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, 2021
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)
Delaware
(State or other jurisdiction of
incorporation or organization)
81-4701719
(I.R.S. Employer
Identification No.)
277 Fairfield Road, Suite 338, Fairfield, New Jersey 07004
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (214) 906-0065
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol(s)
JRSH
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which
registered
The Nasdaq Stock Market LLC
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 ☐
Non-accelerated filer ☒
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. ☐
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, 2020 closing price reported by Nasdaq, was approximately $13,562,115.36.
The number of the registrant’s shares of common stock, $0.001 par value per share, outstanding on June 22, 2021 was 11,334,318.
Portions of the registrant’s proxy statement for its 2021 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on
Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Signatures
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibit and Financial Statement Schedules
Form 10-K Summary
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Item 1. Business.
Overview
PART I
Jerash Holdings (US), Inc. (“Jerash Holdings”), through its wholly owned operating subsidiaries and variable interest entity (“VIE”) (together the
“Group,” “we,” “us,” or “our”), is principally engaged in the manufacturing and exporting of customized, ready-made sport 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 Walmart, Costco, New Balance, G-III (which owns brands such as
Calvin Klein, Tommy Hilfiger, DKNY, and Guess), American Eagle, and VF Corporation (which owns brands such as The North Face, Timberland, and
JanSport). Our production facilities comprise four factory units, one workshop, and four warehouses and we currently employ approximately 4,300 people.
The total annual capacity at our facilities is approximately 12.0 million pieces (average for product categories including t-shirts, polo shirts, pants, shorts,
and jackets, and excluding PPE).
Organizational Structure
Jerash Holdings is a holding company organized 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) 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, (vii) 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, and (viii) Jerash Supplies, LLC (“Jerash Supplies”), an entity formed
under the laws of the State of Delaware.
In addition, Jerash Garments has a VIE, Victory Apparel (Jordan) Manufacturing Company Limited (“Victory Apparel”), a limited liability
company formed under the laws of Jordan. Although Jerash Garments does not own the equity interests of Victory Apparel, Mr. Choi Lin Hung (“Mr.
Choi”), our chairman, chief executive officer, president, treasurer, and a significant stockholder, is also a director of Victory Apparel and controls all
decision-making for Victory Apparel along with our other significant stockholder, Mr. Lee Kian Tjiauw, who has the ability to control Victory Apparel’s
financial affairs. In addition, Victory Apparel’s equity at risk is not sufficient to permit it to operate without additional subordinated financial support from
Mr. Choi. Based on these facts, we concluded that Jerash Garments has effective control over Victory Apparel due to Mr. Choi’s roles at both organizations
and therefore Victory Apparel is considered a VIE under Accounting Standards Codification 810-10-05-08A. Accordingly, Jerash Garments consolidates
Victory Apparel’s operating results, assets, and liabilities.
1
This chart reflects our organizational structure as of March 31, 2021:
Jerash Garments was established in Jordan on November 26, 2000 and operates out of our factory unit 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 workshop 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 unit 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 unit in Al Tajamouat Industrial City. Jerash
Embroidery’s principal activities are to perform the cutting and embroidery for our products.
Paramount was incorporated in Jordan on October 24, 2004 and operates out of our factory unit in Al Tajamouat Industrial City. Paramount’s
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 to employ
sales and merchandising staff and supporting personnel in Hong Kong to support the business of Jerash Garments and its subsidiaries and VIE.
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.
Victory Apparel was established as a limited liability company in Amman, Jordan, on September 18, 2005. Victory Apparel has no significant
assets or liabilities or other operating activities of its own.
Jerash The First was incorporated in Jordan on July 6, 2020 and operate out of our workshop 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.
2
Products
As a garment manufacturing group, we specialize in manufacturing sport and outerwear. Our sport and outerwear product offering consists of
jackets, polo shirts, t-shirts, pants, and shorts. Our primary product offering is jackets, and in the fiscal years ended March 31, 2021 and 2020,
approximately 25% and 50%, respectively, of our total shipped pieces were jackets.
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. PPE contributed 1% of our total revenue in the fiscal year ended March 31, 2021.
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 four factory units and four 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 10% corporation income tax plus a 1% social
contribution. On January 1, 2020, the corporation income tax increased to 14%. Effective on January 1, 2021, we have been subject to 16% corporate
income tax plus a 1% social contribution. Currently, the first factory unit, which we own, employs approximately 1,500 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 unit,
which we lease, employs approximately 1,300 people. Its primary functions are 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 unit, which we lease, employs approximately 200 people. Its primary functions are to perform the cutting for our
products. The fourth factory unit (under Paramount), which we lease, currently employs approximately 1,000 people. Its primary functions are to house
additional production lines.
Our production facility in Al-Hasa County in the Tafilah Governorate of Jordan comprises a workshop. The workshop currently employs
approximately 300 people and its primary functions are to manufacture garment products per customer orders. We commenced the construction of this
workshop in 2018, and it was completed and started operation 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 will be using this workshop without
paying rent until December 2022, after which we anticipate entering into a lease agreement for the workshop with the Jordanian Ministry of Labor for
market rent. Provided that we satisfy certain employment requirements over certain time periods, we do not anticipate incurring any significant costs for
this project. In the event we breach our agreement with these government agencies, we will have to pay such agencies 250,000 Jordanian Dinar (“JOD”) or
approximately $353,000. See “Item 2. Properties” below for more information regarding this workshop.
In 2015, we commenced a project to build a 4,800 square foot workshop in the Tafilah Governorate of Jordan, which was previously intended to
be used as a sewing workshop for Jerash Garments, but which we now intend to use as a dormitory. Construction has been temporarily suspended since
March 2020 due to the COVID-19 pandemic. This dormitory is expected to be operational in fiscal 2022 to house management and supervisory staff for
our production facility in Al-Hasa County. This project is expected to cost approximately $200,000 upon completion.
3
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 by mid-2022. 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 fifth manufacturing plant and 1/3 for housing. We anticipate starting the construction later this
year.
Total annual capacity at our existing facilities is approximately 12.0 million pieces (average for product categories including t-shirts, polo shirts,
pants, shorts, and jackets, and excluding PPE). Our production flow begins in the cutting department of our factory unit. 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, 2021, we had an aggregate of approximately 4,350 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, 2021 (“fiscal
2021”), and March 31, 2020 (“fiscal 2020”).
VF Corporation(1)
New Balance
Dynamic
Jiangsu Guotai Huasheng Industrial
ARK Garments
G-III
Onset Time Limited
United Creations LLC
Dick’s Sporting Goods
Others
Total
Fiscal Year 2021
Fiscal Year 2020
Sales
(USD, in
thousands)
%
Sales
(USD, in
thousands)
%
$
$
55,994
11,050
6,347
2,982
2,896
2,875
1,672
1,665
1,093
3,639
90,213
62.1% $
12.3%
7.0%
3.3%
3.2%
3.2%
1.9%
1.8%
1.2%
4.0%
100.0% $
71,817
3,065
9,995
-
1,153
1,460
-
1,129
2,148
2,257
93,024
77.2%
3.3%
10.7%
-%
1.2%
1.6%
-%
1.2%
2.3%
2.5%
100.0%
(1) Most of our products are sold under The North Face brand which is owned by VF Corporation.
In fiscal 2021 and fiscal 2020, we depended on a few key customers for our sales, and most of our sales in fiscal 2021 and 2020 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 Brand which is
owned by VF Corporation. Currently, we manufacture primarily outerwear for The North Face. Approximately 62% and 77% of our sales in fiscal 2021
and 2020 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 2021, VF Corporate
issued approximately 5,400 purchase orders to us in amounts ranging from approximately $8 to $596,000. For fiscal 2020, VF Corporation issued
approximately 7,400 purchase orders to us in amounts ranging from approximately $7 to $380,000.
4
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 sport 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.
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.
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. On March 17, 2020, Jordan announced a shutdown of non-
essential activities as part of its proactive national efforts to limit the spread of COVID-19 and we suspended the operations of our facilities in Jordan as a
result on March 18, 2020. On March 26, 2020, the International Monetary Fund announced that its executive board approved a 48-month arrangement
under the Extended Fund Facility with Jordan for an amount of approximately $1.3 billion to support the country’s economic and financial reform program.
The arrangement also provided for spending to contain and treat COVID-19. On April 28, 2020, the World Bank approved a $20 million project to help
Jordan face the health impacts of the COVID-19 pandemic. On April 4, 2020, we resumed operations of our main production facilities in Al Tajamount
Industrial City under the condition that only migrant workers, living in dormitories in Al Tajamouat Industrial City, are allowed to go to work in our
factories under strict hygienic precautionary measures pursuant to an approval from the Jordanian Government dated April 1, 2020. Our Al-Hasa workshop
was also allowed to restart operation on April 26, 2020. Eventually, local employees were allowed to resume work on June 1, 2020.
5
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 and VIE are located
from a Free Zone to a Development Zone. Development Zones are industrial parks that house manufacturing operations in Jordan. In accordance with
Development Zone law, Jerash Garments and its subsidiaries and VIE began paying corporate income tax in Jordan at a rate of 10% plus 1% social
contribution. Effective January 1, 2020, this rate increased to 14% plus 1% social contribution, and effective January 1, 2021, this rate further increased to
16% plus 1% social contribution. For more information, see “Note 2—Summary of Significant Accounting Policies—Income Taxes.”
In addition, Jerash Garments and its subsidiaries and VIE 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, 2022.
Government Regulation
Our manufacturing and other facilities in Jordan are subject to various local regulations relating to the maintenance of safe working conditions and
manufacturing practices. Management believes that it is 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.
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 JanSport), directly and indirectly, accounted for
approximately 62% and 77% of our total sales in fiscal 2021 and fiscal 2020, respectively. From an accounting perspective, we are considered the principle
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.
6
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, 2020 to March 31, 2021, VF Corporation issued approximately 5,400
purchase orders to us in amounts ranging from approximately $8 to $596,000.
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 brand, 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 brand, which is 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 either VF Corporation’s or The North Face brand’s images, reputations, or popularity 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 and retail nominations or 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 our
significant brand nominations, our 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.
7
Our financial condition, results of operations, and cash flows have been 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 workshop
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. There was a decrease of sales of
approximately 3% in fiscal 2021 comparing to fiscal 2020 due to the loss in productivity in the gradual resumption of production in early April 2020 and
the change in customer mix due to lower demand from U.S. customers in fiscal 2021. Our gross profit margin was also down by approximately 1% point
from 19% to 18% due to more limitation on overtime work, higher expenses on hygienic precautions, and higher proportion of local orders that typically
have a lower profit margin.
The COVID-19 pandemic may also materially adversely affect our business operations and condition and operating results for fiscal 2022,
including but not limited to material negative impact on our total revenue, slower collection of accounts receivables, and additional allowance for doubtful
accounts. Because of the significant uncertainties surrounding the COVID-19 pandemic, we cannot reasonably estimate the extent of the business
disruption and the related financial at this time.
Defaults under the Secured Credit Facilities could result in a foreclosure on our assets by our lender which would negatively impact our financial
condition and results of operations.
We are party to secured credit facilities with Hong Kong and Shanghai Banking Corporation (“HSBC”) for up to $23,000,000 (the “Secured Credit
Facilities”) to finance our working capital needs. The Secured Credit Facilities consist of (i) an $11,000,000 import credit facility with HSBC entered into
on May 29, 2017 and amended on June 19, 2018, August 12, 2019, and July 3, 2020, and (ii) a $12,000,000 invoice discounting/factoring facility entered
into on August 21, 2017 and amended on June 14, 2018. The Secured Credit Facilities are guaranteed by us, Jerash Garments, and Treasure Success. The
Secured Credit Facilities are collateralized by a blanket security interest and includes various financial and other covenants. If in the future we default
under the Secured Credit Facilities, our lender could, among other things, declare our debt to be immediately due and payable. If this were to occur, we
would be unable to repay our bank debt in full unless we could sell sufficient assets or obtain new financing through a replacement credit facility or equity
transaction. If a new credit facility could be obtained, it is likely that it would have higher interest rates and impose significant additional restrictions and
requirements on us. There is no assurance that we would be able to obtain a waiver or amendment from our lender or obtain replacement debt financing or
issue sufficient equity securities to refinance these facilities. If we are unable to pay off the facility, our lender could foreclose on our assets, which may
negatively impact our financial condition and results of operations. In fiscal 2021, Treasure Success had no transaction or balance in the invoice
discounting/factoring facility granted by HSBC. In May 2021, Treasure Success received a letter from HSBC dated March 30, 2021 that the debts purchase
services under the invoice discounting/factoring facility between Treasure Success and HSBC were terminated with immediate effect. We had no
outstanding balance in the invoice discounting/factoring facility granted by HSBC as of March 31, 2021.
8
We may require additional financing to fund our operations and capital expenditures.
As of March 31, 2021, we had cash and cash equivalents of approximately $21.1 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.
We are party to the Secured Credit Facilities with HSBC. As of March 31, 2021, we had incurred no indebtedness under the Secured Credit
Facilities.
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, 2021, there was an outstanding amount of approximately $0.6 million under the
SCBHK facility.
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,
Mr. Choi, our chairman, chief executive officer, president, treasurer, and a significant stockholder, has an indirect ownership interest in certain companies,
including Ford Glory International Limited (“Ford Glory”) and Jiangmen V-Apparel Manufacturing Limited, with which we have entered into, or in the
future may enter into, agreements or arrangements. In August 2019, HSBC released the personal guarantees of Mr. Choi and Mr. Ng Tsze Lun (“Mr. Ng”),
a significant stockholder, in exchange for Treasure Success and Jerash Holdings agreeing to guarantee the amounts under our Secured Credit Facilities with
HSBC. The release of these guarantees personally benefited Mr. Choi and Mr. Ng but required Jerash Holdings and Treasure Success to incur potential
liability in connection with their guarantee. See also “Note 11—Related Party Transactions.” Our majority stockholders may economically benefit from our
arrangements with related parties. 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 sport 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 sport 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.
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 sport 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.
We have previously experienced material weaknesses in our internal control over financial reporting. If we fail to establish and maintain an effective
system of internal control over financial reporting, we may not be able to accurately and timely disclose information about our financial results or
prevent fraud. Any inability to accurately and timely disclose financial results could harm our business and reputation and cause the market price of
our common stock to decline.
A system of financial controls and procedures is necessary to ensure that information about our financial results is recorded, processed,
summarized, and reported in an accurate and timely fashion. Effective internal control over financial reporting is necessary for us to provide reliable
financial reports and prevent fraud. If we cannot disclose required information or provide reliable financial reports, we may not be able to manage our
business as effectively as we would if an effective control environment existed, and our business and reputation may be harmed. Our independent
registered public accounting firm previously identified that we had a material weakness because we lacked sufficient personnel with an appropriate level of
knowledge of accounting principles generally accepted by the United States of America (“U.S. GAAP”) and financial reporting. Although we have taken
certain steps to address this deficiency and it is no longer a material weakness, it is possible that we may have a material weakness identified in the future if
the controls and procedures we have implemented are inadequate.
Our results of operations are subject to fluctuations in currency exchange rates.
Exchange rate fluctuations between the U.S. dollar and 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.
11
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.
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.
12
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 United States-Jordan Free Trade Agreement and the Association Agreement between the EU and Jordan, 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. If there is a change in such benefits or if any such agreements were terminated, our profitability may be reduced.
Former President Donald Trump expressed antipathy towards trade agreements, and took a starkly protectionist approach that included withdrawal
and renegotiation of trade agreements and trade wars with China and U.S. allies alike. The new Biden administration raises the possibility of a policy
change. President Joe Biden has expressed no desire to withdraw from existing agreements. It seems clear that his policy will be less protectionist than
former President Donald Trump’s. On the other hand, President Biden’s Buy American plan will make it harder for foreign manufacturers to sell goods in
the U.S. and his insistence on strong labor provisions in trade agreements will likely prevent them from being implemented or protect U.S. industries when
they are. It remains unclear what specifically President Biden would or would not do with respect to trade agreements, tariffs, and duties relating to
products manufactured in Jordan. If President Biden 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.
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.
13
Our operations in Jordan may be adversely affected by social and political uncertainties or change, military activity, health-related risks, or acts of
terrorism.
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.
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.
14
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.
Our majority stockholders will control us for the foreseeable future, including the outcome of matters requiring stockholder approval.
Three of our stockholders beneficially own approximately 71.4% of our outstanding common stock, as of June 22, 2021. Accordingly, our other
stockholders do not have any ability to exercise control over us and those majority stockholders will have the ability, acting together, to elect all of our
directors and to substantially influence the outcome of corporate actions requiring stockholder approval, such as: (i) a merger or a sale of the Group, (ii) a
sale of all or substantially all of our assets, and (iii) amendments to our corporate documents. This concentration of voting power and control could have a
significant effect in delaying, deferring, or preventing an action that might otherwise be beneficial to our other stockholders and be disadvantageous to our
stockholders with interests different from those entities and individuals.
Our stockholders’ ownership interest in us may be diluted by exercises of currently outstanding or committed warrants.
We granted warrants to purchase up to 71,100 units to designees of the placement agent in connection with a private placement offering that we
initially closed on May 15, 2017 and had subsequent closings on August 18, 2017 and September 27, 2017 (the “Private Placement”). Each unit consists of
one share of our common stock and one warrant (with each such warrant being immediately exercisable for one-tenth of one share of common stock at an
exercise price of $6.25 per share for a period of five years from the issuance date). The private placement agent warrants are exercisable with respect to
48,600 units beginning on July 15, 2017 and expiring on May 15, 2022, 18,000 units beginning on October 18, 2017 and expiring on August 18, 2022, and
4,500 units beginning on November 27, 2017 expiring on September 27, 2022. The private placement agent’s warrants are exercisable at a price per unit
equal to $5.50.
In connection with the Private Placement, we also issued five-year warrants to purchase up to 79,000 shares of our common stock to various
accredited investors at an exercise price of $6.25 per share. Such warrants expire on May 15, 2022 with respect to 54,000 warrants, August 18, 2022 with
respect to 20,000 warrants, and September 27, 2022 with respect to 5,000 warrants. We have also issued a five-year warrant to our board observer to
purchase up to 50,000 shares of common stock. The warrant has an exercise price of $5.00 per share and may be converted by means of a cashless exercise
during the term of the warrant. This warrant may be exercised any time until May 15, 2022.
15
Finally, in connection with our initial public offering, we issued to the underwriter and its affiliates warrants to purchase 57,200 shares of common
stock at an exercise price of $8.75 per share and an expiration date of May 2, 2023.
70,000 of the foregoing warrants have been exercised as of the date of this annual report and there are currently 194,410 outstanding warrants to
purchase shares of our common stock. To the extent any additional warrants are exercised, our stockholders’ ownership interest in us will be diluted, which
may reduce the market price of our common stock.
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.
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.
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 will occupy a significant amount of time of our board of directors and
management, and will significantly increase our costs and expenses and will make some activities more time-consuming and costly. In connection with
becoming a reporting company, we will need to continue:
● instituting a more comprehensive compliance function;
● preparing and distributing periodic and current reports under the federal securities laws;
● establishing and enforcing internal compliance policies, such as those related to insider trading; and
● involving and retaining outside counsel and accountants to a greater degree than before we became a reporting company.
Our ongoing compliance efforts will 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.
16
If we are unable to effectively implement and maintain our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act,
investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline.
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. If we identify material weaknesses in our internal control
over financial reporting, are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial
reporting is ineffective, investors may lose confidence in our reported financial information, which could negatively impact the market for our common
stock and cause us to be unable to obtain additional financing on acceptable terms or at all, which could cause harm to our business and financial condition.
In addition, as an emerging growth company, we are not required to obtain an auditor attestation of management’s evaluation of internal controls over
financial reporting once such internal controls are in place. As a result, we may fail to identify and remediate a material weakness or deficiency in our
internal control over financial reporting, which may cause our financial statements and related disclosure to contain material misstatements and could cause
delays in filing required financial statements and related reports.
The reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors, which may
lead to volatility and a decrease in the market price of our common stock.
For as long as we continue to be an emerging growth company, we may take advantage of exemptions from reporting requirements that apply to
other public companies that are not emerging growth companies. Investors may find our common stock less attractive because we may rely on these
exemptions, which include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a
non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If investors
find our common stock less attractive as a result of exemptions and reduced disclosure requirements, there may be a less active trading market for our
common stock and our stock price may be more volatile or may decrease.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Jerash Garments owns an industrial building of approximately 89,300 square feet and two pieces of land totaling approximately 181,000 square
feet in Al Tajamouat Industrial City. We lease additional space totaling approximately 448,000 square feet in 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 leased its office space in Hong Kong from Ford Glory, pursuant to an agreement effective October 3, 2018 providing for a rent in
the amount of HK$119,540 (approximately $15,326) per month and having a one-year term with an option to extend the term for an additional year at the
same rent. On October 3, 2019, Treasure Success exercised the option to extend the lease for an additional year at the same rent. On December 15, 2020,
Treasure Success renewed the lease for an additional year starting from October 3, 2020 at the same rent. In February 2021, Ford Glory disposed of the
property that was the subject of the tenancy agreement between Treasure Success and Ford Glory. Ever Winland Limited, the new owner of the property
and an independent party to the Group, entered into a new tenancy agreement with Treasure Success on February 26, 2021. The new tenancy agreement has
a term from February 26, 2021 to February 25, 2023, with a rent in the amount of HK$119,540 (approximately $15,326) per month.
On December 11, 2018, we entered into an agreement through Jerash Garments, one of our subsidiaries in Jordan, to acquire all of the stock of an
existing garment manufacturing business in order to operate our fourth manufacturing facility in Al Tajamouat Industrial City located in Amman, Jordan.
This acquisition increased Jerash’s annual capacity from 6.5 million pieces to 8 million pieces. The new facilities are an existing garment manufacturing
operation adjacent to Jerash’s three largest manufacturing centers. Jerash assumed ownership of all of the machinery and equipment owned by Paramount
through the acquisition. Jerash leases an approximately 100,900 square foot primary garment manufacturing factory and housing accommodations for up to
500 workers located in Al Tajamouat Industrial City. Additionally, Jerash has coordinated with the Jordanian Ministry of Industry and Trade, Ministry of
Labor and Customs Department to assume the existing compliance certificates and workplace certifications, including the facility’s Better Work Jordan
credentials. In connection with the closing of this transaction, which occurred as of June 18, 2019, Jerash paid an aggregate of $980,000 to Paramount to
acquire all of its stock. Jerash intends to further invest in machinery, dormitory expansion and facility audits to support additional growth at the new
facility.
17
In 2015, we commenced a project to build a 4,800 square foot workshop in the Tafilah Governorate of Jordan, which was previously intended to
be used as a sewing workshop for Jerash Garments, but which we now intend to use as a dormitory. Construction has been temporarily suspended since
March 2020 due to the COVID-19 pandemic. This dormitory is expected to be operational in fiscal 2022 to house management and supervisory staff for the
54,000 square foot workshop in Al-Hasa County. This project is expected to cost approximately $200,000 upon completion.
In calendar year 2018, we commenced another project to build a 54,000 square foot workshop 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. Pursuant to the agreement between these parties and us, we guaranteed up to JOD112,500, or $159,000, for this project and agreed
to employ at least 500 workers for the first 12 months following the completion of the project. The Ministry of Labor financed the building of the workshop
and the Employment and Training Department will support 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 will be using the workshop without paying rent until December 2022, after which time we anticipate
entering into a lease agreement for the workshop with the Jordanian Ministry of Labor for market rent. In the event that we do not comply with the terms of
the agreement, we must pay the Ministry of Labor and the Employment and Training Department JOD250,000 or $353,000.
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 by mid-2022. To meet
increasing demand, we were 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 fifth manufacturing plant and 1/3 for housing. We anticipate starting the construction later this
year.
On July 1, 2020, Jiangmen Treasure Success and Jiangmen V-Apparel Manufacturing Limited entered into a factory lease agreement, which was a
replacement of a previous lease agreement dated August 31, 2019. The new lease has a one-year term with monthly rent amount of CNY28,300
(approximately $4,300) for additional office space and sample production purposes. On April 30, 2021, the factory lease agreement between Jiangmen
Treasure Success and Jiangmen V-apparel Manufacturing Limited was terminated. On January 1, 2021, Jiangmen Treasure Success entered a factory lease
agreement with an independent third party. The lease has a five-year term with monthly rent amount of CNY50,245 (approximately $7,700) for the first
year, CNY60,270 ($9,200) for the second year, and 5% further annual increments starting from the third year.
We believe the real property that we own and lease is sufficient to conduct our operations as they are currently conducted.
Item 3. Legal Proceedings.
We are not currently involved in any material legal proceedings. From time-to-time we are, and we anticipate that we will be, involved in legal
proceedings, claims, and litigation arising in the ordinary course of our business and otherwise. The ultimate costs to resolve any such matters could have a
material adverse effect on our financial statements. We could be forced to incur material expenses with respect to these legal proceedings, and in the event
that there is an outcome in any that is adverse to us, our financial position and prospects could be harmed.
Item 4. Mine Safety Disclosures
Not applicable.
18
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock has been traded and quoted on the Nasdaq Capital Market under the symbol “JRSH” since May 4, 2018. Before that, our stock
was not traded on any stock exchange. As of June 22, 2021, there were 11,334,318 shares of common stock issued and outstanding held by approximately
36 stockholders of record.
Since November 2018, the Board of Directors of Jerash Holdings has declared a quarterly cash dividend payable to holders of its common stock.
Subject to the discretion of the Board of Directors and applicable law, we currently expect to continue declaring comparable quarterly cash dividends in the
future.
For information on securities authorized for issuance under our existing equity compensation plan, see Item 12 under the heading “Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
We did not repurchase any of our common stock in the fiscal year ended March 31, 2021.
During the fiscal years ended March 31, 2021 and 2020, we did not have sales of unregistered securities other than those already disclosed in the
quarterly reports on Form 10-Q in the fiscal years 2021 and 2020 and current affair reports on Form 8-K.
Item 6. [Reserved].
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this filing.
Overview
EXECUTIVE OVERVIEW
Through our wholly owned operating subsidiaries and VIE, we are principally engaged in the manufacturing and exporting of customized, ready-
made sport and outerwear from knitted fabric and PPE produced in our facilities in Jordan.
We are an approved manufacturer of many well-known brands and retailers, such as Walmart, Costco, New Balance, G-III (which owns brands
such as Calvin Klein, Tommy Hilfiger, DKNY, and Guess), American Eagle, VF Corporation (which operates brands such as The North Face, Timberland,
and JanSport). Our production facilities are made up of four factory units, one workshop, and four warehouses and currently employ approximately 4,300
people. The total annual capacity at our facilities is approximately 12.0 million pieces (average for product categories including t-shirts, polo shirts, pants,
shorts, and jackets, and excluding PPE).
Impact of COVID-19 on our business
Collectability of receivables. We had accounts receivable of $12.0 million as of March 31, 2021. Out of this $12.0 million, $11.8 million had been
received through June 12, 2021. There was approximately $0.2 million overdue account receivable as of March 31, 2021.
Inventory. We had inventory of $25.0 million as of March 31, 2021. Most of them are for orders scheduled to be shipped within fiscal 2022.
19
Investments. We acquired two pieces of land in fiscal 2020 for the construction of dormitory and production facility. Due to the COVID-19
pandemic, the management decided to hold off the construction in fiscal 2021. In April 2021, we commenced the construction of a housing facility for our
multi-national workforce on the land. See “Item 1. Business”
Revenue. For fiscal 2021, annual sales was $90.2 million, which was $2.8 million, or approximately 3%, lower than $93.0 million for fiscal 2020.
The decrease was mainly due to the loss in productivity in the gradual resumption of production in April 2020 after the national lockdown, the limitation in
overtime work, and the strengthened procedures in hygienic precautions. The aggregate sales in the first two quarters of fiscal 2021 decreased by $7.3
million to $45.8 from $53.1 million in the same period in fiscal 2020. The decrease was mostly compensated by the increase in sales of $4.5 million in the
second half of fiscal 2021 to $44.4 million from $39.9 million in the same period in fiscal 2020. In addition, we managed to secure orders from new local
customers that helped mitigate the impact of slower sales to the U.S. market.
Liquidity/Going Concern. We had approximately $21.1 million of cash and cash equivalent as of March 31, 2021. We had net current assets of
approximately $50.1 million with a current ratio of 4.5 to 1. In addition, we had banking facilities with an aggregate limit of $26 million and $612,703
outstanding as of March 31, 2021. Given the above, we believe that we will have sufficient financial resources to maintain as a going concern in fiscal
2022.
Seasonality of Sales
A significant portion of our revenue is received during the first six months of our fiscal year. The majority of our VF Corporation orders are
derived from winter season fashions, the sales of which occur in Spring and Summer and are merchandized by VF Corporation during the months of
September through November. As such, the second half of our fiscal years reflect lower sales in anticipation of the spring and summer seasons. One of our
strategies is to increase sales with other customers where clothing lines are stronger during the spring months. This strategy also reflects our current plan to
increase our number of customers to mitigate our current concentration risk with VF Corporation.
The following table presents certain information from our statement of income for fiscal years 2021 and 2020 and should be read, along with all of
the information in this management’s discussion and analysis, in conjunction with the consolidated financial statements and related notes included
elsewhere in this filing.
Results of Operations
(All amounts, other than percentages, in thousands of U.S. dollars)
Fiscal Years Ended March 31,
2021
2020
Year over Year
Amount
As % of
Sales
Amount
As % of
Sales
Amount
%
$
$
$
90,213
74,214
15,999
10,614
109
5,494
1,346
4,148
100% $
82%
18%
12%
0%
6% $
1%
5% $
93,024
75,041
17,983
10,318
(21)
7,644
1,174
6,470
100% $
81%
19%
11%
0%
8% $
1%
7% $
(2,811)
(827)
(1,984)
296
130
(2,150)
172
(2,322)
(3)%
(1)%
(11)%
3%
619%
(28)%
15%
(36)%
Statement of Income Data:
Revenue
Cost of goods sold
Gross profit
Selling, general and administrative
expenses
Other income (expense), net
Net income before taxation
Income tax expense
Net income
Revenue. Revenue decreased by approximately $2.8 million, or 3%, to approximately $90.2 million in fiscal 2021 from approximately $93.0
million in fiscal 2020. The decrease was mainly the result of the loss in productivity in the resumption of production in April 2020 after the national
lockdown in Jordan, the restriction in overtime work, and strengthened hygienic precautions. Approximately 88% and 96% of our products were exported
to the U.S. in fiscal 2021 and 2020, respectively.
20
The table below presents our revenue for fiscal years 2021 and 2020 by geographic area.
Revenue by Geographic Area
(All amounts, other than percentages, in thousands of U.S. dollars)
Region
United States
Jordan
Others
Total
Fiscal Years Ended March 31,
2021
2020
Year over Year
Amount
%
Amount
%
Amount
%
$
$
79,190
5,703
5,320
90,213
88% $
6%
6%
100% $
89,123
3,738
163
93,024
96% $
4%
0%
100% $
(9,933)
1,965
5,157
(2,811)
(11)%
53%
3,164%
(3)%
Since January 2010, all apparel manufactured in Jordan can be exported to the U.S. without customs duty being imposed, pursuant to the United
States-Jordan Free Trade Agreement entered into in December 2001. This free trade agreement provides us with substantial competitiveness and benefit
that allowed us to expand our garment export business in the U.S. Our sales to the U.S. decreased by approximately 11% in fiscal 2021 compared to fiscal
2020. According to the Major Shippers Report issued by the Office of Textiles and Apparel under the U.S. Department of Commerce dated May 4, 2021,
U.S. apparel import from Jordan decreased by approximately 22% from $1.83 billion in the fiscal year ended March 31, 2020 to approximately $1.43
billion in the fiscal year ended March 31, 2021. Our sales decrease ratio has been lower than the industrial average decrease ratio amid the COVID
pandemic, and we expect we will still have plenty of room to expand our garment export business in the U.S. in the long run, as Jerash accounted for only
approximately 6% of the total Jordanian garment exports to the U.S. in fiscal 2021, according to data from the Major Shippers Report issued by the U.S.
Department of Commerce.
Cost of goods sold. Following the decrease in sales revenue, our cost of goods sold decreased by approximately $0.8 million, or 1%, to
approximately $74.2 million in fiscal 2021 from approximately $75.0 million in fiscal 2020. As a percentage of revenue, the cost of goods sold increased
by approximately 1% point to 82% in fiscal 2021 from 81% in fiscal 2020. The increase in cost of goods sold as a percentage of revenue was primarily
attributable to the higher proportion of local orders that typically have a lower average profit margin.
For the fiscal year ended March 31, 2021, we purchased approximately 13% of our garments from one major supplier. For the fiscal year ended
March 31, 2020, we purchased approximately 22%, 16%, and 11% of our raw materials from three major suppliers, respectively.
Gross profit margin. Gross profit margin was approximately 18% in fiscal 2021, which decreased by approximately 1% point from 19% in fiscal
2020. The decrease in gross profit margin was primarily driven by a higher proportion of local orders that typically have a lower gross margin, and the loss
in productivity in April 2020 due to the national lockdown in Jordan.
Selling, general, and administrative expenses. Selling, general, and administrative expenses increased by approximately 3% from approximately
$10.3 million in fiscal 2020 to approximately $10.6 million in fiscal 2021. The slight increase was mainly attributable to the increase in expenses for
pandemic precaution and the increase in headcounts to cater for sales growth in the second half of the year.
Other income (expense), net. Other income, net was approximately $109,000 in fiscal 2021 and other expenses, net was approximately $21,000 in
fiscal 2020. The increase in other income was primarily due to a return from short-term investments that were realized during the year.
Net income before taxation. Net income before taxation for fiscal 2021 decreased by approximately 28% from approximately $7.6 million to
approximately $5.5 million. The decrease was mainly attributable to the lower unit sales price due to higher proportion of local orders, the lower margin of
local orders, the loss of productivity in the national lockdown in April 2020, the increase in expenses for pandemic precaution, and the increase in
headcounts to cater for sales growth in the second half of the year discussed above.
21
U.S. taxation. Income tax expense for fiscal 2021 was approximately $1.3 million compared to income tax expense of $1.2 million for fiscal 2020.
The effective tax rate was 24.5% and 15.4% for fiscal 2021 and 2020, respectively. The increase of effective tax rate was caused by the increase in local tax
rate in Jordan, true up of Jordan tax for fiscal year 2019, and higher proportion of losses in China, Hong Kong, and the U.S.
Jordan taxation. Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and Victory Apparel are subject to the
regulations of Income Tax Department in Jordan. The corporate income tax rate has been 16% for the industrial sector starting from January 1, 2021. In
accordance with the Investment Encouragement Law, Jerash Garments’ export sales to overseas customers are entitled to a 100% income tax exemption for
a period of 10 years commencing at the first day of production. This exemption was extended for five years to December 31, 2018. Effective January 1,
2019, in accordance to Development Zone law, Jerash Garments and its subsidiaries and VIE began paying corporate income tax in Jordan at a rate of 10%
plus a 1% social contribution. The income tax rate increased to 14% plus 1% social contribution effective from January 1, 2020. The tax income tax rate
increased to 16% plus a 1% social contribution effective from January 1, 2021. For fiscal 2021, our income tax in Jordan was approximately $1,342,000.
Jerash Garments and its subsidiaries and VIE 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, 2022.
Hong Kong taxation. Treasure Success is registered in Hong Kong with an income tax rate of 8.25% on assessable profits up to HK$2,000,000
and 16.5% on any part of assessable profits over HK$2,000,000. Treasure Success incurred no income tax expense for fiscal 2021 and 2020 due to its
operating loss. In accordance with tax legislation in Hong Kong, the accumulated loss can be used to offset future profit for income tax purposes.
PRC taxation. Jiangmen Treasure Success was established in the PRC and is subject to an income tax rate of 25%.
Net income. Net income for fiscal 2021 was approximately $4.1 million, a 36% decrease from approximately $6.5 million for fiscal 2020. The
decrease was mainly attributable to the decrease in sales revenue and the increase in cost of sales and selling and administration expenses discussed above.
Liquidity and Capital Resources
Jerash Holdings is a holding company incorporated in Delaware. As a holding company, we rely on dividends and other distributions from our
Jordanian subsidiaries to satisfy our liquidity requirements. Current Jordanian regulations permit our Jordanian subsidiaries and VIE to pay dividends to us
only out of their accumulated profits, if any, determined in accordance with Jordanian accounting standards and regulations. In addition, our Jordanian
subsidiaries and VIE are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds. These
reserves are not distributable as cash dividends. We have relied on direct payments of expenses by our subsidiaries and VIE (which generate revenue) to
meet our obligations to date. To the extent payments are due in U.S. dollars, we have occasionally paid such amounts in JOD to an entity controlled by our
management capable of paying such amounts in U.S. dollars. Such transactions have been made at prevailing exchange rates and have resulted in
immaterial losses or gains on currency exchange but no other profit.
As of March 31, 2021, we had cash of approximately $21.1 million and restricted cash of approximately $1.7 million compared to cash of
approximately $26.1 million and restricted cash of approximately $0.8 million as of March 31, 2020, which was mainly the security deposit supporting our
duty-free import into Jordan at the customs and deposit supporting letter of credit to suppliers.
Our current assets as of March 31, 2021 were approximately $64.7 million, and our current liabilities were approximately $14.5 million, which
resulted in a current ratio of approximately 4.5:1. Our current assets as of March 31, 2020 were approximately $59.0 million, and our current liabilities
were approximately $10.9 million, which resulted in a current ratio of approximately 5.4:1. Total equity as of March 31, 2021 and 2020 was approximately
$56.7 million and $54.8 million, respectively.
22
We had net working capital of $50.1 million and $48.1 million as of March 31, 2021 and 2020, respectively. Based on our current operating plan,
we believe that cash on hand and cash generated from operation will be sufficient to support our working capital needs for the next 12 months after the date
of this annual report.
We have funded our working capital needs from operations. Our working capital requirements are influenced by the level of our operations, the
numerical and dollar volume of our sales contracts, the progress of execution on our customer contracts, and the timing of accounts receivable collections.
HSBC Facility
Credit Facilities
On May 29, 2017, our wholly owned subsidiary, Treasure Success, entered into a facility letter (“2017 Facility Letter”) with HSBC to provide
credit to us, which was first amended by an offer letter between HSBC, Treasure Success, and Jerash Garments dated June 19, 2018 (“2018 Facility
Letter”), further amended on August 12, 2019 (“2019 Facility Letter”), and further amended pursuant to a letter agreement dated July 3, 2020 (the “2020
Facility Letter,” and together with the 2017 Facility Letter, 2018 Facility Letter, and 2019 Facility Letter, the “HSBC Facility”). The 2020 Facility Letter
extended the term of the HSBC Facility indefinitely, subject to review at any time by HSBC. Pursuant to the HSBC Facility, we have a total credit limit of
$11,000,000.
The HSBC Facility currently provides us with various credit facilities for importing and settling payment for goods purchased from our suppliers.
The available credit facilities as described in greater detail below includes an import facility, import facilities with loan against import, trust receipts, clean
import loan, and advances to us against purchase orders. HSBC charges an interest rate of 1.5% per annum over LIBOR or HIBOR, as applicable, for credit
related to the release of goods immediately on our documentary credit. LIBOR was 0.3% and HIBOR was 0.9% on June 24, 2020. HSBC charges a
commission of: i) 0.25% for the first $50,000, ii) 0.125% for the balance in excess of $50,000 and up to $100,000, and iii) 0.0625% for balance in excess of
$100,000 and an interest rate of 1.5% per annum over LIBOR or HIBOR, as applicable, for credit related to trust receipts whereby HSBC has title to the
goods or merchandise released immediately to us. HSBC has approved certain of our suppliers that are eligible to use clean import loans. HSBC charges a
commission of: i) 0.25% for the first $50,000, ii) 0.125% for the balance in excess of $50,000 and up to $100,000, and iii) 0.0625% for balance in excess of
$100,000 and an interest of 1.5% per annum over LIBOR or HIBOR, as applicable, for credit services related to clean import loans or release of the goods
or merchandise based on evidence of delivery or invoice. HSBC will advance up to 70% of the purchase order value in our favor. HSBC charges a handling
fee of 0.25% and an interest rate of 1.5% per annum over LIBOR or HIBOR, as applicable, for credit services related to advances. Previously, the HSBC
Facility was secured by collateral provided by us, Jerash Garments, Treasure Success, and the personal guarantees of Mr. Choi and Mr. Ng. The personal
guarantees were released by HSBC in August 2019. Jerash Garments is also required to maintain an account at HSBC for receiving payments from VF
Sourcing Asia S.A.R.L. and its related companies.
As of March 31, 2021, there was no amount outstanding under the HSBC Facility. Borrowings under the HSBC Facility are due upon demand by
HSBC or within 120 days of each borrowing date.
HSBC Factoring Agreement
On June 5, 2017, Treasure Success entered into an Offer Letter—Invoice Discounting/Factoring Agreement, and on August 21, 2017, Treasure
Success entered into the Invoice Discounting/Factoring Agreement (together, the “2017 Factoring Agreement”) with HSBC for certain debt purchase
services related to our accounts receivable. On June 14, 2018, Treasure Success and Jerash Garments entered into another Offer Letter—Invoice
Discounting/Factoring Agreement with HSBC (the “2018 Factoring Agreement, and together with the 2017 Factoring Agreement, the “HSBC Factoring
Agreement”), which amended the 2017 Factoring Agreement. The HSBC Factoring Agreement was effective through May 1, 2019. Under the current
terms of the HSBC Factoring Agreement, we may borrow up to $12,000,000. In exchange for advances on eligible invoices from HSBC for our approved
customers, HSBC charges a fee to advance such payments at a discounting charge of 1.5% per annum over 2-month LIBOR or HIBOR, as applicable. Such
fee accrues on a daily basis on the amount of funds in use. HSBC has final determination of the percentage amount available for prepayment from each of
our approved customers. We may not prepay an amount from a customer in excess of 85% of the funds available for borrowing.
23
HSBC also provides credit protection and debt services related to each of our preapproved customers. For any approved debts or collections
assigned to HSBC, HSBC charges a flat fee of 0.35% on the face value of the invoice for such debt or collection. We may assign debtor payments that are
to be paid to HSBC within 90 days, defined as the maximum terms of payment. We may receive advances on invoices that are due within 30 days of the
delivery of our goods, defined as the maximum invoicing period.
The advances made by HSBC were secured by collateral provided by us, Jerash Garments, and Treasure Success, and the personal guarantees of
Mr. Choi and Mr. Ng. If we fail to pay any sum due to HSBC, HSBC may charge a default interest at the rate of 8.5% per annum over the best lending rate
quoted by HSBC on such defaulted amount. In addition, to secure the Factoring Agreement, we had granted HSBC a charge of $3,000,000 over our
deposits. Following the effectiveness of the 2018 Factoring Agreement, the security collateral of $3,000,000 was released as of January 22, 2019. HSBC
released the personal guarantees of Mr. Choi and Mr. Ng in August 2019.
The HSBC Factoring Agreement is subject to the review by HSBC at any time and HSBC has discretion on whether to renew the HSBC Factoring
Agreement. Either party may terminate the agreement subject to a 30-day notice period. In fiscal 2021, Treasure Success had no transaction or balance in
the invoice discounting/factoring facility granted by HSBC. In May 2021, Treasure Success received a letter from HSBC dated March 30, 2021 that the
debts purchase services under the HSBC Factoring Agreement between Treasure Success and HSBC were terminated with immediate effect. We had no
outstanding balance under the HSBC Factoring Agreement as of March 31, 2021.
SCBHK Facility Letter
Pursuant to the SCBHK facility letter dated June 15, 2018, and issued to Treasure Success by SCBHK, SCBHK offered to provide an import
facility of up to $3.0 million to Treasure Success. The SCBHK facility covers import invoice financing and pre-shipment financing under export orders
with a combined limit of $3 million. Borrowings under the SCBHK facility are due within 90 days of each invoice or financing date. 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, 2021, there was approximately $0.6
million outstanding under the SCBHK facility.
Fiscal Years ended March 31, 2021 and 2020
The following table sets forth a summary of our cash flows for the fiscal years ended March 31, 2021 and 2020.
(All amounts in thousands of U.S. dollars)
Net cash (used in) provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash
Net decrease in cash
Cash and restricted cash, beginning of year
Cash and restricted cash, end of year
Supplemental disclosure information
Cash paid for interest
Income tax paid
Non-cash financing activities
Right of use assets obtained in exchange for operating lease obligations
24
For the fiscal years ended
March 31,
2021
2020
(1,500) $
(894)
(1,653)
(8)
(4,055)
26,917
22,862 $
- $
773 $
1,352 $
6,913
(4,932)
(2,913)
15
(917)
27,834
26,917
6
1,484
1,624
$
$
$
$
$
Operating Activities
Net cash used in operating activities was approximately $1.5 million in fiscal 2021, compared to net cash provided by operating activities of
approximately $6.9 million in fiscal 2020. The increase in net cash used in operating activities was primarily attributable to the following factors:
● accounts receivable increased by approximately $6.7 million in fiscal 2021, compared to an increase of accounts receivable of approximately
$1.3 million in fiscal 2020, due to more shipments shipped out in March 2021 and the extended credit terms to some major customers by 20
days to 30 days;
● inventory increased by approximately $2.4 million in fiscal 2021, compared to an increase of approximately $1.6 million in fiscal 2020, due
to the preparation for additional sales in fiscal 2022; and
● accounts payable increased by approximately $1.5 million, compared to an increase of approximately $3.0 million in fiscal 2020;
Investing Activities
Net cash used in investing activities was approximately $0.9 million and $4.9 million for fiscal 2021 and 2020, respectively. The decrease in net
cash used in investing activities was mainly attributable to the deferred investment in expansion due to the pandemic and short-term investment income.
Financing Activities
Net cash used in financing activities was approximately $1.7 million for fiscal 2021 compared to net cash used of $2.9 million in fiscal 2020. The
net cash outflow in fiscal 2021 resulted from payments of dividend and partially offset by the proceeds from bank borrowings. Net cash used in fiscal 2020
was primarily for payments of dividend and repayment of bank borrowings.
Non-cash Financing Activities
There was approximately $1.4 million and $1.6 million of rights of use assets obtained in exchange for operating lease obligations in fiscal 2021
and 2020, respectively, pursuant to new financial reporting requirements.
Statutory Reserves
In accordance with the Corporate Law in Jordan, Jerash Holdings’ subsidiaries and VIE in Jordan are required to make appropriations to certain
reserve funds, based on net income determined in accordance with generally accepted accounting principles of Jordan. Appropriations to the statutory
reserve are required to be 10% of net income until the reserve is equal to 100% of the entity’s share capital. Jiangmen Treasure Success is required to set
aside 10% of its net income as statutory surplus reserve until such reserve is equal to 50% of its registered capital. These reserves are not available for
dividend distribution. The statutory reserve was $346,315 and $212,739 in fiscal 2021 and 2020, respectively.
The following table provides the amount of our statutory reserves, the amount of restricted net assets, consolidated net assets, and the amount of
restricted net assets as a percentage of consolidated net assets, as of March 31, 2021 and 2020.
(All amounts, other than percentages, in thousands of U.S. dollars)
Statutory Reserves
Total Restricted Net Assets
Consolidated Net Assets
Restricted Net Assets as Percentage of Consolidated Net Assets
25
As of March 31,
2021
2020
$
$
$
346
346
56,693
$
$
$
0.61%
213
213
54,751
0.39%
Total restricted net assets accounted for approximately 0.61% of our consolidated net assets as of March 31, 2021. As our subsidiaries and VIE in
Jordan are only required to set aside 10% of net profits to fund the statutory reserves, it has reached the maximum amount. We believe the potential impact
of such restricted net assets on our liquidity is limited.
Capital Expenditures
We had capital expenditures of approximately $1.0 million and $4.7 million in fiscal 2021 and 2020, respectively, for purchases of equipment in
connection with our business activities and to increase capacity. Additions in plant and machinery amounted to approximately $0.8 million and $1.9 million
in fiscal 2021 and 2020, respectively, and additions to leasehold improvements amounted to approximately $0.2 million and $1.1 million in fiscal 2021 and
2020, respectively. In fiscal 2020, we acquired two pieces of land for an aggregate purchase price of approximately $1.7 million.
In 2015, we commenced a project to build a 4,800 square foot workshop in the Tafilah Governorate of Jordan, which was initially intended to be
used as a sewing workshop for Jerash Garments, but which we now intend to use as a dormitory. Construction has been temporarily suspended since March
2020 due to the COVID-19 pandemic. This dormitory is expected to be operational in fiscal 2022 to house management and supervisory staff for the
54,000 square foot workshop in Al-Hasa County. This project is expected to cost approximately $200,000 upon completion.
In 2018, we commenced another project to build a 54,000 square foot workshop in Al-Hasa County in the Tafilah Governorate of Jordan, which
started operation in November 2019 with approximately 240 workers. Provided that we satisfy certain employment requirements over certain time periods,
we do not anticipate incurring any significant costs for the project, which was constructed in conjunction with the Jordanian Ministry of Labor and the
Jordanian Education and Training Department. In the event we breach our agreement with these government agencies, we will have to pay such agencies
JOD250,000 or approximately $353,000. See “Item 2. Properties” above for more information regarding this workshop.
On December 11, 2018, we entered into an agreement through Jerash Garments to acquire all of the stock of Paramount, an existing garment
manufacturing business, in order to operate our fourth manufacturing facility in Al Tajamouat Industrial City in Amman, Jordan. We paid approximately
$980,000 as of the closing date of the transaction on June 18, 2019.
On August 7, 2019, we completed a transaction to acquire 12,340 square meters (approximately three acres) of land in Al Tajamouat Industrial
City, Jordan, from a third party to construct a dormitory for our employees with aggregate purchase price JOD863,800 (approximately $1,218,303).
Management has revised the plan to construct both dormitory and production facilities on the land in order to capture the increasing demand for our
capacity. We are conducting engineering design and study on this project and we plan to begin construction in late 2021. On February 6, 2020, we
completed a transaction to acquire 4,516 square meters (approximately 48,608 square feet) of land in Al Tajamouat Industrial City, Jordan, from a third
party to construct a dormitory for our employee with aggregate purchase price JOD313,501 (approximately $442,162). We expect to spend approximately
$8.2 million in capital expenditures to build the dormitory. Due to the ongoing COVID-19 pandemic, management decided to put on hold the construction
project in fiscal 2021 to retain financial resources to support our operations, and also to wait and see how the global economy and customer demand
recover after the outbreak. The preparation work resumed in early 2021 and construction work commenced in April 2021.
We projected that there will be an aggregate of approximately $27 million of capital expenditures in both the fiscal years ending March 31, 2022
and 2023 for further enhancement of production capacity to meet future sales growth. We expect that our capital expenditures will increase in the future as
our business continues to develop and expand. We have used cash generated from operations of our subsidiaries and VIE to fund our capital commitments
in the past and anticipate using such funds to fund capital expenditure commitments in the future.
26
Off-balance Sheet Commitments and Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. In
addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as stockholders’ equity, or that are not reflected
in our consolidated financial statements.
For Management’s Discussion and Analysis of the fiscal years ended March 31, 2020 and 2019, please see our Annual Report on Form 10-K for
the fiscal year ended March 31, 2020, filed with the SEC on June 29, 2020.
Critical Accounting Policies
We prepare our financial statements in conformity with U.S. GAAP, which require us to make judgments, estimates, and assumptions that affect
our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the
accounting estimates and assumptions in the past two years, we continually evaluate these estimates and assumptions based on the most recently available
information, our own historical experience, and various other assumptions that we believe to be reasonable under the circumstances. Since the use of
estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our
estimates.
We believe that certain accounting policies involve a higher degree of judgment and complexity in their application and require us to make
significant accounting estimates. The policies that we believe are the most critical to understanding and evaluating our consolidated financial condition and
results of operations are summarized in “Note 2—Summary of Significant Accounting Policies” in the notes to our audited financial statements.
Recent Accounting Pronouncements
See “Note 3—Recent Accounting Pronouncements” in the notes to our audited financial statements for a discussion of recent accounting
pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
27
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Jerash Holdings (US), Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Jerash Holdings (US), Inc. and Subsidiaries (collectively, the “Company”) as of March
31, 2021 and 2020, and the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the years in
the two-year period ended March 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the
results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2021, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statement. We believe that our audits provide a reasonable basis for our opinion.
/s/ Friedman LLP
We have served as the Company’s auditor since 2016.
New York, New York
June 23, 2021
F-1
JERASH HOLDINGS (US), INC.,
SUBSIDIARIES AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets:
Cash
Restricted cash
Accounts receivable, net
Tax recoverable
Inventories
Prepaid expenses and other current assets
Advance to suppliers, net
Total Current Assets
Restricted cash - non-current
Long-term deposits
Deferred tax assets, net
Property, plant, and equipment, net
Right of use assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities:
Credit facilities
Accounts payable
Accrued expenses
Income tax payable - current
Other payables
Operating lease liabilities - current
Total Current Liabilities
Operating lease liabilities - non-current
Income tax payable - non-current
Total Liabilities
Commitments and Contingencies
Equity
March 31,
2021
March 31,
2020
$
$
$
21,126,090 $
714,844
12,033,268
379,719
25,035,966
2,329,289
3,036,693
64,655,869
1,020,777
128,690
148,663
5,699,506
1,596,600
73,250,105 $
26,130,411
-
5,335,748
-
22,633,772
2,761,877
2,116,367
58,978,175
786,298
253,414
139,895
6,174,164
1,147,090
67,479,036
612,703 $
7,922,839
2,332,867
1,803,175
1,455,208
400,043
14,526,835
235
6,376,320
2,245,402
1,088,497
929,783
210,081
10,850,318
935,773
1,094,048
16,556,656
649,935
1,227,632
12,727,885
Preferred stock, $0.001 par value; 500,000 shares authorized; none issued and outstanding
Common stock, $0.001 par value; 30,000,000 shares authorized; 11,332,974 and 11,325,000 shares issued and
$
- $
-
outstanding
Additional paid-in capital
Statutory reserve
Retained earnings
Accumulated other comprehensive loss
Total Jerash Holdings (US), Inc.’s Stockholder’s Equity
Noncontrolling interest
Total Equity
Total Liabilities and Equity
F-2
11,333
15,301,268
346,315
40,748,314
(15,901)
56,391,329
11,325
15,235,025
212,739
38,997,177
(8,324)
54,447,942
302,120
56,693,449
303,209
54,751,151
$
73,250,105 $
67,479,036
JERASH HOLDINGS (US), INC.,
SUBSIDIARIES AND AFFILIATE
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Revenue, net
Cost of goods sold
Gross Profit
Selling, general and administrative expenses
Stock-based compensation expenses
Total Operating Expenses
Income from Operations
Other Income (Expense):
Other income (expense), net
Total other income (expense), net
Net Income before provision for income taxes
Income tax expense
Net Income
Net loss attributable to noncontrolling interest
Net income attributable to Jerash Holdings (US), Inc.’s
Common Stockholders
Net Income
Other Comprehensive Income:
Foreign currency translation (loss) gain
Total Comprehensive Income
Comprehensive loss attributable to noncontrolling interest
Comprehensive Income Attributable to Jerash Holdings (US), Inc.’s Common Stockholders
Earnings Per Share Attributable to Common Stockholders:
Basic and diluted
Weighted Average Number of Shares
Basic
Diluted
Dividend per share
F-3
For the Fiscal Years Ended
March 31,
2021
2020
$
90,213,361 $
74,213,993
15,999,368
93,024,236
75,040,597
17,983,639
10,547,356
66,251
10,613,607
10,039,995
278,258
10,318,253
5,385,761
7,665,386
108,509
108,509
(21,120)
(21,120)
5,494,270
7,644,266
1,345,646
1,174,618
4,148,624
6,469,648
1,089
5,794
$
4,149,713 $
6,475,442
$
4,148,624 $
6,469,648
(7,577)
4,141,047
-
4,141,047 $
6,116
6,475,764
-
6,475,764
0.37 $
0.57
$
$
11,325,131
11,325,311
11,325,000
11,443,364
$
0.20 $
0.20
JERASH HOLDINGS (US), INC., SUBSIDIARIES AND AFFILIATE
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE FISCAL YEARS ENDED MARCH 31, 2021 AND 2020
Preferred Stock Common Stock
Shares Amount Shares
Additional
Paid-in Statutory Retained
Comprehensive Noncontrolling
Accumulated
Other
Amount Capital
Reserve Earnings Gain (Loss)
Interest
Total
Equity
Balance at
March 31,
2019
Stock-based
compensation
expense for
the stock
options
issued under
stock
incentive
plan
Net income
(loss)
Dividend
payment
Foreign
currency
translation
gain
Balance at
March 31,
2020
Stock-based
compensation
expense for
the stock
options
issued under
stock
incentive
plan
Shared issued
Net income
(loss)
Dividend
payment
Statutory
Reserve
Foreign
currency
translation
loss
Balance at
March 31,
2021
- $
- 11,325,000 $ 11,325 $ 14,956,767 $ 212,739 $ 34,786,735 $
(14,440) $
309,003 $50,262,129
-
-
-
-
-
-
-
-
-
-
278,258
-
-
-
-
-
-
- 6,475,442
- (2,265,000)
-
-
-
-
278,258
(5,794) 6,469,648
- (2,265,000)
-
-
-
-
-
-
-
6,116
-
6,116
- $
- 11,325,000 $ 11,325 $ 15,235,025 $ 212,739 $ 38,997,177 $
(8,324) $
303,209 $54,751,151
- $
-
-
-
-
-
-
-
-
-
- $
7,974
- $
8
66,251 $
(8)
- $
-
- $
-
-
-
-
-
-
-
-
-
- 4,149,713
- (2,265,000)
- 133,576
(133,576)
- $
-
-
-
-
- $
-
66,251
-
(1,089) 4,148,624
- (2,265,000)
-
-
-
-
-
-
-
-
-
(7,577)
-
(7,577)
- $
- 11,332,974 $ 11,333 $ 15,301,268 $ 346,315 $ 40,748,314 $
(15,901) $
302,120 $56,693,449
F-4
JERASH HOLDINGS (US), INC.,
SUBSIDIARIES AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Bad debt expense
Amortization of operating lease right-of-use assets
Short-term investment
Changes in operating assets:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Advances to suppliers
Deferred tax assets
Changes in operating liabilities:
Accounts payable
Accrued expenses
Other payables
Operating lease liabilities
Income tax payable
Net cash (used in) provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investment
Proceeds of short-term investment
Purchases of property, plant, and equipment
Payment for long-term deposits
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payment
Repayment from short-term loan
Proceeds from short-term loan
Net cash used in financing activities
EFFECT OF EXCHANGE RATES CHANGES ON CASH
NET DECREASE IN CASH
CASH, AND RESTRICTED CASH, BEGINNING OF THE YEAR
For the Fiscal Years Ended
March 31,
2021
2020
$
4,148,624 $
6,469,648
1,618,533
66,251
-
933,959
(124,889)
(6,697,520)
(2,402,194)
432,585
(920,326)
(8,768)
1,546,519
87,464
525,425
(907,669)
201,566
(1,500,440)
1,516,526
278,258
6,641
476,595
-
(1,315,286)
(1,559,418)
(519,356)
(1,672,853)
(58,547)
2,997,850
706,205
74,250
(237,504)
(250,357)
6,912,652
(9,686,091)
9,810,980
(890,462)
(128,690)
(894,263)
-
-
(4,678,249)
(253,414)
(4,931,663)
(2,265,000)
(235)
612,703
(1,652,532)
(2,265,000)
(648,665)
235
(2,913,430)
(7,763)
14,682
(4,054,998)
(917,759)
26,916,709
27,834,468
CASH, AND RESTRICTED CASH, END OF THE YEAR
$
22,861,711 $
26,916,709
CASH, AND RESTRICTED CASH, END OF THE YEAR
LESS: RESTRICTED CASH
NON-CURRENT RESTRICTED CASH
CASH, END OF YEAR
Supplemental disclosure information:
Cash paid for interest
Income tax paid
Non-cash financing activities:
Right of use assets obtained in exchange for operating lease obligations
F-5
$
$
$
$
22,861,711 $
714,844
1,020,777
21,126,090 $
26,916,709
-
786,298
26,130,411
- $
773,320 $
6,171
1,483,523
$
1,352,167 $
1,623,685
JERASH HOLDINGS (US), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Jerash Holdings (US), Inc. (“Jerash Holdings”) is a corporation incorporated under the laws of the State of Delaware on January 20, 2016. Jerash Holdings
is a parent holding company with no operations. Jerash Holdings, and its subsidiaries and Variable Interest Entity (“VIE”) are herein collectively referred to
as the “Company.”
Jerash Garments and Fashions Manufacturing Company Limited (“Jerash Garments”) is a wholly owned subsidiary of Jerash Holdings and was established
in Amman, the Hashemite Kingdom of Jordan (“Jordan”), as a limited liability company on November 26, 2000 with a declared capital of 150,000
Jordanian Dinar (“JOD”) (approximately US$212,000) as of March 31, 2021.
Jerash for Industrial Embroidery Company (“Jerash Embroidery”) and Chinese Garments and Fashions Manufacturing Company Limited (“Chinese
Garments”) were both incorporated in Amman, Jordan, as limited liability companies on March 11, 2013 and June 13, 2013, respectively, each with a
declared capital of JOD 50,000 as of March 31, 2021. Jerash Embroidery and Chinese Garments are wholly owned subsidiaries of Jerash Garments.
Al-Mutafaweq Co. for Garments Manufacturing Ltd. (“Paramount”) was a contract garment manufacturer that was incorporated in Amman, Jordan, as a
limited liability company on October 24, 2004 with a declared capital of JOD 100,000. On December 11, 2018, Jerash Garments and the sole stockholder
of Paramount entered into an agreement pursuant to which Jerash Garments acquired all of the outstanding shares of stock of Paramount. Jerash Garments
assumed ownership of all of the machinery and equipment owned by Paramount. Paramount 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 June 18, 2019, Paramount became
a subsidiary of Jerash Garments.
Jerash The First for Medical Supplies Manufacturing Company Limited (“Jerash The First”) was incorporated in Amman, Jordan, as limited liability
company on July 6, 2020, with a registered capital of JOD 150,000. Jerash The First is engaged in the production of medical supplies in Jordan and is a
wholly owned subsidiary of Jerash Garments.
Treasure Success International Limited (“Treasure Success”) was incorporated on July 5, 2016 in Hong Kong, China, for the primary purpose of employing
staff from China to support Jerash Garments’ operations and is a wholly-owned subsidiary of Jerash Holdings.
Victory Apparel (Jordan) Manufacturing Company Limited (“Victory Apparel”) was incorporated as a limited liability company in Amman, Jordan, on
September 18, 2005 with a declared capital of JOD 50,000. Victory Apparel has no significant assets or liabilities or other operating activities of its own.
Although Jerash Garments does not own the equity interest of Victory Apparel, the Company’s president, director, and significant stockholder, Mr. Choi
Lin Hung (“Mr. Choi”), is also a director of Victory Apparel and controls all decision-making for Victory Apparel along with another significant
stockholder of Jerash Garments, Mr. Lee Kian Tjiauw (“Mr. Lee”), who has the ability to control Victory Apparel’s financial affairs. In addition, Victory
Apparel’s equity at risk is not sufficient to permit it to operate without additional subordinated financial support from Jerash Garments. Based on these
facts, the Company concluded that Jerash Garments has effective control over Victory Apparel due to Mr. Choi’s roles at both organizations and therefore
Victory Apparel is considered a VIE under Accounting Standards Codification (“ASC”) 810-10-05-08A. Accordingly, Jerash Garments consolidates
Victory Apparel’s operating results, assets, and liabilities.
Jiangmen Treasure Success Business Consultancy Company Limited (“Jiangmen Treasure Success”) was incorporated on August 28, 2019 under the laws
of the People’s Republic of China (“China”) in Guangzhou City of Guangdong Province in China with a total registered capital of 15 million Hong Kong
Dollars (“HKD”) (approximately $1.9 million) to provide support in sales and marketing, sample development, merchandising, procurement, and other
areas. Treasure Success owns 100% of the equity interests in Jiangmen Treasure Success.
Jerash Supplies, LLC (“Jerash Supplies”) was formed under the laws of the State of Delaware on November 20, 2020. Jerash Supplies is engaged in the
trading of personal protective equipment products and is a wholly owned subsidiary of Jerash Holdings.
The Company is engaged primarily in the manufacturing and exporting of customized, ready-made sport and outerwear and personal protective equipment
(“PPE”) produced in its facilities in Jordan and sold in the United States, Jordan, and other countries.
F-6
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of
America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
Principles of Consolidation
The consolidated financial statements include the financial statements of Jerash Holdings, and its subsidiaries and VIE. All significant intercompany
balances and transactions have been eliminated in consolidation.
In accordance with accounting standards regarding the consolidation of VIEs, VIEs are generally entities that lack sufficient equity to finance their
activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which a
company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIEs. The primary beneficiary is required
to consolidate the VIE for financial reporting purposes.
As described in Note 1, management of the Company has concluded that Victory Apparel is a VIE, and that Jerash Garments is considered the primary
beneficiary because Mr. Choi, the Company’s president, director, and significant stockholder absorbs the risks and rewards of Victory Apparel;
therefore, the Company consolidates Victory Apparel for financial reporting purposes. Noncontrolling interests result from the consolidation of Victory
Apparel, which is 100% owned by Wealth Choice Limited.
The following table sets forth the carrying amounts of the assets and liabilities of the VIE, Victory Apparel, which was included in the Company’s
consolidated balance sheets:
Current assets
Intercompany receivables*
Total assets
Third party current liabilities
Total liabilities
Net assets
March 31,
2021
March 31,
2020
$
$
1,249 $
301,929
303,178
1,058
1,058
302,120 $
1,280
303,692
304,972
1,763
1,763
303,209
*
Receivables from Jerash Garments are eliminated upon consolidation.
Victory Apparel was inactive for the fiscal years ended March 31, 2021 and 2020.
Use of Estimates
The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements,
and the reported amounts of revenue and expenses during the reporting period. The Company’s most significant estimates include allowance for doubtful
accounts, valuation of inventory reserve, useful lives of buildings and other property, and the measurement of stock-based compensation expenses. Actual
results could differ from these estimates.
Cash
The Company’s cash consists of cash on hand and cash deposited in financial institutions. The Company considers all highly liquid investment instruments
with an original maturity of three months or less from the original date of purchase to be cash equivalents. As of March 31, 2021 and 2020, the Company
had no cash equivalents.
Restricted Cash
Restricted cash consists of cash used as security deposits to obtain credit facilities from a bank and to secure customs clearance under the requirements of
local regulations. The Company is required to keep certain amounts on deposit that are subject to withdrawal restrictions. These security deposits at the
bank are refundable only when the bank facilities are terminated. The restricted cash is classified as a current asset if the Company intends to terminate
these bank facilities within one year, and as a non-current asset if otherwise.
F-7
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Short-term Investments
From time to time, the Company purchased financial products that can be readily converted into cash and accounted for such financial products as short-
term investments. The financial products include money market funds, bonds, and mutual funds. The carrying values of the Company’s short-term
investments approximate fair value because of their liquidity. The gain and interest earned are recognized in the consolidated statements of income over the
contractual terms of these investments.
The Company had no short-term investments as of March 31, 2021 and 2020. The Company recorded a realized gain of $124,889 and $Nil for the fiscal
years ended March 31, 2021 and 2020, respectively.
Accounts Receivable, Net
Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts. The Company usually
grants extended payment terms to customers with good credit standing and determines the adequacy of reserves for doubtful accounts based on individual
account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the
Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as
well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge
recorded in the consolidated statements of income and comprehensive income. Actual amounts received may differ from management’s estimate of credit
worthiness and the economic environment. Delinquent account balances are written off against the allowance for doubtful accounts after management has
determined that the likelihood of collection is not probable.
Inventories
Inventories are stated at the lower of cost or net realizable value. Inventories include cost of raw materials, freight, direct labor and related production
overhead. The cost of inventories is determined using the First in, First-out method. The Company periodically reviews its inventories for excess or slow-
moving items and makes provisions as necessary to properly reflect inventory value.
Advance to Suppliers, Net
Advance to suppliers consists of balances paid to suppliers for services or materials purchased that have not been provided or received. Advance to
suppliers for services and materials is short-term in nature. Advance to suppliers is reviewed periodically to determine whether its carrying value has
become impaired. The Company considers the assets to be impaired if the performance by the suppliers becomes doubtful. The Company uses the aging
method to estimate the allowance for the questionable balances. In addition, at each reporting date, the Company generally determines the adequacy of
allowance for doubtful accounts by evaluating all available information, and then records specific allowances for those advances based on the specific facts
and circumstances.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost, reduced by accumulated depreciation and amortization. Depreciation and amortization expense related
to property, plant, and equipment is computed using the straight-line method based on estimated useful lives of the assets, or in the case of leasehold
improvements, the shorter of the initial lease term or the estimated useful life of the improvements. The useful life and depreciation method are reviewed
periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property,
plant, and equipment. The estimated useful lives of depreciation and amortization of the principal classes of assets are as follows:
Land
Property and buildings
Equipment and machinery
Office and electronic equipment
Automobiles
Leasehold improvements
Useful life
Infinite
15 years
3-5 years
3-5 years
5 years
Lesser of useful life and lease term
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures
for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation or
amortization of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income
and comprehensive income.
Impairment of Long-Lived Assets
The Company assesses its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset group may not be recoverable. Factors which may indicate potential impairment include a significant underperformance
relative to the historical or projected future operating results or a significant negative industry or economic trend. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by that asset. If
impairment is indicated, a loss is recognized for any excess of the carrying value over the estimated fair value of the asset. The fair value is estimated based
on the discounted future cash flows or comparable market values, if available. The Company did not record any impairment loss during the fiscal years
ended March 31, 2021 and 2020.
F-8
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
Substantially all of the Company’s revenue is derived from product sales, which consist of sales of the Company’s customized ready-made outerwear for
large brand-name retailers and PPE. The Company considers purchase orders to be a contract with a customer. Contracts with customers are considered to
be short term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year. Virtually all of the
Company’s contracts are short term. The Company recognizes revenue for the transfer of promised goods to customers in an amount that reflects the
consideration to which the Company expects to be entitled in exchange for those goods. The Company typically satisfies its performance obligations in
contracts with customers upon shipment of the goods. Generally, payment is due from customers within seven to 150 days of the invoice date. The
contracts do not have significant financing components. Shipping and handling costs associated with outbound freight are not an obligation of the
Company. Returns and allowances are not a significant aspect of the revenue recognition process as historically they have been immaterial.
The Company also derives revenue rendering cutting and making services to other apparel vendors who subcontract order to the Company. Revenue is
recognized when the service is rendered. All of the Company’s contracts have a single performance obligation satisfied at a point in time and the
transaction price is stated in the contract, usually as a price per unit. All estimates are based on the Company’s historical experience, complete satisfaction
of the performance obligation, and the Company’s best judgment at the time the estimate is made. Historically, sales returns have not significantly impacted
the Company’s revenue.
The Company does not have any contract assets since the Company has an unconditional right to consideration when the Company has satisfied its
performance obligation and payment from customers is not contingent on a future event. The Company did not have any contract liabilities as of March 31,
2021 and March 31, 2020. For the fiscal year ended March 31 2021 and 2020, there was no revenue recognized from performance obligations related to
prior periods. As of March 31, 2021, there was no revenue expected to be recognized in any future periods related to remaining performance obligations.
The Company has one revenue generating reportable geographic segment under ASC Topic 280 “Segment Reporting” and derives its sales primarily from
its sales of customized ready-made outerwear. The Company believes disaggregation of revenue by geographic region best depicts the nature, amount,
timing, and uncertainty of its revenue and cash flows (see “Note 14—Segment Reporting”).
Shipping and Handling
Proceeds collected from customers for shipping and handling costs are included in revenue. Shipping and handling costs are expensed as incurred and are
included in operating expenses, as a part of selling, general and administrative expenses. Total shipping and handling expenses were $1,108,659 and
$821,805 for the fiscal years ended March 31, 2021 and 2020, respectively.
Income and Sales Taxes
The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.
Jerash Holdings and Jerash Supplies are incorporated/formed in the State of Delaware and is subject to federal income tax in the United States of America.
Treasure Success is registered in Hong Kong and has no operating profit. Jiangmen Treasure Success is incorporated in China and is subject to corporate
income tax in China. Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and Victory Apparel are subject to income tax
in Jordan, unless an exemption is granted. In accordance with Development Zone law, Jerash Garments and its subsidiaries and VIE were subject to
corporate income tax in Jordan at a rate of 10% plus a 1% social contribution. The income tax rate increased to 14% plus a 1% social contribution from
January 1, 2020. Effective January 1, 2021, income rate increased to 16% and plus a 1% social contribution.
Jerash Garments and its subsidiaries and VIE are subject to local sales tax of 16% on purchases. Jerash Garments was granted a sales tax exemption from
the Jordanian Investment Commission for the period from June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases with no sales tax
charge. The exemption has been extended to February 5, 2022.
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” which requires the Company to use the asset and liability method
of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases
of existing assets and liabilities and operating loss and tax credit carry forwards. Under this accounting standard, the effect on deferred income taxes of a
change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not
that some portion, or all of, a deferred tax asset will not be realized.
F-9
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income and Sales Taxes (Continued)
ASC 740 clarifies the accounting for uncertainty in tax positions. This interpretation requires that an entity recognize in its financial statements the impact
of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are
reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and penalties related to unrecognized tax
benefits, if and when required, as part of income tax expense in the consolidated statements of income and comprehensive income. No significant
uncertainty in tax positions relating to income taxes were incurred during the fiscal years ended March 31, 2021 and 2020.
Foreign Currency Translation
The reporting currency of the Company is the U.S. dollar (“US$” or “$”). The Company uses JOD in Jordan companies, HKD in Treasure Success, and
Chinese Yuan (“CNY”) in Jiangmen Treasure Success as functional currency of each abovementioned entity. The assets and liabilities of the Company
have been translated into US$ using the exchange rates in effect at the balance sheet date, equity accounts have been translated at historical rates, and
revenue and expenses have been translated into US$ using average exchange rates in effect during the reporting period. Cash flows are also translated at
average translation rates for the periods. Therefore, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not
necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different
exchange rates from period to period are included as a separate component of accumulated other comprehensive income or loss. Transaction gains and
losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of
operations as incurred.
The value of JOD against US$ and other currencies may fluctuate and is affected by, among other things, changes in Jordan’s political and economic
conditions. Any significant revaluation of JOD may materially affect the Company’s financial condition in terms of US$ reporting. The following table
outlines the currency exchange rates that were used in creating the consolidated financial statements in this report:
Period-end spot rate
Average rate
Stock-Based Compensation
March 31,
2021
March 31,
2020
US$1=JOD0.7090 US$1=JOD0.7090
US$1=HKD7.7744 US$1=HKD7.7529
US$1=CNY6.5565 US$1=CNY7.0896
US$1=JOD0.7090 US$1=JOD0.7090
US$1=HKD7.7527 US$1=HKD7.8163
US$1=CNY6.7702 US$1=CNY6.9642
The Company measures compensation expense for stock-based awards to non-employee contractors and directors based upon the awards’ initial grant-
date fair value. The estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method.
The Company estimates the fair value of stock options using a Black-Scholes model. This model is affected by the Company’s stock price on the date of
the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected term of the option,
expected risk-free rates of return, the expected volatility of the Company’s common stock, and expected dividend yield, each of which is more fully
described below. The assumptions for expected term and expected volatility are the two assumptions that significantly affect the grant date fair value.
● Expected Term: the expected term of a warrant or a stock option is the period of time that the warrant or a stock option is expected to be
outstanding.
● Risk-free Interest Rate: the Company bases the risk-free interest rate used in the Black-Scholes model on the implied yield at the grant date of the
U.S. Treasury zero-coupon issued with an equivalent term to the stock-based award being valued. Where the expected term of a stock-based
award does not correspond with the term for which a zero-coupon interest rate is quoted, the Company uses the nearest interest rate from the
available maturities.
● Expected Stock Price Volatility: the Company utilizes comparable public company volatility over the same period of time as the life of the
warrant or stock option.
F-10
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-Based Compensation (continued)
● Dividend Yield: Stock-based compensation awards granted prior to November 2018 assumed no dividend yield, while any subsequent stock-based
compensation awards will be valued using the anticipated dividend yield.
Earnings per Share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with
complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares
outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g.,
convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential
common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of
diluted EPS (See “Note 13–Earnings per Share”).
Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income. The foreign currency translation gain or loss resulting
from translation of the financial statements expressed in JOD or HKD or CNY to US$ is reported in other comprehensive income in the consolidated
statements of income and comprehensive income.
Fair Value of Financial Instruments
ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy
prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of
unobservable inputs. The three levels of inputs used to measure fair value are as follows:
● Level 1 - Quoted prices in active markets for identical assets and liabilities.
● Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
● Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash, including restricted cash, accounts
receivable, other receivables, credit facilities, accounts payable, accrued expenses, income tax payables, other payables, and operating lease liabilities to
approximate the fair value of the respective assets and liabilities at March 31, 2021 and 2020 based upon the short-term nature of these assets and
liabilities.
F-11
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations and Credit Risk
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. As of March 31, 2021, and
2020, respectively, $5,122,292 and $6,894,641 of the Company’s cash was on deposit at financial institutions in Jordan, where there currently is no rule or
regulation requiring such financial institutions to maintain insurance to cover bank deposits in the event of bank failure. As of March 31, 2021, and 2020,
respectively, $2,036,147 and $125,830 of the Company’s cash was on deposit at financial institutions in China. Cash maintained in banks within China of
less than CNY0.5 million (equivalent to $76,260) per bank are covered by “deposit insurance regulation” promulgated by the State Council of the People’s
Republic of China. As of March 31, 2021, and 2020, respectively, $15,622,051 and $19,847,852 of the Company’s cash was on deposit at financial
institutions in Hong Kong, which are insured by the Hong Kong Deposit Protection Board subject to certain limitations. While management believes that
these financial institutions are of high credit quality, it also continually monitors their credit worthiness. As of March 31, 2021, and 2020, respectively,
$81,221 and $48,386 of the Company’s cash was on deposit in the United States and are insured by the Federal Deposit Insurance Corporation up to
$250,000.
Accounts receivable are typically unsecured and derived from revenue earned from customers, and therefore are exposed to credit risk. The risk is
mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Customer and vendor concentration risk
The Company’s sales are made primarily in the United States. Its operating results could be adversely affected by U.S. government policies on importing
business, foreign exchange rate fluctuations, and change of local market conditions. The Company has a concentration of its revenue and purchases with
specific customers and suppliers. For the fiscal year ended March 31, 2021, two end-customers accounted for 62% and 12% of the Company’s total
revenue, respectively. For the fiscal year ended March 31, 2020, two end-customers accounted for 77% and 11% of the Company’s total revenue,
respectively. As of March 31, 2021, two end-customers accounted of 68% and 24% of the Company’s total accounts receivable balance, respectively. As of
March 31, 2020, four end-customers accounted for 42%, 20%, 20%, and 14% of the Company’s total accounts receivable balance, respectively.
For the fiscal year ended March 31, 2021, the Company purchased approximately 13% of its garments from one major supplier. For the fiscal year ended
March 31, 2020, the Company purchased approximately 22%, 16%, and 11% of its raw materials from three major suppliers, respectively. As of March 31,
2021, accounts payable to the Company’s four major suppliers accounted for 19%, 11%, 11%, and 10% of the total accounts payable balance, respectively.
As of March 31, 2020, accounts payable to the Company’s three major suppliers accounted for 39%, 16%, and 10% of the total accounts payable balance,
respectively.
Risks and Uncertainties
The principal operations of the Company are located in Jordan. Accordingly, the Company’s business, financial condition, and results of operations may be
influenced by political, economic, and legal environments in Jordan, as well as by the general state of the Jordanian economy. The Company’s operations in
Jordan are subject to special considerations and significant risks not typically associated with companies in North America. These include risks associated
with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by
changes in the political, regulatory and social conditions in Jordan. Although the Company has not experienced losses from these situations and believes
that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future
results.
The spread of COVID-19 around the world since March 2020 has caused significant volatility in U.S. and international markets. The Company’s operations
during the fiscal year ended March 31, 2021 were impacted by the spread of COVID-19. The Company’s manufacturing facilities in Jordan was operating
on limited capacity until June 1, 2020, the shipment of certain sales orders was delayed to the fourth fiscal quarter of 2021, and the Company postponed its
construction plan of new housing facilities in Jordan.
There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and
international economies. The Company currently expects that its operation results for the fiscal year ending March 31, 2022 would not be significantly
impacted by COVID-19. However, given the dynamic nature of these circumstances, should there be resurgence of the COVID-19 cases globally and that
U.S. government or Jordan government implements new restrictions to contain the spread, it is expected the Company’s business will be negatively
impacted.
F-12
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting
standards that are issued.
In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments
held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the
reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help
investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit
quality and underwriting standards of the Company’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional
information about the amounts recorded in the financial statements. In November 2019, the FASB issued ASU 2019-10, which amended the effective dates
of ASU 2016-13. For public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies (“SRC”)
as defined by the SEC, ASU 2016-13 will become effective for the fiscal years beginning after December 15, 2019, including interim periods within those
fiscal years. For all other entities, ASU 2016-13 will become effective for the fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years. As an SRC, the Company plans to adopt this ASU effective April 1, 2023. The Company is currently evaluating the impact of the
adoption of ASU 2016-13 on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is
intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to
improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years,
with early adoption permitted. The Company does not expect adoption of the new ASU to have a significant impact on its consolidated financial
statements.
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848). This ASU is intended to transition away from referencing the
London Interbank Offered Rate and other interbank offered rates, and toward new reference rates that are more reliable and robust. The amendments in this
ASU are effective immediately for all entities. An entity may elect to apply the amendments in this ASU on a full retrospective basis as of any date from
the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an
interim period that includes or is subsequent to the date of the issuance of a final ASU, up to the date that financial statements are available to be issued.
The Company is evaluating the impact of adopting this new ASU and does not expect a significant impact on its consolidated financial statements.
NOTE 4 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
Trade accounts receivable
Less: allowances for doubtful accounts
Accounts receivable, net
NOTE 5 – INVENTORIES
Inventories consisted of the following:
Raw materials
Work-in-progress
Finished goods
Total inventory
F-13
As of
March 31,
2021
12,033,268 $
-
12,033,268 $
As of
March 31,
2020
5,340,389
(4,641)
5,335,748
$
$
As of
March 31,
2021
13,293,628 $
2,057,986
9,684,352
25,035,966 $
As of
March 31,
2020
12,499,301
1,541,716
8,592,755
22,633,772
$
$
NOTE 6 – ADVANCE TO SUPPLIERS, NET
Advance to suppliers consisted of the following:
Advance to suppliers
Less: allowances for doubtful accounts
Advance to suppliers, net
NOTE 7 – LEASES
As of
March 31,
2021
3,036,693 $
-
3,036,693 $
As of
March 31,
2020
2,118,367
(2,000)
2,116,367
$
$
The Company has 44 operating leases for manufacturing facilities and offices. Some leases include one or more options to renew, which is typically at the
Company’s sole discretion. The Company regularly evaluates the renewal options, and, when it is reasonably certain of exercise, it will include the renewal
period in its lease term. New lease modifications result in remeasurement of the right of use (“ROU”) assets and lease liability. The Company’s lease
agreements do not contain any material residual value guarantees or material restrictive covenants.
Effective April 1, 2019, the Company adopted the new lease accounting standard using a modified retrospective transition method which allowed the
Company not to recast comparative periods presented in its consolidated financial statements. In addition, the Company elected the package of practical
expedients, which allowed the Company to not reassess whether any existing contracts contain a lease, to not reassess historical lease classification as
operating or finance leases, and to not reassess initial direct costs. The Company has not elected the practical expedient to use hindsight to determine the
lease term for its leases at transition. The Company combines the lease and non-lease components in determining the ROU assets and related lease
obligation. Adoption of this standard resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities as disclosed
below and had no impact on retained earnings as of March 31, 2020. ROU assets and related lease obligations are recognized at commencement date based
on the present value of remaining lease payments over the lease term.
All of the Company’s leases are classified as operating leases and primarily include office space and manufacturing facilities.
Supplemental balance sheet information related to operating leases was as follows:
Right-of-use assets
Operating lease liabilities - current
Operating lease liabilities - non-current
Total operating lease liabilities
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of March 31, 2021:
Remaining lease term and discount rate:
Weighted average remaining lease term (years)
Weighted average discount rate
March 31,
2021
1,596,600
400,043
935,773
1,335,816
$
$
$
3.0
4.06%
During the fiscal years ended March 31, 2021 and 2020, the Company incurred total operating lease expenses of $2,140,894 and $1,963,831, respectively.
F-14
NOTE 7 – LEASES (continued)
The following is a schedule, by fiscal years, of maturities of lease liabilities as of March 31, 2021:
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Less: prepayments
Present value of lease liabilities
NOTE 8 – PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment, net consisted of the following:
Land (1)
Property and buildings
Equipment and machinery (2)
Office and electric equipment
Automobiles
Leasehold improvements
Subtotal
Construction in progress (3)
Less: Accumulated depreciation and amortization
Property and equipment, net
$
$
651,349
526,933
302,664
121,599
52,542
-
1,655,087
(58,489)
(260,782)
1,335,816
As of
March 31,
2021
As of
March 31,
2020
$
$
1,831,192 $
432,562
8,532,813
825,013
512,209
2,943,797
15,077,586
194,752
(9,572,832)
5,699,506 $
1,831,192
432,562
7,630,255
793,405
480,687
2,765,610
13,933,711
194,752
(7,954,299)
6,174,164
(1) On August 7, 2019 and February 6, 2020, the Company, through Jerash Garments, purchased 12,340 square meters (approximately three acres) and
4,516 square meters (approximately 48,608 square feet) of land in Al Tajamouat Industrial City, Jordan (the “Jordan Properties”), from third parties to
construct a factory and a dormitory for the Company’s employees, respectively. The aggregate purchase price of the Jordan Properties was
JOD1,177,301 (approximately US$1.7 million).
(2) On June 18, 2019, the Company acquired all of the outstanding shares of Paramount, a contract manufacturer based in Amman, Jordan. As a result,
Paramount became a subsidiary of Jerash Garments, and the Company assumed ownership of all of the machinery and equipment owned by
Paramount. Paramount had no other significant assets or liabilities and no operating activities or employees at the time of acquisition, so this
transaction was accounted for as an asset acquisition. $980,000 was paid in cash to acquire all of the machinery and equipment from Paramount and
the machinery and equipment were transferred to the Company.
(3) The construction in progress account represents costs incurred for constructing a dormitory, which was previously planned to be a sewing workshop.
This dormitory is approximately 4,800 square feet in the Tafilah Governorate of Jordan. Construction has been temporarily suspended since March
2020 due to the COVID-19 pandemic. The dormitory is expected to be completed and ready for use in fiscal 2022.
F-15
NOTE 9 – EQUITY
Preferred Stock
The Company has 500,000 shares of preferred stock, par value of $0.001 per share, authorized; none were issued and outstanding as of March 31, 2021
and March 31, 2020. The preferred stock can be issued by the board of directors of Jerash Holdings (the “Board of Directors”) in one or more classes or
one or more series within any class, and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations,
preferences, rights, qualifications, limitations or restrictions of such rights as the Board of Directors may determine from time to time.
Common Stock
The Company had 11,332,974 and 11,325,000 shares of common stock outstanding as of March 31, 2021 and 2020 respectively.
Statutory Reserve
In accordance with the Corporate Law in Jordan, Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and Victory
Apparel are required to make appropriations to certain reserve funds, based on net income determined in accordance with generally accepted accounting
principles of Jordan. Appropriations to the statutory reserve are required to be 10% of net income until the reserve is equal to 100% of the entity’s share
capital. This reserve is not available for dividend distribution. In addition, PRC companies are required to set aside at least 10% of their after-tax net profits
each year, if any, to fund the statutory reserves until the balance of the reserves reaches 50% of their registered capital. The statutory reserves are not
distributable in the form of cash dividends to the Company and can be used to make up cumulative prior year losses. The Company’s subsidiaries and VIE
have reserved the maximum amount required.
Dividends
During the fiscal year ended March 31, 2021, on February 5, 2021, November 2, 2020, August 5, 2020, and May 15, 2020, the Board of Directors declared
a cash dividend of $0.05 per share of common stock, respectively. The cash dividends of $566,250 were paid in full on February 23, 2021, November 23,
2020, August 24, 2020, and June 2, 2020, respectively.
During the fiscal year ended March 31, 2020, on February 5, 2020, November 4, 2019, July 29, 2019, and May 17, 2019, the Board of Directors declared a
cash dividend of $0.05 per share of common stock, respectively. The cash dividends of $566,250 were paid in full on February 26, 2020, November 26,
2019, August 19, 2019, and June 5, 2019, respectively.
NOTE 10 – STOCK-BASED COMPENSATION
Warrants issued for services
From time to time, the Company issues warrants to purchase its common stock. These warrants are valued using the Black-Scholes model and using the
volatility, market price, exercise price, risk-free interest rate, and dividend yield appropriate at the date the warrants were issued.
Simultaneous with the closing of the IPO, the Company issued to the underwriter and its affiliates warrants to purchase 57,200 shares of common stock
(“IPO Underwriter Warrants”) at an exercise price of $8.75 per share with an expiration date of May 2, 2023. The shares underlying the IPO Underwriter
Warrants were subject to a 180-day lock-up that expired on October 29, 2018.
The fair value of these warrants was estimated as of the grant date using the Black-Scholes model with the major assumptions that the expected term is five
years; risk-free interest rate is 1.8% to 2.8%; and the expected volatility is 50.3% to 52.2%. In March 2021, 50,000 warrants were exercised. There were
214,410 and 264,410 warrants outstanding as of March 31, 2021 and March 31, 2020, respectively, with a weighted average exercise price of $6.67 and
$6.35, respectively. All of the outstanding warrants were fully vested and exercisable as of March 31, 2021 and 2020.
All stock warrants activities are summarized as follows:
Stock warrants outstanding at March 31, 2020
Granted
Exercised
Stock warrants outstanding at March 31, 2021
Stock Options
Option to
Acquire
Shares
Weighted
Average
Exercise
Price
264,410 $
-
50,000
214,410 $
6.35
-
5.00
6.67
On March 21, 2018, the Board of Directors adopted the Jerash Holdings (US), Inc. 2018 Stock Incentive Plan (the “Plan”), pursuant to which the Company
may grant various types of equity awards. 1,484,250 shares of common stock of the Company were reserved for issuance under the Plan. In addition, on
July 19, 2019, the Board of Directors approved an amendment and restatement of the Plan, which was approved by the Company’s stockholders at its
annual meeting of stockholders on September 16, 2019. The amended and restated Plan increased the number of shares reserved for issuance under the Plan
by 300,000, to 1,784,250, among other changes.
F-16
NOTE 10 – STOCK-BASED COMPENSATION (continued)
On April 9, 2018, the Board of Directors approved the issuance of 989,500 nonqualified stock options under the Plan to 13 executive officers and
employees of the Company in accordance with the Plan at an exercise price of $7.00 per share, and a term of five years. The fair value of these options was
estimated as of the grant date using the Black-Scholes model with the major assumptions that expected terms is five years; risk-free interest rate is 2.6%;
and the expected volatility is 50.3%. All these outstanding options were fully vested and exercisable on issue date. 3,000 options were forfeited in
November 2020.
On August 3, 2018, the Board of Directors granted the Company’s then Chief Financial Officer and Head of U.S. Operations a total of 150,000
nonqualified stock options under the Plan in accordance with the Plan at an exercise price of $6.12 per share and a term of 10 years. The fair value of these
options was estimated as of the grant date using the Black-Scholes model with the major assumptions that expected terms is 10 years; risk-free interest rate
is 2.95%; and the expected volatility is 50.3%. All these outstanding options were fully vested. 50,000 options were forfeited in October 2020. The
remaining 100,000 options became exercisable in August 2019.
On November 27, 2019, the Board of Directors granted the Company’s Chief Financial Officer 50,000 nonqualified stock options under the amended and
restated Plan in accordance with the amended and restated Plan at an exercise price of $6.50 per share and a term of 10 years. All these outstanding options
became fully vested and exercisable in May 2020. The fair value of the options granted on November 27, 2019 was $126,454. It is estimated as of the grant
date using the Black-Scholes model with the major assumptions that expected term of 10 years; risk-free interest rate of 1.77%; expected volatility of
48.59%; and dividend yield of 3.08%.
All stock option activities are summarized as follows:
Stock options outstanding at March 31, 2020
Granted
Exercised
Forfeited
Stock options outstanding at March 31, 2021
Option to
Acquire
Shares
Weighted
Average
Exercise
Price
1,189,500 $
-
-
53,000
1,136,500 $
6.87
-
-
6.17
6.90
Total expenses related to the stock options issued were $66,251 and $278,258 for fiscal years ended March 31, 2021 and 2020, respectively. As of March
31, 2021, there was $nil remaining amount to vest.
NOTE 11 – RELATED PARTY TRANSACTIONS
The relationship and the nature of related party transactions are summarized as follow:
Name of Related Party
Relationship to the Company
Nature of Transactions
Ford Glory International Limited
(“FGIL”)
Affiliate, subsidiary of Ford Glory Holdings (“FGH”), which is 49%
Operating Lease
indirectly owned by the Company’s President, Chief Executive Officer,
and Chairman, and a significant stockholder
Yukwise Limited (“Yukwise”)
Wholly owned by the Company’s President, Chief Executive Officer, and
Consulting Services
Chairman, and a significant stockholder
Multi-Glory Corporation Limited
(“Multi-Glory”)
Wholly owned by a significant stockholder
Consulting Services
Jiangmen V-Apparel Manufacturing
Limited
Affiliate, subsidiary of FGH
Operating Lease
F-17
NOTE 11 – RELATED PARTY TRANSACTIONS (continued)
a. Related party lease and purchases agreement
On October 3, 2018, Treasure Success and FGIL entered into a lease agreement, pursuant to which Treasure Success leased its office space in Hong
Kong from FGIL for a monthly rent in the amount of HKD 119,540 (approximately $15,253) and for a one-year term with an option to extend the term
for an additional year at the same rent. On October 3, 2019, Treasure Success exercised the option to extend the lease for an additional year at the same
rent. On December 15, 2020, Treasure Success and FGIL renewed the lease agreement with the same term and lease amount. On February 25, 2021,
the lease agreement was terminated, and Ford Glory disposed of the property that was subject of the lease agreement between Treasure Success and
Ford Glory.
On July 15, 2019, the Company, through Treasure Success, entered into an agreement to purchase office space together with certain parking spaces
from FGIL for an aggregate purchase price of HKD 63,000,000 (approximately $8.1 million). Pursuant to the agreement, Treasure Success paid an
initial deposit of HKD 6,300,000 (approximately $0.8 million) upon signing the agreement. On October 31, 2019, this agreement was terminated
pursuant to its terms because the conditions precedent to closing under the agreement were not met. As a result of the termination, on November 7,
2019, FGIL repaid in full, without interest, the deposit Treasure Success paid at the time the agreement was signed.
On July 1, 2020, Jiangmen Treasure Success and Jiangmen V-Apparel Manufacturing Limited entered into a factory lease agreement, which was a
replacement of a previous lease agreement between Treasure Success and Jiangmen V-Apparel Manufacturing Limited dated August 31, 2019,
pursuant to which Treasure Success leased additional space for office and sample production purposes in Jiangmen, China from Jiangmen V-Apparel
Manufacturing Limited for a monthly rent in the amount of CNY 28,300 (approximately $4,300). The lease had one-year term and might be renewed
with a one-month notice. On April 30, 2021, the factory lease agreement between Jiangmen Treasure Success and Jiangmen V-apparel Manufacturing
Limited was terminated.
b. Consulting agreements
On January 12, 2018, Treasure Success and Yukwise entered into a consulting agreement, pursuant to which Mr. Choi will serve as Chief Executive
Officer and provide high-level advisory and general management services for $300,000 per annum. The agreement renews automatically for one-
month terms. This agreement became effective as of January 1, 2018. Due to the COVID-19 pandemic, Yukwise’s compensation was temporarily
reduced to $20,000 per month from May 2020 to August 2020. Total consulting fees under this agreement were $280,000 and $300,000, respectively,
for the fiscal years ended March 31, 2021 and 2020.
On January 16, 2018, Treasure Success and Multi-Glory entered into a consulting agreement, pursuant to which Multi-Glory will provide high-level
advisory, marketing, and sales services to the Company for $300,000 per annum. The agreement renews automatically for one-month terms. The
agreement became effective as of January 1, 2018. Due to the COVID-19 pandemic, Multi-Glory’s compensation was temporarily reduced to $20,000
per month from May 2020 to August 2020. Total consulting fees under this agreement were $280,000 and $300,000, respectively, for the fiscal years
ended March 31, 2021 and 2020.
NOTE 12 – CREDIT FACILITIES
Pursuant to a letter agreement dated May 29, 2017, Treasure Success entered into an initial $8,000,000 import credit facility with Hong Kong and Shanghai
Banking Corporation (“HSBC”) (the “2017 Facility Letter”), which was first amended pursuant to a letter agreement between HSBC, Treasure Success,
and Jerash Garments dated June 19, 2018 (the “2018 Facility Letter”), further amended pursuant to a letter agreement dated August 12, 2019 (the “2019
Facility Letter”), and further amended pursuant to a letter agreement dated July 3, 2020 (the “2020 Facility Letter,” and together with the 2017 Facility
Letter, 2018 Facility Letter, and 2019 Facility Letter, the “HSBC Facility”). The 2020 Facility Letter extends the term of the HSBC Facility indefinitely.
Pursuant to the HSBC Facility, the Company has a total credit limit of $11,000,000.
In addition, on June 5, 2017, Treasure Success entered into an Offer Letter - Invoice Discounting/Factoring Agreement, and on August 21, 2017, Treasure
Success entered into an Invoice Discounting/Factoring Agreement (together, the “2017 Factoring Agreement”) with HSBC for certain debt purchase
services related to the Company’s accounts receivable. On June 14, 2018, Treasure Success and Jerash Garments entered into another Offer Letter-Invoice
Discounting/Factoring Agreement with HSBC, which amended the 2017 Factoring Agreement (the “2018 Factoring Agreement, and together with the 2017
Factoring Agreement, the “HSBC Factoring Agreement,” and together with the HSBC Facility, the “HSBC Credit Facilities”). Pursuant to the HSBC
Factoring Agreement, HSBC offered to provide Treasure Success with a $12,000,000 factoring facility for certain debt purchase services related to
Treasure Success’s accounts receivable.
The HSBC Credit Facilities were guaranteed by Jerash Holdings, Jerash Garments, and Treasure Success. In addition, the HSBC Credit Facilities required
cash and other investment security collateral of $3,000,000 and were secured by the personal guarantees of Mr. Choi and Mr. Ng Tsze Lun (“Mr. Ng”). As
of January 22, 2019, the security collateral of $3,000,000 had been released. HSBC also released the personal guarantees of Mr. Choi and Mr. Ng on
August 12, 2019. The HSBC Credit Facilities provide that drawings under the HSBC Credit Facilities were charged interest at the Hong Kong Interbank
Offered Rate plus 1.5% for drawings in HKD, and the London Interbank Offered Rate plus 1.5% for drawings in other currencies. In addition, the HSBC
Credit Facilities also contained certain service charges and other commissions and fees.
Under the HSBC Factoring Agreement, HSBC also provided credit protection and debt services related to each of the Company’s preapproved customers.
For any approved debts or collections assigned to HSBC, HSBC charged a flat fee of 0.35% on the face value of the invoice for such debt or collection.
The Company may assign debtor payments that are to be paid to HSBC within 90 days, defined as the maximum terms of payment. The Company may
receive advances on invoices that are due within 30 days of the delivery of its goods, defined as the maximum invoicing period.
F-18
The HSBC Credit Facilities are subject to review at any time, and HSBC has discretion on whether to renew the HSBC Facility. Either party may terminate
the HSBC Factoring Agreement subject to a 30-day notice period.
On March 30, 2021, HSBC informed Treasure Success that the debts purchase services under the HSBC Factoring Agreement were terminated with
immediate effect. As of March 31, 2021 and 2020, the Company had made $nil and $235 in withdrawals under the HSBC Credit Facilities, which were due
within 120 days of each borrowing date or upon demand by HSBC.
On January 31, 2019, Standard Chartered Bank (Hong Kong) Limited (“SCBHK”) offered to provide an import facility of up to $3.0 million to Treasure
Success pursuant to a facility letter dated June 15, 2018. Pursuant to the agreement, SCBHK agreed to finance import invoice financing and pre-shipment
financing of export orders up to an aggregate of $3.0 million. The SCBHK facility bears interest at 1.3% per annum over SCBHK’s cost of funds. As of
March 31, 2021 and 2020, the Company had $612,703 and $nil outstanding amount, respectively, in import invoice financing under the SCBHK facility.
NOTE 13 – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the fiscal years ended March 31, 2021 and 2020. As of March 31,
2021, 1,453,910 warrants and stock options were issued, 50,000 warrants were exercised, 53,000 options were forfeited, and 1,350,910 warrants and stock
options were outstanding. For the fiscal years ended March 31, 2021 and 2020, 1,250,910 and 107,200 warrants and stock options were excluded from the
EPS calculation, respectively, as they contained anti-dilution provisions.
Numerator:
Net income attributable to Jerash Holdings (US), Inc.’s Common Stockholders
Denominator:
Denominator for basic earnings per share (weighted-average shares)
Dilutive securities – unexercised warrants and options
Denominator for diluted earnings per share (adjusted weighted-average shares)
Basic and diluted earnings per share
NOTE 14 – SEGMENT REPORTING
Fiscal Year Ended
March 31,
(in $000s except share and
per share information)
2020
2021
$
4,150 $
6,475
11,325,131
180
11,325,311
0.37 $
11,325,000
118,364
11,443,364
0.57
$
ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Company’s
internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for
details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The
management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating
decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating
decision maker, reviews operation results by the revenue of the Company’s products. The Company’s major product is outerwear. For the fiscal years
ended March 31, 2021 and 2020, outerwear accounted for approximately 91.4% and 85.0% of total revenue. Based on management’s assessment, the
Company has determined that it has only one operating segment as defined by ASC 280.
The following table summarizes sales by geographic areas for the fiscal years ended March 31, 2021 and 2020, respectively.
United States
Jordan
Others
Total
96.0% of long-lived assets were located in Jordan as of March 31, 2021.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Commitments
For the Fiscal Year Ended
March 31,
2021
79,190,558 $
5,702,774
5,320,029
90,213,361 $
2020
89,123,214
3,737,608
163,414
93,024,236
$
$
On August 28, 2019, Jiangmen Treasure Success, was incorporated under the laws of the People’s Republic of China in Jiangmen City, Guangdong
Province, China, with a total registered capital of HKD 3 million (approximately $385,000). On December 9, 2020, shareholders of Jiangmen Treasure
Success approved to increase its registered capital to HKD 15 million (approximately $1.9 million). The Company’s subsidiary, Treasure Success, as a
shareholder of Jiangmen Treasure Success, is required to contribute HKD 15 million (approximately $1.9 million) as paid-in capital in exchange for 100%
ownership interest in Jiangmen Treasure Success. As of March 31, 2021, Treasure Success had made capital contribution of HKD 3 million (approximately
$385,000). Pursuant to the articles of incorporation of Jiangmen Treasure Success, Treasure Success is required to complete the remaining capital
contribution before December 31, 2029 as Treasure Success’ available funds permit.
F-19
NOTE 15 – COMMITMENTS AND CONTINGENCIES (continued)
Contingencies
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with
these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are
expensed as incurred. The Company’s management does not expect any liability from the disposition of such claims and litigation individually or in the
aggregate would not have a material adverse impact on the Company’s consolidated financial position, results of operations, and cash flows.
NOTE 16 – INCOME TAX
Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and Victory Apparel are subject to the regulations of the Income Tax
Department in Jordan. The corporate income tax rate is 16% for the industrial sector. In accordance with the Investment Encouragement Law, Jerash
Garments’ export sales to overseas customers were entitled to a 100% income tax exemption for a period of 10 years commencing on the first day of
production. This exemption had been extended for five years until December 31, 2018. Effective January 1, 2019, the Jordanian government reclassified
the area where Jerash Garments and its subsidiaries are to a Development Zone. In accordance with the Development Zone law, Jerash Garments and its
subsidiaries and VIE began paying corporate income tax in Jordan at a rate of 10% plus a 1% social contribution. The income tax rate increased to 14%
plus a 1% social contribution from January 1, 2020. Effective January 1, 2021, this rate increased to 16% plus a 1% social contribution.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act imposed tax on previously untaxed accumulated
earnings and profits (“E&P”) of foreign subsidiaries (the “Toll Charge”). The Toll Charge is based in part of the amount of E&P held in cash and other
specific assets as of December 31, 2017. The Toll Charge can be paid over an eight-year period, starting in 2018, and will not accrue interest. Additionally,
under the provisions of the Tax Act, for taxable years beginning after December 31, 2017, the foreign earnings of Jerash Garments and its subsidiaries are
subject to U.S. taxation at the Jerash Holdings level under the new Global Intangible Low-Taxed Income (“GILTI”) regime.
Income tax payable consisted of the following:
Income tax payable – current
Income tax payable – non-current
The provision for income taxes consisted of the following:
Domestic and foreign components of income (loss) before income taxes
Domestic
Foreign
Total
Provision (benefit) for income taxes
Current tax:
U.S. federal
U.S. state and local
Foreign
Total Current Tax
Deferred tax:
U.S. federal
Total deferred tax
Total tax
Effective tax rates
F-20
As of
March 31,
2021
1,803,175 $
1,094,048
2,897,223 $
As of
March 31,
2020
1,088,497
1,227,632
2,316,129
$
$
For the fiscal years ended
March 31,
2021
2020
$
$
(1,163,505) $
6,657,775
5,494,270 $
(1,811,749)
9,456,015
7,644,266
For the fiscal years ended
March 31,
2021
2020
$
$
$
10,574
1,550
1,342,290
1,354,414
(8,768)
(8,768)
$
1,345,646
4,002
50
1,229,000
1,233,052
(58,434)
(58,434)
1,174,618
24.5%
15.4%
NOTE 16 – INCOME TAX (continued)
A reconciliation of the effective tax rate was as follows:
Tax at statutory rate
State tax, net of federal benefit
Non-deductible expenses
Non-taxable income
Global Intangible Low-Taxed Income
Tax Credits
Foreign tax rate differential
Valuation Allowance
Provision to return adjustments
Total
The Company’s deferred tax assets and liabilities at March 31, 2021 and 2020 consisted of the following:
Deferred tax assets
Stock based compensation
Net operating losses carried forward
Less: valuation allowance
Deferred tax assets, net
For the fiscal years ended
March 31,
2021
1,158,858 $
632
17
(564)
767,729
(536,999)
(58,304)
3,026
11,251
1,345,646 $
2020
1,605,296
40
29
(10,151)
1,130,422
(808,407)
(804,026)
57,413
4,002
1,174,618
As of
March 31,
2021
As of
March 31,
2020
148,663 $
151,246
(151,246)
148,663 $
139,895
148,220
(148,220)
139,895
$
$
$
$
Deferred tax assets are reduced by a valuation allowance when it is considered more likely than not that some portion or all of the deferred tax assets will
not be realized. As of March 31, 2021 and 2020, the allowance for deferred tax assets was $151,246 and $148,220 respectively.
As of March 31, 2021, the Company had cumulative book-tax basis differences in its foreign subsidiaries of approximately $20.9 million. The Company
has not recorded a U.S. deferred tax liability for the book-tax basis in its foreign subsidiaries as these amounts continue to be indefinitely reinvested in
foreign operations. The reversal of this temporary difference would occur upon the sale or liquidation of the Company’s foreign subsidiaries, and the
estimated impact of the reversal of this temporary difference is approximately $4.4 million.
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is
no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to December 31, 2016.
NOTE 17 – SUBSEQUENT EVENTS
On April 19, 2021, the Company announced that it commenced the construction of a 189,000 square-foot housing facility for its multi-national workforce,
situated on a 49,000 square-foot site owned by the Company, in Al Tajamouat Industrial City, Jordan. Completion and occupancy of the new building is
anticipated by mid-2022.
On April 30, 2021, the factory lease agreement between Jiangmen Treasure Success and Jiangmen V-apparel Manufacturing Limited was terminated.
On May 11, 2021, Treasure Success entered into a three-year lease agreement with an independent third party, pursuant to which Treasure Success leased a
staff quarter in Hong Kong for a monthly rent in the amount of HK $75,000 (approximately $9,615) for the first year and HKD $82,500 (approximately
$10,577) starting from the second year. The staff quarter is occupied by Mr. Ng.
On May 14, 2021, the Board of Directors approved the payment of a dividend of $0.05 per share payable on June 2, 2021, to stockholders of record as of
the close of business on May 25, 2021.
F-21
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Exchange Act Rule 15d-15(e)) are designed with the objective of ensuring that information
required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), based on their evaluation of our
disclosure controls and procedures as of March 31, 2021, concluded that our disclosure controls and procedures were effective as of that date.
Internal Control Over Financial Reporting
Management’s annual report on internal control over financial reporting. Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal
financial officer), has assessed the effectiveness of our internal control over financial reporting as of March 31, 2021. In making this assessment,
management used the criteria set forth in the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated
Framework (2013).
Based on the assessment using those criteria, management concluded that, as of March 31, 2021, our internal control over financial reporting was
effective.
Attestation report of the registered public accounting firm. This Annual Report does not include an attestation report of our independent registered
public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent
registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this Annual Report.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting (as the term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not Applicable.
28
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
In response to this Item, the information set forth in our Proxy Statement for our 2021 Annual Meeting of Stockholders (the “2021 Proxy
Statement”) to be filed within 120 days following the end of our fiscal year, under the headings “Proposal No. 1—Election of Directors,” “Our Executive
Officers,” “Section 16(a) Compliance,” and “Corporate Governance Practices and Policies” is incorporated herein by reference.
Item 11. Executive Compensation.
In response to this Item, the information set forth in the 2021 Proxy Statement under the headings “Executive Compensation” and “Corporate
Governance Practices and Policies” is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table provides information regarding shares outstanding and available for issuance under our existing equity compensation plans.
Equity Compensation Plan Information
(a)
(b)
(c)
Number of securities
remaining available
for future
Plan Category
(excluding securities
outstanding options,
warrants and rights warrants and rights reflected in column (a))
Number of
securities to
be issued upon
exercise
of outstanding
options,
Weighted-average
issuance under equity
exercise price of
compensation plans
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
1,350,910 $
- $
1,350,910 $
6.85
-
6.85
594,750
-
594,750
For additional information concerning our equity compensation plans, see the discussion in “Note 10—Stock-Based Compensation.”
The remainder of the information required by this Item is set forth in the 2021 Proxy Statement under the headings “Executive Compensation—
Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” and is hereby incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
In response to this Item, the information set forth in the 2021 Proxy Statement under the headings “Certain Relationships and Related Party
Transactions” and “Corporate Governance Practices and Policies—Board and Committee Independence” is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
In response to this Item, the information set forth in the 2021 Proxy Statement under the heading “Proposal No. 2—Ratification of Appointment of
Independent Registered Public Accounting Firm—Matters Relating to the Independent Registered Public Accounting Firm” is incorporated herein by
reference.
29
Item 15. Exhibit and Financial Statement Schedules
(a) Financial Statements
PART IV
We have filed the financial statements in Item 8. Financial Statements and Supplementary Data as a part of this Annual Report on Form 10-K.
(b) Exhibits
The following is a list of all exhibits filed or incorporated by reference as part of this Annual Report on Form 10-K.
Exhibit
Number
3.1
3.2
4.1
4.2
Description
Location
Amended and Restated Certificate of Incorporation
Incorporated herein by reference to Exhibit 3.1 to the Post-Effective
Amendment No. 1 to Form S-1, filed with the SEC on September
19, 2018
Amended and Restated Bylaws
Incorporated herein by reference to Exhibit 3.1 to the Form 8-K,
filed with the SEC on July 24, 2019
Specimen Certificate for Common Stock
Incorporated herein by reference to Exhibit 4.1 to the Form S-1,
filed with the SEC on June 27, 2017
Description of Securities
Incorporated herein by reference to Exhibit 4.1 to the Form 10-K,
filed with the SEC on June 28, 2019
10.1
Form of Private Placement Warrant
Incorporated herein by reference to Exhibit 10.3 to the Form S-1,
filed with the SEC on June 27, 2017
10.2
10.3
10.4
10.5
Letter Agreement for Banking Facilities, dated as of May 29, 2017,
by and between The Hongkong and Shanghai Banking Corporation
Limited and Treasure Success International Limited
Incorporated herein by reference to Exhibit 10.4 to the Form S-1,
filed with the SEC on June 27, 2017
Letter Agreement for Banking Faculties, dated June 19, 2018, by
and between The Hongkong and Shanghai Banking Corporation
Limited, Treasure Success International Limited and Jerash
Garments and Fashions Manufacturing Company Limited
Letter Agreement for Banking Facilities, dated August 12, 2019, by
and between Hongkong and Shanghai Banking Corporation
Limited, Treasure Success International Limited and Jerash
Garments and Fashions Manufacturing Company Limited
Letter Agreement for Banking Facilities, dated July 3, 2020, by and
between Hongkong and Shanghai Banking Corporation Limited,
Treasure Success International Limited, and Jerash Garments and
Fashions Manufacturing Company Limited
Incorporated herein by reference to Exhibit 10.22 to the Form 10-K,
filed with the SEC on June 28, 2019
Incorporated herein by reference to Exhibit 10.1 to the Form 8-K,
filed with the SEC on August 26, 2019
Incorporated herein by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q, filed with the SEC on November 12, 2020
30
10.6
Facility Letter, dated June 15, 2018, by and between Treasure
Success International Limited and Standard Chartered Bank (Hong
Kong) Limited
Incorporated herein by reference to Exhibit 10.2 to the Form 10-Q,
filed with the SEC on February 13, 2019
10.7
Standard Chartered Global Master Credit Terms
10.8
Standard Chartered Global Master Trade Terms
10.9+
Unified Employment Agreement for Expatriate Staff in the Textile,
Garment and Clothing Industry between Jerash Garments and
Fashions Manufacturing Company Limited and Wei Yang dated as
of May 1, 2020
Incorporated herein by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q, filed with the SEC on February 13, 2019
Incorporated herein by reference to Exhibit 10.4 to the Quarterly
Report on Form 10-Q, filed with the SEC on February 13, 2019
Incorporated herein by reference to Exhibit 10.10 to the Quarterly
Report on Form 10-Q, filed with the SEC on June 29, 2020
10.10+
Consulting Agreement, dated January 12, 2018, by and between
Incorporated herein by reference to Exhibit 10.1 to the Form 8-K,
Treasure Success International Limited and Yukwise Limited
filed with the SEC on January 16, 2018
10.11+
Consulting Agreement, dated January 16, 2018, by and between
and Multi-Glory
International Limited
Treasure Success
Corporation Ltd.
Incorporated herein by reference to Exhibit 10.18 to the Form S-1,
filed with the SEC on January 18, 2018
10.12
Form of Underwriter’s Warrant
Incorporated herein by reference to Exhibit 10.15 to Amendment
No. 2 to the Form S-1, filed with the SEC on March 9, 2018
10.13+
Amended and Restated 2018 Stock Incentive Plan
Incorporated herein by reference to Exhibit 10.1 to the Current
Report on Form 8-K, filed with the SEC on September 19, 2019
10.14+
Form of Option Award Notice and Agreement (Employee)
Incorporated herein by reference to Exhibit 10.2 to the Current
Report on Form 8-K, filed with the SEC on March 23, 2018
10.15+
Form of Option Award Notice and Agreement (Consultant)
Incorporated herein by reference to Exhibit 10.3 to the Current
Report on Form 8-K, filed with the SEC on March 23, 2018
10.16+
Employment Agreement dated November 27, 2019 by and between
Incorporated herein by reference to Exhibit 10.1 to the Form 8-K,
Jerash Holdings and Gilbert K. Lee
filed with the SEC on December 2, 2019
10.17
Director Offer Letter dated June 15, 2020 by and between Jerash
Incorporated herein by reference to Exhibit 10.1 to the Current
Holdings (US), Inc. and Bill Korn
Report on Form 8-K, filed with the SEC on June 15, 2020
10.18+
Option Award Agreement dated November 27, 2019 by and
Incorporated herein by reference to Exhibit 10.2 to the Form 8-K,
between Jerash Holdings and Gilbert K. Lee
filed with the SEC on December 2, 2019
31
10.19+
Form of Indemnification Agreement
Incorporated herein by reference to Exhibit 10.2 to the Form 8-K,
filed with the SEC on June 15, 2020
10.20
Factory Lease Agreement between Jiangmen Treasure Success and
Guangdong Huadian Technology Industry Co., Ltd. dated January 1,
2021
Filed herewith
10.21
Lease Agreement between Treasure Success and Ever Winland
Filed herewith
Limited dated February 26, 2021
14.1
Code of Ethics
Incorporated herein by reference to Exhibit 14.1 to the Annual
Report on Form 10-K, filed with the SEC on June 29, 2020
21.1
23.1
31.1
Subsidiaries of Jerash Holdings (US), Inc.
Consent of Friedman LLP
Filed herewith
Filed herewith
Certification of Principal Executive Officer pursuant to Section 302
Filed herewith
of the Sarbanes-Oxley Act of 2002
31.2
Certification of Principal Financial Officer pursuant to Section 302
Filed herewith
of the Sarbanes-Oxley Act of 2002
32.1*
32.2*
Certification of Principal Executive Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Furnished herewith
Certification of Principal Financial Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Furnished herewith
101.INS
XBRL Instance Document
Filed herewith
101.SCH
XBRL Taxonomy Extension Schema Linkbase
Filed herewith
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Filed herewith
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Filed herewith
101.LAB
XBRL Taxonomy Extension Label Linkbase
Filed herewith
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Filed herewith
+
*
Indicates a management contract or compensatory plan, contract, or arrangement.
In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2
herewith are deemed to accompany this Form 10-K and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications
will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act.
Item 16. Form 10-K Summary.
None.
32
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: June 23, 2021
JERASH HOLDINGS (US), INC.
/s/ Gilbert K. Lee
By:
Name: Gilbert K. Lee
Title: Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated below on June 23, 2021.
Signature
Title
/s/ Choi Lin Hung
Choi Lin Hung
/s/ Gilbert K. Lee
Gilbert K. Lee
/s/ Wei Yang
Wei Yang
/s/ Bill Korn
Bill Korn
/s/ Ibrahim H. Saif
Ibrahim H. Saif
/s/ Mak Chi Yan
Mak Chi Yan
Chairman, Chief Executive Officer, President and Treasurer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Vice President, Secretary, and Director
Director
Director
Director
33
Factory Lease Contract
Exhibit 10.20
Contract Number: [*]
Contract signed in: Xinhui District, Jiangmen City
Party A (lessor): Guangdong Huadian Technology Industry Co., Ltd.
Party B (lessee): Jiangmen Treasure Success Business Consultancy Co., Ltd.
Both Party A and Party B, in line with the principle of equality, integrity, mutual benefit for Party A to lease Party B certain factory area (the
“Lease”) and after discussion, agree to enter into this Contract.
1. BASIC CONDITIONS OF THE LEASE
1. Lease area address: Party A shall lease the factory area located in first floor workshop (west area), parts of second floor and third floor
workshops, Block B, (Workshop #2), 3, Jin Hua Road, Huicheng, Xinhui District, Jiangmen City (The Property) (see Annex 1) to Party B for
the operation and usage of Party B.
2. Lease Term: The Lease Term is 5 years from January 1, 2021 to December 31, 2025.
3. Lease area: Total area of the Lease is 4,100 m2. Among that, 2,300m2 is on the first floor, 1,700m2 is on the second floor and 100m2 is on the
third floor.
4. Lease payments: In the first year of the Lease, rental of the first floor is Rmb 13.13/square meter/month, rental of the second floor is Rmb
11.38/square meter/ month, rental of the third floor is Rmb 7.00/square meter/month. In the second year of the Lease, rental of the first floor is
Rmb15.75/square meter/month, rental for the second floor is Rmb 13.65/square meter/month, rental of the third floor is Rmb 8.40/square
meter/month. From the third year, the rentals shall increase by 5% annually. Property management fee is included in the rental above to cover
public supporting expenses such as home or peripheral sanitation and greening.
5. Payment method: The rental is to be paid monthly, by Party B on or before the 12th day of each month by bank transfer to party A to settle
rental of the month. Party A shall issue VAT invoice to Party B with appropriate tax rates.
6. Rental deposit: Both Party A and Party B agree that after signing this Contract, Party B shall pay a rental deposit of Rmb180,000.00 and a
one-time payment of Rmb 30,000 as utility deposit to Party A within 5 days. Party A shall issue separate receipts to Party B after receiving
the above deposits.
7. Other costs: Party B is responsible for paying the utilities, equipment installation (excluding installation of the master water meter and master
electricity meter, transformer equipment which are to be borne by Party A) or cost of repair, maintenance, replacement and other related costs
due to Party B’s own business needs. The water charge is to be ascertained according to the water meter readings. Party B shall, on or before
the 6th of every month, reply to confirm previous month’s meter reading. Failing to reply will be considered consent. Party B shall, on or
before the 12th day of each month to settle other costs of the previous month to Party A.
The water and electricity charges shall be ascertained in accordance with the unified charging standards of Huadian Science and Technology
Park (further notice will be served in the event of an adjustment in electricity charges). VAT invoices on utilities with the applicable tax rate
shall be issued to Party B. Electricity and water charges should be calculated as follows:
(1) Party B’s electricity = (according to the actual electricity usage in flat, low, peak hours X charging rates announced by the power supply
bureau in flat, low, peak hours) plus a 3% of wastage of the total electricity consumption and a fee for increase of power supply for Party
B (Rmb 23 X 400 units of electricity consumption = Rmb 9,200);
If Party B has production expansion later, and requires an increase in electricity supply, Party B can apply to Party A in advance in
writing. The two Parties shall negotiate for the costs related to the increase.
(2) Party B’s water charges = Party B’s monthly water usage in tons X Rmb 3.80.
8. During the Lease term, Party A provides Party B with the right to use 5 parking spaces (Party A designated location). Party B is exempt from
any rental fees for the 5 parking spaces. Party B should reasonably use the parking spaces and do not arbitrarily park inappropriate vehicles.
Party A only provides parking spaces for party B to use, and is not responsible for the custody and management of Party B’s vehicles. If Party
B needs to increase the parking spaces in the future, Party B should negotiate with Party A, and both Parties shall enter into a parking space
rental Contract.
9. Party A’s account information is as follows:
Bank of Account: Xinhui Branch of Industrial and Commercial Bank of China Co., Ltd
Account Holder: Guangdong Huadian Technology Industry Co., Ltd
Bank Account Number: [*]
2. PURPOSE OF LEASING
Party B undertakes that Property shall be used as the company's design, production, processing, sales, commerce, office and other purposes,
and Party B shall abide by the relevant provisions on the use and property management in accordance with the principle of who operates in
the Property should also manage it, and conduct business in a civilized way. If Party B needs to increase the use of other projects or change
the use of the Property, Party B must obtain written consent of Party A and approvals from other relevant regulatory bodies. Otherwise it
could be a breach of the Contract and Party A has the right to terminate this Contract before its expiry.
3. PARTY A’S RIGHTS AND OBLIGATIONS
1. Party A shall pass the custody of the Property to Party B on January 1, 2021, and Party B shall sign the transfer of items on the day of
admission.
2. During the Lease Term, if Party B, in the normal use of the Property, find that there is a structural damage or disorders in the building, Party B
should promptly notify Party A to repair. Party A should, upon being notified by Party B, conduct the repair as soon as possible. If the damage
and disorders are not caused by Party B, Party A shall be responsible for the costs of repairs.
2
3. PARTY B’S RIGHTS AND OBLIGATIONS
1. Party A shall pass the Property as it is (including simple decoration, cargo elevator and fire prevention facilities) to Party B for use. During
the Lease Term, Party B shall bear the maintenance and repair costs of the cargo elevator and shall make reasonable use of and take care of
the Property and its facilities. For any damage and malfunction of the Property and its ancillary facilities due to the use of Party B, Party B
shall be responsible for maintenance and bear the cost. If Party B refuses to repair, Party A has the right to carry out the repair on behalf of
Party B and the cost is to be borne by Party B.
2. During the Lease Term, Party B may, according to their own operating characteristics, renovate or install new living and production facilities
(If the science and technology park's master water meter and master electricity meter are provided and installed by Party A, all the water and
electricity branch installations are to be responsible by Party B). However, in principle, Party B cannot damage the original construction
structure, the plan for the renovation and additions needs to be agreed by Party A and approved by the relevant government departments.
Reporting to relevant government departments, on-site supervision inspection, completion and acceptance of the relevant work, and the
related costs are to be responsible by Party B.
3. During the Lease Term, Party A has the right to urge Party B to do a good job in fire, safety, environmental protection, hygiene and other
work. Party B shall strictly abide by the provisions of the Fire Protection Law of the People's Republic of China, the Environmental
Protection Law of the People's Republic of China, the Production Safety Law of the People's Republic of China and other relevant
requirements during the Lease Term, and actively do a good job in fire protection, environmental protection, etc. Otherwise, all
responsibilities and losses caused by the breaches shall be borne by Party B.
4. During the Lease Term, Party B must strictly abide by the safety, fire, health provisions in the Science and Technology Park, as well as
provisions on personnel, materials in and out. Party B is directly responsible for the associated safety, fire, hygiene of the Property. During the
Lease Term, Party B shall be responsible in case of a fire, theft and other accidents. Party B shall ensure that production supplies meet
environmental protection requirements, not to store flammable and explosive items, production and operation does not endanger human health
or cause pollution of the environment.
5.
If Party B needs to set up billboard(s) in the public area in the science and technology park, Party B shall apply to Party A in advance in
writing, and submit the design. Party B can install the billboard after obtaining the consent of Party A. Party A will charge an appropriate rent
depending on the size of the billboard.
6. During the Lease Term, Party B shall compensate Party A for damage, fire and loss of value caused by poor custody of the Property. In case
of the above causing safety issues arisen from the damage of the Property, Party A has the right to terminate the Contract prior to its expiry
and all the losses shall be borne by Party B;
7. Party B shall pay the rental to Party A on time, and after three years of the Lease, the rental shall increase by 5% per year, and the associated
rental shall be as follows:
First year: (January 1, 2021 to December 31, 2021) Rmb 50,245 per month (of which Rmb 30,147 is rental and Rmb 20,098 is charged for
property management);
Second year: (January 1, 2022 to December 31, 2022) Rmb 60,270 per month (of which Rmb 36,162 is rental and Rmb 24,108 is charged for
property management);
Third year: (January 1, 2023 to December 31, 2023) Rmb 63,284 per month (of which Rmb 37,970 is rental and Rmb 25,314 is charged for
property management).
Fourth year: (January 1, 2024 to December 31, 2024) Rmb 66,448 per month (of which rental is Rmb39,869 and Rmb 26,579 is charged for
property management).
Fifth year: (January 1, 2025 to December 31, 2025) Rmb 69,770 per month (of which Rmb 41,862 is rental and Rmb 27,908 is charged for
property management).
3
5. RESPONSIBILITIES FOR BREACH OF CONTRACT
1. Late payment liability: Party B shall pay Party A according to the contract amount and date. In case of overdue, Party A shall have the right to
charge Party B a late fee of one thousandth of the current rental amount on a daily basis. If Party B fails to settle overdue rental for 30 days,
Party A shall have the right to terminate the Contract at any time and to recover the Property; Party B shall move out unconditionally, and
make up the balance owed for the Property; and Party B shall pay Party A a default penalty equivalent to three month of the rental (with the
rental for the last year of the Lease Term as the billing standard).
If Party B fails to pay the utility bill within 10 days of the expiration of the due date, Party A shall have the right to deduct directly from the
utility deposit. If the utility deposit is insufficient for the deduction, and Party B’s payment obligation is not fulfilled after party A's collection
effort, Party A shall make a water and electricity outage until Party B pays all the outstanding expenses to Party A.
2. Party B cannot place more than 0.75 tons/square meter of weight for objects or production equipment in the Property. In violation of this
provision, Party A has the right to request Party B to restore the damaged areas or to compensate for any losses caused.
3.
4.
If Party B changes the purpose of the Property, renovates the Property or installs additional structures without obtaining written consent of
Party A or work beyond the scope of Party A's written consent, Party A has the right to terminate the Contract at any time, recover the
Property; Party B shall unconditionally move out and compensate Party A for the loss.
If Party B sublet to a third party (including a subsidiary of Party B) without obtaining written consent from Party A, Party A has the right to
terminate the Contract at any time, recover the Property and all facilities; Party B shall unconditionally move out and compensate Party A for
the loss.
5. Party A and Party B agree that within the first 30 months of the Lease Period, Neither Party shall terminate the Contract. Otherwise, the Party
who breaches this provision shall compensate for the losses of another Party. After the first 30 months of the Lease Period, if one Party
withdraws the Lease, it shall notify the other party 3 months in advance of the termination. The other Party shall have the right to demand for
compensation in accordance to the following: (the rental shall be based on the monthly rental fee for the last year of the Lease Term):
(1) If the actual leased term ≥ 50 months of the Lease term, the Party in breach shall pay another Party compensation equals to one month of
rental;
(2) 30 months ≤ if the actual leased term < 50 months, the Party in breach shall pay another Party compensation equals to two-month of
rental;
If Party B withdraws the Lease before its expiry, Party A shall have the right to deduct any compensation mentioned above from the rental
deposit. If the rental deposit is not sufficient to cover the compensation, Party B shall pay the balance of the compensation to Party A. Upon
that, Party B shall return the original rental deposit receipt to Party A. If Party A requests for early termination and recovers the Property,
Party A shall, in addition to the above compensation, returns the rental deposit and any balance of monthly rental to Party B.
6. CONDITIONS FOR THE TERMINATION OF THIS CONTRACT
1. Both Party A and Party B agree that during the Lease Term, if one of the following circumstances occurs, this Contract will automatically
terminate, the two Parties shall not be liable to each other:
(1) The land use right of the Property is withdrawn before expiry according to law;
(2) The Property is requisitioned in accordance with the law in the public interest;
(3) The Property is included in any of the relocation/demolition areas for town planning according to law;
(4) The Property has been damaged, destroyed or identified as dangerous;
(5) The occurrence of force majeure makes this contract unenforceable;
(6) The Government has decided to expropriate the land where the Property is located and to demolish it.
4
2. Party A and Party B both agree that if one of the following circumstances occurs, one Party may notify the other Party in writing to terminate
the contract. The Party in breach shall pay the other Party double of the monthly rental (based on the last year's monthly rental) as
compensation and, if the above compensation is insufficient to compensate the loss of the other Party, the Party in breach shall also
compensate for the loss:
(1) Party B has not obtained party A's consent to change the use of the Property and result in damage of the Property;
(2) The main structure of the Property is damaged and that is caused by Party B;
(3) Party B sublets the Property or to exchange the Property with another party without authorization from Party A
(4) Party A causes that Party B's production cannot be carried out normally and causes losses to Party B;
(5) The Project is subject to a pledge before the Lease, and is being enforced;
(6) This Contract shall be deemed irrevocable or not cancellable except for the achievement of the conditions for termination in this
Contract;
(7) Party B shall abide by the Annex "Responsibility for Lease Penalty" and "Property Management of Huadian Science and Technology
Park”. If Party B violates the rules in a serious manner, Party A reserves the right to terminate the Contract.
7. TERMINATION
1. The Lease expires. Party A has the right to recover the Property, and will inform Party B one month in advance, so that Party B to make
arrangements in advance. Party B shall vacate for the delivery of the Property on time and ensure that its condition are in a good standard
(including interior with normal wear-out), and settle the expenses to be borne by Party B and sign the confirmation of withdrawal. If Party B
is required to continue to lease the Property, Party B shall submit a written request to Party A for renewal of the Lease and re-sign the Lease
Contract with the consent of Party A three months before the expiration of the Lease Term. Upon expiry of the Lease Term, if Project A lease
the Property, under equal conditions, Party B has the priority to lease the Property;
2. After the expiration of the Lease Term or the termination of the Contract between the two Parties, Party B can handle its own removable
objects, but Party B cannot remove or damage anything built into the structure of the wall of the building (such as wall cabinets, wires, fire
extinguishing facilities, etc.), and Party A shall not make any compensation to Party B. If Party B wants to remove those items, it shall obtain
written consent from Party A. Otherwise, Party B shall be responsible for all relevant repair costs caused in the removal;
3.
If any Party to the Contract breaches and the Contract cannot continue to be performed, the Parties shall determine a specific time for
termination of the Contract and sign a contract on the termination. Party B must keep the receipt of the rental deposit and utility deposit. Party
A shall, in accordance to the appropriate conditions, refund the rental deposit and utility deposit to Party B.
5
8. OTHER TERMS
1. For issues not covered in this Contract, if Party A and Party B both agree, they can conclude a supplementary Contract. The supplementary
Contract and annexes to this Contract are an integral part of this Contract.
2. Party A and Party B both in signing this contract, clearly understand their respective rights, obligations and responsibilities, and are willing to
follow the Contract strictly. If one Party breaches the Contract, the other Party has the right to act in accordance with these Provisions to
demand for compensation. The Party in breach shall bear litigation fees, preservation fees, attorneys' fees and so on to recover the
compensation.
3.
In case of any disputes arising between Party A and Party B in the performance of this Contract, the disputes should be resolved through
negotiation for a settlement. If the negotiation fails to resolve the dispute, both Parties may, in accordance with the law, file a lawsuit with the
people's court where the Contract was signed.
4. This Contract shall have two copies, Party A and B each holds one. Both copies are equally effective.
Annex 1: Property sketches.
Annex 2: Responsibilities for safe production in leased premises.
Annex 3: General treaty for property management at Huadian Science and Technology Park.
Party A: /s/ Guangdong Huadian Technology Industry Co., Ltd.
Address: 3 Jin Hua Road, Xinhui District, Jiangmen City
Contact: 0750-6628219 Contact:
Date: Year Month Day
Party B: /s/ Jiangmen Treasure Success Business Consultancy Co., Ltd
Date: Year Month Day
6
Exhibit 10.21
THIS AGREEMENT is made on the 26th day of February, 2021
BETWEEN:-
(1)
(2)
Ever Winland Limited whose registered office is situate at Unit 06, 3/F., Siu Wai Industrial Centre, 29-33 Wing Hong Street, Cheung Sha Wan,
Kowloon, Hong Kong (the “Landlord”); and
Treasure Success International Limited whose registered office is situate at Unit A, 19/F, Ford Glory Plaza, 37-39 Wing Hong Street, Cheung Sha
Wan, Kowloon, Hong Kong (the “Tenant”).
RECITAL
A. Pursuant to a lease agreement entered into by Ford Glory International Limited (Ford Glory) and the Tenant dated 15 December 2020 with a lease
term expired on October 2, 2022 (the “Old Lease”), and a sales and purchase agreement entered into by Ford Glory and the Landlord in respect of
sales and purchase of the property corresponding to the Property referred to in the Old Lease, the Landlord and the Tenant agreed to enter into this
Lease Agreement with the terms below and the details in the First Schedule and the Second Schedule.
B. Upon execution of this Lease Agreement, the Old Lease is deemed to terminate on the date the term of this Lease Agreement starts per the First
Schedule and Second Schedule.
WHEREBY IT IS AGREED as follows:-
1.
The Landlord lets and the Tenant takes ALL THAT the premises more particularly described and set out in the First Schedule hereto (the
“Property”) which forms part of the building more particularly described in the First Schedule hereto (the “Building”) TOGETHER with all rights
easements and appurtenances thereto belonging or usually held and enjoyed therewith for the term (the “Term”) and at the rent (the “Rent”) more
particularly set out in the Second Schedule hereto.
2.
The Tenant to the intent that the obligations may continue throughout the Term hereby created agrees with the Landlord as follows:-
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
To pay the Landlord the Rent at the time and in manner aforesaid, and to pay all charges for telephone in respect of the Property and to
make all necessary deposits for the supply of the said services when required.
If any defects or want of repair shall be found and if the Landlord shall give or leave a notice in writing at the Property requiring the
Tenant to amend the same and if the Tenant shall not within 7 days after the service of such notice proceed diligently with the execution
of such repairs then to permit the Landlord to enter upon the Property and execute such repairs and the cost thereof (the amount thereof in
case of difference to be determined by the Landlord’s agent) shall be borne by the Landlord.
To use the Property for office/commercial purposes only.
Not to do or permit to be done in or upon the Property or any part thereof anything which may be or become a nuisance, annoyance,
damage or disturbance to the Landlord or the Tenant or occupiers of other property in the neighborhood or anywise against the law or
regulations of Hong Kong.
Not to keep or store or cause or permit or suffer to be kept or stored any arms ammunitions gun-powder saltpetres kerosene or hazardous
goods in the Property or do or cause to be done or suffer or permit any act deed matter or thing whatsoever which shall amount to a
breach or non-observance of the terms and conditions under which the Property is held from the Government.
Not to use the Property or allow the same to be used for illegal or immoral purposes.
Quietly to yield up the Property at the expiration or sooner determination of the tenancy in good clean and tenantable repair fair wear and
tear excepted.
To observe and perform and not to contravene any of the terms covenants and conditions contained in the Government Lease under which
the Property is held from the Government.
Not to place any box dust bins articles or cause obstruction in the corridor or passage way of the Building or in any place which is not
hereby exclusively let to the Tenant.
2
(j)
Not to do anything which may render the insurance of the Property or the Building void or voidable or which may render the premium for
such insurance liable to increase and the Tenant shall make payment of any such increased premium.
3.
The Landlord hereby agrees with the Tenant as follows:-
(a)
(b)
That the Tenant paying the Rent hereby stipulated and observing and performing the several stipulation herein contained and on its part to
be observed and performed shall peacefully hold and enjoy the Property during the Term without any interruption by the Landlord or any
person lawfully claiming through under or in trust for him.
To pay charges for water, gas and electricity in respect of the Property, costs of cleaning, maintenance and repair in respect of any part of
the Property, any government assessments, management fees, property taxes or similar charges payable on the Property.
4.
PROVIDED ALWAYS and IT IS HEREBY EXPRESSLY AGREED as follows:-
(a)
If the Rent hereby stipulated or any part thereof shall remain unpaid for 15 days after becoming payable (whether legally demanded or
not) or if the Tenant or other person in whom for the time being the term hereby created shall be vested shall failed to observe or perform
any of the conditions herein in any material respect or shall become bankrupt or enter into any composition or arrangement with creditors
or suffer any prosecution in respect of the non-payment of any money due to the Government then and in any of the said cases it shall be
lawful for the Landlord at any time thereafter to re-enter upon the Property or any part thereof in the name of the whole and thereupon
this Agreement shall absolutely determine but without prejudice to any right of action of the Landlord in respect of any breach of the
Tenant’s terms and conditions herein contained and a written notices served by the Landlord on the Tenant or left at the Property to the
effect that the Landlord exercise the power of re-entry hereinbefore contained shall be a full and sufficient exercise of such power
notwithstanding any statutory or common law provisions to the contrary.
3
(b)
(c)
Any notice required to be served hereunder shall be sufficiently served on the Tenant if delivered to it at its registered office by registered
mail. A notice sent by registered mail shall be deemed to be given at the time sighed by the receiving party.
For the purposes of this Agreement any act default or omission of the agents servants and customers of the Landlord or the Tenant shall
be deemed to be the act default or omission of the Landlord or the Tenant.
5.
Within seven (7) days from the date of this Agreement, the Tenant shall pay to the Landlord the Deposit as more particularly set out in the Second
Schedule hereto to secure the due observance and performance by the Tenant of the agreements stipulations and conditions contained in this
Agreement and on the part of the Tenant to be observed and performed. Upon mutual agreement of both the Landlord and the Tenant, the deposit
paid by the Tenant for the Old Lease shall be deemed part of the deposit of this Lease Agreement per the First Schedule. The Deposit shall be
retained by the Landlord throughout the Term and the currency of this Agreement without payment of any interest to the Tenant. In the event of
any breach or non-observance or non-performance by the Tenant of any of the agreements, stipulations, terms or conditions of this Agreement in
any material respect the Landlord shall be entitled (without prejudice to any other right or remedy hereunder) to terminate this Agreement and to
deduct from the Deposit the amount of any loss reasonably incurred by the Landlord in consequence of the breach, non-observance or non-
performance by the Tenant of this Agreement in which event the Tenant shall as a condition precedent to the continuation of the tenancy hereby
created within seven (7) days’ written notice by the Landlord or its agent deposit with the Landlord the amount so deducted and if the Tenant shall
fail so to do the Landlord shall forthwith be entitled to re-enter on and upon the Property or any part thereof in the name of the whole and to
determine this Agreement in which event the Deposit may be forfeited to the Landlord by way of liquidated damages without prejudice to any
other right or remedy hereunder. If any deduction is made by the Landlord from the Deposit during the Term the Tenant shall within seven (7)
days following demand by the Landlord make a further deposit equal to the amount deducted and failure by the Tenant so to do shall entitle the
Landlord to re-enter the Property and to terminate this Agreement. Subject as aforesaid the Deposit shall be refunded to the Tenant by the
Landlord without interest within thirty days after the expiration or termination of this Agreement and the delivery of vacant possession to the
Landlord and after the settlement of the last outstanding claim by the Landlord against the Tenant in respect of any arrears of Rent and telephone
charges and any material breach, non-observance or non-performance of any of the agreements, stipulations, terms and conditions herein
contained and on the part of the Tenant to be observed and performed whichever shall be the later.
6.
The stamp duty on this Agreement and its counterpart shall be borne by the Landlord and the Tenant in equal shares.
4
AS WITNESS the hands of the parties hereto the day and year first above written.
SIGNED by /s/ Nong Bing Luw
for and on behalf of the Landlord
SIGNED by the Tenant
Treasure Success International Limited
OR
SIGNED by /s/ Choi Lin Hung
for and on behalf of the Tenant
)
)
)
)
)
)
)
)
)
)
5
FIRST SCHEDULE
The Property:
Unit A, 19/F, Ford Glory Plaza, 37-39 Wing Hong Street, Cheung Sha Wan, Kowloon, Hong Kong
SECOND SCHEDULE
Term
: 2 years
Period
: 26 February 2021 to 25 February 2023
Rent
: HK$119,540 per month (payable on the first day of each and every month, management fees, rates and government rent to be borne by
Tenant) and without any set-off and/or deduction)
Deposit
: HK$239,080
6
Subsidiaries of the Registrant
Exhibit 21.1
Subsidiaries
Treasure Success International Limited
Jerash Garments and Fashions Manufacturing Co., Ltd.
Chinese Garments and Fashions Manufacturing Co., Ltd.
Jerash for Industrial Embroidery Company Limited
Al-Mutafaweq Co. for Garments Manufacturing Ltd.
Jerash The First Medical Supplies Manufacturing Company Limited
Jiangmen Treasure Success Business Consultancy Co., Ltd.
Jerash Supplies, LLC
Variable Interest Entity
Victory Apparel Jordan Company Limited
Place of Incorporation
Hong Kong
Jordan
Jordan
Jordan
Jordan
Jordan
PRC
Delaware
Place of Incorporation
Jordan
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Amendment No.1 to the Registration Statement on Form S-3 (File No. 333-231395) and the
Registration Statements on Form S-8 (File No. 333-223916 and File No. 333-255028) of our report dated June 23, 2021 relating to the consolidated
financial statements of Jerash Holdings (US), Inc. for the years ended March 31, 2021 and 2020, which appears in the annual report on Form 10-K of
Jerash Holdings (US) Inc. filed with the Securities and Exchange Commission on June 23, 2021.
/s/ Friedman LLP
New York, New York
June 23, 2021
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Choi Lin Hung, certify that:
1. I have reviewed this report on Form 10-K of Jerash Holdings (US), Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: June 23, 2021
/s/ Choi Lin Hung
Choi Lin Hung
Chairman of the Board of Directors, Chief Executive Officer,
President, and Treasurer
(Principal Executive Officer)
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Gilbert K. Lee, certify that:
1. I have reviewed this report on Form 10-K of Jerash Holdings (US), Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: June 23, 2021
/s/ Gilbert K. Lee
Gilbert K. Lee
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
The undersigned hereby certifies, in his capacity as an officer of Jerash Holdings (US), Inc. (the “Company”), for the purposes of 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1)
The Annual Report of the Company on Form 10-K for the fiscal year ended March 31, 2021 (the “Report”) fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 23, 2021
/s/ Choi Lin Hung
Choi Lin Hung
Chairman of the Board of Directors, Chief Executive Officer,
President, and Treasurer
(Principal Executive Officer and Director)
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,
chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
The undersigned hereby certifies, in his capacity as an officer of Jerash Holdings (US), Inc. (the “Company”), for the purposes of 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1)
The Annual Report of the Company on Form 10-K for the fiscal year ended March 31, 2021 (the “Report”) fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 23, 2021
/s/ Gilbert K. Lee
Gilbert K. Lee
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,
chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.