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.
Risks Related to Our Business and Our Industry
We rely on one key customer for a large
portion 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 52% and 65% of our total sales in
fiscal 2026 and 2025, 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. In fiscal 2025, VF Corporation issued approximately 14,700 purchase orders to us in amounts
ranging from approximately $6 to $929,000. In fiscal 2026, VF Corporation issued approximately 14,300 purchase orders to us in amounts
ranging from approximately $5 to $296,000.
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 owned brands, or with their strategies or reputation, would have a material adverse effect on our results of operations.
A large portion of our products are sold under
The North Face, Timberland, and Vans 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, Timberland, or Vans were to be negatively impacted.
7
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.
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.
A natural disaster, catastrophe, pandemic,
or other unexpected events could adversely affect our financial conditions and business operations.
The occurrence of one or more unexpected events,
including war, acts of terrorism or violence, civil unrest, epidemics or pandemics, fires, tornadoes, hurricanes, earthquakes, floods,
and other forms of severe weather in the countries or regions in which we do business could adversely affect our operations and financial
performance.
We may require additional financing to fund
our operations and capital expenditures.
As of March 31, 2026, we had cash and cash equivalents of approximately
$10.8 million and restricted cash of approximately $1.7 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 the DBS Bank (Hong Kong) Limited
(“DBSHK”) facility letter dated January 12, 2022, DBSHK provided a bank facility of up to $5.0 million to Treasure
Success, which was amended pursuant to a facility letter dated January 4, 2024. Pursuant to the amended agreement, DBSHK agreed to
finance cargo receipt, trust receipt, account payable financing, and certain type of import and export invoice financing up to an
aggregate of $5.0 million, with certain financial covenants. The DBSHK facility bears interest at 1.5% per annum over Hong Kong
Interbank Offered Rate (“HIBOR”) for Hong Kong dollar (“HKD”) bills and 1.1% to 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 March 31, 2026 and 2025, the Company had $4,902,996 and $4,512,462 outstanding under the DBSHK
facility, respectively.
8
On July 31, 2025, Bank al Etihad offered to provide
a credit facility of up to $6.0 million to Jerash Garments. Pursuant to the facility, Bank al Etihad agreed to finance import invoices
of up to $6.0 million with condition that such invoices are secured by letter of credit issued by customers. The facility bears an interest
rate at the Prime Lending Rate announced by Bank al Etihad, currently 8% per annum. As of March 31, 2026, the Company had $nil outstanding
under the Bank al Etihad facility. The Bank al Etihad facility is reviewed annually.
On January 15, 2026, Housing Bank offered a credit facility of up to
$14.0 million to Jerash Garments. Pursuant to the facility, Housing Bank agreed to finance import invoices of up to $14.0 million, with
condition that such invoices are secured by letter of credit issued by customers. The facility bears an interest rate Secured Overnight
Financing Rate (“SOFR”) plus a spread, currently approximately 6.1% per annum. As of March 31, 2026, the Company had $nil
outstanding under the Housing Bank facility. The Housing Bank facility is reviewed annually.
On April 9, 2026, the Company signed a credit
facility agreement offered by Capital Bank of Jordan (“Capital Bank”). Pursuant to the facility, Capital Bank agreed to finance
import invoices of up to $7.5 million with condition that such invoices are secured by letter of credit issued by customers. The facility
bears an SOFR interest rate plus a spread, with minimum 5% interest rate annually. The Capital Bank facility is reviewed annually.
In connection with the Property Purchase Request
of Property No. 1326, on January 28, 2026, Jerash Garments entered into a loan agreement with the Housing Bank to finance the acquisition
of Property No. 1326. Pursuant to the loan agreement, the Housing Bank agreed to provide Jerash Garments with a loan in the principal
amount of JOD 2,000,000 (approximately $2,820,000). The loan bears interest at a rate of 8% per annum, calculated on the daily outstanding
balance and charged monthly. Following a grace period ending January 31, 2027, the loan is repayable in 96 monthly installments of JOD
20,833 each, with the first installment due on February 1, 2027. The loan is secured by a first-priority mortgage on Property No. 1326,
valued at JOD 5,500,000.
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. 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 for 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.
We used to have stronger seasonality due to higher
values of fall and winter orders normally shipped in the first two quarters of our fiscal years. We have been working on smoothing out
seasonality through expansions of customer base and product offerings. In fiscal 2026, we managed to reverse the trend to have higher
sales in the second half of the year through the introduction of a new customer and expansion in sales of some existing customers for
spring and summer season orders. 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.
9
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.
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 have entered into joint ventures with
third parties, and we may continue to do so in the future. This may subject us to various risks, including limited decision-making authority,
reliance on our joint venture partners’ financial condition, the risk of disputes with our joint venture partners, and the risk
of failing to achieve profitability through such business.
As of the date of this annual report, we have
entered into two joint ventures with third parties, which joint ventures are in the process of being dissolved. Please refer to “Item
1. Business—Organizational structure” for more information. Once we enter into any joint ventures, we will have limited decision-making
authority and we may face the risk of disputes with our joint venture partners. This includes potential deadlocks in making major decisions
and restrictions on our ability to exit the joint venture. Any disputes that arise between us and any of our joint venture partners may
result in litigation or arbitration. We may also face risks associated with the financial condition of our joint venture partners, including
the risk of bankruptcy and/or failure to fund their share of required capital contributions. As a result, we may be exposed to liabilities
that exceed our share of any joint venture. Our joint venture partners may also have business interests or goals that are inconsistent
with ours and may be able to take actions contrary to our policies or objectives. In specific circumstances, we may be liable for the
actions of any joint venture partners. Any of these situations may have a material adverse effect on our business, financial condition,
and results of operations.
Furthermore, we cannot assure that we may succeed
in doing business through any future joint ventures. If any future joint venture does not achieve expected level of production or profitability,
we will not be able to adequately manage our growth following the establishment of such business, and 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, HKD, 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, HKD, 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, HKD, or CNY, as applicable,
against the U.S. dollar. In addition, we are exposed to the risk of fluctuation in the value of JOD, HKD, CNY vis-a-vis the U.S. dollar.
There can be no assurance that JOD or HKD will remain effectively pegged to the U.S. dollar. Any significant appreciation of JOD, HKD,
or CNY against the U.S. dollar would cause an increase in our JOD, HKD, or CNY expenses, as applicable, as recorded in our U.S. dollar
denominated financial reports, even though the expenses denominated in JOD, HKD, 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.
11
We are subject to the risks of doing business
abroad.
Almost 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.
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. See “—Risks Related to Operations
in Jordan—Our operations in Jordan may be adversely affected by social and political uncertainties or change, military actions,
health-related risks, acts of terrorism or other geopolitical instability.” 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.
12
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.
Risks Related to Operations in Jordan
We are affected by conditions to, and possible
reduction of, free trade agreements.
Because of the Association Agreement between the
EU and Jordan, we are able to sell our products manufactured at our facilities in Jordan to EU countries free from customs duties. If
there is a change in such benefits or if such agreement were terminated, our profitability may be reduced.
Because of the United States-Jordan Free Trade
Agreement, we were 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 prior to April 2025.
Effective from April 5, 2025, the U.S. imposed
a baseline tariff of 10% on imports from almost all countries, including Jordan. Then, effective from April 9, 2025, it had announced
“reciprocal” tariffs of imports from specified countries, amongst them Jordan with a prevailing rate of then 20%. These “reciprocal”
tariffs are postponed for 90 days, whilst the 10% baseline tariff persists. Up to the date of this annual report, the tariff was modified
to 15% according to an executive order of presidential actions on July 31, 2025. In February 2026, the U.S. Supreme Court ruled that the
“reciprocal” tariffs were illegal, and the U.S. Customs has since then stopped to impose the “reciprocal” tariff
and established a new process to refund importers for voided “reciprocal” tariff. Following the ruling, the U.S. Government
invoked Section 122 of the Trade Act of 1974 to impose an across the board 10% tariff for a period of 150 days expiring in July 2026.
Imports from Jordan are also subject to this tariff. While the payment of the tariff is typically the responsibility of the importer (Jerash’s
customers), the impact of the tariff on customers’ demand would be affected by the comparative levels of the tariffs on imports
from Jordan compared to other.
It remains unclear what specifically President
Trump would or would not do with respect to trade agreements, tariffs, and duties relating to products manufactured in Jordan during his
current term. If President Trump takes action or publicly speaks out about the need to terminate or re-negotiate existing free trade agreements
on which we rely, or in favor of restricting free trade or increasing tariffs and duties applicable to our products, such actions may
adversely affect our sales and have a material adverse impact on our business, results of operations, and cash flows.
13
Our results of operations would be materially
and adversely affected in the event we are unable to operate our principal production facilities in Jordan.
All of our manufacturing process is performed
in a complex of production facilities located in Jordan. We have no effective back-up for these operations and, in the event that we are
unable to use the production facilities located in Jordan as a result of damage or for any other reason, our ability to manufacture a
major portion of our products and our relationships with customers could be significantly impaired, which would materially and adversely
affect our results of operation.
Our operations in Jordan may be adversely
affected by social and political uncertainties or change, military actions, health-related risks, acts of terrorism, or other geopolitical
instability.
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. In late May 2018, protests about a proposed tax bill began throughout Jordan. On June 5, 2018, King Abdullah II of Jordan
responded to the protests by removing and replacing Jordan’s prime minister. If political uncertainty rises in Jordan, our business,
financial condition, results of operations, and cash flows may be negatively impacted.
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 price of our common stock. We do not have insurance for losses and interruptions caused by terrorist attacks, military conflicts,
and wars, which could subject us to significant financial losses. The realization of any of these risks could cause a material adverse
effect on our business, financial condition, results of operations, and cash flows.
Furthermore, global markets have recently experienced
volatility and disruption following the escalation of geopolitical tensions, including the military conflict between Russia and Ukraine
and the conflict in the Middle East. Specifically, Russian military forces initiated a full-scale invasion of Ukraine on February 24,
2022, leading to sustained conflict and disruption. See “—Risk Factors Relating to our Securities—We are currently operating
in a period of economic uncertainty and capital market disruption, which has been significantly impacted by geopolitical instability due
to the ongoing military conflict between Russia and Ukraine and the confrontations in the Middle East, including conflicts between Israel
and Hamas, and between Iran and Israel. Our business, financial condition, and results of operations could be materially adversely affected
by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.”
Additionally, on October 7, 2023, Hamas militants and members of other terrorist organizations infiltrated Israel’s southern border
from the Gaza Strip and conducted a series of terror attacks on civilian and military targets, leading to a declaration of war by Israel.
Subsequently, there have been disruptions in the region. The intensity and duration of the current Israel-Hamas war and the larger regional
conflict are difficult to predict, as are the economic implications on our business and operations, the global supply chain, and global
geopolitical stability.
Since November 2023, Yemen’s Iran-backed
Houthi Rebels have intensified attacks on commercial vessels in the Red Sea, targeting ships from over 40 nations, including Jordan. The
Red Sea turmoil has led to higher logistic costs for us to import raw material. Furthermore, we have incurred extra production costs to
adhere to customers’ delivery schedules and mitigate the impact of delayed arrivals of raw materials caused by the aforementioned
logistic disruption. If these attacks continue or escalate, we may be forced to reroute shipments around the Cape of Good Hope, which
will result in higher shipping costs and delays. Additionally, these disruptions could lead to increased shipping insurance premiums and
elevated global fuel prices, which will further drive up our transportation expenses.
Since June 2025, the conflict between Israel and
Iran has escalated. In March 2026, military conflict involving the United States, Israel and Iran increased geopolitical instability internationally
and, to date, increased armed conflicts in the Middle East, which has had a significant effect on global energy and capital markets. These
direct military engagements, proxy activities, and broader regional tensions could have significant adverse effects on Jordan’s
political and economic environment, and consequently, on our business operations. Further intensification of the conflict could result
in regional economic instability, potentially disrupting trade routes, supply chains, and cross-border commerce. Heightened military activity
could also create security risks for our facilities, employees, and customers, potentially leading to business interruptions, increased
operating costs, or damage to physical assets. In response to regional threats, the government of Jordan may implement new regulations,
restrictions, or emergency measures, which could affect our ability to conduct business as usual. Currently, both of the ports of Aqaba
in Jordan and Haifa in Israel, which are the main ports for Jerash’s imports of raw materials and export of garment products, are
operating as normal.
14
While we do not have any employees, staff, consultants,
operations, materials, or equipment located in Israel, Iran, Ukraine, Russia, or Belarus, all of our manufacturing processes are performed
in a complex of production facilities located in Jordan. This situation could adversely affect our business or the services being provided
to us due to concerns about conflict in the Palestinian territories and broader regional instability. For example, when Hamas launched
its attack on October 7, 2023, it had an unfavorable impact on the Jordanian street and the country’s national security. Similarly,
escalating tensions involving Iran, including disruptions to strategic airspaces and critical maritime routes, such as the Strait of Hormuz
and the Red Sea, have contributed to increases in the price of oil and gas, disruptions to global supply chains, and heightened market
uncertainty. Despite bilateral cooperation between Jordan and the United States that may contribute to assisting the conflicting parties
in ultimately achieving peace and security, we cannot assure that our business operations will not be adversely impacted by such disputes.
Any of the aforementioned factors could affect
our business, prospects, financial condition, and operating results. The extent and duration of military action, sanctions, and resulting
market disruptions are impossible to predict, but could be substantial.
We may face interruption of production and
services due to increased security measures in response to terrorism.
Our business depends on the free flow of products
and services through the channels of commerce. In response to terrorists’ activities and threats aimed at the United States, transportation,
mail, financial, and other services may be slowed or stopped altogether. Extensive delays or stoppages in transportation, mail, financial,
or other services could have a material adverse effect on our business, results of operations, and financial condition. Furthermore, we
may experience an increase in operating costs, such as costs for transportation, insurance, and security as a result of the activities
and potential delays. We may also experience delays in receiving payments from payors that have been affected by the terrorist activities.
The United States economy in general may be adversely affected by terrorist activities and any economic downturn could adversely impact
our results of operations, impair our ability to raise capital, or otherwise adversely affect our ability to grow our business.
We are subject to regulatory and political
uncertainties in Jordan.
We conduct substantially all of our business and
operations in Jordan. Consequently, government policies and regulations, including tax policies, in Jordan will impact our financial performance
and the market price of 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. A significant change in Jordan’s economic policy or any social or political uncertainties
that impact economic policy in Jordan could adversely affect business and economic conditions in Jordan generally and our business and
prospects.
If we violate applicable anti-corruption
laws or our internal policies designed to ensure ethical business practices, we could face financial penalties and reputational harm that
would negatively impact our financial condition and results of operations.
We are subject to anti-corruption and anti-bribery
laws in the United States and Jordan. Jordan’s reputation for potential corruption and the challenges presented by Jordan’s
complex business environment, including high levels of bureaucracy, red tape, and vague regulations, may increase our risk of violating
applicable anti-corruption laws. We face the risk that we, our employees, or any third parties such as our sales agents and distributors
that we engage to do work on our behalf may take action determined to be in violation of anti-corruption laws in any jurisdiction in which
we conduct business, including the Foreign Corrupt Practices Act of 1977 (the “FCPA”). Any violation of the FCPA or any similar
anti-corruption law or regulation could result in substantial fines, sanctions, civil or criminal penalties, and curtailment of operations
that might harm our business, financial condition, or results of operations.
15
Our stockholders may face difficulties in
protecting their interests and exercising their rights as a stockholder of ours because we conduct substantially all of our operations
in Jordan and certain of our officers and directors reside outside of the United States.
Certain of our officers and directors reside outside
the United States. Therefore, our stockholders may experience difficulties in effecting service of legal process, enforcing foreign judgments,
or bringing original actions in any of these jurisdictions based upon U.S. laws, including the federal securities laws or other foreign
laws against us, our officers, and directors. Furthermore, we conduct substantially all of our operations in Jordan through our operating
subsidiaries. Because the majority of our assets are located outside the United States, any judgment obtained in the United States against
us or certain of our directors and officers may not be collectible within the United States.
Risk Factors Relating to Our Securities
If we fail to comply with the continuing
listing standards of the Nasdaq, our common stock could be delisted from the exchange.
If we were unable to meet the continued listing
requirements of the Nasdaq Stock Market (“Nasdaq”), our common stock could be delisted from the Nasdaq. Any such delisting
of our common stock could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock,
not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions
and less coverage of us by securities analysts, if any. Also, if in the future we were to determine that we need to seek additional equity
capital, being delisted from Nasdaq could have an adverse effect on our ability to raise capital in the public or private equity markets.
Future sales and issuances of our common
stock or rights to purchase common stock could result in additional dilution of the percentage ownership of our stockholders and could
cause the market price of our common stock to decline.
We may issue additional securities in the future.
Pursuant to our amended and restated 2018 Stock Incentive Plan, we may issue up to 1,784,250 shares of common stock to certain members
of our management and key employees. As of the date of this annual report, 121,310 shares of common stock remain available for issuance
under our amended and restated 2018 Stock Incentive Plan.
Future sales and issuances of our common stock
or rights to purchase our common stock could result in substantial dilution to our existing stockholders. We may sell common stock, convertible
securities, and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If
we sell any such securities, our stockholders may be materially diluted. New investors in any future transactions could gain rights, preferences,
and privileges senior to those of holders of our common stock.
If securities or industry analysts do not
publish research or reports about us, or if they adversely change their recommendations regarding our common stock, our stock price and
trading volume of our common stock could decline.
The trading market for our common stock will be
influenced by the research and reports that industry or securities analysts publish about us, our industry, and our market. If no analyst
elects to cover us and publish research or reports about us, the market for our common stock could be severely limited and our stock price
could be adversely affected. In addition, if one or more analysts ceases coverage of us or fails to regularly publish reports on us, we
could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If one or more
analysts who elect to cover us issue negative reports or adversely change their recommendations regarding our common stock, the market
price of our common stock could decline.
16
The requirements of being a public company,
including compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
and the requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), may strain our resources, increase our costs,
and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
We are required to comply with the laws, regulations,
requirements, and certain corporate governance provisions under the Exchange Act and the Sarbanes-Oxley Act. Complying with these statutes,
regulations, and requirements occupies a significant amount of time of our board of directors and management, significantly increases
our costs and expenses, and makes some activities more time-consuming and costly. As a reporting company, we are:
● instituting a more comprehensive compliance function;
Our ongoing compliance efforts increase general
and administrative expenses and may divert management’s time and attention from the development of our business, which may adversely
affect our financial condition and results of operations.
If we fail to establish and maintain an
effective system of internal controls, we may not be able to report our financial results accurately. Any inability to report and file
our financial results accurately and timely could harm our business and adversely affect the trading price of our common stock.
We have been required to evaluate our internal
control over financial reporting under Section 404 of the Sarbanes-Oxley Act beginning with the annual report on Form 10-K for the fiscal
year ended March 31, 2019. The process of designing and implementing internal controls over financial reporting may divert our internal
resources and take a significant amount of time and expense to complete.
In connection with the preparation and external
audit of our consolidated financial statements for the fiscal year ended March 31, 2025, we identified certain material weaknesses in
our internal control over financial reporting and have formulated plans for remedial measures. In the assessment in fiscal 2026, the management
concluded that, as of March 31, 2026, our internal control over financial reporting was effective after review and testing of the effectiveness
of the remedial actions. See “Item 9A. Controls and Procedures.”
However, our management team cannot guarantee
that our internal controls and disclosure controls and procedures will prevent all possible errors. Because of the inherent limitations
in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
the Company have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty and
subject to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two
or more persons, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, measures of control may become inadequate because of changes in conditions or the degree of
compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and may not be detected.
We incur and will continue to incur increased
costs and demands upon management as a result of being a public company.
As a public company listed in the United States,
we incur, and will continue to incur, now that we have ceased to be an “emerging growth company,” significant legal, accounting,
and other costs. These costs could negatively affect our financial results. In addition, changing laws, regulations, and standards relating
to corporate governance and public disclosure, including regulations implemented by the SEC and Nasdaq, may increase legal and financial
compliance costs and make some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations
and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.
17
We are committed to comply with evolving laws,
regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s
time and attention from revenue-generating activities to compliance activities. If we do not comply with new laws, regulations, and standards,
regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Failure to comply with these rules might also
make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced
to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of
these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees
of our board of directors or as members of senior management.
We are currently operating in a period of
economic uncertainty and capital market disruption, which has been significantly impacted by geopolitical instability due to the ongoing
military conflict between Russia and Ukraine. Our business, financial condition, and results of operations could be materially adversely
affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical
tensions, including the ongoing confrontations in the Middle East, such as the conflicts between the United States, Iran and Israel and
between Israel and Hamas.
U.S. and global markets are experiencing volatility
and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On
February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing
military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility
in commodity prices, credit and capital markets, and supply chain interruptions. In March 2026, military conflict involving the United
States, Israel and Iran increased geopolitical instability internationally and, to date, increased armed conflicts in the Middle East,
which has had a significant effect on global energy and capital markets.
The military conflict in Ukraine has led to sanctions
and other penalties being levied by the United States, European Union, and other countries against Russia. Additional potential sanctions
and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the
global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult
for us to obtain additional funds. In addition, in managing an organization operating globally, we are subject to the risks and challenges
related to the potential to subject our business to materially adverse consequences should the situation escalate beyond its current scope,
including, among other potential impacts, the geographic proximity of the situation relative to the Middle East, where a material portion
of our business is conducted.
Although our business has not been materially
impacted by the ongoing military conflict between Russian and Ukraine and military actions in the Middle East to date, it is impossible
to predict the extent to which our operations, or those of our suppliers and manufacturers, will be impacted in the short and long term,
or the ways in which the conflict may impact our business. The extent and duration of the military action, sanctions, and resulting market
disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described
in this annual report.
See also “—Risks Related to Operations
in Jordan—Our operations in Jordan may be adversely affected by social and political uncertainties or change, military actions,
health-related risks, acts of terrorism, or other geopolitical instability.”
18
We may be adversely affected by the effects
of inflation and a potential recession.
Inflation has the potential to adversely affect
our liquidity, business, financial condition, and results of operations by increasing our overall cost structure, particularly if we are
unable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has resulted
in, and may continue to result in, higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor,
weakening exchange rates, and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost
increases. In addition, poor economic and market conditions, including a potential recession, may negatively impact market sentiment,
decreasing the demand for sportswear and outerwear, which would adversely affect our operating income and results of operations. If we
are unable to take effective measures in a timely manner to mitigate the impact of the inflation as well as a potential recession, our
business, financial condition, and results of operations could be adversely affected.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Risk Management and Strategy
Cybersecurity is a vital aspect of maintaining
the trust of our customers and employees. We have instituted a comprehensive cybersecurity risk management program that employs various
methods to monitor and assess our threat environment and risk profile. These methods include the use of manual and automated tools, conducting
scans of the threat environment, evaluating our and our industry’s risk profile, evaluating threats reported to us and conducting
vulnerabilities assessments. We have company-wide policies and procedures in place that further enhance our ability to identify and manage
cybersecurity risks. Our employees receive ongoing training under our security policies.
Annual risk assessments and penetration testing
are primarily performed by our internal staff, and we have not engaged any third parties in connection with such processes except that
we have an external Management Information Systems consultant, or MIS consultant, who provides advice to our CEO in the review of test
results. We believe these tests are useful tools for maintaining a robust cybersecurity program to protect our investors, customers, employees,
vendors, and intellectual property. The results of these tests are presented annually to the CEO, with support provided by our external
MIS consultant, for review to ensure compliance with cybersecurity standards.
During the fiscal year ended March 31, 2026, we
have not identified any risks from cybersecurity threats that have materially affected our business operations or financial conditions.
Governance
Our CEO, MIS consultant, and MIS supervisor oversee
risk management to ensure that the Company’s policies and procedures are functioning as intended to protect the Company’s
information systems from cybersecurity threats.
More specifically, MIS supervisor is responsible
for identifying and assessing cybersecurity risks on an ongoing basis, establishing processes designed to ensure that such potential cybersecurity
risk exposures are monitored, putting in place appropriate mitigation and remediation measures, and maintaining cybersecurity programs.
Our cybersecurity programs are managed under the direction of CEO and MIS consultant, and MIS supervisor monitors the prevention, detection,
mitigation, and remediation of cybersecurity risks. MIS supervisor regularly updates the CEO on the Company’s cybersecurity programs,
material cybersecurity risks and mitigation strategies and provides regular cybersecurity updates.
19
Item 2. Properties.
Jerash Garments and Kawkab own three industrial buildings of approximately
136,000, 79,000 and 76,000 square feet, respectively, a dormitory building with a kitchen area of approximately 195,000 square feet, and
one piece of land of approximately 133,000 square feet in Al Tajamouat Industrial City. We lease additional space totaling approximately
536,000 square feet in three industrial buildings in Al Tajamouat Industrial City. In addition, we lease space for our workers in dormitories
located inside and outside of Al Tajamouat Industrial City.
Treasure Success owns an office space in Hong
Kong through acquisition of Ever Winland on August 29, 2022. See “—Item 1. Business—Organizational Structure.”
In 2018, we commenced a project to build a 54,000 square-foot factory
in Al-Hasa County in the Tafilah Governorate of Jordan, which started operation in November 2019. This project is a joint project with
the Jordanian Ministry of Labor and the Employment and Training Department in Jordan. The Ministry of Labor financed the building of the
factory and the Employment and Training Department supported 50% of the workers’ salaries, as well as transportation and social
security costs in the first 12 months following the completion of the project. We used the 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.
In April 2021, we commenced construction on a 195,000-square-foot housing
facility for our multi-national workforce, situated on a 49,000-square-foot site owned by us, located in Al Tajamouat Industrial City.
In fiscal 2025, the construction completed and our workers have moved in. To meet increasing demand, we are also finalizing plans to construct