Success and Eratex entered into a Joint Venture and Shareholders’
Agreement, pursuant to which Treasure Success acquired 51% of the equity interests in J&B on April 11, 2023. J&B engages in the
business of garment trading and manufacturing for orders from customers.
Products
As a garment manufacturing group, we specialize
in manufacturing sportswear and outerwear. Our sportswear and outerwear product offering consists of jackets, polo shirts, t-shirts, pants,
and shorts. Our primary product offering in the fiscal year ended March 31, 2023 was shorts, pants, and vests, which accounted for approximately
49% of our total shipped pieces. In the fiscal year ended March 31, 2022, our primary product offering was jackets, which accounted for
approximately 35% of our total shipped pieces.
In response to high demand for PPE due to the
COVID-19 pandemic, we started manufacturing PPE in 2020. Our PPE product offering consists of branded (washable) and disposable face masks,
medical scrubs, protective coveralls, and surgical gowns. In order to advance our PPE market development efforts, we incorporated a new
entity, Jerash The First, which received temporary permission from Jordan’s Food and Drug Administration to manufacture and export
non-surgical PPE. Our production facility for PPE needs to meet certain structural requirements before we can receive a permanent permission
and we are still planning the production facility. In September 2020, we successfully registered as a medical device manufacturing facility
with the U.S. Food and Drug Administration for the sale and export of our PPE products to the United States. We also received an ISO 13485
designation covering the manufacturing, packing, and selling of medical supplies. The sale and export of PPE products did not contribute
to our total revenue in the fiscal year ended March 31, 2023.
Manufacturing and Production
Our production facilities are located in Al Tajamouat
Industrial City and in Al-Hasa County in the Tafilah Governorate of Jordan.
Our production facilities in Al Tajamouat Industrial
City comprise five factories and five warehouses. Effective as of January 1, 2019, the government of the Hashemite Kingdom of Jordan converted
Al Tajamouat Industrial City into a Development Zone. Following this change, we continued to operate under benefits similar to the Qualifying
Industrial Zone designation, but were subject to a 10% corporate income tax plus a 1% social contribution. Starting from January 1, 2020,
the corporate income tax rate increased to 14% plus a 1% social contribution. On January 1, 2021, the corporate income tax rate increased
to 16% plus a 1% social contribution. On January 1, 2022, the corporate income tax rate increased to 18% or 20% plus a 1% social contribution.
Effective January 1, 2023, we have been subject to a 19% or 20% corporate income tax rate plus a 1% social contribution. Currently, the
first factory, which we own, employs approximately 1,400 people. Its primary functions are to house our management offices, as well as
production lines, trims warehouse, and printing, sewing, ironing, and packaging units. The second factory, which we lease, employs approximately
1,400 people. Its primary function is to house our administrative and human resources personnel, merchandising and accounting departments,
embroidery, printing, additional production lines, trims and finished products warehouses, and sewing, ironing, packing and quality control
units. The third factory, which we lease, employs approximately 200 people. Its primary functions are to perform the cutting for our products.
The fourth factory (under Paramount), which we lease, currently employs approximately 1,100 people. Its primary functions are to house
additional production lines. The fifth factory (under MK Garments) currently employs approximately 600 people. Its primary function is
to manufacture garments for orders from customers.
3
Our production facility in Al-Hasa County in the
Tafilah Governorate of Jordan comprises a factory, which currently employs approximately 300 people and its primary functions are to manufacture
garment products per customer orders. We commenced the construction of this factory in 2018 and we started operations in November 2019.
This is a joint project with the Jordanian Ministry of Labor and the Jordanian Education and Training Department. According to our agreement
with these government agencies, we used this factory without paying rent through December 2022. We have continued to use the factory without
paying rent since January 2023 as new arrangements with the Jordanian Ministry of Labor are still being made. See “Item 2. Properties”
below for more information regarding this factory.
In 2015, we commenced a project to build a 4,800
square-foot workshop in the Tafilah Governorate of Jordan, which was originally intended to be used as a sewing workshop for Jerash Garments.
Construction was temporarily suspended in March 2020 due to the COVID-19 pandemic and was subsequently completed and ready for use as
of September 30, 2021 and the building is now used as a dormitory to house management and supervisory staff who work at the factory in
Al-Hasa County.
In April 2021, we commenced a construction on
a 189,000 square-foot housing facility for our multi-national workforce, situated on a 49,000 square-foot site owned by us, in Al Tajamouat
Industrial City. We anticipate the completion and occupancy of the new building for August 2023. To meet increasing demand, we are also
completing plans to construct an additional project on a nearby separate 133,000 square-foot parcel that we purchased in 2019 for $1.2
million, with 2/3 of the land allocated for our seventh factory and 1/3 for housing. We have resumed our work with engineering consultants
on the architectural design of the building with the consideration of business growth potential bought about by the new business collaboration
with Busana Apparel Group.
Total annual capacity at our existing facilities
was approximately 14 million pieces (average for product categories including t-shirts, polo shirts, pants, shorts, and jackets, and excluding
PPE) as of March 31, 2023. Our production flow begins in the cutting department of our factory. Then the product is sent to the embroidery
department for embroidery if applicable. From there, the product moves to be processed by the sewing unit, finishing department, quality
control, and finally the ironing and packing units.
We do not have long-term supply contracts or arrangements
with our suppliers. Most of our ultimate suppliers for raw materials, such as fabric, zippers, and labels, are designated by customers
and we purchase such materials on a purchase order basis.
Employees
As of March 31, 2023, we had an aggregate of approximately
5,500 employees located in Jordan, Hong Kong, the People’s Republic of China, and the United States of America, all of which are
full-time employees.
Customers
The following table outlines the dollar amount
and percentage of total sales to our customers for the fiscal years ended March 31, 2023 (“fiscal 2023”) and March 31, 2022
(“fiscal 2022”).
Sales Sales
(USD, in thousands) % (USD, in thousands) %
Jiangsu Guotai Huasheng Industrial Co (HK)., Ltd 9,454 6.8 % 3,245 2.3 %
4
In fiscal 2023 and fiscal 2022, we depended on
a few key customers for our sales, and most of our sales in fiscal 2023 and 2022 were to one customer, VF Corporation.
We started producing garments for VF Corporation
in 2012. Most of the products we manufacture are sold under The North Face and Timberland brands which are owned by VF Corporation. Currently,
we manufacture primarily outerwear for The North Face. Approximately 60% and 67% of our sales in fiscal 2023 and 2022 were derived from
the sale of manufactured products to VF Corporation, respectively. We are not party to any long-term contracts with VF Corporation or
our other customers, and our sales arrangements with our customers do not have minimum purchase requirements. As is common in our industry,
VF Corporation and our other customers place purchase orders with us after we complete detailed sample development and approval processes
that we and our customers have agreed upon for their purchase of the relevant manufactured garments. It is through the sample development
and approval processes that we and VF Corporation and our other customers agree on the purchase and manufacture of the garments. For fiscal
2023, VF Corporation issued approximately 10,500 purchase orders to us in amounts ranging from approximately $6 to $372,000. For fiscal
2022, VF Corporate issued approximately 9,500 purchase orders to us in amounts ranging from approximately $5 to $684,000.
Our customers are in the retail industry, which
is subject to substantial cyclical variations. Consequently, there can be no assurance that sales to current customers will continue at
the current rate or at all. In addition, our annual and quarterly results may vary, which may cause our profits and the market price of
our common stock to decline.
We continue to seek to expand and strengthen our
relationship with our current customers and other brand names. However, we cannot assure you that these brands will continue to buy our
products in the same volumes or on the same terms as they did in the past or that we will be successful in expanding our relationship
with other brand names.
Competition
The markets for the manufacturing of sportswear
and outerwear are highly competitive. The competition in those markets is focused primarily on the price and quality of the product and
the level of customer service. Our products compete with products of other apparel manufacturers in Asia, Israel, Europe, the United States,
and South and Central America.
Competition with other manufacturers in the clothing
industry focuses on reducing production costs, reducing supply lead time, design, product quality, and efficiency of supply to the customer.
Since production costs depend to a large extent on labor costs, in recent years most production in the industry has been moved to countries
where labor costs are low. Some of our competitors have lower cost bases, longer operating histories, larger customer bases, and other
advantages over us which allow them to compete with us. As described in more detail under “—Conditions in Jordan”
below, we are able to sell our products manufactured at our facilities in Jordan to the United States free from customs duties and import
quotas under certain conditions. These favorable terms enable us to remain competitive on the basis of price. According to the Association
Agreement between the European Union (the “EU”) and Jordan, which came into force in May 2002, and the joint initiative on
rules of origin reviewed and improved in December 2018 by the EU and Jordan, goods manufactured by us in Jordan that are subsequently
shipped to EU countries are shipped free from customs duties.
5
Conditions in Jordan
Our manufacturing facilities are located in Jordan.
Accordingly, we are directly affected by political, security, and economic conditions in Jordan.
From time to time Jordan has experienced instances
of civil unrest, terrorism, and hostilities among neighboring countries, including Syria and Israel. A peace agreement between Israel
and Jordan was signed in 1994. Terrorist attacks, military activity, rioting, or civil or political unrest in the future could influence
the Jordanian economy and our operations by disrupting operations and communications and making travel within Jordan more difficult and
less desirable. Political or social tensions also could create a greater perception that investments in companies with Jordanian operations
involve a high degree of risk, which could adversely affect the market and price for our common stock.
Jordan is a constitutional monarchy, but the King
holds wide executive and legislative powers. The ruling family has taken initiatives that support the economic growth of the country.
However, there is no assurance that such initiatives will be successful or will continue. The rate of economic liberalization could change,
and specific laws and policies affecting manufacturing companies, foreign investments, currency exchange rates, and other matters affecting
investments in Jordan could change as well.
Trade Agreements
Because of the United States-Jordan Free Trade
Agreement, which came into force on December 17, 2001, and was implemented fully on January 1, 2010, and the Association Agreement between
the EU and Jordan, which came into force in May 2002, we are able to sell our products manufactured at our facilities in Jordan to the
U.S. free from customs duties and import quotas under certain conditions and to EU countries free from customs duties.
Income Tax Incentives
Effective January 1, 2019, Jordan’s government
converted the geographical area where Jerash Garments and its subsidiaries are located from a Free Zone to a Development Zone. Development
Zones are industrial parks that house manufacturing operations in Jordan. In accordance with applicable law, Jerash Garments and its subsidiaries
began paying corporate income tax in Jordan at a rate of 10% plus 1% social contribution. Starting from January 1, 2020, the corporate
income tax rate in Jordan increased to 14% plus 1% social contribution. Effective January 1, 2021, this rate increased to 16% plus 1%
social contribution. On January 1, 2022, this rate further increased to 18% or 20% plus 1% social contribution. On January 1, 2023, this
rate further increased to 19% or 20% plus a 1% social contribution. For more information, see “Note 2—Summary of Significant
Accounting Policies—Income and Sales Taxes.”
In addition, Jerash Garments and its subsidiaries
are subject to local sales tax of 16%. However, Jerash Garments was granted a sales tax exemption from the Jordanian Investment Commission
for the period June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases with no sales tax charge. This exemption was
extended to February 5, 2024.
Government Regulation
Our manufacturing and other facilities in Jordan
and our subsidiaries outside of Jordan are subject to various local regulations relating to the maintenance of safe working conditions
and manufacturing practices. Management believes that we are currently in compliance in all material respects with all such regulations.
We are not subject to governmental approval of our products or manufacturing process.
Item 1A. Risk Factors.
The following are factors that could have a significant
impact on our operations and financial results and could cause actual results or outcomes to differ materially from those discussed in
any forward-looking statements.
6
Risks Related to Our Business and Our Industry
We rely on one key customer for most of
our revenue. We cannot assure you that this customer or any other customer will continue to buy our products in the same volumes or on
the same terms.
Our sales to VF Corporation (which owns brands
such as The North Face, Timberland, and Vans), directly and indirectly, accounted for approximately 60% and 67% of our total sales in
fiscal 2023 and fiscal 2022, respectively. From an accounting perspective, we are considered the principal in our arrangement with VF
Corporation. We bear the inventory risk before the specified goods are transferred to a customer, and we have the right to determine the
price and to change our product during the sample development process with customers in which we determine factors including material
usage and manufacturing costs before confirming orders. Therefore, we present the sales and related manufacturing activities on a gross
basis.
We are not party to any long-term contracts with
VF Corporation or our other customers, and our sales arrangements with our customers do not have minimum purchase requirements. As is
common in our industry, VF Corporation and our other customers place purchase orders with us after we complete detailed sample development
and approval processes. It is through these sample development and approval processes that we and VF Corporation agree on the purchase
and manufacture of the garments in question. From April 1, 2021 to March 31, 2022, VF Corporation issued approximately 9,500 purchase
orders to us in amounts ranging from approximately $5 to $684,000. From April 1, 2022 to March 31, 2023, VF Corporation issued approximately
10,500 purchase orders to us in amounts ranging from approximately $6 to $372,000.
We cannot assure you that our customers will continue
to buy our products at all or in the same volumes or on the same terms as they have in the past. The failure of VF Corporation to continue
to buy our products in the same volumes and on the same terms as in the past may significantly reduce our sales and our earnings.
A material decrease in the quantity of sales made
to our principal customers, a material adverse change in the terms of such sales or a material adverse change in the financial condition
of our principal customers could significantly reduce our sales and our earnings.
We cannot assure you that VF Corporation will
continue to purchase our merchandise at the same historical rate, or at all, in the future, or that we will be able to attract new customers.
In addition, because of our reliance on VF Corporation as our key customer and their bargaining power with us, VF Corporation has the
ability to exert significant control over our business decisions, including prices.
Any adverse change in our relationship with
VF Corporation and its The North Face and Timberland brands, or with their strategies or reputation, would have a material adverse effect
on our results of operations.
Most of our products are sold under The North
Face and Timberland brands, which are owned by VF Corporation. Any adverse change in our relationship with VF Corporation would have a
material adverse effect on our results of operations. In addition, our sales of those products could be materially and adversely affected
if the image, reputation, or popularity of either VF Corporation, The North Face, or Timberland were to be negatively impacted.
If we lose our key customer and are unable
to attract new customers, then our business, results of operations, and financial condition would be adversely affected.
If our key customer, VF Corporation, fails to
purchase our merchandise at the same historical rate, or at all, we will need to attract new customers and we cannot assure you that we
will be able to do so. We do not currently invest significant resources in marketing our products, and we cannot assure you that any new
investments in sales and marketing will lead to the acquisition of additional customers or increased sales or profitability consistent
with prior periods. If we are unable to attract new customers or customers that generate comparable profit margins to VF Corporation,
then our results of operations and financial condition could be materially and adversely affected.
If we lose our larger brand name customers,
or the customers fail to purchase our products at anticipated levels, our sales and operating results will be adversely affected.
Our results of operations depend to a significant
extent upon the commercial success of our larger brand name customers. If we lose these customers, these customers fail to purchase our
products at anticipated levels, or our relationships with these customers or the brands and retailers they serve diminishes, it may have
an adverse effect on our results and we may lose a primary source of revenue. In addition, we may not be able to recoup development and
inventory costs associated with these customers and we may not be able to collect our receivables from them, which would negatively impact
our financial condition and results of operations.
7
If the market share of our customers declines,
our sales and earnings may decline.
Our sales can be adversely affected in the event
that our direct and indirect customers do not successfully compete in the markets in which they operate. In the event that the sales of
one of our major customers decline for any reason, regardless of whether it is related to us or to our products, our sales to that customer
may also decline, which could reduce our overall sales and our earnings.
Our financial condition, results of operations,
and cash flows in fiscal 2020 and 2021 were adversely affected by the COVID-19 pandemic.
In December 2019, COVID-19 was first identified
in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic—the
first pandemic caused by a coronavirus. The outbreak has reached more than 160 countries, including Jordan and the United States, resulting
in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control
the spread of the virus. On March 17, 2020, the country of Jordan announced a shutdown of non-essential activities as part of its proactive
national efforts to limit the spread of COVID-19. On April 4, 2020, we resumed operations of our main production facilities in Al Tajamouat
Industrial City under the condition that only migrant workers, living in dormitories in Al Tajamouat Industrial City, were allowed to
go to work in the factories under strict hygienic precautionary measures, pursuant to an approval from the Jordanian government dated
April 1, 2020. Our Al-Hasa factory was also allowed to restart operation on April 26, 2020. Eventually, local employees were also allowed
to resume work starting June 1, 2020.
Owing to the national shutdown in Jordan between
March 18 and March 31, 2020, the shipment of approximately $1.6 million of our orders which were scheduled to be shipped by March 31,
2020, the end of fiscal 2020, was postponed. We shipped these orders in the first quarter of fiscal 2021. There was also loss of productivity
in the shutdown period which negatively impacted our first quarter and full year profitability in fiscal 2021. In fiscal 2022, our production
facilities resumed full operation with additional medical and hygienic measures in place. The COVID-19 pandemic did not materially adversely
affect our business operations and condition and operating results for fiscal 2023. The Company currently expects that its operation results
for the fiscal year ending March 31, 2024 would not be significantly impacted by the COVID-19 pandemic. However, 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. 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.
We may require additional financing to fund
our operations and capital expenditures.
As of March 31, 2023, we had cash and cash equivalents
of approximately $17.8 million and restricted cash of approximately $1.6 million. There can be no assurance that our available cash, together
with resources from our operations, will be sufficient to fund our operations and capital expenditures. In addition, our cash position
may decline in the future, and we may not be successful in maintaining an adequate level of cash resources.
Pursuant to a facility letter (the “SCBHK
facility”) dated June 15, 2018 issued to Treasure Success by Standard Chartered Bank (Hong Kong) Limited (“SCBHK”),
SCBHK offered to provide an import facility of up to $3,000,000 to Treasure Success. The SCBHK facility covers import invoice financing
and pre-shipment financing under export orders with a combined limit of $3,000,000. SCBHK charges interest at 1.3% per annum over SCBHK’s
cost of funds. In consideration for arranging the SCBHK facility, Treasure Success paid SCBHK HKD50,000. We were informed by SCBHK on
January 31, 2019 that the SCBHK facility had been activated. As of March 31, 2022, there was no outstanding amount under the SCBHK
facility. In June 2022, we were informed by SCBHK that the facility was cancelled due to persistently low usage and zero loan outstanding.
8
Pursuant to the DBS facility letter dated January
12, 2022, DBS Bank (Hong Kong) Limited (“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
(“HIBOR”) 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.
In addition, we may be required to seek additional
debt or equity financing in order to support our growing operations. We may not be able to obtain additional financing on satisfactory
terms, or at all, and any new equity financing could have a substantial dilutive effect on our existing stockholders. If we cannot obtain
additional financing, we may not be able to achieve our desired sales growth, and our results of operations would be negatively affected.
We may have conflicts of interest with our
affiliates and related parties, and in the past we have engaged in transactions and entered into agreements with affiliates that were
not negotiated at arms’ length.
We have engaged, and may in the future engage,
in transactions with affiliates and other related parties. These transactions may not have been, and may not be, on terms as favorable
to us as they could have been if obtained from non-affiliated persons. While an effort has been made and will continue to be made to obtain
services from affiliated persons and other related parties at rates and on terms as favorable as would be charged by others, there will
always be an inherent conflict of interest between our interests and those of our affiliates and related parties. Through his wholly owned
entity Merlotte Enterprise Limited, Mr. Choi, our chairman, chief executive officer, president, treasurer, and a significant stockholder,
has an indirect ownership interest in Jiangmen V-Apparel Manufacturing Limited, with which we have entered into, or in the future may
enter into, agreements or arrangements. See also “Note 11—Related Party Transactions.” If we engage in related party
transactions on unfavorable terms, our operating results will be negatively impacted.
We are dependent on a product segment comprised
of a limited number of products.
Presently, we generate revenue primarily from
manufacturing and exporting sportswear and outerwear. A shift in demand from such products may reduce the growth of new business for our
products, and reduce existing business in those products. If demand in sportswear and outerwear were to decline, we may endeavor to expand
or transition our product offerings to other segments of the clothing retail industry. There can be no assurance that we would be able
to successfully make such an expansion or transition, or that our sales and margins would not decline in the event we made such an expansion
or transition.
Our revenue and cash requirements are affected
by the seasonal nature of our business.
A significant portion of our revenue is received
during the first six months of our fiscal year, or from April through September. A majority of our VF Corporation orders are derived from
winter season fashions, the sales of which occur in the spring and summer and are merchandized by VF Corporation during the autumn months
(September through November). As such, the second half of our fiscal year reflect lower sales in anticipation of the spring and summer
seasons. In addition, due to the nature of our relationships with customers and our use of purchase orders to conduct our business, our
revenue may vary from period to period.
Changes in our product mix and the geographic
destination of our products or source of our supplies may impact our cost of goods sold, net income, and financial position.
From time to time, we experience changes in the
product mix and the geographic destination of our products. To the extent our product mix shifts from higher revenue items, such as jackets,
to lower revenue items, such as pants, our cost of goods sold as a percentage of gross revenue will likely increase. In addition, if we
sell a higher proportion of products in geographic regions where we do not benefit from free trade agreements or tax exemptions, our gross
margins will fall. If we are unable to sustain consistent product mix and geographic destinations for our products, we could experience
negative impacts to our financial condition and results of operations.
9
Our direct and indirect customers are in
the clothing retail industry, which is subject to substantial cyclical variations and could have a material adverse effect on our results
of operations.
Our direct and indirect customers are in the clothing
retail industry, which is subject to substantial cyclical variations and is strongly affected by any downturn or slowdown in the general
economy. Factors in the clothing retail industry that may influence our operating results from quarter to quarter include:
● the volume and timing of customer orders we receive during the quarter;
● the timing and magnitude of our customers’ marketing campaigns;
● the loss or addition of a major customer or of a major retailer nomination;
● the availability and pricing of materials for our products;
● the increased expenses incurred in connection with introducing new products;
● currency fluctuations;
● political factors that may affect the expected flow of commerce; and
● delays caused by third parties.
In addition, uncertainty over future economic
prospects could have a material adverse effect on our results of operations. Many factors affect the level of consumer spending in the
clothing retail industry, including, among others:
● general business conditions;
● interest rates;
● the availability of consumer credit;
● taxation; and
● consumer confidence in future economic conditions.
Consumer purchases of discretionary items, including
our products, may decline during recessionary periods and also may decline at other times when disposable income is lower. Consequently,
our customers may have larger inventories of our products than expected, and to compensate for any downturn they may reduce the size of
their orders, change the payment terms, limit their purchases to a lower price range, and try to change their purchase terms, all of which
may have a material adverse effect on our financial condition and results of operations.
The clothing retail industry is subject
to changes in fashion preferences. If our customers misjudge a fashion trend or the price which consumers are willing to pay for our products
decreases, our revenue could be adversely affected.
The clothing retail industry is subject to changes
in fashion preferences. We design and manufacture products based on our customers’ judgment as to what products will appeal to consumers
and what price consumers would be willing to pay for our products. Our customers may not be successful in accurately anticipating consumer
preferences and the prices that consumers would be willing to pay for our products. Our revenue will be reduced if our customers are not
successful, particularly if our customers reduce the volume of their purchases from us or require us to reduce the prices at which we
sell our products.
10
If we experience product quality or late
delivery problems, or if we experience financial problems, our business will be negatively affected.
We may from time to time experience difficulties
in making timely delivery of products of acceptable quality. Such difficulties may result in cancellation of orders, customer refusal
to accept deliveries, or reductions in purchase prices, any of which could have a material adverse effect on our financial condition and
results of operations. There can be no assurance that we will not experience difficulties with manufacturing our products.
We face intense competition in the worldwide
apparel manufacturing industry.
We compete directly with a number of manufacturers
of sportswear and outerwear. Some of these manufacturers have lower cost bases, longer operating histories, larger customer bases, greater
geographical proximity to customers, or greater financial and marketing resources than we do. Increased competition, direct or indirect,
could reduce our revenue and profitability through pricing pressure, loss of market share, and other factors. We cannot assure you that
we will be able to compete successfully with existing or new competitors, as the market for our products evolves and the level of competition
increases. We believe that our business will depend upon our ability to provide apparel products of good quality and meeting our customers’
pricing and delivery requirements, and our ability to maintain relationships with our major customers. There can be no assurance that
we will be successful in this regard.
We may not be successful in integrating acquired businesses.
Our growth and profitability could be adversely
affected if we acquire businesses or assets of other businesses and are unable to integrate the business or assets into our current business.
To grow effectively, we must find acquisition candidates that meet our criteria and successfully integrate the acquired business into
ours. If acquired businesses do not achieve expected levels of production or profitability, we are unable to integrate the business or
assets into our business, or we are unable to adequately manage our growth following the acquisition, our results of operations and financial
condition would be adversely affected.
Our results of operations are subject to fluctuations in currency
exchange rates.
Exchange rate fluctuations between the U.S. dollar
and Jordanian Dinar (“JOD”), Hong Kong dollar, or Chinese Yuan (“CNY”), as well as inflation in Jordan, Hong Kong,
or the PRC, may negatively affect our earnings. A substantial majority of our revenue and a substantial portion of our expenses are denominated
in U.S. dollars. However, a significant portion of the expenses associated with our Jordanian, Hong Kong, or PRC operations, including
personnel and facilities-related expenses, are incurred in JOD, Hong Kong dollars, or CNY, respectively. Consequently, inflation in Jordan,
Hong Kong, or the PRC will have the effect of increasing the dollar cost of our operations in Jordan, Hong Kong, or the PRC, respectively,
unless it is offset on a timely basis by a devaluation of JOD, Hong Kong dollar, or CNY, as applicable, relative to the U.S. dollar. We
cannot predict any future trends in the rate of inflation in Jordan, Hong Kong, or the PRC or the rate of devaluation of JOD, Hong Kong
dollar, or CNY, as applicable, against the U.S. dollar. In addition, we are exposed to the risk of fluctuation in the value of JOD, Hong
Kong dollar, and CNY vis-a-vis the U.S. dollar. There can be no assurance that JOD or Hong Kong dollar will remain effectively pegged
to the U.S. dollar. Any significant appreciation of JOD, Hong Kong dollar, or CNY against the U.S. dollar would cause an increase in our
JOD, Hong Kong dollar, or CNY expenses, as applicable, as recorded in our U.S. dollar denominated financial reports, even though the expenses
denominated in JOD, Hong Kong dollars, or CNY, as applicable, will remain unchanged. In addition, exchange rate fluctuations in currency
exchange rates in countries other than Jordan where we operate and do business may also negatively affect our earnings.
We are subject to the risks of doing business
abroad.
All of our products are manufactured outside the
United States, at our subsidiaries’ production facilities in Jordan. Foreign manufacturing is subject to a number of risks, including
work stoppages, transportation delays and interruptions, political instability, foreign currency fluctuations, economic disruptions, expropriation,
nationalization, the imposition of tariffs and import and export controls, changes in governmental policies (including U.S. policies towards
Jordan), and other factors, which could have an adverse effect on our business. In addition, we may be subject to risks associated with
the availability of and time required for the transportation of products from foreign countries. The occurrence of certain of these factors
may delay or prevent the delivery of goods ordered by customers, and such delay or inability to meet delivery requirements would have
a severe adverse impact on our results of operations and could have an adverse effect on our relationships with our customers.
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Our ability to benefit from the lower labor costs
in Jordan will depend on the political, social, and economic stability of Jordan and in the Middle East in general. We cannot assure you
that the political, economic, or social situation in Jordan or in the Middle East in general will not have a material adverse effect on
our operations, especially in light of the potential for hostilities in the Middle East. The success of the production facilities also
will depend on the quality of the workmanship of laborers and our ability to maintain good relations with such laborers in these countries.
We cannot guarantee that our operations in Jordan or any new locations outside of Jordan will be cost-efficient or successful.
Our business could suffer if we violate
labor laws or fail to conform to generally accepted labor standards or the ethical standards of our customers.
We are subject to labor laws issued by the Jordanian
Ministry of Labor for our facilities in Jordan. In addition, many of our customers require their manufacturing suppliers to meet their
standards for working conditions and other matters. If we violate applicable labor laws or generally accepted labor standards or the ethical
standards of our customers by, for example, using forced or indentured labor or child labor, failing to pay compensation in accordance
with local law, failing to operate our factories in compliance with local safety regulations, or diverging from other labor practices
generally accepted as ethical, we could suffer a loss of sales or customers. In addition, such actions could result in negative publicity
and may damage our reputation and discourage retail customers and consumers from buying our products.
Our products may not comply with various
industry and governmental regulations and our customers may incur losses in their products or operations as a consequence of our non-compliance.
Our products are produced under strict supervision
and controls to ensure that all materials and manufacturing processes comply with the industry and governmental regulations governing
the markets in which these products are sold. However, if our controls fail to detect or prevent non-compliant materials from entering
the manufacturing process, our products could cause damages to our customers’ products or processes and could also result in fines
being incurred. The possible damages, replacement costs, and fines could significantly exceed the value of our products and these risks
may not be covered by our insurance policies.
We depend on our suppliers for machinery
and maintenance of machinery. We may experience delays or additional costs satisfying our production requirements due to our reliance
on these suppliers.
We purchase machinery and equipment used in our
manufacturing process from third-party suppliers. If our suppliers are not able to provide us with maintenance or additional machinery
or equipment as needed, we might not be able to maintain or increase our production to meet any demand for our products, which would negatively
impact our financial condition and results of operations.
We are a holding company and rely on dividends,
distributions, and other payments, advances, and transfers of funds from our subsidiaries to meet our obligations.
We are a holding company that does not conduct
any business operations of our own. As a result, we rely on cash dividends and distributions and other transfers from our operating subsidiaries
to meet our obligations. The deterioration of income from, or other available assets of, our operating subsidiaries for any reason could
limit or impair their ability to pay dividends or other distributions to us, which in turn could adversely affect our financial condition
and results of operations.
Periods of sustained economic adversity
and uncertainty could negatively affect our business, results of operations, and financial condition.
Disruptions in the financial markets, such as
what occurred in the global markets in 2008, may adversely impact the availability and cost of credit for our customers and prospective
customers, which could result in the delay or cancellation of customer purchases. In addition, disruptions in the financial markets may
have an adverse impact on regional and world economies and credit markets, which could negatively impact the availability and cost of
capital for us and our customers. These conditions may reduce the willingness or ability of our customers and prospective customers to
commit funds to purchase our services or products, or their ability to pay for our services after purchase. These conditions could result
in bankruptcy or insolvency for some customers, which would impact our revenue and cash collections. These conditions could also result
in pricing pressure and less favorable financial terms to us and our ability to access capital to fund our operations.
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Risks Related to Operations in Jordan