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, 2024
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
81-4701719
(State or other jurisdiction of
incorporation or organization)
(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: (201) 285-7973
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
JRSH
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark whether the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past
90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-
T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit
report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect
the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of
the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s
common stock, par value $0.001 per share, held by non-affiliates of the registrant, as computed by reference to the
September 30, 2023
closing price reported by Nasdaq, was approximately $21,963,152. Shares of voting stock held by executive officers, directors, holders
owning
more than 10% of the outstanding voting stock, and stockholders affiliated with a director or an executive officer have been excluded
from this calculation because
such persons may be deemed to be affiliates. Exclusion of such shares should not be construed to indicate
that any of such persons possesses the power, direct or
indirect, to control the Registrant, or that any such person is controlled by
or under common control with the Registrant.
The number of the registrant’s shares of common stock, $0.001
par value per share, outstanding on June 27, 2024 was 12,294,840.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s 2024 Proxy
Statement (as defined below) are incorporated by reference in Part III of this Annual Report on Form 10-K.
Table of Contents
Page
PART I
Item 1.
Business
1
Item 1A.
Risk Factors
6
Item 1B.
Unresolved Staff Comments
17
Item 1C.
Cybersecurity
17
Item 2.
Properties
18
Item 3.
Legal Proceedings
19
Item 4.
Mine Safety Disclosure
19
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
20
Item 6.
[Reserved]
20
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
26
Item 8.
Financial Statements and Supplementary Data
F-1
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
27
Item 9A.
Controls and Procedures
27
Item 9B.
Other Information
27
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
27
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
28
Item 11.
Executive Compensation
28
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
28
Item 13.
Certain Relationships and Related Transactions, and Director Independence
28
Item 14.
Principal Accounting Fees and Services
28
PART IV
Item 15.
Exhibit and Financial Statement Schedules
29
Item 16.
Form 10-K Summary
30
Signatures
31
i
PART I
Item 1. Business.
Overview
Jerash Holdings (US), Inc. (“Jerash Holdings”),
through its wholly owned operating subsidiaries (together the “Group,” “we,” “us,” or “our”),
is principally engaged
in the manufacturing and exporting of customized, ready-made sportswear and outerwear from knitted fabric and personal
protective equipment (“PPE”) produced in
its facilities in the Hashemite Kingdom of Jordan (“Jordan”). Our website
address is http://www.jerashholdings.com. Information available on our website is not a part
of, and is not incorporated into, this Annual
Report on Form 10-K.
We are a manufacturer for many well-known brands
and retailers, such as VF Corporation (which owns brands such as The North Face, Timberland, and Vans), New
Balance, G-III (owner or licensee
of brands such as Calvin Klein, Tommy Hilfiger, and DKNY), Acushnet (owner of brands such as Footjoy and Titleist), American
Eagle, and
Skechers. Our production facilities comprise six factories and five warehouses and we currently employ approximately 5,400 people. The
total annual
capacity at our facilities was approximately 14 million pieces (average for product categories including t-shirts, polo shirts,
pants, shorts, and jackets, and excluding
PPE) as of March 31, 2024.
Organizational Structure
Jerash Holdings is a holding company incorporated
in Delaware in January 2016. As of the date of this annual report, Jerash Holdings has the following wholly owned
subsidiaries: (i) Jerash
Garments and Fashions Manufacturing Co., Ltd. (“Jerash Garments”), an entity formed under the laws of Jordan, (ii) Treasure
Success
International Limited (“Treasure Success”), an entity formed under the laws of Hong Kong Special Administrative Region
of the People’s Republic of China (“Hong
Kong” or “HK”), (iii) Chinese Garments and Fashions Manufacturing
Co., Ltd. (“Chinese Garments”), an entity formed under the laws of Jordan and a wholly owned
subsidiary of Jerash Garments,
(iv) Jerash for Industrial Embroidery Co., Ltd. (“Jerash Embroidery”), an entity formed under the laws of Jordan and a wholly
owned
subsidiary of Jerash Garments, (v) Al-Mutafaweq Co. for Garments Manufacturing Ltd. (“Paramount”), an entity formed
under the laws of Jordan and a wholly
owned subsidiary of Jerash Garments, (vi) Mustafa and Kamal Ashraf Trading Company (Jordan) for
the Manufacture of Ready-Make Clothes LLC (“MK
Garments”), an entity formed under the laws of Jordan and a wholly owned subsidiary
of Jerash Garments; (vii) Jiangmen Treasure Success Business Consultancy
Co., Ltd. (“Jiangmen Treasure Success”), an entity
incorporated under the laws of the People’s Republic of China (“China” or the “PRC”) and a wholly owned
subsidiary of Treasure Success, (viii) Jerash The First Medical Supplies Manufacturing Company Limited (“Jerash The First”),
an entity formed under the laws of
Jordan and a wholly owned subsidiary of Jerash Garments, (ix) Jerash Supplies, LLC (“Jerash Supplies”),
an entity formed under the laws of the State of Delaware,
(x) Kawkab Venus Dowalyah Lisenaet Albesah (“Kawkab Venus”), a limited
liability company established in Amman, Jordan, and (xi) Ever Winland Limited (“Ever
Winland”), a limited liability company
organized in Hong Kong. As of the date of this annual report, Treasure Success owns 51% of the equity interests in J&B
International
Limited (“J&B”), a company with limited liability incorporated under the laws of Hong Kong. P. T. Eratex (Hong Kong) Limited
(“Eratex”), a company
formed in Hong Kong, owns the remaining 49%. To date, Treasure Success also owns 51% of the equity interests
in Jerash Newtech (Hong Kong) Holdings Limited
(“Jerash Newtech”), a company incorporated under the laws of Hong Kong with
limited liability, and Newtech Textile (HK) Limited, a company incorporated in Hong
Kong (“Newtech”), owns the remaining 49%.
1
This chart reflects our organizational structure as of the date of
this annual report:
Jerash Garments was established in Jordan on November
26, 2000 and operates out of our factory in Al Tajamouat Industrial City, a Development Zone in Amman,
Jordan. Jerash Garments’
principal activities are to house management offices and to operate production lines and printing, sewing, ironing, packing, and quality
control units, as well as house our trims and finished products warehouses. We also operate our factory in Al-Hasa County (as discussed
below) under Jerash
Garments.
Chinese Garments was established in Jordan on
June 13, 2013 and operates out of our factory in Al Tajamouat Industrial City. Chinese Garments’ principal activities
are to house
administration, human resources, finance, and management offices and to operate additional production lines and sewing, ironing, and packing
units, as
well as house our trims warehouse.
Jerash Embroidery was established in Jordan on
March 11, 2013 and operates out of our factory in Al Tajamouat Industrial City. Jerash Embroidery’s principal
activities are to
perform the cutting and embroidery for our products.
Paramount was established in Jordan on October
24, 2004 and operates out of our factory in Al Tajamouat Industrial City. Paramount’s principal activities are to
manufacture garments
per customer orders.
MK Garments was established in Jordan on January
23, 2003. On June 24, 2021, Jerash Garments and the sole shareholder of MK Garments entered into an
agreement, pursuant to which Jerash
Garments acquired all of the outstanding stock of MK Garments. As of October 7, 2021, MK Garments became a subsidiary of
Jerash Garments.
MK Garments operates out of our factory in Al Tajamouat Industrial City. MK Garments’ principal activities are to manufacture garments
per
customer orders. This acquisition increased Jerash’s annual capacity from 12 million pieces to 14 million pieces. The new facilities
are an existing garment
manufacturing operation adjacent to Jerash’s four largest manufacturing centers. Jerash assumed ownership
of all of the machinery and equipment owned by MK
Garments through the acquisition.
Treasure Success was established in Hong Kong
on July 5, 2016 and operates in Hong Kong. Treasure Success’s primary activities are sales of garments and to
employ sales and merchandising
staff and supporting personnel in Hong Kong to support the business of Jerash Garments and its subsidiaries.
Jiangmen Treasure Success was established in Jiangmen
City of Guangdong Province in the PRC on August 28, 2019 and operates in the PRC. Jiangmen Treasure
Success’s primary activities
are to provide support in sales and marketing, sample development, merchandising, procurement, and other areas.
Jerash The First was established in Jordan on
July 6, 2020 and operate out of our factory in Al-Hasa County. Jerash The First’s principal activities are to manufacture
PPE products.
Jerash Supplies was formed in Delaware on November
20, 2020. Jerash Supplies is engaged in the trading of PPE products.
Kawkab Venus was established in Amman, Jordan,
on January 15, 2015 with a declared capital of JOD 50,000. It holds land with factory premises, which are leased
to MK Garments. On July
14, 2021, Jerash Garments and the sole shareholder of Kawkab Venus entered into an agreement, pursuant to which Jerash Garments
acquired
all of the outstanding stock of Kawkab Venus. Apart from the land and factory premises, Kawkab Venus had no other significant assets or
liabilities and no
operation activities or employees at the time of acquisition, so the acquisition was accounted for an asset acquisition.
As of August 21, 2022, Kawkab Venus became a
subsidiary of Jerash Garments.
2
Ever Winland was organized in Hong Kong on December
3, 2020. It holds office premises, which are leased to Treasure Success. On June 22, 2022, Treasure Success
and the shareholders of Ever
Winland entered into an agreement, pursuant to which Treasure Success acquired all of the outstanding stock of Ever Winland. Apart
from
the office premises used by Treasure Success, Ever Winland had no other significant assets or liabilities and no operating activities
or employees at the time of
this acquisition, so this transaction was accounted for as an asset acquisition. As of August 29, 2022, Ever
Winland became a subsidiary of Treasure Success.
J&B is a joint venture company established
in Hong Kong on January 10, 2023. On March 20, 2023, Treasure Success and Eratex entered into a Joint Venture and
Shareholders’
Agreement, pursuant to which Treasure Success acquired 51% of the equity interests in J&B on April 11, 2023. J&B engages in the
business of garment
trading and manufacturing for orders from customers.
Jerash Newtech is a joint venture company established
in Hong Kong on November 3, 2023. On October 10, 2023, Treasure Success and Newtech entered into a Joint
Venture and Shareholders’
Agreement. Pursuant to this agreement, both parties agreed to form a joint venture company in Hong Kong named Jerash Newtech, of
which
Treasure Success holds 51% of the equity interests and Newtech holds 49%. Jerash Newtech engages in the business of supplying fiber and
fabric printed with
Cooltrans technology, and may engage any other businesses in the future as both parties shall agree from time to time.
Products
As a garment manufacturing group, we specialize
in manufacturing sportswear and outerwear. Our sportswear and outerwear product offering consists of jackets, polo
shirts, t-shirts, pants,
and shorts. During fiscal 2024, our primary product offering was shorts, pants, and vests, which accounted for approximately 37% of our
total
shipped pieces. Our primary product offering in the fiscal year ended March 31, 2023 was shorts, pants, and vests, which accounted
for approximately 49% of our
total shipped pieces.
In 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. The sale of PPE products contributed an insignificant amount to our
total revenue
in the fiscal years ended March 31, 2024 and 2023.
Manufacturing and Production
Our production facilities are located in Al Tajamouat
Industrial City and in Al-Hasa County in the Tafilah Governorate of Jordan.
Our production facilities in Al Tajamouat Industrial
City comprise five factories and five warehouses. Effective as of January 1, 2019, the government of the
Hashemite Kingdom of Jordan converted
Al Tajamouat Industrial City into a Development Zone. Following this change, we continued to operate under benefits
similar to the Qualifying
Industrial Zone designation, but were subject to a 10% corporate income tax plus a 1% social contribution. Starting from January 1, 2020,
the
corporate income tax rate increased to 14% plus a 1% social contribution. On January 1, 2021, the corporate income tax rate increased
to 16% plus a 1% social
contribution. On January 1, 2022, the corporate income tax rate increased to 18% or 20% plus a 1% social contribution.
On January 1, 2023, the corporate income tax
rate increased to 19% or 20% plus a 1% social contribution. Effective January 1, 2024, we
have been subject to a 20% corporate income tax rate plus a 1% social
contribution. Currently, the first factory, 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, which we lease, employs approximately 1,400 people. Its
primary function
is to house our administrative and human resources personnel, merchandising and accounting departments, embroidery, printing, additional
production lines, trims and finished products warehouses, and sewing, ironing, packing and quality control units. The third factory, which
we lease, employs
approximately 200 people. Its primary functions are to perform the cutting for our products. The fourth factory (under
Paramount), which we lease, currently employs
approximately 1,200 people. Its primary functions are to house additional production lines.
The fifth factory (under MK Garments) currently employs approximately
600 people. Its primary function is to manufacture garments for
orders from customers.
3
Our production facility in Al-Hasa County in the
Tafilah Governorate of Jordan comprises a factory, which currently employs approximately 500 people and its
primary functions are to manufacture
garment products per customer orders. We commenced the construction of this factory in 2018 and we started operations in
November 2019.
This is a joint project with the Jordanian Ministry of Labor and the Jordanian Education and Training Department. According to our agreement
with
these government agencies, we used this factory without paying rent through December 2022. We have continued to use the factory without
paying rent since January
2023 as new arrangements with the Jordanian Ministry of Labor are still being made. See “Item 2. Properties”
below for more information regarding this factory.
In 2015, we commenced a project to build a 4,800
square-foot workshop in the Tafilah Governorate of Jordan. The building is now used as a dormitory to house
management and supervisory
staff who work at the factory in Al-Hasa County.
In April 2021, we commenced construction on a
195,000-square-foot housing facility for our multi-national workforce, situated on a 49,000-square-foot site owned by
us, in Al Tajamouat
Industrial City. The construction is now complete and our workers have started moving in. To meet increasing demand, we are also finalizing
plans to construct an additional project on a nearby 133,000-square-foot parcel that we purchased in 2019 for $1.2 million. Two-thirds
of the land will be used for our
seventh factory and the remaining one-third will be used for housing. As of the date of this annual report,
we are working with engineering consultants on the
architectural design of the building, taking into account the potential business growth
bought about by the new business collaboration with Busana Apparel Group. We
will carefully plan the construction investment to meet the
progress of business developments.
Total annual capacity at our existing facilities
was approximately 14 million pieces (average for product categories including t-shirts, polo shirts, pants, shorts, and
jackets, and excluding
PPE) as of March 31, 2024. Our production flow begins in the cutting department of our factory. Then the product is sent to the embroidery
department for embroidery if applicable. From there, the product moves to be processed by the sewing unit, finishing department, quality
control, and finally the
ironing and packing units.
We do not have long-term supply contracts or arrangements
with our suppliers. Most of our ultimate suppliers for raw materials, such as fabric, zippers, and labels, are
designated by customers
and we purchase such materials on a purchase order basis.
Employees
As of March 31, 2024, we had an aggregate of approximately
5,600 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, 2024 (“fiscal 2024”) and March 31,
2023
(“fiscal 2023”).
Fiscal 2024
Fiscal 2023
Sales
Sales
(USD, in
thousands)
%
(USD, in
thousands)
%
VF Corporation(1)
$
78,912
67.3% $
82,661
59.9%
New Balance
13,931
11.9%
24,124
17.5%
G-III
5,773
4.9%
5,589
4.0%
Hugo Boss
2,920
2.5%
-
-%
Jiangsu Guotai Huasheng Industrial Co (HK)., Ltd
2,774
2.4%
9,454
6.8%
Easy Long International Limited
2,436
2.1%
-
-%
Acushnet
1,562
1.3%
-
-%
Others
8,879
7.6%
16,235
11.8%
Total
$
117,187
100.0% $
138,063
100.0%
(1) Most of our products are sold under The North Face, Timberland, and Vans brands owned by VF Corporation.
4
In fiscal 2024 and 2023, we depended on a few
key customers for our sales, and most of our sales in fiscal 2024 and 2023 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, Timberland, and Vans brands which
are owned by VF Corporation.
Currently, we manufacture primarily outerwear for The North Face. Approximately 67% and 60% of our sales in fiscal 2024 and 2023
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
2024, VF Corporation issued approximately 3,400 purchase orders to us in amounts ranging from
approximately $7 to $268,000. For fiscal
2023, VF Corporation issued approximately 10,500 purchase orders to us in amounts ranging from approximately $6 to
$372,000.
Our customers are in the retail industry, which
is subject to substantial cyclical variations. Consequently, there can be no assurance that sales to current customers will
continue at
the current rate or at all. In addition, our annual and quarterly results may vary, which may cause our profits and the market price of
our common stock to
decline.
We continue to seek to expand and strengthen our
relationship with our current customers and other brand names. However, we cannot assure you that these brands
will continue to buy our
products in the same volumes or on the same terms as they did in the past or that we will be successful in expanding our relationship
with
other brand names.
Competition
The markets for the manufacturing of sportswear
and outerwear are highly competitive. The competition in those markets is focused primarily on the price and quality
of the product and
the level of customer service. Our products compete with products of other apparel manufacturers in Asia, Israel, Europe, the United States,
and
South and Central America.
Competition with other manufacturers in the clothing
industry focuses on reducing production costs, reducing supply lead time, design, product quality, and efficiency
of supply to the customer.
Since production costs depend to a large extent on labor costs, in recent years most production in the industry has been moved to countries
where labor costs are low. Some of our competitors have lower cost bases, longer operating histories, larger customer bases, and other
advantages over us which allow
them to compete with us. As described in more detail under “—Conditions in Jordan”
below, we are able to sell our products manufactured at our facilities in Jordan
to the United States free from customs duties and import
quotas under certain conditions. These favorable terms enable us to remain competitive on the basis of price.
According to the Association
Agreement between the European Union (the “EU”) and Jordan, which came into force in May 2002, and the joint initiative on
rules of
origin reviewed and improved in December 2018 by the EU and Jordan, goods manufactured by us in Jordan that are subsequently
shipped to EU countries are
shipped free from customs duties.
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. Furthermore, the escalation of
conflicts such as Russia-Ukraine and Israel-Hamas may increase geopolitical
tensions globally. These political or social tensions could
disrupt international trade, industrial supply chains, and transportation, leading to market price volatility, and
may adversely affect
our business, increase operational costs, and limit our ability to secure foreign financing for our operations and capital expenditures.
See “Item
1A. Risk Factors—Risks Related to Operations in Jordan—Our operations in Jordan may be adversely affected
by social and political uncertainties or change, military
actions, health-related risks, acts of terrorism or other geopolitical instability.”
5
Jordan is a constitutional monarchy, but the King
holds wide executive and legislative powers. The ruling family has taken initiatives that support the economic
growth of the country.
However, there is no assurance that such initiatives will be successful or will continue. The rate of economic liberalization could change,
and
specific laws and policies affecting manufacturing companies, foreign investments, currency exchange rates, and other matters affecting
investments in Jordan could
change as well.
Trade Agreements
Because of the United States-Jordan Free Trade
Agreement, which came into force on December 17, 2001, and was implemented fully on January 1, 2010, and the
Association Agreement between
the EU and Jordan, which came into force in May 2002, we are able to sell our products manufactured at our facilities in Jordan to
the
U.S. free from customs duties and import quotas under certain conditions and to EU countries free from customs duties.
Income/Sales Tax Incentives
Effective January 1, 2019, Jordan’s government
converted the geographical area where Jerash Garments and its subsidiaries are located from a Free Zone to a
Development Zone. Development
Zones are industrial parks that house manufacturing operations in Jordan. In accordance with applicable law, Jerash Garments and
its subsidiaries
began paying corporate income tax in Jordan at a rate of 10% plus 1% social contribution. Starting from January 1, 2020, the corporate
income tax rate
in Jordan increased to 14% plus 1% social contribution. Effective January 1, 2021, this rate increased to 16% plus 1%
social contribution. On January 1, 2022, this
rate further increased to 18% or 20% plus 1% social contribution. On January 1, 2023, this
rate further increased to 19% or 20% plus a 1% social contribution.
Effective January 1, 2024, the income tax rate further increased to
20%, plus a 1% social contribution. For more information, see “Note 2—Summary of Significant
Accounting Policies—Income
and Sales Taxes.”
In addition, Jerash Garments and its subsidiaries
are subject to local sales tax of 16%. However, Jerash Garments was granted a sales tax exemption from the
Jordanian Investment Commission
for the period June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases with no sales tax charge. This
exemption was
extended to February 5, 2025.
Government Regulation
Our manufacturing and other facilities in Jordan
and our subsidiaries outside of Jordan are subject to various local regulations relating to the maintenance of safe
working conditions
and manufacturing practices. Management believes that we are currently in compliance in all material respects with all such regulations.
We are
not subject to governmental approval of our products or manufacturing process.
Item 1A. Risk Factors.
The following are factors that could have a significant
impact on our operations and financial results and could cause actual results or outcomes to differ materially
from those discussed in
any forward-looking statements.
Risks Related to Our Business and Our Industry
We rely on one key customer for most of
our revenue. We cannot assure you that this customer or any other customer will continue to buy our products in the
same volumes or on
the same terms.
Our sales to VF Corporation (which owns brands
such as The North Face, Timberland, and Vans), directly and indirectly, accounted for approximately 67% and 60%
of our total sales in
fiscal 2024 and 2023, respectively. From an accounting perspective, we are considered the principal in our arrangement with VF Corporation.
We
bear the inventory risk before the specified goods are transferred to a customer, and we have the right to determine the price and
to change our product during the
sample development process with customers in which we determine factors including material usage and
manufacturing costs before confirming orders. Therefore, we
present the sales and related manufacturing activities on a gross basis.
We are not party to any long-term contracts with
VF Corporation or our other customers, and our sales arrangements with our customers do not have minimum
purchase requirements. As is
common in our industry, VF Corporation and our other customers place purchase orders with us after we complete detailed sample
development
and approval processes. It is through these sample development and approval processes that we and VF Corporation agree on the purchase
and
manufacture of the garments in question. From April 1, 2022 to March 31, 2023, VF Corporation issued approximately 10,500 purchase
orders to us in amounts
ranging from approximately $6 to $372,000. In fiscal 2024, VF Corporation issued approximately 3,400 purchase
orders to us in amounts ranging from approximately
$7 to $268,000.
6
We cannot assure you that our customers will continue
to buy our products at all or in the same volumes or on the same terms as they have in the past. The failure of
VF Corporation to continue
to buy our products in the same volumes and on the same terms as in the past may significantly reduce our sales and our earnings.
A material decrease in the quantity of sales made
to our principal customers, a material adverse change in the terms of such sales or a material adverse change in the
financial condition
of our principal customers could significantly reduce our sales and our earnings.
We cannot assure you that VF Corporation will
continue to purchase our merchandise at the same historical rate, or at all, in the future, or that we will be able to
attract new customers.
In addition, because of our reliance on VF Corporation as our key customer and their bargaining power with us, VF Corporation has the
ability
to exert significant control over our business decisions, including prices.
Any adverse change in our relationship with
VF Corporation and its owned brands, or with their strategies or reputation, would have a material adverse effect on
our results of operations.
Most of our products are sold under The North
Face, Timberland, and Vans brands, which are owned by VF Corporation. Any adverse change in our relationship with
VF Corporation would
have a material adverse effect on our results of operations. In addition, our sales of those products could be materially and adversely
affected if
the image, reputation, or popularity of either VF Corporation, The North Face, Timberland, or Vans were to be negatively impacted.
If we lose our key customer and are unable
to attract new customers, then our business, results of operations, and financial condition would be adversely affected.
If our key customer, VF Corporation, fails to
purchase our merchandise at the same historical rate, or at all, we will need to attract new customers and we cannot
assure you that we
will be able to do so. We do not currently invest significant resources in marketing our products, and we cannot assure you that any new
investments in sales and marketing will lead to the acquisition of additional customers or increased sales or profitability consistent
with prior periods. If we are unable
to attract new customers or customers that generate comparable profit margins to VF Corporation,
then our results of operations and financial condition could be
materially and adversely affected.
If we lose our larger brand name customers,
or the customers fail to purchase our products at anticipated levels, our sales and operating results will be adversely
affected.
Our results of operations depend to a significant
extent upon the commercial success of our larger brand name customers. If we lose these customers, these customers
fail to purchase our
products at anticipated levels, or our relationships with these customers or the brands and retailers they serve diminishes, it may have
an adverse
effect on our results and we may lose a primary source of revenue. In addition, we may not be able to recoup development and
inventory costs associated with these
customers and we may not be able to collect our receivables from them, which would negatively impact
our financial condition and results of operations.
If the market share of our customers declines,
our sales and earnings may decline.
Our sales can be adversely affected in the event
that our direct and indirect customers do not successfully compete in the markets in which they operate. In the event
that the sales of
one of our major customers decline for any reason, regardless of whether it is related to us or to our products, our sales to that customer
may also
decline, which could reduce our overall sales and our earnings.
7
A natural disaster, catastrophe, pandemic,
or other unexpected events could adversely affect our financial conditions and business operations.
The occurrence of one or more unexpected events,
including war, acts of terrorism or violence, civil unrest, epidemics or pandemics, fires, tornadoes, hurricanes,
earthquakes, floods,
and other forms of severe weather in the countries or regions in which we do business could adversely affect our operations and financial
performance.
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.
The COVID-19 pandemic did not materially adversely
affect our business operations and condition and operating results for fiscal 2023 and 2024. The Company
currently expects that its operation
results for the fiscal year ending March 31, 2025 would not be impacted by the COVID-19 pandemic. However, in the event of a
resurgence
of COVID-19 cases or a global outbreak of a similar pandemic, the Company's business could be negatively impacted if the U.S. government
or the Jordan
government imposes new restrictions to curb the spread.
We may require additional financing to fund
our operations and capital expenditures.
As of March 31, 2024, we had cash and cash equivalents
of approximately $12.4 million and restricted cash of approximately $1.6 million. There can be no assurance
that our available cash, together
with resources from our operations, will be sufficient to fund our operations and capital expenditures. In addition, our cash position
may decline in the future, and we may not be successful in maintaining an adequate level of cash resources.
Pursuant to the DBS facility letter dated January
12, 2022, DBS Bank (Hong Kong) Limited (“DBSHK”) provided a bank facility of up to $5.0 million to Treasure
Success, which
was amended pursuant to a facility letter dated January 4, 2024. Pursuant to the amended agreement, DBSHK agreed to finance cargo receipt,
trust
receipt, account payable financing, and certain type of import and export invoice financing up to an aggregate of $5.0 million,
with certain financial covenants. The
DBSHK facility bears interest at 1.5% per annum over Hong Kong Interbank Offered Rate (“HIBOR”)
for HKD bills and 1.1% to 1.3% per annum over DBSHK’s
cost of funds for foreign currency bills. The facility is guaranteed by Jerash
Holdings and became available to the Company on June 17, 2022.
In addition, we may be required to seek additional
debt or equity financing in order to support our growing operations. We may not be able to obtain additional
financing on satisfactory
terms, or at all, and any new equity financing could have a substantial dilutive effect on our existing stockholders. If we cannot obtain
additional financing, we may not be able to achieve our desired sales growth, and our results of operations would be negatively affected.
We may have conflicts of interest with our
affiliates and related parties, and in the past we have engaged in transactions and entered into agreements with
affiliates that were
not negotiated at arms’ length.
We have engaged, and may in the future engage,
in transactions with affiliates and other related parties. These transactions may not have been, and may not be, on
terms as favorable
to us as they could have been if obtained from non-affiliated persons. While an effort has been made and will continue to be made to obtain
services from affiliated persons and other related parties at rates and on terms as favorable as would be charged by others, there will
always be an inherent conflict of
interest between our interests and those of our affiliates and related parties. Through his wholly owned
entity Merlotte Enterprise Limited, Mr. Choi, our chairman,
chief executive officer, president, treasurer, and a significant stockholder,
has an indirect ownership interest in Jiangmen V-Apparel Manufacturing Limited, with
which we have entered into, or in the future may
enter into, agreements or arrangements. See also “Note 11—Related Party Transactions.” If we engage in related
party
transactions on unfavorable terms, our operating results will be negatively impacted.
8
We are dependent on a product segment comprised
of a limited number of products.
Presently, we generate revenue primarily from
manufacturing and exporting sportswear and outerwear. A shift in demand from such products may reduce the growth
of new business for our
products, and reduce existing business in those products. If demand in sportswear and outerwear were to decline, we may endeavor to expand
or transition our product offerings to other segments of the clothing retail industry. There can be no assurance that we would be able
to successfully make such an
expansion or transition, or that our sales and margins would not decline in the event we made such an expansion
or transition.
Our revenue and cash requirements are affected
by the seasonal nature of our business.
A significant portion of our revenue is received
during the first six months of our fiscal year, or from April through September. A majority of our VF Corporation
orders are derived from
winter season fashions, the sales of which occur in the spring and summer and are merchandized by VF Corporation during the autumn
months
(September through November). As such, the second half of our fiscal year reflect lower sales in anticipation of the spring and summer
seasons. In addition,
due to the nature of our relationships with customers and our use of purchase orders to conduct our business, our
revenue may vary from period to period.
Changes in our product mix and the geographic
destination of our products or source of our supplies may impact our cost of goods sold, net income, and
financial position.
From time to time, we experience changes in the
product mix and the geographic destination of our products. To the extent our product mix shifts from higher revenue
items, such as jackets,
to lower revenue items, such as pants, our cost of goods sold as a percentage of gross revenue will likely increase. In addition, if we
sell a
higher proportion of products in geographic regions where we do not benefit from free trade agreements or tax exemptions, our gross
margins will fall. If we are
unable to sustain consistent product mix and geographic destinations for our products, we could experience
negative impacts to our financial condition and results of
operations.
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.
9
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.
If we experience product quality or late
delivery problems, or if we experience financial problems, our business will be negatively affected.
We may from time to time experience difficulties
in making timely delivery of products of acceptable quality. Such difficulties may result in cancellation of orders,
customer refusal
to accept deliveries, or reductions in purchase prices, any of which could have a material adverse effect on our financial condition and
results of
operations. There can be no assurance that we will not experience difficulties with manufacturing our products.
We face intense competition in the worldwide
apparel manufacturing industry.
We compete directly with a number of manufacturers
of sportswear and outerwear. Some of these manufacturers have lower cost bases, longer operating histories,
larger customer bases, greater
geographical proximity to customers, or greater financial and marketing resources than we do. Increased competition, direct or indirect,
could reduce our revenue and profitability through pricing pressure, loss of market share, and other factors. We cannot assure you that
we will be able to compete
successfully with existing or new competitors, as the market for our products evolves and the level of competition
increases. We believe that our business will depend
upon our ability to provide apparel products of good quality and meeting our customers’
pricing and delivery requirements, and our ability to maintain relationships
with our major customers. There can be no assurance that
we will be successful in this regard.
We have entered into joint ventures with
third parties, and we may continue to do so in the future. This may subject us to various risks, including limited decision-
making authority,
reliance on our joint venture partners' financial condition, the risk of disputes with our joint venture partners, and the risk of failing
to achieve
profitability through such business.
As of the date of this annual report, we have
entered into two joint ventures with third parties. Please refer to “Item
1. Business—Organizational structure” for more
information. Once we enter into any joint ventures, we will have limited decision-making
authority and we may face the risk of disputes with our joint venture
partners. This includes potential deadlocks in making major decisions
and restrictions on our ability to exit the joint venture. Any disputes that arise between us and
any of our joint venture partners may
result in litigation or arbitration. We may also face risks associated with the financial condition of our joint venture partners,
including
the risk of bankruptcy and/or failure to fund their share of required capital contributions. As a result, we may be exposed to liabilities
that exceed our share
of any joint venture. Our joint venture partners may also have business interests or goals that are inconsistent
with ours and may be able to take actions contrary to our
policies or objectives. In specific circumstances, we may be liable for the
actions of any joint venture partners. Any of these situations may have a material adverse
effect on our business, financial condition,
and results of operations.
10
Furthermore, we cannot assure that we may succeed
in doing business through these two joint ventures or any future joint ventures. If the two joint ventures do not
achieve expected levels
of production or profitability, we will not be able to adequately manage our growth following the establishment of such business, and
our
results of operations and financial condition would be adversely affected.
Our results of operations are subject to fluctuations in currency
exchange rates.
Exchange rate fluctuations between the U.S. dollar
and Jordanian Dinar (“JOD”), Hong Kong dollar, or Chinese Yuan (“CNY”), as well as inflation in Jordan, Hong
Kong,
or the PRC, may negatively affect our earnings. A substantial majority of our revenue and a substantial portion of our expenses are denominated
in U.S. dollars.
However, a significant portion of the expenses associated with our Jordanian, Hong Kong, or PRC operations, including
personnel and facilities-related expenses, are
incurred in JOD, Hong Kong dollars, or CNY, respectively. Consequently, inflation in Jordan,
Hong Kong, or the PRC will have the effect of increasing the dollar cost
of our operations in Jordan, Hong Kong, or the PRC, respectively,
unless it is offset on a timely basis by a devaluation of JOD, Hong Kong dollar, or CNY, as
applicable, relative to the U.S. dollar. We
cannot predict any future trends in the rate of inflation in Jordan, Hong Kong, or the PRC or the rate of devaluation of JOD,
Hong Kong
dollar, or CNY, as applicable, against the U.S. dollar. In addition, we are exposed to the risk of fluctuation in the value of JOD, Hong
Kong dollar, and
CNY vis-a-vis the U.S. dollar. There can be no assurance that JOD or Hong Kong dollar will remain effectively pegged
to the U.S. dollar. Any significant appreciation
of JOD, Hong Kong dollar, or CNY against the U.S. dollar would cause an increase in our
JOD, Hong Kong dollar, or CNY expenses, as applicable, as recorded in
our U.S. dollar denominated financial reports, even though the expenses
denominated in JOD, Hong Kong dollars, or CNY, as applicable, will remain unchanged. In
addition, exchange rate fluctuations in currency
exchange rates in countries other than Jordan where we operate and do business may also negatively affect our
earnings.
We are subject to the risks of doing business
abroad.
Almost all of our products are manufactured outside
the United States, at our subsidiaries’ production facilities in Jordan. Foreign manufacturing is subject to a
number of risks,
including work stoppages, transportation delays and interruptions, political instability, foreign currency fluctuations, economic disruptions,
expropriation, nationalization, the imposition of tariffs and import and export controls, changes in governmental policies (including
U.S. policies towards Jordan), and
other factors, which could have an adverse effect on our business. In addition, we may be subject to
risks associated with the availability of and time required for the
transportation of products from foreign countries. The occurrence
of certain of these factors may delay or prevent the delivery of goods ordered by customers, and
such delay or inability to meet delivery
requirements would have a severe adverse impact on our results of operations and could have an adverse effect on our
relationships with
our customers.
Our ability to benefit from the lower labor costs
in Jordan will depend on the political, social, and economic stability of Jordan and in the Middle East in general. We
cannot assure you
that the political, economic, or social situation in Jordan or in the Middle East in general will not have a material adverse effect on
our operations,
especially in light of the potential for hostilities in the Middle East. See “—Risks Related to Operations
in Jordan—Our operations in Jordan may be adversely
affected by social and political uncertainties or change, military actions,
health-related risks, acts of terrorism or other geopolitical instability.” The success of the
production facilities also will depend
on the quality of the workmanship of laborers and our ability to maintain good relations with such laborers in these countries.
We cannot
guarantee that our operations in Jordan or any new locations outside of Jordan will be cost-efficient or successful.
Our business could suffer if we violate
labor laws or fail to conform to generally accepted labor standards or the ethical standards of our customers.
We are subject to labor laws issued by the Jordanian
Ministry of Labor for our facilities in Jordan. In addition, many of our customers require their manufacturing
suppliers to meet their
standards for working conditions and other matters. If we violate applicable labor laws or generally accepted labor standards or the ethical
standards of our customers by, for example, using forced or indentured labor or child labor, failing to pay compensation in accordance
with local law, failing to
operate our factories in compliance with local safety regulations, or diverging from other labor practices
generally accepted as ethical, we could suffer a loss of sales
or customers. In addition, such actions could result in negative publicity
and may damage our reputation and discourage retail customers and consumers from buying
our products.
11
Our products may not comply with various
industry and governmental regulations and our customers may incur losses in their products or operations as a
consequence of our non-compliance.
Our products are produced under strict supervision
and controls to ensure that all materials and manufacturing processes comply with the industry and governmental
regulations governing
the markets in which these products are sold. However, if our controls fail to detect or prevent non-compliant materials from entering
the
manufacturing process, our products could cause damages to our customers’ products or processes and could also result in fines
being incurred. The possible damages,
replacement costs, and fines could significantly exceed the value of our products and these risks
may not be covered by our insurance policies.
We depend on our suppliers for machinery
and maintenance of machinery. We may experience delays or additional costs satisfying our production requirements
due to our reliance
on these suppliers.
We purchase machinery and equipment used in our
manufacturing process from third-party suppliers. If our suppliers are not able to provide us with maintenance or
additional machinery
or equipment as needed, we might not be able to maintain or increase our production to meet any demand for our products, which would
negatively
impact our financial condition and results of operations.
We are a holding company and rely on dividends,
distributions, and other payments, advances, and transfers of funds from our subsidiaries to meet our
obligations.
We are a holding company that does not conduct
any business operations of our own. As a result, we rely on cash dividends and distributions and other transfers from
our operating subsidiaries
to meet our obligations. The deterioration of income from, or other available assets of, our operating subsidiaries for any reason could
limit
or impair their ability to pay dividends or other distributions to us, which in turn could adversely affect our financial condition
and results of operations.
Periods of sustained economic adversity
and uncertainty could negatively affect our business, results of operations, and financial condition.
Disruptions in the financial markets, such as
what occurred in the global markets in 2008, may adversely impact the availability and cost of credit for our customers
and prospective
customers, which could result in the delay or cancellation of customer purchases. In addition, disruptions in the financial markets may
have an
adverse impact on regional and world economies and credit markets, which could negatively impact the availability and cost of
capital for us and our customers.
These conditions may reduce the willingness or ability of our customers and prospective customers to
commit funds to purchase our services or products, or their
ability to pay for our services after purchase. These conditions could result
in bankruptcy or insolvency for some customers, which would impact our revenue and
cash collections. These conditions could also result
in pricing pressure and less favorable financial terms to us and our ability to access capital to fund our operations.
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. President Joe Biden has expressed no desire to withdraw from existing agreements, presumably
indicating 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.
12
Our results of operations would be materially
and adversely affected in the event we are unable to operate our principal production facilities in Jordan.
All of our manufacturing process is performed
in a complex of production facilities located in Jordan. We have no effective back-up for these operations and, in the
event that we are
unable to use the production facilities located in Jordan as a result of damage or for any other reason, our ability to manufacture a
major portion of
our products and our relationships with customers could be significantly impaired, which would materially and adversely
affect our results of operation.
Our operations in Jordan may be adversely
affected by social and political uncertainties or change, military actions, health-related risks, acts of terrorism, or
other geopolitical
instability.
From time to time, Jordan has experienced instances
of civil unrest, terrorism, and hostilities among neighboring countries, including Syria and Israel. A peace
agreement between Israel
and Jordan was signed in 1994. Terrorist attacks, military activity, rioting, or civil or political unrest in the future could influence
the
Jordanian economy and our operations by disrupting operations and communications and making travel within Jordan more difficult and
less desirable. In late May
2018, protests about a proposed tax bill began throughout Jordan. On June 5, 2018, King Abdullah II of Jordan
responded to the protests by removing and replacing
Jordan’s prime minister. If political uncertainty rises in Jordan, our business,
financial condition, results of operations, and cash flows may be negatively impacted.
Political or social tensions also could create
a greater perception that investments in companies with Jordanian operations involve a high degree of risk, which could
adversely affect
the market price of our common stock. We do not have insurance for losses and interruptions caused by terrorist attacks, military conflicts,
and wars,
which could subject us to significant financial losses. The realization of any of these risks could cause a material adverse
effect on our business, financial condition,
results of operations, and cash flows.
Furthermore, global markets have recently experienced
volatility and disruption following the escalation of geopolitical tensions, including the military conflict
between Russia and Ukraine
and the conflict in the Gaza Strip. Specifically, Russian military forces initiated a full-scale invasion of Ukraine on February 24, 2022,
leading to sustained conflict and disruption. See “—Risk Factors Relating to our Securities—We are currently operating
in a period of economic uncertainty and
capital market disruption, which has been significantly impacted by geopolitical instability due
to the ongoing military conflict between Russia and Ukraine. Our
business, financial condition, and results of operations could be materially
adversely affected by any negative impact on the global economy and capital markets
resulting from the conflict in Ukraine or any other
geopolitical tensions.” Additionally, on October 7, 2023, Hamas militants and members of other terrorist
organizations infiltrated
Israel’s southern border from the Gaza Strip and conducted a series of terror attacks on civilian and military targets, leading
to a declaration of
war by Israel. Subsequently, there have been disruptions in the region. The intensity and duration of the current
Israel-Hamas war and the larger regional conflict are
difficult to predict, as are the economic implications on our business and operations,
the global supply chain, and global geopolitical stability.
While we do not have any employees, staff, consultants,
operations, materials, or equipment located in Israel, Ukraine, Russia, or Belarus, all of our manufacturing
processes are performed in
a complex of production facilities located in Jordan. This situation could adversely affect our business or the services being provided
to us
due to concerns about conflict in the Palestinian territories. For example, when Hamas launched its attack on October 7, 2023, it
had an unfavorable impact on the
Jordanian street and the country’s national security. Despite bilateral cooperation between Jordan
and the United States that may contribute to assisting the conflicting
parties in ultimately achieving peace and security, we cannot assure
that our business operations will not be adversely impacted by such disputes.
Any of the aforementioned factors could affect
our business, prospects, financial condition, and operating results. The extent and duration of military action,
sanctions, and resulting
market disruptions are impossible to predict, but could be substantial.
We may face interruption of production and
services due to increased security measures in response to terrorism.
Our business depends on the free flow of products
and services through the channels of commerce. In response to terrorists’ activities and threats aimed at the United
States, transportation,
mail, financial, and other services may be slowed or stopped altogether. Extensive delays or stoppages in transportation, mail, financial,
or other
services could have a material adverse effect on our business, results of operations, and financial condition. Furthermore, we
may experience an increase in operating
costs, such as costs for transportation, insurance, and security as a result of the activities
and potential delays. We may also experience delays in receiving payments
from payors that have been affected by the terrorist activities.
The United States economy in general may be adversely affected by terrorist activities and any
economic downturn could adversely impact
our results of operations, impair our ability to raise capital, or otherwise adversely affect our ability to grow our business.
13
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.
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.
14
Future sales and issuances of our common
stock or rights to purchase common stock could result in additional dilution of the percentage ownership of our
stockholders and could
cause the market price of our common stock to decline.
We may issue additional securities in the future.
Pursuant to our amended and restated 2018 Stock Incentive Plan, we may issue up to 1,784,250 shares of common
stock to certain members
of our management and key employees. As of the date of this annual report, 114,110 shares of common stock remain available for issuance
under our amended and restated 2018 Stock Incentive Plan.
Future sales and issuances of our common stock
or rights to purchase our common stock could result in substantial dilution to our existing stockholders. We may sell
common stock, convertible
securities, and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If
we
sell any such securities, our stockholders may be materially diluted. New investors in any future transactions could gain rights, preferences,
and privileges senior to
those of holders of our common stock.
If securities or industry analysts do not
publish research or reports about us, or if they adversely change their recommendations regarding our common stock, our
stock price and
trading volume of our common stock could decline.
The trading market for our common stock will be
influenced by the research and reports that industry or securities analysts publish about us, our industry, and our
market. If no analyst
elects to cover us and publish research or reports about us, the market for our common stock could be severely limited and our stock price
could
be adversely affected. In addition, if one or more analysts ceases coverage of us or fails to regularly publish reports on us, we
could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline. If one or more
analysts who elect to cover us issue negative reports or adversely
change their recommendations regarding our common stock, the market
price of our common stock could decline.
The requirements of being a public company,
including compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)
and the requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), may strain our resources, increase our costs,
and distract
management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
We are required to comply with the laws, regulations,
requirements, and certain corporate governance provisions under the Exchange Act and the Sarbanes-Oxley Act.
Complying with these statutes,
regulations, and requirements occupies a significant amount of time of our board of directors and management, significantly increases
our costs and expenses, and makes some activities more time-consuming and costly. As a reporting company, we are:
●
instituting a more comprehensive compliance function;
●
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.
15
If we fail to establish and maintain an
effective system of internal controls, we may not be able to report our financial results accurately. Any inability to report
and file
our financial results accurately and timely could harm our business and adversely affect the trading price of our common stock.
We have been required to evaluate our internal
control over financial reporting under Section 404 of the Sarbanes-Oxley Act beginning with the annual report on
Form 10-K for the fiscal
year ended March 31, 2019. The process of designing and implementing internal controls over financial reporting may divert our internal
resources and take a significant amount of time and expense to complete.
In connection with the preparation and external
audit of our consolidated financial statements for the fiscal year ended March 31, 2023, we identified certain material
weaknesses in
our internal control over financial reporting and have formulated plans for remedial measures. Although some remedial measures have been
implemented, our management concluded that our internal control over financial reporting was still ineffective as of March 31, 2024. See
“Item 9A. Controls and
Procedures.”
However, our management team cannot guarantee
that our internal controls and disclosure controls and procedures will prevent all possible errors. Because of the
inherent limitations
in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
the
Company have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty and
subject to simple error or
mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two
or more persons, or by management override of the
controls. The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under
all potential future conditions. Over time, measures of control may become inadequate because of changes in
conditions or the degree of
compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and may not be detected.
We incur and will continue to incur increased
costs and demands upon management as a result of being a public company.
As a public company listed in the United States,
we incur, and will continue to incur, now that we have ceased to be an “emerging growth company,” significant legal,
accounting,
and other costs. These costs could negatively affect our financial results. In addition, changing laws, regulations, and standards relating
to corporate
governance and public disclosure, including regulations implemented by the SEC and Nasdaq, may increase legal and financial
compliance costs and make some
activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations
and, as a result, their application in practice may evolve
over time as new guidance is provided by regulatory and governing bodies.
We are committed to comply with evolving laws,
regulations, and standards, and this investment may result in increased general and administrative expenses and a
diversion of management’s
time and attention from revenue-generating activities to compliance activities. If we do not comply with new laws, regulations, and
standards,
regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Failure to comply with these rules might also
make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we
might be forced
to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of
these events
could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees
of our board of directors or as members
of senior management.
16
We are currently operating in a period of
economic uncertainty and capital market disruption, which has been significantly impacted by geopolitical instability
due to the ongoing
military conflict between Russia and Ukraine. Our business, financial condition, and results of operations could be materially adversely
affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical
tensions.
U.S. and global markets are experiencing volatility
and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia
and Ukraine. On
February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing
military
conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility
in commodity prices, credit and capital
markets, and supply chain interruptions.
The military conflict in Ukraine has led to sanctions
and other penalties being levied by the United States, European Union, and other countries against Russia.
Additional potential sanctions
and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the
global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult
for us to obtain additional
funds. In addition, in managing an organization operating globally, we are subject to the risks and challenges
related to the potential to subject our business to
materially adverse consequences should the situation escalate beyond its current scope,
including, among other potential impacts, the geographic proximity of the
situation relative to the Middle East, where a material portion
of our business is conducted.
Although our business has not been materially
impacted by the ongoing military conflict between Russian and Ukraine to date, it is impossible to predict the extent to
which our operations,
or those of our suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact
our
business. The extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but
could be substantial. Any such
disruptions may also magnify the impact of other risks described in this annual report.
We may be adversely affected by the effects
of inflation and a potential recession.
Inflation has the potential to adversely affect
our liquidity, business, financial condition, and results of operations by increasing our overall cost structure, particularly
if we are
unable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has resulted
in, and may
continue to result in, higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor,
weakening exchange rates, and other similar
effects. As a result of inflation, we have experienced and may continue to experience, cost
increases. In addition, poor economic and market conditions, including a
potential recession, may negatively impact market sentiment,
decreasing the demand for sportswear and outerwear, which would adversely affect our operating
income and results of operations. If we
are unable to take effective measures in a timely manner to mitigate the impact of the inflation as well as a potential recession,
our
business, financial condition, and results of operations could be adversely affected.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Risk Management and Strategy
Cybersecurity is a vital aspect of maintaining
the trust of our customers and employees. We have instituted a comprehensive cybersecurity risk management program
that employs various
methods to monitor and assess our threat environment and risk profile. These methods include the use of manual and automated tools,
conducting
scans of the threat environment, evaluating our and our industry’s risk profile, evaluating threats reported to us and conducting
vulnerabilities assessments.
We have company-wide policies and procedures in place that further enhance our ability to identify and manage
cybersecurity risks. Our employees receive ongoing
training under our security policies.
17
Annual risk assessments and penetration
testing are primarily performed by our internal staff, and we have not engaged any third parties in connection with such
processes
except that we have an external Management Information Systems consultant, or MIS consultant, who provides advices to our CEO in the
review of test
results. We believe these tests are useful tools for maintaining a robust cybersecurity program to protect our
investors, customers, employees, vendors, and intellectual
property. The results of these tests are presented annually to the CEO,
with support provided by our external MIS consultant, for review to ensure compliance with
cybersecurity standards.
During the fiscal year ended March 31, 2024, we
have not identified any risks from cybersecurity threats that have materially affected our business operations or
financial conditions.
Governance
Our CEO, MIS consultant, and MIS supervisor oversee
risk management to ensure that the Company’s policies and procedures are functioning as intended to protect
the Company’s
information systems from cybersecurity threats.
More specifically, MIS supervisor is responsible
for identifying and assessing cybersecurity risks on an ongoing basis, establishing processes designed to ensure that
such potential cybersecurity
risk exposures are monitored, putting in place appropriate mitigation and remediation measures, and maintaining cybersecurity programs.
Our cybersecurity programs are managed under the direction of CEO and MIS consultant, and MIS supervisor monitors the prevention, detection,
mitigation, and
remediation of cybersecurity risks. MIS supervisor regularly updates the CEO on the Company’s cybersecurity programs,
material cybersecurity risks and mitigation
strategies and provides regular cybersecurity updates.
Item 2. Properties.
Jerash Garments and Kawkab own two industrial
buildings of approximately 136,000 and 79,000 square feet, respectively, a dormitory building with a kitchen area of
approximately 195,000
square feet, and one piece of land of approximately 133,000 square feet in Al Tajamouat Industrial City. We lease additional space totaling
approximately 527,000 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 owns an office space in Hong
Kong through acquisition of Ever Winland on August 29, 2022. Prior to the acquisition, Treasure Success leased the
office space pursuant
to a tenancy agreement dated February 26, 2021. The tenancy agreement had 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. See “—Item 1. Business—Organizational Structure.”
In 2015, we commenced a project to build a 4,800
square-foot workshop in the Tafilah Governorate of Jordan and completed it in September 2021. We now use the
building as a dormitory to
house management and supervisory staff who work at the factory in Al-Hasa County as discussed below.
In 2018, we commenced another project to build
a 54,000 square-foot factory in Al-Hasa County in the Tafilah Governorate of Jordan, which started operation in
November 2019. This project
is a joint project with the Jordanian Ministry of Labor and the Employment and Training Department in Jordan. The Ministry of Labor
financed
the building of the factory and the Employment and Training Department supported 50% of the workers’ salaries, as well as transportation
and social
security costs in the first 12 months following the completion of the project. We used the factory without paying rent through
December 2022. We have continued to
use the factory without paying rent since January 2023 as new arrangements with the Jordanian Ministry
of Labor are still being made.
18
In April 2021, we commenced 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, located in Al
Tajamouat Industrial City. The construction has been completed as of the date of this annual report and our workers have started moving
in. To meet
increasing demand, we are also finalizing plans to construct an additional project on a nearby 133,000-square-foot parcel
that we purchased in 2019 for $1.2 million,
with 2/3 of the land expected to be allocated for the establishment of our seventh factory
and 1/3 for housing purposes. As of the date of this annual report, we are
working with engineering consultants to proceed with the architectural
design of these buildings. However, execution of this construction plan will depend on the
progress of the Company’s business development
and an ongoing assessment of customer order condition.
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 $7,300) for the first year, CNY60,270 (approximately $8,800) for the second year, and 5% further annual increments starting
from the third year.
On June 24, 2021, we entered into an agreement
through Jerash Garments to acquire all of the stock of an existing garment manufacturing business in order to operate
our fifth manufacturing
facility in Al Tajamouat Industrial City located in Amman, Jordan.
On July 14, 2021, Jerash Garments and the sole
shareholder of Kawkab Venus entered into an agreement, pursuant to which Jerash Garments acquired all of the
outstanding stock of Kawkab
Venus. Apart from the land and factory premises, Kawkab Venus had no other significant assets or liabilities and no operation activities
or employees at the time of acquisition, so the acquisition was accounted for an asset acquisition. As of August 21, 2022, Kawkab Venus
became a subsidiary of
Jerash Garments.
We believe the real estate 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.
19
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 27, 2024, there were 12,294,840 shares of common stock issued and outstanding held by approximately 40 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.”
In the fourth quarter of the fiscal year ended
March 31, 2024, the Company has not made any repurchases of its outstanding shares of common stock.
During the fiscal years ended March 31, 2024 and
2023, 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 2024 and 2023, and current 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.
Executive Overview
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.
20
Results of Operations
The following table presents certain information
from our consolidated statements of operations and comprehensive income (loss) for the fiscal years ended March 31,
2024 and 2023 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.
(All amounts, other than percentages, in thousands
of U.S. dollars)
Fiscal Years Ended March 31,
2024
2023
As % of
As % of
Year over Year
Statement of Income Data:
Amount
Sales
Amount
Sales
Amount
%
Revenue
$
117,187
100% $
138,063
100% $
(20,876)
(15)%
Cost of goods sold
100,285
86%
116,273
84%
(15,988)
(14)%
Gross profit
16,902
14%
21,790
16%
(4,888)
(22)%
Selling, general, and administrative expenses
17,567
15%
17,375
13%
192
1%
Other expenses, net
705
0%
331
0%
374
113%
Net (loss) income before taxation
$
(1,370)
(1)% $
4,084
3% $
(5,454)
(134)%
Income tax expense
672
1%
1,664
1%
(992)
(60)%
Net (loss) income
$
(2,042)
(2)% $
2,420
2% $
(4,462)
(184)%
Revenue. Our revenue was $117.2
million for fiscal 2024, compared to $138.1 million for fiscal 2023, a decrease of $20.9 million, or 15%, primarily due to reduced
shipments
to two of our major customers in the U.S., which is our main export market.
The following table outlines the dollar amount
and percentage of total sales to our customers for the fiscal years ended March 31, 2024 and 2023, respectively.
(All amounts, other than percentages, in thousands
of U.S. dollars)
Fiscal Year Ended
March 31,
2024
Fiscal Year Ended
March 31,
2023
Sales
Sales
Amount
%
Amount
%
VF Corporation(1)
$
78,912
67.3% $
82,661
59.9%
New Balance
13,931
11.9%
24,124
17.5%
G-III
5,773
4.9%
5,589
4.0%
Hugo Boss
2,920
2.5%
74
0.1%
Jiangsu Guotai Huasheng Industrial Co (HK)., Ltd
2,774
2.4%
9,454
6.8%
Easy Long International Limited
2,436
2.1%
-
-%
Acushnet
1,562
1.3%
88
0.1%
Others
8,879
7.6%
16,073
11.6%
Total
$
117,187
100.0% $
138,063
100.0%
(1)
A large portion of our products are sold under The North Face, Timberland, and Vans brands owned by VF Corporation.
21
Revenue by Geographic Area
(All amounts, other than percentages, in thousands
of U.S. dollars)
Fiscal Years Ended March 31,
2024
2023
Year over Year
Region
Amount
%
Amount
%
Amount
%
United States
$
102,520
88% $
122,318
89% $
(19,798)
(16)%
Hong Kong
5,208
4%
9,474
7%
(4,266)
(45)%
Germany
2,920
2%
74
0%
2,846
3,846%
Jordan
2,179
2%
4,892
3%
(2,713)
(55)%
Others
4,360
4%
1,305
1%
3,055
234%
Total
$
117,187
100% $
138,063
100% $
(20,876)
(15)%
Since January 2010, all apparel manufactured in
Jordan can be exported to the U.S. without customs duty being imposed, pursuant to the United States-Jordan Free
Trade Agreement entered
into in December 2001. This free trade agreement provides us with substantial competitiveness and benefit that allowed us to expand our
garment export business in the U.S.
The decrease of approximately 16% in sales to
the U.S. during fiscal 2024 was mainly attributable to the reduced shipments to our major customers in the U.S., which
is our main export
market. This decline was influenced by higher inflation and uncertain retail sentiment as well as the supply chain logistics disruptions
with the Red
Sea crisis.
During fiscal 2024, aggregate sales to Jordan,
Hong Kong, Germany, and other locations, such as mainland China, decreased by 7% from approximately $15.7 million
in fiscal 2023 to $14.7
million. This decline can be attributed to a decrease in shipments sent to a major customer in Hong Kong, which was not fully offset by
the
increase in sales to a customer in Germany.
Cost of goods sold. Our cost
of goods sold experienced a decrease of approximately $16.0 million to approximately $100.3 million in fiscal 2024 from approximately
$116.3 million in fiscal 2023. As a percentage of revenue, the cost of goods sold increased by approximately two percentage points to
86% in fiscal 2024 from 84% in
fiscal 2023. The increase in the cost of goods sold as a percentage of revenue was primarily attributable
to changes in the product mix of one of our major customers,
which led to more sales of lower margin items. In addition, the reduced shipments
to another U.S. customer in fiscal 2024 was only partially offset by new customers
with lower margin.
For the fiscal year ended March 31, 2024 and 2023,
we purchased approximately 10% and 11%, respectively, of our garments from one major supplier.
Gross profit margin. Our gross profit
margin was approximately 14% in fiscal 2024, representing a decrease by approximately two percentage points from 16% in
fiscal 2023. The
decrease in gross profit margin was primarily influenced by the lower margin on orders from new customers, introduced to compensate the
decrease
in shipments to our two major customers in the U.S.
Selling, general, and administrative expenses.
Selling, general, and administrative expenses increased slightly and remained almost the same at approximately $17.4
million
and $17.6 million in fiscal 2023 and fiscal 2024. The slight increase was mainly attributable to penalties of approximately $180,000
in aggregate in two legal
cases. One case was in relation to the implementation of LED facilities without completing all necessary official
procedures. The other case was in relation to the
movement of raw materials across tax zones in Jordan without prior customs notification
and completing official procedures for our cut-and-make orders.
Other expenses, net. Other
expenses, net were approximately $0.7 million in fiscal 2024, compared to other expenses, net of approximately $0.3 million in fiscal
2023. The increase in other expenses from fiscal 2023 to fiscal 2024 was primarily due to an increase in financing costs arisen from the
supply chain financing
programs of two major customers, which was only partially offset by the interest income from fixed deposit in banks.
Taxation. Income tax expenses for fiscal 2024 were approximately $0.7 million, compared to income tax expenses of approximately $1.7 million for
fiscal 2023. The
effective tax rate for fiscal 2024 decreased to -49.1%, compared to 40.7% for fiscal 2023. The decrease in the effective
tax rate mainly resulted from a higher
proportion of the operating loss of a Hong Kong subsidiary and our holding company, and the decrease
in operating profit in Jordan companies. In addition, Jordan
increased the corporate income tax rate from a combined rate of 18% as of
January 1, 2022 to 21% effective on January 1, 2024, which further reduced the effective
tax rate as we had a net operating loss in fiscal
2024.
Net loss. Net loss for fiscal 2024
was $2.0 million, compared to net profit of approximately $2.4 million for fiscal 2023. The net loss mainly attributable to lower sales
and gross margins discussed above.
22
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 and Hong
Kong subsidiaries to satisfy
our liquidity requirements. Current Jordanian regulations permit our Jordanian subsidiaries to pay dividends to us only out of their
accumulated
profits, if any, determined in accordance with Jordanian accounting standards and regulations. In addition, our Jordanian subsidiaries
are required to set
aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds. These
reserves are not distributable as cash dividends. We
have relied on direct payments of expenses by our subsidiaries 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.
As of March 31, 2024, our cash balance was approximately
$12.4 million and restricted cash was approximately $1.6 million, compared to cash of approximately
$17.8 million and restricted cash
of approximately $1.6 million as of March 31, 2023. The decrease in total cash during fiscal 2024 was primarily due to dividend
payments
of $2.5 million and payment of $4.8 million on additional property, plant, and equipment and construction of properties in fiscal 2024.
Our current assets as of March 31, 2024 were approximately
$50.9 million, and our current liabilities were approximately $14.8 million, which resulted in a current
ratio of approximately 3.4 to
1. Our current assets as of March 31, 2023 were approximately $57.3 million, and our current liabilities were approximately $14.4
million,
which resulted in a current ratio of approximately 4.0:1. For fiscal 2024, the decrease in current assets were primarily due to the decrease
in inventory and
cash, which was partially offset by the increase in accounts receivable and advances to suppliers. The decrease in current
liabilities was primarily driven by the
decrease in income tax payable and deferred revenue, which was partially compensated by the increase
in accounts payables, accruals, and other payables.
We had net working capital of $36.1 million and
$42.8 million as of March 31, 2024 and 2023, 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 from the date of this Annually
Report.
Since May and October 2021, we have participated
in supply chain financing programs of two of our major customers, respectively. The programs allow us to receive
early payments for approved
sales invoices submitted by us through the bank the customer cooperates with. For any early payments received, we are subject to an
early
payment charge imposed by the customer’s bank, for which the rate is Secured Overnight Financing Rate (“SOFR”) plus
a spread. The arrangement allows us to
have better liquidity without the need to incur administrative charges and handling fees as in
bank financing.
We have funded our working capital needs from
operations. Our working capital requirements are influenced by the level of our operations, the numerical and dollar
volume of our sales
contracts, the progress of execution on our customer contracts, and the timing of accounts receivable collections.
Credit Facilities
DBS Facility Letter
Pursuant to the DBS facility letter dated January
12, 2022, DBSHK provided a bank facility of up to $5.0 million to Treasure Success, which was amended pursuant to
a facility letter dated
January 4, 2024. Pursuant to the amended agreement, DBSHK agreed to finance cargo receipt, trust receipt, account payable financing, and
certain type of import and export invoice financing up to an aggregate of $5.0 million, subject to certain financial covenants. The DBSHK
facility bears interest at
1.5% per annum over HIBOR for HKD bills and 1.1% to 1.3% per annum over DBSHK’s cost of funds for foreign
currency bills. The facility is guaranteed by Jerash
Holdings and became available to the Company on June 17, 2022. As of March 31, 2024
and 2023, we had $nil outstanding under this DBSHK facility.
23
Fiscal Years ended March 31, 2024 and 2023
The following table sets forth a summary of our
cash flows for the fiscal years ended March 31, 2024 and 2023.
(All amounts in thousands of U.S. dollars)
For the fiscal years ended
March 31,
2024
2023
Net cash provided by operating activities
$
2,485 $
10,807
Net cash used in investing activities
(5,143)
(13,775)
Net cash used in financing activities
(2,428)
(3,953)
Effect of exchange rate changes on cash
(289)
(250)
Net decrease in cash and restricted cash
(5,375)
(7,171)
Cash and restricted cash, beginning of year
19,412
26,583
Cash and restricted cash, end of year
$
14,037 $
19,412
Supplemental disclosure information
Cash paid for interest
$
1,204 $
768
Income tax paid
$
2,253 $
1,748
Non-cash investing and financing activities
Equipment obtained by utilizing long-term deposit
$
355 $
237
Acquisition of Kawkab Venus by utilizing long-term deposit
$
- $
500
Operating lease right of use assets obtained in exchange for operating lease obligations
$
1,059 $
191
Operating Activities
Net cash provided by operating activities was
approximately $2.5 million in fiscal 2024, compared to net cash provided by operating activities of approximately $10.8
million in fiscal
2023. The decrease in net cash provided by operating activities was primarily attributable to the following factors:
●
A net loss of $2.0 million
during fiscal 2024, compared to a profit of $2.4 million during fiscal 2023;
●
An increase in accounts receivable
of $3.0 million during fiscal 2024, compared to a decrease of $8.8 million during fiscal 2023;
●
A decrease in income tax payable, current of $1.5 million during fiscal 2024, compared to an increase of $92,000 during fiscal 2023;
●
A decrease in inventory of
$5.4 million during fiscal 2024, compared to an increase of $4.4 million during fiscal 2023; and
●
An increase in advances to
suppliers of $1.6 million during fiscal 2024, compared to an increase of $0.2 million during fiscal 2023.
24
Investing Activities
Net cash used in investing activities was approximately
$5.1 million and $13.8 million for fiscal 2024 and 2023, respectively. The net cash used in investing activities
in the fiscal year ended
March 31, 2024 was used in investment in property, plant, and machinery, including construction of a dormitory and factory expansion.
The
decrease in net cash used in fiscal 2024 compared to fiscal 2023 was primarily because $7.3 million was used in the acquisition of
Ever Winland and Kawkab Venue
in fiscal 2023.
Financing Activities
Cash used in financing activities was $2.4 million
in fiscal 2024, which was primarily related to dividend payments in the period. Net cash used in financing activities
was approximately
$4.0 million for fiscal 2023, mainly due to dividend payments of approximately $2.5 million and payments for a share repurchase program
of
approximately $1.2 million.
Statutory Reserves
In accordance with the corporate Law in Jordan,
Jerash Holdings’ subsidiaries in Jordan are required to make appropriations to certain reserve funds, based on net
income determined
in accordance with generally accepted accounting principles of Jordan. Appropriations to the statutory reserve are required to be 10%
of net
income until the reserve is equal to 100% of the entity’s share capital. Jiangmen Treasure Success is required to set aside
10% of its net income as statutory surplus
reserve until such reserve is equal to 50% of its registered capital. These reserves are not
available for dividend distribution. The statutory reserve was $413,821 and
$410,847 as of March 31, 2024 and 2023, 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, 2024 and 2023.
(All amounts, other than percentages, in thousands
of U.S. dollars)
As of March 31,
2024
2023
Statutory Reserves
$
414 $
411
Total Restricted Net Assets
$
414 $
411
Consolidated Net Assets
$
64,431 $
68,234
Restricted Net Assets as Percentage of Consolidated Net Assets
0.64%
0.60%
Total restricted net assets accounted for approximately
0.64% of our consolidated net assets as of March 31, 2024. As our subsidiaries in Jordan are only required to
set aside 10% of net profits
to fund the statutory reserves, we believe the potential impact of such restricted net assets on our liquidity is limited.
Capital Expenditures
We had capital expenditures of approximately $5.1
million and $13.8 million in fiscal 2024 and 2023, respectively. For the fiscal year ended March 31, 2024,
payments for additional plant
and machinery, and construction of a dormitory and factory expansion, amounted to approximately $1.2 million and $3.6 million,
respectively.
For the fiscal year ended March 31, 2023, our capital expenditures included investments in additional plant and machinery, the construction
of a
dormitory and factory expansion, the acquisition of Kawkab Venus, and the acquisition of Ever Winland, which totaled approximately
$0.7 million, $5.1 million, $2.2
million, and $5.1 million, respectively.
25
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 with the business growth potential brought about by the
new business collaboration with Busana Apparel Group. 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). The dormitory is expected to be
fully completed in
second quarter of fiscal year 2025. We have spent approximately $9.3 million in capital expenditures to build the dormitory.
The dormitory’s kitchen is under
construction at an estimated cost of approximately $0.9 million.
We project that there will be an aggregate of
approximately $12.6 million and $14.9 million of capital expenditures in the fiscal years ending March 31, 2025 and
2026, respectively,
for further enhancement of production capacity to meet future sales growth. The realization of these investments depends on the progress
of our
business development, including expanding our client base and securing increased commitments from existing customers. We expect
that our capital expenditures will
increase in the future as our business continues to develop and expand. We have used cash generated
from operations of our subsidiaries to fund our capital
commitments in the past and anticipate using such funds to fund capital expenditure
commitments in the future.
Off-balance Sheet Commitments and Arrangements
We have not entered into any other financial guarantees
or other commitments to guarantee the payment obligations of any third parties. In addition, we have not
entered into any derivative contracts
that are indexed to our own shares and classified as 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, 2023 and 2022, please see our Annual Report on Form 10-K for the fiscal year ended
March 31, 2023,
filed with the SEC on June 28, 2023.
Critical Accounting Estimates
We prepare our consolidated financial statements
in conformity with accounting principles generally accepted by the United States of America, 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 have not identified any critical accounting
estimates.
Recent Accounting Pronouncements
See “Note 3—Recent Accounting Pronouncements”
in the notes to our audited consolidated financial statements for a discussion of recent accounting
pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
26
Item 8. Financial Statements and Supplementary Data.
JERASH HOLDINGS (US), INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Report of Independent Registered Public Accounting Firm (Marcum LLP, PCAOB ID # 688)
F-2
Consolidated Balance Sheets as of March 31, 2024 and 2023
F-3
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Fiscal Years ended March 31, 2024 and 2023
F-4
Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years ended March 31, 2024 and 2023
F-5
Consolidated Statements of Cash Flows for the Fiscal Years ended March 31, 2024 and 2023
F-6
Notes to Consolidated Financial Statements
F-7–F-25
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholders and Board of Directors of
Jerash Holdings (US), Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Jerash Holdings (US), Inc. (the “Company”) as of March 31, 2024 and 2023, the related
consolidated statements
of operations and comprehensive income (loss), changes in stockholders’ equity and cash flows for the two years in the period ended
March
31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects,
the financial position of the Company as of March 31, 2024 and 2023, and the results
of its operations and its cash flows for each of the two years in the period ended
March 31, 2024, 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 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 statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit
committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or
complex judgments. We determined that there are no critical audit matters.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2016 (such date
takes into account the acquisition of certain assets of Friedman LLP by Marcum LLP effective
September 1, 2022).
Costa Mesa, CA
June 28, 2024
F-2
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2024
March 31,
2023
ASSETS
Current Assets:
Cash
$
12,428,369 $
17,801,614
Accounts receivable, net
5,417,513
2,240,537
Bills receivable
-
87,573
Inventories
27,241,573
32,656,833
Prepaid expenses and other current assets
2,746,068
2,964,578
Advances to suppliers, net
3,086,137
1,533,091
Total Current Assets
50,919,660
57,284,226
Restricted cash – non-current
1,608,498
1,609,989
Long-term deposits
802,306
841,628
Deferred tax assets, net
158,329
153,873
Property, plant, and equipment, net
24,998,096
22,355,574
Goodwill
499,282
499,282
Operating lease right of use assets
1,259,395
974,761
Total Assets
$
80,245,566 $
83,719,333
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable
$
6,340,237 $
5,782,570
Accrued expenses
4,175,843
2,930,533
Income tax payable – current
1,647,199
2,846,201
Other payables
2,234,870
1,477,243
Deferred revenue
10,200
928,393
Operating lease liabilities – current
370,802
481,502
Total Current Liabilities
14,779,151
14,446,442
Operating lease liabilities – non-current
618,302
287,247
Income tax payable – non-current
417,450
751,410
Total Liabilities
15,814,903
15,485,099
Commitments and Contingencies (Note 16)
Equity
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; 12,534,318 shares issued, and 12,294,840 shares
outstanding
12,534
12,534
Additional paid-in capital
23,917,094
22,931,046
Treasury stock, 239,478 shares
(1,169,046)
(1,169,046)
Statutory reserve
413,821
410,847
Retained earnings
41,704,238
46,172,082
Accumulated other comprehensive loss
(492,319)
(123,229)
Total Jerash Holdings (US), Inc.’ Stockholders’ Equity
64,386,322
68,234,234
Noncontrolling interest
44,341
-
Total Equity
64,430,663
68,234,234
Total Liabilities and Equity
$
80,245,566 $
83,719,333
The accompanying notes are an integral part of these consolidated financial statements.
F-3
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
For the Fiscal Years Ended March
31
2024
2023
Revenue, net
$
117,187,340 $
138,063,309
Cost of goods sold
100,284,991
116,273,569
Gross Profit
16,902,349
21,789,740
Selling, general, and administrative expenses
16,581,256
16,960,978
Stock-based compensation expenses
986,048
413,900
Total Operating Expenses
17,567,304
17,374,878
(Loss) Income from Operations
(664,955)
4,414,862
Other Income (Expenses):
Interest expenses
(1,203,596)
(768,131)
Other income, net
499,120
437,002
Total other expenses, net
(704,476)
(331,129)
Net (loss) income before provision for income taxes
(1,369,431)
4,083,733
Income tax expenses
672,495
1,664,110
Net (loss) income
(2,041,926)
2,419,623
Net loss attributable to noncontrolling interest
36,024
-
Net (loss) income attributable to Jerash Holdings (US), Inc.’s Common Stockholders
$
(2,005,902) $
2,419,623
Net (loss) income
$
(2,041,926) $
2,419,623
Other Comprehensive Income (Loss):
Foreign currency translation loss
369,090
250,374
Total Comprehensive (Loss) Income
(2,411,016)
2,169,249
Comprehensive loss attributable to noncontrolling interest
36,024
-
Comprehensive (Loss) Income Attributable to Jerash Holdings (US), Inc.’s Common Stockholders
$
(2,374,992) $
2,169,249
(Loss) Earnings Per Share Attributable to Common Stockholders:
Basic and diluted
$
(0.16) $
0.19
Weighted Average Number of Shares
Basic
12,294,840
12,635,785
Diluted
12,294,840
12,675,351
Dividend per share
$
0.20 $
0.20
The accompanying notes are an integral part of these consolidated financial statements.
F-4
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE FISCAL YEARS ENDED MARCH 31, 2024 AND 2023
Accumulated
Other
Preferred Stock
Common Stock
Additional
Paid-in
Treasury Statutory Retained
Comprehensive
Gain
Noncontrolling
Total
Shares Amount
Shares
Amount
Capital
Stock
Reserve Earnings
(Loss)
interest
Equity
Balance at
March 31,
2022
- $
- 12,334,318 $ 12,334 $22,517,346 $
- $ 379,323 $46,268,110 $
127,145 $
- $69,304,258
-
Stock-based
compensation
expense for
the restricted
stock units
issued under
stock
incentive
plan
-
-
-
-
413,900
-
-
-
-
-
413,900
Issuance of
common
stocks upon
vesting of
restricted
stock units
-
-
200,000
200
(200)
-
-
-
-
-
-
Share
repurchase
-
-
-
-
- (1,169,046)
-
-
-
- (1,169,046)
Net income
-
-
-
-
-
-
- 2,419,623
-
- 2,419,623
Dividend
payments
-
-
-
-
-
-
- (2,484,127)
-
- (2,484,127)
Statutory
Reserve
-
-
-
-
-
-
31,524
(31,524)
-
-
-
Foreign
currency
translation
loss
-
-
-
-
-
-
-
-
(250,374)
-
(250,374)
Balance at
March 31,
2023
- $
- 12,534,318 $ 12,534 $22,931,046 $(1,169,046) $ 410,847 $46,172,082 $
(123,229) $
- $68,234,234
Balance at
March 31,
2023
- $
- 12,534,318 $ 12,534 $22,931,046 $(1,169,046) $ 410,847 $46,172,082 $
(123,229) $
- $68,234,234
Stock-based
compensation
expense for
the restricted
stock units
issued under
stock
incentive
plan
-
-
-
-
986,048
-
-
-
-
-
986,048
Allocation of
J&B shares
-
-
-
-
-
-
-
-
-
31,365
31,365
Allocation of
Jerash
Newtech
shares
-
-
-
-
-
-
-
-
-
49,000
49,000
Net loss
-
-
-
-
-
-
- (2,005,902)
-
(36,024) (2,041,926)
Dividend
payments
-
-
-
-
-
-
- (2,458,968)
-
- (2,458,968)
Statutory
Reserve
-
-
-
-
-
-
2,974
(2,974)
-
-
-
Foreign
currency
translation
loss
-
-
-
-
-
-
-
-
(369,090)
-
(369,090)
Balance at
March 31,
2024
- $
- 12,534,318 $ 12,534 $23,917,094 $(1,169,046) $ 413,821 $41,704,238 $
(492,319) $
44,341 $64,430,663
The
accompanying notes are an integral part of these consolidated financial statements.
F-5
JERASH HOLDINGS (US), INC.,
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended
March 31
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income
$
(2,041,926) $
2,419,623
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation
2,539,736
2,430,692
Stock-based compensation expenses
986,048
413,900
Bad debt recovery
(187,762)
-
Amortization of operating lease right-of-use assets
759,764
989,220
Changes in operating assets:
Accounts receivable
(2,989,214)
8,808,532
Bills receivable
87,573
(87,573)
Inventories
5,415,260
(4,401,654)
Prepaid expenses and other current assets
187,140
285,782
Advances to suppliers
(1,553,046)
(248,490)
Deferred tax assets
(4,456)
198,717
Changes in operating liabilities:
Accounts payable
557,667
942,345
Accrued expenses
1,245,310
(185,421)
Other payables
757,627
(801,574)
Deferred revenue
(918,193)
928,393
Operating lease liabilities
(824,043)
(977,584)
Income tax payable
(1,532,944)
92,226
Net cash provided by operating activities
2,484,541
10,807,134
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment
(1,241,226)
(722,770)
Payments for construction of properties
(3,600,948)
(5,084,044)
Acquisition of Ever Winland
-
(5,100,000)
Acquisition of Kawkab Venus
-
(2,200,000)
Payment for long-term deposits
(300,762)
(668,337)
Net cash used in investing activities
(5,142,936)
(13,775,151)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payments
(2,458,968)
(2,484,127)
Investment of noncontrolling interest
31,365
-
Share repurchase
-
(1,169,046)
Repayment from short-term loan
(7,545,829)
(7,197,995)
Repayment to a related party
-
(300,166)
Proceeds from short-term loan
7,545,829
7,197,995
Net cash used in financing activities
(2,427,603)
(3,953,339)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND RESTRICTED CASH
(288,738)
(250,529)
NET DECREASE IN CASH AND RESTRICTED CASH
(5,374,736)
(7,171,885)
CASH AND RESTRICTED CASH, BEGINNING OF THE YEAR
19,411,603
26,583,488
CASH AND RESTRICTED CASH, END OF THE YEAR
$
14,036,867 $
19,411,603
CASH AND RESTRICTED CASH, END OF THE YEAR
14,036,867
19,411,603
LESS: NON-CURRENT RESTRICTED CASH
1,608,498
1,609,989
CASH, END OF THE YEAR
$
12,428,369 $
17,801,614
Supplemental disclosure information:
Cash paid for interest
$
1,203,596 $
768,131
Income tax paid, net
$
2,253,410 $
1,747,635
Non-cash investing and financing activities
Equipment obtained by utilizing long-term deposit
$
354,917 $
237,412
Acquisition of Kawkab Venus by utilizing long-term deposit
$
- $
500,000
Operating lease right of use assets obtained in exchange for operating lease obligations
$
1,058,820 $
190,654
The
accompanying notes are an integral part of these consolidated financial statements.
F-6
JERASH HOLDINGS (US), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Jerash Holdings (US), Inc. (“Jerash Holdings”)
was incorporated under the laws of the State of Delaware on January 20, 2016. Jerash Holdings is a holding company
with no operations.
Jerash Holdings and its subsidiaries 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).
Jerash for Industrial Embroidery Company (“Jerash
Embroidery”) and Chinese Garments and Fashions Manufacturing Company Limited (“Chinese Garments”) were
both established
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.
Jerash Embroidery and Chinese Garments are wholly owned subsidiaries of Jerash Garments.
Al-Mutafaweq Co. for Garments Manufacturing Ltd.
(“Paramount”) is a contract garment manufacturer that was established 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 shareholder 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 established in Amman, Jordan, as a 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.
Mustafa and Kamal Ashraf Trading Company (Jordan)
for the Manufacture of Ready-Make Clothes LLC (“MK Garments”) is a garment manufacturer that was
established in Amman, Jordan,
as a limited liability company on January 23, 2003 with a declared capital of JOD 100,000. On June 24, 2021, Jerash Garments and the
sole
shareholder of MK Garments entered into an agreement, pursuant to which Jerash Garments acquired all of the outstanding stock of MK Garments.
As of October
7, 2021, MK Garments became a subsidiary of Jerash Garments.
Kawkab Venus Dowalyah Lisenaet Albesah (“Kawkab
Venus”) was established in Amman, Jordan, as a limited liability company on January 15, 2015 with a declared
capital of JOD 50,000.
It holds land with factory premises, which are leased to MK Garments. On July 14, 2021, Jerash Garments and the sole shareholder of Kawkab
Venus entered into an agreement, pursuant to which Jerash Garments acquired all of the outstanding stock of Kawkab Venus. Apart from the
land and factory
premises, Kawkab Venus had no other significant assets or liabilities and no operation activities or employees at the
time of acquisition, so the acquisition was
accounted for an asset acquisition. As of August 21, 2022, Kawkab Venus became a subsidiary
of Jerash Garments.
Treasure Success International Limited (“Treasure
Success”) was organized on July 5, 2016 in Hong Kong, the People’s Republic of China (“China”), as a limited
liability
company for the primary purpose of employing staff from China to support Jerash Garments’ operations and is a wholly owned subsidiary
of Jerash Holdings.
Ever Winland Limited (“Ever Winland”)
was organized in Hong Kong, China, as a limited liability company. It holds office premises, which are leased to Treasure
Success. On
June 22, 2022, Treasure Success and the shareholders of Ever Winland entered into an agreement, pursuant to which Treasure Success acquired
all of the
outstanding stock of Ever Winland. Apart from the office premises used by Treasure Success, Ever Winland had no other significant
assets or liabilities and no
operating activities or employees at the time of this acquisition, so this transaction was accounted for
as an asset acquisition. As of August 29, 2022, Ever Winland
became a subsidiary of Treasure Success.
F-7
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS (CONTINUED)
J&B International Limited (“J&B”)
is a joint venture company established in Hong Kong on January 10, 2023. On March 20, 2023, Treasure Success and P. T. Eratex
(Hong Kong)
Limited entered into a Joint Venture and Shareholders’ Agreement, pursuant to which Treasure Success acquired 51% of the equity
interests in J&B on
April 11, 2023. The declared capital is HK$500,000 (approximately $64,000). J&B engages in the garment trading
and manufacturing business for orders from
customers.
Jerash Newtech (Hong Kong) Holdings Limited (“Jerash
Newtech”) is a joint venture company established in Hong Kong on November 3, 2023. On October 10,
2023, Treasure Success and Newtech
Textile (HK) Limited entered into a Joint Venture and Shareholder’s Agreement to establish a new joint venture for the
establishment
of a fabric facility in Jordan. On November 3, 2023, Jerash Newtech was established according to the aforementioned Joint Venture and
Shareholder’s
Agreement. Treasure Success owns 51% of the equity interests in Jerash Newtech. The Company plans to invest approximately
$29.9 million to establish the fabric
facility in Jordan. Treasure Success and Newtech Textile (HK) Limited will contribute capital in
two installments according to their respective shareholding
proportions and conditions. The declared capital of Jerash Newtech is $100,000.
Jiangmen Treasure Success Business Consultancy
Company Limited (“Jiangmen Treasure Success”) was organized on August 28, 2019 under the laws of 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 sportswear and outerwear and personal protective equipment
(“PPE”) produced in its
facilities in Jordan and sold in the United States, Jordan, and other countries.
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”).
The consolidated financial statements include
the financial statements of Jerash Holdings, its wholly owned subsidiaries, and two non-wholly owned subsidiaries.
Non-wholly owned subsidiaries are entities that
the reporting parent entity does not own equity interests in full. Noncontrolling interest is evaluated with a depiction
of the portion
of a non-wholly owned subsidiary’s net assets, net income, and net comprehensive income that is attributable to holders of equity
classified ownership
interests other than the reporting parent entity. As mentioned in Note 1, the Company holds 51% of equity interest
in J&B and Jerash Newtech through its wholly
owned subsidiary, Treasure Success. The Company consolidates J&B and Jerash Newtech
and reports noncontrolling interest to reflect the portion of their equity that
is not attributable to the Company as the controlling
shareholder. As of March 31, 2024, noncontrolling interest was $44,341.
All significant intercompany balances and transactions have been eliminated
in consolidation.
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. 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, 2024 and 2023, 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, labor import requirements, and other
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-8
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable, Net
Accounts receivable are recognized and carried
at the original invoiced amount less an estimated allowance for credit loss. The Company usually grants extended
payment terms to customers
with good credit standing and determines the adequacy of credit losses based on the historical level of credit losses, current economic
trends, and reasonable and supportable forecasts that affect the collectability of the future cash flows.
Inventories
Inventories are stated at the lower of cost or
net realizable value. Inventories include the 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 of the suppliers becomes doubtful. At each reporting date, the Company
generally determines the
adequacy of impairment by evaluating all available information, and then records specific allowances for those
advances based on the specific facts and
circumstances.
Credit Loss
On April 1, 2023, the Company adopted Accounting
Standards Update (“ASU”) 2016-13 “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit
Losses
on Financial Instruments,” by using a modified retrospective transition method, which replaces the incurred loss impairment methodology
with an expected
loss methodology that is referred to as the current expected credit loss methodology. The expected credit loss impairment
model requires the entity to recognize its
estimate of expected credit losses for affected financial assets using an allowance for credit
losses and requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. The adoption
of ASU 2016-13 did not have a material impact on the Company’s financial statements.
The Company’s accounts receivable and other
receivables which are included in prepaid expenses and other current assets line item in the consolidated balance sheet
are within the
scope of ASC Topic 326. The Company measures expected credit losses of account receivables and other receivables, on a collective basis
when similar
risk characteristics exist. The Company makes estimates of expected credit and collectability trends for the allowance for
credit losses based upon assessment of
various factors, including historical experience, the age of the receivables, creditworthiness
of the customers and other debtors, current economic conditions,
reasonable and supportable forecasts of future economic conditions, and
other factors that may affect its ability to collect from the customers and other debtors. The
Company also provides specific provisions
for allowance when facts and circumstances indicate that the receivable is unlikely to be collected.
Expected credit losses are included in general
and administrative expenses in the consolidated statements of income operations and comprehensive income (loss).
After all attempts to
collect a receivable have failed, the receivable is written off against the allowance.
Property, Plant, and Equipment, net
Property, plant, and equipment are recorded at
cost, reduced by accumulated depreciation. Depreciation and amortization expense related to property, plant, and
equipment is computed
using the straight-line method based on the estimated useful lives of the assets, or in the case of leasehold improvements, the shorter
of the
initial lease term or the estimated useful life of the improvements. The useful life and depreciation method are reviewed periodically
to ensure that the method and
period of depreciation are consistent with the expected pattern of economic benefits from items of property,
plant, and equipment. The estimated useful lives of
depreciation and amortization of the principal classes of assets are as follows:
Useful life
Land
Infinite
Property and buildings
15-25 years
Equipment and machinery
3-5 years
Office and electronic equipment
3-5 years
Automobiles
5 years
Leasehold improvements
Lesser of useful life and
lease term
F-9
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
that 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
operations and comprehensive income
(loss).
Construction in Progress (“CIP”) is
recorded at cost for property, plant, and equipment where the asset is in construction or development. CIP accumulates the cost of
construction
and transaction costs involved in the process of acquiring the materials for construction or development. The Company does not commence
depreciating
the asset in the CIP account because the asset has not yet been placed in service. Once an asset is placed in service, all
costs associated with the asset that is recorded
in the CIP account are transferred to property, plant, and equipment for the asset.
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 that 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, 2024 and 2023.
Asset Acquisition
An asset acquisition is an acquisition
of an asset, or a group of assets, that does not meet the definition of a business, as substantially all of the fair value of the gross
assets acquired are concentrated in a single or group of similar, identifiable assets. Asset acquisitions are accounted for by using the
cost accumulation model,
whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired
on a relative fair value basis. Determining and valuing
intangible assets requires judgment.
Goodwill
Goodwill represents the excess purchase price
paid over the fair value of the net assets of acquired companies. Goodwill is not amortized. As of March 31, 2024 and
2023, the carrying
amount of goodwill was both $499,282. Goodwill is tested for impairment on an annual basis, or in interim periods if indicators of potential
impairment exist, based on the one reporting unit. The Company has the option to perform a qualitative assessment to determine whether
it is necessary to perform the
quantitative goodwill impairment test. When performing the quantitative impairment test, the Company compares
the fair value of its only reporting unit with the
carrying amounts. The Company would recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value. The
Company concluded that no impairment of its goodwill occurred
for the fiscal years ended March 31, 2024 and 2023.
F-10
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 has minimal incremental costs of obtaining a contract, which are expensed
when incurred. The cost is normally immaterial. 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 14
to 150 days of the invoice date. The contracts do not have significant financing components. Shipping and handling costs associated
with
outbound freight from Jordan export dock are not an obligation of the Company. Returns and allowances are not a significant aspect of
the revenue recognition
process as historically they have been immaterial.
The Company also derives revenue from rendering
cutting and making services to other apparel vendors who subcontract orders 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 to
the accounts receivable from customers is not contingent on a future event. The Company had contract liabilities of $10,200 and $928,393
as of March 31, 2024 and 2023, respectively. For the fiscal years ended March 31, 2024 and 2023, there was no revenue recognized from performance
obligations
satisfied in prior periods. As of March 31, 2024, $10,200 deferred revenue was expected to be recognized within fiscal 2025.
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 15—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 $1,748,317 and $1,856,218 for the
fiscal
years ended March 31, 2024 and 2023, respectively.
Income and Sales Taxes
The Company is subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled. Jerash Holdings
and Jerash Supplies
are incorporated/formed in the State of Delaware and are subject to federal income tax in the United States of America. Treasure Success,
Ever
Winland, J&B and Jerash Newtech are registered in Hong Kong and are subject to profit tax in Hong Kong. Jiangmen Treasure Success
is incorporated in China and is
subject to corporate income tax in China. Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount,
Jerash The First, MK Garments, and Kawkab Venus
are subject to income tax in Jordan, unless an exemption is granted. In accordance with
Development Zone law, Jerash Garments and its subsidiaries were subject to
corporate income tax in Jordan at a rate of 18% plus a 1% social
contribution starting from January 1, 2022 to December 31, 2022. The income tax rate increased to
19% or 20% plus a 1% social contribution
starting from January 1, 2023. Effective January 1, 2024, the income tax rate increased to 20%, plus a 1% social
contribution.
F-11
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income and Sales Taxes (continued)
Jerash Garments and its subsidiaries are subject
to a 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, which allowed Jerash Garments to make purchases with no sales tax charge. The exemption
has been extended to February 5, 2025.
The Company accounts for income taxes in accordance
with ASC 740, “Income Taxes,” which requires the Company to use the asset and liability method of
accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by
applying
enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases of
existing assets and
liabilities and operating loss and tax credit carry forwards. Under this accounting standard, the effect on deferred
income taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance is
recognized if it is more likely than not that some portion, or all of, a deferred tax asset
will not be realized.
ASC 740 clarifies the accounting for uncertainty
in tax positions. This interpretation requires that an entity recognize in its financial statements the impact of a tax
position, if that
position is more likely than not to be 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 (loss) and
comprehensive income (loss). No significant uncertainty in tax positions relating to income taxes was
incurred during the fiscal years
ended March 31, 2024 and 2023.
Foreign Currency Translation
The reporting currency of the Company is the U.S.
dollar (“US$” or “$”). The Company uses JOD in Jordan companies, HKD in Treasure Success, Ever Winland,
J&B,
and Jerash Newtech, and Chinese Yuan (“CNY”) in Jiangmen Treasure Success as functional currency of each above-mentioned entity.
The assets and liabilities
of the Company have been translated into US$ using the exchange rates in effect at the balance sheet date,
equity accounts have been translated at historical rates, and
revenue and expenses have been translated into US$ using average exchange
rates in effect during the reporting period. Cash flows are also translated at average
translation rates for the periods. Therefore, amounts
related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree
with changes in the
corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from
period to
period are included as a separate component of accumulated other comprehensive income or loss. Transaction gains and losses
that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional currency are included in
the consolidated statements of operations and comprehensive
income (loss) as incurred, and the total amount of transaction gains and losses
were immaterial as of the fiscal years ended March 31, 2024 and 2023.
The value of JOD against US$ and other currencies
may fluctuate and is affected by, among other things, changes in Jordan’s political and economic conditions. Any
significant revaluation
of JOD, HKD, and CNY may materially affect the Company’s financial condition in terms of US$ reporting. The following table outlines
the
currency exchange rates that were used in creating the consolidated financial statements in this report:
March 31,
2024
March 31,
2023
Period-end spot rate
US$1=JOD0.7090 US$1=JOD0.7090
US$1=HKD7.8243 US$1=HKD7.8496
US$1=CNY7.2190 US$1=CNY6.8666
Average rate
US$1=JOD0.7090 US$1=JOD0.7090
US$1=HKD7.8240 US$1=HKD7.8383
US$1=CNY7.1501 US$1=CNY6.8506
F-12
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation
The Company measures compensation expense for
stock-based awards based upon the awards’ initial grant-date fair value. The estimated grant-date fair value of the
award is recognized
as expense over the requisite service period using the straight-line method.
The Company estimates the fair value of stock
options using a Black-Scholes model. This model is affected by the Company’s stock price on the date of the grant as
well as assumptions
regarding a number of variables. These variables include the expected term of the option, expected risk-free rates of return, the expected
volatility
of the Company’s common stock, and expected dividend yield, each of which is more fully described below. The assumptions
for expected term and expected
volatility are the two assumptions that significantly affect the grant date fair value.
●
Expected Term: the expected
term of a warrant or a stock option is the period of time that the warrant or a stock option is expected to be outstanding.
●
Risk-free Interest Rate: the
Company bases the risk-free interest rate used in the Black-Scholes model on the implied yield at the grant date of the U.S.
Treasury
zero-coupon issued with an equivalent term to the stock-based award being valued. Where the expected term of a stock-based award does
not
correspond with the term for which a zero-coupon interest rate is quoted, the Company uses the nearest interest rate from the available
maturities.
●
Expected Stock Price Volatility: the Company utilizes the expected volatility of the Company’s common stock over the same period of time as the life of the
warrant or stock option. When the Company’s own stock volatility information is unavailable for such a period of time, the Company utilizes comparable
public company volatility.
●
Dividend Yield: Stock-based compensation awards granted prior to November 2018 assumed no dividend yield, while any subsequent stock-based
compensation awards will be valued using the anticipated dividend yield.
Earnings or Loss 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 14–(Loss) Earnings per Share”).
Comprehensive Income or Loss
Comprehensive income or loss consists of two components,
net income or loss and other comprehensive income or loss. The foreign currency translation gain or loss
resulting from translations of
the financial statements expressed in JOD or HKD or CNY to US$ is reported in other comprehensive income or loss in the consolidated
statements
of operations and comprehensive income (loss).
F-13
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, accounts receivable, bills receivables, other current
assets, 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, 2024 and 2023 based upon the short-term nature of these assets and liabilities.
Concentrations and Credit Risk
Credit risk
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash. As of March 31, 2024 and 2023,
respectively, $6,547,090
and $7,264,247 of the Company’s cash were 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, 2024
and 2023, respectively, $518,485
and $172,939 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 $69,262) per bank is covered by “deposit insurance regulation”
promulgated by the State Council of the People’s Republic of China. As of March 31, 2024 and
2023, respectively, $6,682,404 and
$11,700,512 of the Company’s cash were 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 creditworthiness. As of March 31, 2024 and 2023, respectively, $267,954 and $171,496 of the Company’s
cash were 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 changes in 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, 2024 and 2023, two customers accounted for 67% and 12%, and 60% and 17% of
the Company’s total revenue,
respectively. As of March 31, 2024, four end-customers accounted for 23%, 23%, 10%, and 10%, respectively,
of the Company’s total accounts receivable balance. As
of March 31, 2023, four end-customers accounted for 50%, 13%, 10%, and 10%,
respectively, of the Company’s total accounts receivable balance.
F-14
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the fiscal years ended March 31, 2024 and
2023, the Company purchased approximately 10% and 11%, respectively, of its total purchase from one major garment
supplier. As of March
31, 2024, accounts payable to the Company’s two major suppliers accounted for 22% and 13% of the total accounts payable balance,
respectively. As of March 31, 2023, accounts payable to the Company’s one major supplier accounted for 36% 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, foreign currency exchange, and the recent conflict between
Israel and Hamas. 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.
Since the inception of the turmoil in the Middle
East, the Company has been closely monitoring the situation and keeping its customers informed. Currently,
production is ongoing as usual,
with no changes to customer orders or commitments, and both ports that the Company uses for import and export, in Aqaba and Haifa,
are
operating normally. In order to provide flexibility, the Company has also begun using the Port of Jebel Ali in the United Arab Emirates
as an alternative route for
raw material import since December 2023. However, in the event of any potential impact on the ports, the Company
has prepared a contingency plan, approved by its
major customers, to temporarily relocate production to alternate regions.
Reclassification
Certain prior period amounts have been reclassified
to conform to the current period presentation. Such reclassifications had no effect on net income or cash flow as
previously reported.
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments—Credit
Losses,” which will require 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. Subsequently, the FASB issued ASU No. 2018-19,
Codification Improvements to Topic 326, to clarify that
receivables arising from operating leases are within the scope of lease accounting
standards. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-
10, ASU 2019-11, and ASU 2020-02 to provide additional guidance
on the credit losses standard. For the Company as an emerging growth company, the amendments
for ASU 2016-13 are effective for fiscal
years beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASUs is on a
modified retrospective
basis. The Company has adopted this ASU since April 1, 2023. The Company considers the impact on its consolidated financial statements
and
related disclosures to be immaterial.
In December 2023, the FASB issued ASU 2023-09,
“Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which modifies the rules on income tax
disclosures to
require disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income
taxes paid. The standard is
intended to benefit investors by providing more detailed income tax disclosures that would be useful in making
capital allocation decisions. The guidance is effective
for annual periods beginning after December 15, 2024, with early adoption permitted.
ASU 2023-09 should be applied on a prospective basis, but retrospective
application is permitted. The Company is currently evaluating
the potential impact of adopting this new guidance on its consolidated financial statements and related
disclosures.
F-15
In November 2023, the FASB issued ASU 2023-07,
“Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to
improve reportable segment
disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The purpose of the amendment is to
enable investors to better understand an entity’s overall performance and assess potential future cash flows. The guidance is effective
for fiscal years beginning after
December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early
adoption permitted. The guidance is to be applied
retrospectively to all prior periods presented in the financial statements. Based on
management’s assessment, the Company has determined that it has only one
operating segment as defined by ASC 280.
Except for the above-mentioned pronouncements,
there are no new recently issued accounting standards that will have a material impact on the consolidated financial
position, statements
of operations, and cash flows.
NOTE 4 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
As of
As of
March 31,
2024
March 31,
2023
Trade accounts receivable
$
5,451,334 $
2,462,120
Less: allowances for credit loss
33,821
221,583
Accounts receivable, net
$
5,417,513 $
2,240,537
NOTE 5 – INVENTORIES
Inventories consisted of the following:
As of
As of
March 31,
2024
March 31,
2023
Raw materials
$
14,664,823 $
15,240,198
Work-in-progress
3,097,031
2,932,519
Finished goods
9,479,719
14,484,116
Total inventory
$
27,241,573 $
32,656,833
As of March 31, 2024 and 2023, the Company had
$nil inventory valuation reserve as the Company arranged its inventory based on 99.9% and 93.4% with actual
orders received, respectively.
0.1% and 6.6% of inventories held on hand were associated with unfulfilled sales orders, respectively.
NOTE 6 – ADVANCE TO SUPPLIERS, NET
Advance to suppliers consisted of the following:
As of
As of
March 31,
2024
March 31,
2023
Advance to suppliers
$
3,086,137 $
1,533,091
Less: allowances for credit loss
-
-
Advance to suppliers, net
$
3,086,137 $
1,533,091
NOTE 7 – LEASES
The Company has 45 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 measurement 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. ROU assets and
related lease obligations are recognized at the 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.
F-16
NOTE 7 – LEASES (CONTINUED)
Supplemental balance sheet information related to operating leases
was as follows:
March 31,
2024
Operating lease right of use assets
$
1,259,395
Operating lease liabilities – current
$
370,802
Operating lease liabilities – non-current
618,302
Total operating lease liabilities
$
989,104
The weighted average remaining lease terms and
discount rates for all of operating leases were as follows as of March 31, 2024:
Remaining lease term and discount rate:
Weighted average remaining lease term (years)
2.4
Weighted average discount rate
6.10%
During the fiscal years ended March 31, 2024 and
2023, the Company incurred total operating lease expenses of $2,561,861 and $2,696,593, respectively.
The following is a schedule, by fiscal years, of maturities of lease
liabilities as of March 31, 2024:
2025
$
599,970
2026
475,019
2027
275,443
2028
9,281
2029
—
Thereafter
—
Total lease payments
1,359,713
Less: imputed interest
(100,318)
Less: prepayments
(270,291)
Present value of lease liabilities
$
989,104
NOTE 8 – PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment, net consisted of the following:
As of
As of
March 31,
2024
March 31,
2023
Land(3)
$
2,200,334 $
2,200,334
Property and buildings(3)
10,540,962
9,308,426
Equipment and machinery
12,529,813
11,853,445
Office and electric equipment
1,086,203
992,735
Automobiles
1,333,823
871,756
Leasehold improvements
4,380,202
4,088,980
Subtotal
32,071,337
29,315,676
Construction in progress (1)(2)
$
9,550,778
7,182,367
Less: Accumulated depreciation and amortization
(16,624,019)
(14,142,469)
Property, plant, and equipment, net
$
24,998,096 $
22,355,574
(1) In January 2022, the Company commenced a construction project of an expansion of the Company’s own premises in Al Tajamouat Industrial City, Jordan.
Through December 31, 2023, the Company had paid approximately JOD 874,000 (approximately $1,233,000). The project was completed and the Company
started to use it in July 2023.
F-17
NOTE 8 – PROPERTY, PLANT, AND EQUIPMENT,
NET (CONTINUED)
(2) In April 2022, the Company commenced a construction project to build
a dormitory for employees. The construction is built on a land of 4,516 square meters
(approximately 48,608 square feet) in Al Tajamouat
Industrial City, Jordan, which was acquired by the Company in 2020. Through March 31, 2024, the Company
had spent approximately JOD 6.6
million (approximately $9.3 million) for the dormitory construction. Dormitory’s kitchen is under construction at an estimated
cost
of JOD 650,000 (approximately $920,000), and approximately JOD 195,000 (approximately $274,000) has been spent. The dormitory is expected
to be fully
completed in second quarter of fiscal year 2025.
(3) In August 2022, the Company completed the acquisitions of Ever Winland and Kawkab Venus. Ever Winland holds office premises of HKD 39.6 million
(approximately $5.1 million), which are classified as property and buildings. Kawkab Venus holds land with factory premises, which are classified as land and
property and buildings of approximately $370,000 and approximately $2.3 million, respectively. Ever Winland and Kawkab Venus only contain fixed assets
(buildings and land) and neither of these two entities had any other assets or liabilities, operations, or employees as of their respective acquisition dates, so the
acquisitions of Ever Winland and Kawkab Venus were accounted as asset acquisitions.
For the fiscal year ended March 31, 2024 and 2023,
depreciation expenses were $2,539,736 and $2,430,692, respectively.
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, 2024 and 2023. 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 12,294,840 shares of common stock
outstanding as of March 31, 2024 and 2023.
On June 24, 2021, the Board of Directors approved
the grant of 200,000 Restricted Stock Units (“RSUs”) under the Plan to 32 executive officers and employees of the
Company,
with a one-year vesting period. All RSUs were vested and 200,000 additional shares were issued on June 30, 2022.
On June 13, 2022, the Board of Directors authorized
a share repurchase program, under which the Company may repurchase up to $3.0 million of its outstanding
shares of common stock. The share
repurchase program was effective through March 31, 2023. As of March 31, 2024, 239,478 shares had been repurchased at market
rate with
a total consideration of $1,169,046.
Statutory Reserve
In accordance with the Corporate Law in Jordan,
Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash The First, and MK Garments and
Kawkab Venus 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.
Dividends
During the fiscal year ended March 31, 2024, the
Board of Directors declared a cash dividend of $0.05 per share of common stock on February 5, 2024, November 3,
2023, August 4, 2023,
and May 23, 2023, respectively. Four cash dividends of $614,742 each were paid in full on February 16, 2024, November 28, 2023, August
23,
2023, and June 9, 2023, respectively.
During the fiscal year ended March 31, 2023, the
Board of Directors declared a cash dividend of $0.05 per share of common stock on February 3, 2023, November 4,
2022, August 5, 2022,
and May 16, 2022, respectively. The cash dividends of $618,886, $621,809, $626,716, and $616,716 were paid in full on February 21, 2023,
November 28, 2022, August 24, 2022, and June 3, 2022, respectively.
F-18
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. The major assumptions used in the
Black
Scholes model include: (i) an expected term of five years; (ii) a risk-free interest rate of 1.8% to 2.8%; and (iii) an expected
volatility of 50.3% to 52.2%. All of the
outstanding warrants were fully vested. 137,210 and 57,200 warrants expired in fiscal 2023 and
2024, respectively.
All stock warrants activities are summarized as follows:
Option to
Weighted
Average
Acquire
Shares
Exercise
Price
Stock warrants outstanding at March 31, 2023
57,200 $
8.75
Granted
-
-
Exercised
-
-
Expired
(57,200)
8.75
Stock warrants outstanding at March 31, 2024
- $
-
Stock Options
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. On March 31, 2024, the Company had 114,110 of shares remaining
available for future issuance under the Plan.
All stock option activities are summarized as
follows:
Option to
Weighted
Average
Acquire
Shares
Exercise
Price
Stock options outstanding at March 31, 2023
1,136,500 $
6.90
Granted
-
-
Exercised
-
-
Expired
(986,500)
7.00
Stock options outstanding at March 31, 2024
150,000 $
6.25
All these outstanding options were fully vested
in three equal six-month installments and exercisable. As of March 31, 2024, there were 986,500 stock options expired
and 150,000 stock
options outstanding. The remaining stock options have 10-year term and the weighted average remaining life of the options is 4.8 years.
F-19
NOTE 10 – STOCK-BASED COMPENSATION (CONTINUED)
Restricted Stock Units
On June 24, 2021, the Board of Directors approved
the grant of 200,000 RSUs under the Plan to 32 executive officers and employees of the Company, with a one-year
vesting period. The fair
value of these RSUs on June 24, 2021 was $1,266,000, based on the market price of the Company’s common stock as of the date of the
grant.
On June 30, 2022, all 200,000 RSUs were vested.
On February 9, 2023, the Board of Directors approved
the grant of 405,800 RSUs under the Plan to 37 executive officers and employees of the Company, with a two-
year vesting period. The fair
value of these RSUs on February 15, 2023 was $1,937,695, based on the market price of the Company’s common stock as of the date
of
the grant. As of March 31, 2024, there were $846,775 unrecognized stock-based compensation expenses to be recognized to February 2025
and 405,100 RSUs
remained.
On March 25, 2024, the Board of Directors approved
the grant of 915,040 RSUs under the Plan to 35 executive officers and employees of the Company, with a three-
year vesting period. The
fair value of these RSUs on March 25, 2024 was $2,745,120, based on the market price of the Company’s common stock as of the date
of the
grant. As of March 31, 2024, there were $2,727,571 unrecognized stock-based compensation expenses to be recognized to March 2027
and 915,040 RSUs remained.
RSU activities are summarized as follows:
Number of
Shares
Weighted-
Average
Grant
Date Fair
Value Per
Share
RSU outstanding at March 31, 2023
405,100 $
4.78
Granted
915,040 $
3.00
Vested
-
-
Forfeited
-
-
RSU outstanding at March 31, 2024
1,320,140 $
3.55
Total expenses related to the RSU issued were
$986,048 and $413,900 for the fiscal years ended March 31, 2024 and 2023, respectively.
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
Yukwise Limited (“Yukwise”)
Wholly owned by the Company’s President, Chief Executive Officer,
Chairman, and a significant stockholder
Consulting Services
Multi-Glory Corporation Limited
(“Multi-Glory”)
Wholly owned by a significant stockholder
Consulting Services
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. Total consulting fees under this agreement were $300,000 for the fiscal years ended March 31, 2024 and
2023.
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. Total consulting fees under this agreement were $300,000 for the fiscal years ended March 31, 2024 and 2023.
F-20
NOTE 12 – CREDIT FACILITIES
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, 2024 and 2023, the
Company had $nil outstanding amount in import invoice financing under the SCBHK facility. In June 2022,
the Company was informed by SCBHK that the facility
was cancelled due to persistently low usage and zero loan outstanding.
Starting from May and October 2021, the Company
has participated in a financing program with two customers, in which the Company may receive early payments
for approved sales invoices
submitted by the Company through the bank the customer cooperates with. For any early payments received, the Company is subject to an
early payment charge imposed by the customer’s bank, for which the rate is revised based on Secured Overnight Financing Rate (“SOFR”)”)
plus a spread. In certain
scenarios, the Company submits the sales invoice and receives payments prior to the shipment of the relative
products. In that case, instead of recording the cash
receipts as a reduction to accounts receivables, the Company records the cash receipts
as receipts in advance from a customer until products are entitled to transfer.
The Company records the early payment charge in interest
expenses on the consolidated statements of operations and comprehensive income (loss). For the fiscal
years ended March 31, 2024 and 2023,
the early payment charge was $1,122,019 and $647,906, respectively.
On January 12, 2022, DBS Bank (Hong Kong) Limited
(“DBSHK”) offered to provide a banking facility of up to $5.0 million to Treasure Success pursuant to a
facility letter dated
January 12, 2022, which was amended pursuant to a facility letter dated January 4, 2024. Pursuant to the amended facility, DBSHK agreed
to
finance cargo receipt, trust receipt, account payable financing, and certain types of import and export invoice financing up to an
aggregate of $5.0 million, with certain
financial covenants. The DBSHK facility bears interest at 1.5% per annum over Hong Kong Interbank
Offered Rate for HKD bills and 1.1% to 1.3% per annum over
DBSHK’s cost of funds for foreign currency bills. The facility is guaranteed
by Jerash Holdings and became available to the Company on June 17, 2022.
As of March 31, 2024 and 2023, the Company had
$nil outstanding amount under the DBSHK facility. The DBSHK facility is reviewed annually.
On June 1, 2023, the Company received documents
from Capital Bank of Jordan for a credit facility of $10 million, and entered into the credit facility after reviewing
the documents.
Execution is still in process and the credit facility is not effective as of the date of this Annual report.
NOTE 13 – NONCONTROLLING INTEREST
On March 20, 2023, Treasure Success and P.T. Eratex
(Hong Kong) Limited entered into a Joint Venture and Shareholders’ Agreement, pursuant to which Treasure
Success and P.T Eratex
(Hong Kong) Limited acquired 51% and 49% of the equity interest in J&B, respectively, on April 11, 2023.
On October 10, 2023, Treasure Success and Newtech
Textile (HK) Limited entered into a Joint Venture and Shareholders’ Agreement, pursuant to which Treasure
Success and Newtech Textile
(HK) Limited acquired 51% and 49% of the equity interest in Jerash Newtech, respectively, on November 3, 2023.
The net loss generated by J&B and Jerash Newtech was $66,836 and
$6,682 for the fiscal year ended March 31, 2024, respectively. Noncontrolling interest as of
March 31, 2024 in J&B and Jerash Newtech
was -$1,385 and $45,726, respectively.
F-21
NOTE 14 – (LOSS) EARNINGS PER SHARE
The following table sets forth the computation
of basic and diluted (loss) earnings per share for the fiscal years ended March 31, 2024 and 2023. As of March 31,
2024, 1,470,140 RSUs
and stock options were outstanding. For the fiscal year ended March 31, 2024, all RSUs and stock options were excluded from the EPS
calculation
as the result would be anti-dilutive. For the fiscal year ended March 31, 2023, 1,193,700 warrants and stock options were excluded from
the EPS
calculation, respectively, as they were anti-dilutive.
Fiscal Year Ended
March 31,
(in $000s except share and
per share information)
2024
2023
Numerator:
Net (loss) income attributable to Jerash Holdings (US), Inc.’s Common Stockholders
$
(2,005) $
2,420
Denominator:
Denominator for basic earnings per share (weighted-average shares)
12,294,840
12,635,785
Dilutive securities – unexercised warrants and options
-
39,566
Denominator for diluted earnings per share (adjusted weighted-average shares)
12,294,840
12,675,351
Basic and diluted (loss) earnings per share
$
(0.16) $
0.19
NOTE 15 – SEGMENT REPORTING
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, 2024 and 2023, outerwear accounted for approximately 90.1%
and 94.1% of total revenue,
respectively. 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, 2024 and 2023, respectively.
For the Fiscal Year Ended
March 31,
2024
2023
United States
$
102,520,412 $
122,318,376
Hong Kong
5,208,334
9,474,112
Germany
2,919,845
74,063
Jordan
2,179,492
4,891,883
Others
4,359,257
1,304,875
Total
$
117,187,340 $
138,063,309
74.4% and 24.9% of long-lived assets were located
in Jordan and Hong Kong, respectively, as of March 31, 2024.
F-22
NOTE 16 - COMMITMENTS AND CONTINGENCIES
Commitments
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, 2024, Treasure Success had made a capital contribution of HKD 10
million (approximately $1.3 million). 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.
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 17 – INCOME TAX
Jerash Garments, Jerash Embroidery, Chinese Garments,
Paramount, Jerash the First, MK Garments, and Kawkab Venus are subject to the regulations of the Income
Tax Department in Jordan. 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 were subject to income tax at an income tax rate of
18% or 20% plus a 1%
social contribution between January 1, 2022 and December 31, 2022. The income tax rate increased to 19% or 20% plus
a 1% social contribution starting from
January 1, 2023. Effective January 1, 2024, the income tax rate increased to 20%, 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 a tax on previously untaxed accumulated earnings and
profits (“E&P”) of foreign
subsidiaries (the “Toll Charge”). The Toll Charge is based in part on 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.
As of March 31, 2024, the Company has two
years of installments remaining with total amounting to $751,410. 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.
F-23
NOTE 17 – INCOME TAX (CONTINUED)
The provision for income taxes consisted of the
following:
For the fiscal years ended
March 31,
2024
2023
Domestic
and foreign components of (loss) income before income taxes
Domestic
$
(2,189,825) $
(1,761,439)
Foreign
820,394
5,845,172
Total
$
(1,369,431) $
4,083,733
For the fiscal years ended
March 31,
2024
2023
Provision (benefit) for income taxes
Current tax:
U.S. federal
$
— $
—
U.S. state and local
750
750
Foreign
676,201
1,464,643
Total Current Tax
676,951
1,465,393
Deferred tax:
U.S. federal
(4,456)
198,717
Total deferred tax
(4,456)
198,717
Total tax
$
672,495 $
1,664,110
Effective tax rates
-49.1%
40.7%
F-24
NOTE 17 – INCOME TAX (CONTINUED)
A reconciliation of the effective tax rate was as follows:
For the fiscal years ended
March 31,
2024
2023
Tax at statutory rate
$
(287,581) $
857,052
State tax, net of federal benefit
593
593
Non-deductible expenses
202,789
85,589
Non-taxable income
—
—
Global Intangible Low-Taxed Income, (net)
527,733
846,116
Tax Credits
(274,877)
(558,642)
Foreign tax rate differential
503,917
237,688
Foreign tax attributes
(793,383)
(1,372,649)
Change in Valuation Allowance
793,383
1,372,649
Provision to return adjustments
(79)
195,714
Total
$
672,495 $
1,664,110
The Company’s deferred tax assets and liabilities
as of March 31, 2024 and 2023 consisted of the following:
Deferred tax assets
As of
March 31,
2024
As of
March 31,
2023
Stock-based compensation
$
158,557 $
154,227
Deferred tax liabilities
(228)
(354)
Net operating losses carried forward
2,166,032
1,372,649
Less: valuation allowance
(2,166,032)
(1,372,649)
Deferred tax assets, net
$
158,329 $
153,873
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, 2024 and 2023, the allowance for deferred tax assets was $2,166,032 and $1,372,649 respectively. The allowance is provided for net
operating loss of foreign subsidiaries. For comparison purposes, the Company retrospectively revised the presentation of net operating
loss as of March 31, 2023,
which had been fully reserved and thus has no impact on the financial statements as a whole.
As of March 31, 2024, the Company had cumulative
book-tax basis differences in its foreign subsidiaries of approximately $15.0 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 $3.2 million. As of March 31, 2024 and 2023, there were no
uncertain tax positions.
The Company files income tax returns in the U.S.
federal, state 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 April 1, 2017.
NOTE 18 – SUBSEQUENT EVENTS
On May 21, 2024, the Board of Directors approved
the payment of a dividend of $0.05 per share, payable on June 7, 2024, to stockholders of record as of the close of
business as of May
31, 2024.
F-25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
There has been no change in independent accountants
for our Company during the two most recent fiscal years or any subsequent interim period except as previously
reported in our Current
Report on Form 8-K filed with the SEC on September 23, 2022. There have been no disagreements of the type required to be disclosed by
Item 304(b) of Regulation S-K.
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, 2024, concluded that our disclosure controls and procedures were ineffective as described below in the Internal Control
over Financial
Reporting section.
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, 2024. 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, 2023, our internal control over financial reporting was not effective due to
certain material
control weaknesses, including:
-
We failed to maintain effective controls over period-end
financial reporting, specifically related to income taxes and the reconciliation of account level
balances that resulted in errors; and
-
There were ineffective information technology general controls
in the areas of privileged user access and the review of user access over certain information
technology systems that support our financial
reporting processes.
Remedial actions have then been implemented to
address some of the issues. However, in the assessment in fiscal 2024, the management still concluded that, as of
March 31, 2024, our
internal control over financial reporting was not effective due to certain material control weaknesses particularly that we failed to
maintain
effective controls over period-end financial reporting related to income taxes and the reconciliation of account level balances
that resulted in errors.
The Company plans to put in more resources to
strengthen the internal control environment and will enhance the communication with external consultants who are
assisting the Company
in taxation and management information systems. Details of implementation will be provided in the quarterly report on Form 10-Q for the
quarter ending June 30, 2024.
Attestation report of the registered public
accounting firm
This Annual Report on Form 10-K does not include
an attestation report of our registered public accounting firm due to an exemption for “non-accelerated filers.”
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, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
During the three months ended March 31, 2024,
no director or officer of the Company adopted, modified, or terminated a “Rule 10b5-1 trading agreement; or a “non-
Rule 10b5-1
trading agreement’ as each term is defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections.
Not Applicable.
27
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
In response to this Item, the information set
forth in our Proxy Statement for our 2024 Annual Meeting of Stockholders (the “2024 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 2024 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 as of June 8, 2024.
Equity Compensation Plan Information
(a)
(b)
(c)
Plan Category
Number of
securities to
be issued
upon
exercise of
outstanding
options,
warrants and
rights
Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
Equity compensation plans approved by security holders
150,000 $
6.25
114,110
Equity compensation plans not approved by security holders
- $
-
-
Total
150,000 $
6.25
114,110
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 2024 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 2024 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 2024 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.
28
PART IV
Item 15. Exhibit and Financial Statement Schedules
(a) Financial Statements
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
Description
Location
3.1
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
3.2
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
4.1
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
4.2
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+
Unified Work Contract for Migrant Workers, dated May 1, 2023, by and
between Jerash Garments and Fashions Manufacturing Company Limited
and Wei Yang
Incorporated herein by reference to Exhibit 10.1 to the Annual Report on
Form 10-K, filed with the SEC on June 28, 2023
10.2+
Consulting Agreement, dated January 12, 2018, by and between Treasure
Success and Yukwise Limited
Incorporated herein by reference to Exhibit 10.1 to the Form 8-K, filed
with the SEC on January 16, 2018
10.3+
Consulting Agreement, dated January 16, 2018, by and between Treasure
Success and Multi-Glory Corporation Ltd.
Incorporated herein by reference to Exhibit 10.18 to the Form S-1, filed
with the SEC on January 18, 2018
10.4+
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
10.5+
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
10.6+
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
10.7+
Employment Agreement dated November 27, 2019 by and between Jerash
Holdings and Gilbert K. Lee
Incorporated herein by reference to Exhibit 10.1 to the Form 8-K, filed
with the SEC on December 2, 2019
10.8
Director Offer Letter dated June 15, 2020 by and between Jerash Holdings
and Bill Korn
Incorporated herein by reference to Exhibit 10.1 to the Current Report on
Form 8-K, filed with the SEC on June 15, 2020
10.9+
Option Award Agreement dated November 27, 2019 by and between
Jerash Holdings and Gilbert K. Lee
Incorporated herein by reference to Exhibit 10.2 to the Form 8-K, filed
with the SEC on December 2, 2019
10.10+
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
29
10.11
Factory Lease Agreement dated January 1, 2021 between Jiangmen
Treasure Success and Guangdong Huadian Technology Industry Co., Ltd.
Incorporated herein by reference to Exhibit 10.20 to the Annual Report on
Form 10-K, filed with the SEC on June 23, 2021
10.12+
Letter of Employment dated April 22, 2022 between Treasure Success and
Choi Lin Hung
Incorporated herein by reference to Exhibit 10.1 to the Current Report on
Form 8-K, filed with the SEC on April 28, 2022
10.13+
Letter of Employment dated April 22, 2022 between Treasure Success and
Ng Tsze Lun
Incorporated herein by reference to Exhibit 10.2 to the Current Report on
Form 8-K, filed with the SEC on April 28, 2022
10.14
Facility Letter dated January 12, 2022 by and between Treasure Success
and DBS Bank (Hong Kong) Limited
Incorporated herein by reference to Exhibit 10.18 to the Annual Report on
Form 10-K, filed with the SEC on June 27, 2022
10.15
Purchase and Sale Agreement dated June 22, 2022 by and between
Treasure Success and Wong Bing Lun and Chow Lai Ming
Incorporated herein by reference to Exhibit 10.19 to the Annual Report on
Form 10-K, filed with the SEC on June 27, 2022
10.16
Joint Venture and Shareholder’s Agreement dated March 20, 2023 by and
between Treasure Success and P.T. Eratex
Incorporated herein by reference to Exhibit 10.1 to the Current Report on
Form 8-K, filed with the SEC on March 21, 2023
10.17
The Shareholders’ Agreement dated October 10, 2023 by and between
Treasure Success and Newtech Textile (HK) Limited
Incorporated herein by reference to Exhibit 10.1 to the Current Report on
Form 8-K, filed with the SEC on October 12, 2023
10.18
Banking Facilities dated January 4, 2024, by and between Treasure
Success and DBSHK
Incorporated herein by reference to Exhibit 10.2 to the Quarterly Report
on Form 10-Q, filed with the SEC on February 8, 2024
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
19.1
Insider Trading Policy
Filed herewith
21.1
Subsidiaries of Jerash Holdings (US), Inc.
Filed herewith
23.1
Consent of Marcum LLP
Filed herewith
31.1
Certification of Principal Executive Officer pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Certification of Principal Financial Officer pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002
Filed herewith
32.1*
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
32.2*
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
97.1
Compensation Recovery Policy
Filed herewith
101.INS
Inline XBRL Instance Document
Filed herewith
101.SCH
Inline XBRL Taxonomy Extension Schema Document
Filed herewith
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Filed herewith
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Filed herewith
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
Filed herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained
in Exhibit 101)
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.
30
SIGNATURES
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.
JERASH HOLDINGS (US), INC.
Date: June 28, 2024
By:
/s/ Gilbert K. Lee
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 28,
2024.
Signature
Title
/s/ Choi Lin Hung
Chairman, Chief Executive Officer, President and Treasurer
Choi Lin Hung
(Principal Executive Officer)
/s/ Gilbert K. Lee
Chief Financial Officer (Principal Financial Officer and
Gilbert K. Lee
Principal Accounting Officer)
/s/ Wei Yang
Vice President, Secretary, and Director
Wei Yang
/s/ Bill Korn
Director
Bill Korn
/s/ Ibrahim H. Saif
Director
Ibrahim H. Saif
/s/ Mak Chi Yan
Director
Mak Chi Yan
31
Exhibit
19.1
Insider
Trading Compliance Manual
Jerash
Holdings (US), Inc.
Adopted
June 22, 2022
In
order to take an active role in the prevention of insider trading violations by its officers, directors, employees, consultants, advisors,
and other related
individuals, the Board of Directors (the “Board”) of Jerash Holdings (US), Inc., a Delaware corporation
(the “Company”), has adopted the policies and procedures
described in this Insider Trading Compliance Manual.
I. Adoption
of Insider Trading Policy.
Effective
as of the date written above, the Company has adopted the Insider Trading Policy (the “Policy”), which prohibits trading
based on material,
nonpublic information regarding the Company and its subsidiaries (“Inside Information”). The Policy
covers all officers and directors of the Company and its
subsidiaries, all other employees of the Company and its subsidiaries, all secretaries
and assistants supporting such officers, directors, or employees and consultants or
advisors to the Company or its subsidiaries who have
or may have access to Inside Information and members of the immediate family or household of any such
person. The Policy (and/or a summary
thereof) is to be delivered to all new officers, directors, employees, consultants, advisors and related individuals who are within
the
categories of covered persons upon the commencement of their relationships with the Company, and is to be circulated to all covered personnel
at least annually.
II. Designation
of Certain Persons.
A. Insiders
Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) prohibits “short-swing”
profits by all directors and
executive officers of the Company, and direct or indirect beneficial owner of 10% or more of the Company’s
any class of any equity security (collectively, the
“Insiders”) and such insiders in addition to any beneficial owners
of 5% or more of the Company’s any class of registered securities are subject to the reporting and
liability provisions of Section
13(d) of the Securities Exchange and the rules and regulations promulgated thereunder (collectively, the “Section 13(d) Individuals”).
Under
Sections 13(d) and 13(g) of the Exchange Act, and the Securities and Exchange Commission’s (the “SEC”) related
rules, subject to certain
exemptions, any person who after acquiring, directly or indirectly the beneficial ownership of a certain class
of equity securities, becomes, either directly or indirectly,
the beneficial owner of more than 5% of such class must deliver a statement
to the issuer of the security and to each exchange where the security is traded. Delivery to
each exchange can be satisfied by making
a filing on EDGAR. In addition, Section 13(d) Individuals must file with the SEC a statement containing certain
information, as well
as any additional information that the SEC may deem necessary or appropriate in the public interest or for the protection of investors.
Attached
hereto as Exhibit A is a separate memorandum which discusses the relevant terms of Section 13.
1
B. Other
Persons Subject to Policy. In addition, certain employees, consultants, and advisors of the Company as described in Section I
above have, or are
likely to have, from time to time access to Inside Information and together with the Insiders, are subject to the
Policy.
III. Appointment
of Chief Compliance Officer.
The
Company has appointed Gilbert K. Lee as the Company’s Chief Compliance Officer (the “Compliance Officer”).
IV. Duties
of the Compliance Officer.
The
Compliance Officer has been designated by the Board to handle any and all matters relating to the Company’s insider trading compliance
program.
Certain of those duties may be delegated to outside counsel with special expertise in securities issues and relevant law. The
duties of the Compliance Officer shall
include the following:
A. Pre-clearing
all transactions involving the Company’s securities by the Insiders and those individuals having regular access to Inside Information,
defined
for these purposes to include all officers, directors, and employees of the Company and its subsidiaries and members of the immediate
family or household of any
such person, in order to determine compliance with the Policy, insider trading laws, Section 13 and Section
16 of the Exchange Act and Rule 144 promulgated under
the Securities Act of 1933, as amended. Attached hereto as Exhibit C is
a Pre-Clearance Checklist to assist the Compliance Officer in the performance of his or her
duties hereunder.
B. Assisting
in the preparation and filing of Section 13(d) reports for all Section 13(d) Individuals although the filings are their individual obligations.
C. Serving
as the designated recipient at the Company of copies of reports filed with the SEC by Section 13(d) Individuals under Section 13(d) of
the
Exchange Act.
D. Performing
periodic reviews of available materials, which may include Schedule 13D, Schedule 13G, Form 144, officers’ and directors’
questionnaires, as
applicable, and reports received from the Company’s stock administrator and transfer agent, to determine trading
activity by officers, directors and others who have, or
may have, access to Inside Information.
E. Circulating
the Policy (and/or a summary thereof) to all covered employees, including the Insiders, on an annual basis, and providing the Policy
and other
appropriate materials to new officers, directors and others who have, or may have, access to Inside Information.
F. Assisting
the Board in implementing the Policy and Sections I and II of this manual.
G. Coordinating
with Company counsel regarding all securities compliance matters.
H. Retaining
copies of all appropriate securities reports, and maintaining records of his or her activities as Compliance Officer.
2
ACKNOWLEDGMENT
I
hereby acknowledge that I have received a copy of Jerash Holdings (US), Inc.’s Insider Trading Compliance Manual (the “Insider
Trading Manual”).
Further, I certify that I have reviewed the Insider Trading Manual, understand the policies and procedures
contained therein and agree to be bound by and adhere to
these policies and procedures.
Dated:
Name:
3
JERASH
HOLDINGS (US), INC.
INSIDER
TRADING POLICY
and
Guidelines with Respect to Certain Transactions in Company Securities
SECTION
I
APPLICABILITY
OF POLICY
This
Policy applies to all transactions in the Company’s securities, including common stock, options and warrants to purchase shares
of common stock, and
any other securities the Company may issue from time to time, such as preferred stock, and convertible debentures,
as well as derivative securities relating to the
Company’s stock, whether or not issued by the Company, such as exchange-traded
options. It applies to all officers and directors of the Company, all other employees
of the Company and its subsidiaries, all secretaries
and assistants supporting such directors, officers, and employees, and consultants or advisors to the Company or its
subsidiaries who
have or may have access to Material Nonpublic Information (as defined below) regarding the Company and members of the immediate family
or
household of any such person. This group of people is sometimes referred to in this Policy as “Insiders.” This Policy
also applies to any person who receives Material
Nonpublic Information from any Insider.
Any
person who possesses Material Nonpublic Information regarding the Company is an Insider for so long as such information is not publicly
known.
SECTION
II
DEFINITION
OF MATERIAL NONPUBLIC INFORMATION
It
is not possible to define all categories of material information. However, information should be regarded as “material” if
there is a reasonable likelihood
that it would be considered important to an investor in making an investment decision regarding the
purchase or sale of the Company’s securities. Material
information may be positive or negative. “Nonpublic information”
is information that has not been previously disclosed to the general public and is otherwise not
available to the general public.
While
it may be difficult to determine whether particular information is material, there are various categories of information that are particularly
sensitive
and, as a general rule, should always be considered material. Examples of such information may include:
●
Financial
results;
●
Entry
into a material agreement or discussions regarding entry into a material agreement;
●
Projections
of future earnings or losses;
●
Major
contract awards, cancellations or write-offs;
●
Joint
ventures or commercial ventures with third parties;
●
News
of a pending or proposed merger or acquisition;
●
News
of the disposition of material assets;
●
Impending
bankruptcy or financial liquidity problems;
●
Gain
or loss of significant line of credit;
●
New
business or services announcements of a significant nature;
4
●
Stock
splits;
●
New
equity or debt offerings;
●
Significant
litigation exposure due to actual or threatened litigation;
●
Changes
in senior management or the Board;
●
Capital
investment plans; and
●
Changes
in dividend policy.
All
of the foregoing categories of information and any similar information should be considered “Material Nonpublic Information”
for purposes of this
Policy. If there are any questions regarding whether a particular item of information is Material Nonpublic Information,
please consult the Compliance
Officer or the Company’s legal counsel before taking any action with respect to such information.
SECTION
III
CERTAIN
EXCEPTIONS
For
purposes of this Policy, the Company considers that the exercise of stock options under the Company’s stock incentive plan (but
not the sale of any such
shares) is exempt from this Policy, since the other party to the transaction is the Company itself and
the price does not vary with the market but is fixed by the terms of
the option agreement or the plan.
SECTION
IV
STATEMENT
OF POLICY
General
Policy
It
is the policy of the Company to prohibit the unauthorized disclosure of any nonpublic information acquired in the workplace and the misuse
of Material
Nonpublic Information in securities trading.
Specific
Policies
1. Trading
on Material Nonpublic Information. With certain exceptions, no officer or director of the Company, no employee of the Company
or its
subsidiaries and no consultant or advisor to the Company or any of its subsidiaries and no members of the immediate family or
household of any such person, shall
engage in any transaction involving a purchase or sale of the Company’s securities, including
any offer to purchase or offer to sell, during any period commencing
with the date that he or she possesses Material Nonpublic Information
concerning the Company, and ending at the close of business on the second Trading Day
following the date of public disclosure of that
information, or at such time as such nonpublic information is no longer material. However, see “Permitted Trading
Period”
below for a full discussion of trading pursuant to a pre-established plan or by delegation.
As
used herein, the term “Trading Day” shall mean a day on which national stock exchanges are open for trading.
5
2. Tipping.
No Insider shall disclose (“tip”) Material Nonpublic Information to any other person (including family members)
where such information may be
used by such person to his or her profit by trading in the securities of companies to which such information
relates, nor shall such Insider or related person make
recommendations or express opinions on the basis of Material Nonpublic Information
as to trading in the Company’s securities.
Regulation
FD (Fair Disclosure) is an issuer disclosure rule implemented by the SEC that addresses selective disclosure. The regulation provides
that when
the Company, or person acting on its behalf, discloses material nonpublic information to certain enumerated persons (in general,
securities market professionals and
holders of the Company’s securities who may well trade on the basis of the information), it
must make public disclosure of that information. The timing of the
required public disclosure depends on whether the selective disclosure
was intentional or unintentional: for an intentional selective disclosure, the Company must
make public disclosures simultaneously; for
a non-intentional disclosure, the Company must make public disclosure promptly. Under the regulation, the required
public disclosure
may be made by filing or furnishing a Form 8-K, or by another method or combination of methods that is reasonably designed to effect
broad, non-
exclusionary distribution of the information to the public.
It
is the Company’s policy that all communications with the press be handled through its CEO or investor/public relations firm. Please
refer all press, analyst
or similar requests for information to the Company’s CEO and do not respond to any inquiries without prior
authorization from the Company’s CEO. If the
Company’s CEO is unavailable, the Company’s CFO will fill this role.
3. Confidentiality
of Nonpublic Information. Nonpublic information relating to the Company is the property of the Company and the unauthorized
disclosure
of such information (including, without limitation, via email or by posting on Internet message boards or blogs, anonymously or otherwise)
is strictly
forbidden.
4. Duty
to Report Inappropriate and Irregular Conduct. All employees, and particularly executives, managers and/or supervisors, have
a responsibility
for maintaining financial integrity within the Company, consistent with generally accepted accounting principles and
both federal and state securities laws. Any
employee who becomes aware of any incidents involving financial or accounting manipulation
or irregularities, whether by witnessing the incident or being told of it,
must report it to their immediate supervisor and to the chairman
of the Company’s Audit Committee of the Board (or to the Chairman of the Board, if an Audit
Committee has not been established).
For a more complete understanding of this issue, employees should consult their employee manual and or seek the advice of the
Company’s
general counsel or outside counsel. Our outside securities counsel is Hunter Taubman Fischer & Li LLC, attention: Ying Li, Esq. at
(212) 530-2206, email
yli@htflawyers.com.
6
SECTION
V
POTENTIAL
CRIMINAL AND CIVIL LIABILITY
AND/OR
DISCIPLINARY ACTION
1. Liability
for Insider Trading. Insiders may be subject to penalties of up to $1,000,000 and up to ten (10) years in jail for engaging in
transactions in the
Company’s securities at a time when they possess Material Nonpublic Information regarding the Company, regardless
of whether such transactions were profitable. In
addition, the SEC has the authority to seek a civil monetary penalty of up to three
times the amount of profit gained or loss avoided by illegal insider trading. “Profit
gained” or “loss avoided”
generally means the difference between the purchase or sale price of the Company’s stock and its value as measured by the trading
price of
the stock a reasonable period after public dissemination of the nonpublic information.
2. Liability
for Tipping. Insiders may also be liable for improper transactions by any person (commonly referred to as a “tippee”)
to whom they have
disclosed Material Nonpublic Information regarding the Company or to whom they have made recommendations or expressed
opinions on the basis of such
information as to trading in the Company’s securities. The SEC has imposed large penalties even when
the disclosing person did not profit from the trading. The SEC,
the stock exchanges and the Financial Industry Regulatory Authority,
Inc. use sophisticated electronic surveillance techniques to monitor all trades and uncover
insider trading.
3. Possible
Disciplinary Actions. Individuals subject to the Policy who violate this Policy shall also be subject to disciplinary action
by the Company, which
may include suspension, forfeiture of perquisites and ineligibility for future participation in the Company’s
equity incentive plans and/or termination of employment.
SECTION
VI
PERMITTED
TRADING PERIOD
1. Black-Out
Period and Trading Window.
To
ensure compliance with this Policy and applicable federal and state securities laws, the Company requires that all officers, directors,
employees, and all
members of the immediate family or household of any such person refrain from conducting any transactions involving
the purchase or sale of the Company’s
securities, other than during the period in any fiscal quarter commencing at the close of
business on the second Trading Day following the date of public disclosure of
the financial results for the prior fiscal quarter or year
and ending on the twenty-fifth day of the third month of the fiscal quarter (the “Trading Window”).
Notwithstanding
the foregoing, persons subject to this Policy may submit a request to the Company to purchase or sell the Company’s securities
outside the Trading
Window on the basis that they do not possess any Material Nonpublic Information. The Compliance Officer shall review
all such requests and may grant such requests
on a case-by-case basis if he or she determines that the person making such request does
not possess any Material Nonpublic Information at that time.
7
If
such public disclosure occurs on a Trading Day before the markets close, then such date of disclosure shall be considered the first Trading
Day following
such public disclosure. For example, if such public disclosure occurs at 1:00 p.m. EST on June 10, then June 10 shall be
considered the first Trading Day following
such disclosure.
Please
be advised that these guidelines are merely estimates. The actual trading window may be different because the Company’s quarterly
report
may be filed earlier or later. The filing date of a quarterly report may fall on a weekend or the Company may delay filing
a quarterly report due to an extension.
Please check with the Compliance Officer to confirm whether the trading window is open.
The
safest period for trading in the Company’s securities, assuming the absence of Material Nonpublic Information, is generally the
first ten Trading Days of
the Trading Window. It is the Company’s policy that the period when the Trading Window is “closed”
is a particularly sensitive periods of time for transactions in the
Company’s securities from the perspective of compliance with
applicable securities laws. This is because officers, directors and certain other employees are, as any
quarter progresses, increasingly
likely to possess Material Nonpublic Information about the expected financial results for the quarter. The purpose of the Trading
Window
is to avoid any unlawful or improper transactions or even the appearance of any such transactions.
It
should be noted that even during the Trading Window, any person possessing Material Nonpublic Information concerning the Company shall
not engage in
any transactions in the Company’s securities until such information has been known publicly for at least two Trading
Days. The Company has adopted the policy of
delaying trading for “at least two Trading Days” because the securities laws
require that the public be informed effectively of previously undisclosed material
information before Insiders trade in the Company’s
stock. Public disclosure may occur through a widely disseminated press release or through filings, such as Form 8-
K, with the SEC. Furthermore,
in order for the public to be effectively informed, the public must be given time to evaluate the information disclosed by the Company.
Although the amount of time necessary for the public to evaluate the information may vary depending on the complexity of the information,
generally two Trading
Days is a sufficient period of time.
From
time to time, the Company may also require that directors, officers, selected employees, and others suspend trading because of developments
known to
the Company and not yet disclosed to the public. In such event, such persons may not engage in any transaction involving the
purchase or sale of the Company’s
securities during such period and may not disclose to others the fact of such suspension of trading.
Although
the Company may from time to time require during a Trading Window that directors, officers, selected employees, and others suspend trading
because of developments known to the Company and not yet disclosed to the public, each person is individually responsible at all
times for compliance with the
prohibitions against insider trading. Trading in the Company’s securities during the Trading Window
should not be considered a “safe harbor,” and all directors,
officers and other persons should use good judgment at
all times.
Notwithstanding
these general rules, Insiders may trade outside of the Trading Window provided that such trades are made pursuant to a pre-established
plan
or by delegation; these alternatives are discussed in the next section.
8
2. Trading According to a Pre-established Plan or by Delegation.
Trading
which is not “on the basis of” material non-public information may not give rise to insider trading liability. The SEC has
adopted Rule 10b5-1 under
which insider trading liability can be avoided if Insiders follow very specific procedures. In general, such
procedures involve trading according to pre-established
instructions (a “Pre-established Trade”).
Pre-established
Trades must:
(a) Be
documented by a contract, written plan, or formal instruction which provides that the trade take place in the future. For example,
an
Insider can contract to sell his or her shares on a specific date, or simply delegate such decisions to an investment manager, 401(k)
plan
administrator or similar third party. This documentation must be provided to the Compliance Officer;
(b) Include
in its documentation the specific amount, price and timing of the trade, or the formula for determining the amount, price and
timing.
For example, the Insider can buy or sell shares in a specific amount and on a specific date each month, or according to a pre-established
percentage (of the Insider’s salary, for example) each time that the share price falls or rises to pre-established levels. In the
case where trading
decisions have been delegated, the specific amount, price and timing need not be provided;
(c) Be
implemented at a time when the Insider does not possess material non-public information. As a practical matter, this means that the
Insider may set up Pre-established Trades, or delegate trading discretion, only during a “Trading Window” (discussed
in Section 1, above); and,
(d) Remain
beyond the scope of the Insider’s influence after implementation. In general, the Insider must allow the Pre-established Trade
to be
executed without changes to the accompanying instructions, and the Insider cannot later execute a hedge transaction that modifies
the effect of the
Pre-established Trade. An Insider wishing to change the amount, price or timing of a Pre-established Trade, or terminate
a Pre-established Trade,
can do so only during a “Trading Window” (discussed in Section 1, above). If the Insider
has delegated decision-making authority to a third party,
the Insider cannot subsequently influence the third party in any way and such
third party must not possess material non-public information at the
time of any of the trades.
Prior
to implementing a pre-established plan for trading, all officers and directors must receive the approval for such plan from the Compliance
Officer.
9
3. Pre-Clearance
of Trades.
Even
during a Trading Window, all officers, directors, employees, as well as members of the immediate family or household of such individuals,
must
comply with the Company’s “pre-clearance” process prior to trading in the Company’s securities, implementing
a pre-established plan for trading, or delegating
decision-making authority over the Insider’s trades. To do so, each officer and
director must contact the Compliance Officer prior to initiating any of these actions.
Trades executed pursuant to a properly implemented
Pre-Established Plan approved by the Compliance Officer do not need to be pre-cleared. The Company may also
find it necessary, from time
to time, to require compliance with the pre-clearance process from certain individuals other than those mentioned above.
4. Individual
Responsibility.
As
Insiders, every person subject to this Policy has the individual responsibility to comply with this Policy against insider trading, regardless
of whether the
Company has established a Trading Window applicable to that Insider or any other Insiders of the Company. Each individual,
and not necessarily the Company, is
responsible for his or her own actions and will be individually responsible for the consequences
of their actions. Therefore, appropriate judgment, diligence and
caution should be exercised in connection with any trade in the Company’s
securities. An Insider may, from time to time, have to forego a proposed transaction in the
Company’s securities even if he or
she planned to make the transaction before learning of the Material Nonpublic Information and even though the Insider believes he
or
she may suffer an economic loss or forego anticipated profit by waiting.
5. Exceptions
to the Policy.
Any
exceptions to this Policy may only be made by advance written approval of each of: (i) the CEO, (ii) the Compliance Officer and (iii)
the Chairman of
the Audit Committee of the Board (or the Chairman of the Board of Directors if an Audit Committee has not been established).
Any such exceptions shall be
immediately reported to the remaining members of the Board.
SECTION
VII
APPLICABILITY
OF POLICY TO INSIDE INFORMATION
REGARDING
OTHER COMPANIES
This
Policy and the guidelines described herein also apply to Material Nonpublic Information relating to other companies, including the Company’s
customers, vendors or suppliers or potential acquisition targets (“business partners”), when that information is obtained
in the course of employment or performance
of other services on behalf of the Company. Civil and criminal penalties, as well as termination
of employment, may result from trading on inside information
regarding the Company’s business partners. All employees should treat
Material Nonpublic Information about the Company’s business partners with the same care as
is required with respect to information
relating directly to the Company.
SECTION
VIII
PROHIBITION
AGAINST BUYING AND SELLING
COMPANY
COMMON STOCK WITHIN A SIX-MONTH PERIOD
Insiders
Generally,
purchases and sales (or sales and purchases) of Company common stock occurring within any six-month period in which a mathematical profit
is
realized result in illegal “short-swing profits.” The prohibition against short-swing profits is found in Section 16 of
the Exchange Act. Section 16 was drafted as a
rather arbitrary prohibition against profitable “insider trading” in a company’s
securities within any six-month period regardless of the presence or absence of material
nonpublic information that may affect the market
price of those securities. Each executive officer, director and 10% or greater stockholder of the Company is subject
to the prohibition
against short-swing profits under Section 16. The measure of damages is the profit computed from any purchase and sale or any sale and
purchase
within the short-swing (i.e., six-month) period, without regard to any setoffs for losses, any first-in or first-out rules,
or the identity of the shares of common stock.
This approach sometimes has been called the “lowest price in, highest price out”
rule and can result in a realization of “profits” for Section 16 purposes even when the
insider has suffered a net loss on
his or her trades.
SECTION
IX
INQUIRIES
Please
direct your questions as to any of the matters discussed in this Policy to the Compliance Officer.
10
Exhibit 21.1
Subsidiaries of the Registrant
Subsidiaries
Place of Incorporation
Treasure Success International Limited
Hong Kong
Jerash Garments and Fashions Manufacturing Co., Ltd.
Jordan
Chinese Garments and Fashions Manufacturing Co., Ltd.
Jordan
Jerash for Industrial Embroidery Company Limited
Jordan
Al-Mutafaweq Co. for Garments Manufacturing Ltd.
Jordan
Jerash The First Medical Supplies Manufacturing Company Limited
Jordan
Mustafa and Kamal Ashraf Trading Company (Jordan) for the Manufacture of Ready-Make Clothes LLC
Jordan
Kawkab Venus Dowalyah Lisenaet Albesah
Jordan
Jiangmen Treasure Success Business Consultancy Co., Ltd.
PRC
Jerash Supplies, LLC
Delaware
Ever Winland Limited
Hong Kong
J&B International Limited
Hong Kong
Jerash Newtech (Hong Kong) Holdings Limited
Hong Kong
Exhibit 23.1
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in
the Registration Statements of Jerash Holdings (US), Inc. on Form S-3 (File No. 333-258447, File No. 333-264265
and 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 28, 2024 with
respect
to our audits of the consolidated financial statements as of March 31, 2024 and 2023 and for the years ended March 31, 2024 and 2023,
which report is
included in this Annual Report on Form 10-K of Jerash Holdings (US), Inc. for the year ended March 31, 2024.
/s/ Marcum llp
Marcum llp
Costa Mesa, CA
June 28, 2024
Exhibit
31.1
CERTIFICATION
OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
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 28, 2024
/s/
Choi Lin Hung
Choi Lin Hung
Chairman of the Board of Directors,
Chief Executive Officer, President, and Treasurer
(Principal Executive Officer)
Exhibit
31.2
CERTIFICATION
OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
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 28, 2024
/s/
Gilbert K. Lee
Gilbert K. Lee
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
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, 2024 (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 28, 2024
/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.
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
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, 2024 (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 28, 2024
/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.
Exhibit 97.1
JERASH
HOLDINGS (US), INC. COMPENSATION RECOVERY POLICY
Effective
November 27, 2023
In
accordance with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Exchange Act
Rule 10D-1, and the listing standards of
the national securities exchange (the “Exchange”) on which the securities
of Jerash Holdings (US), Inc. (the “Company”) are listed, the Company’s Board of
Directors (the “Board”)
has adopted this Compensation Recovery Policy (the “Policy”).
Capitalized
terms used in the Policy are defined in Section I below. The application of the Policy to Executive Officers is not discretionary,
except to the limited extent
provided in Section G below, and applies without regard to whether an Executive Officer was at fault.
A.
Persons
Covered by the Policy
The
Policy is binding and enforceable against all Executive Officers. Each Executive Officer will be required to sign and return to the Company
an acknowledgement
that such Executive Officer will be bound by the terms and comply with the Policy. The failure to obtain such acknowledgement
will have no impact on the
applicability or enforceability of the Policy.
B.
Administration
of the Policy
The
Compensation Committee of the Board (the “Committee”) has full-delegated authority to administer the Policy. The Committee
is authorized to interpret and
construe the Policy and to make all determinations necessary, appropriate, or advisable for the administration
of the Policy. In addition, if determined in the discretion
of the Board, the Policy may be administered by the independent members of
the Board or another committee of the Board made up of independent members of the
Board, in which case all references to the Committee
will be deemed to refer to such independent members of the Board or such other Board committee. All
determinations of the Committee will
be final and binding and will be given the maximum deference permitted by law.
C.
Accounting
Restatements Requiring Application of the Policy
If
the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting
requirement under
the securities laws, including any required accounting restatement to correct an error in previously issued financial
statements that is material to the previously issued
financial statements, or that would result in a material misstatement if the error
were corrected in the current period or left uncorrected in the current period (an
“Accounting Restatement”), then
the Committee must determine the excess compensation, if any, that must be recovered (the “Excess Compensation”).
The
Company’s obligation to recover Excess Compensation is not dependent on if or when the restated financial statements are filed.
D.
Compensation
Covered by the Policy
The
Policy applies to all Incentive-Based Compensation Received by an Executive Officer:
(a) after
beginning service as an Executive Officer;
(b) who
served as an Executive Officer at any time during the performance period for that Incentive-Based
Compensation;
(c) while
the Company has a class of securities listed on the Exchange;
(d) during
the three completed fiscal years immediately preceding the Accounting Restatement Determination
Date. In addition to these last three completed
fiscal years, the Policy must apply to any
transition period (that results from a change in the Company’s fiscal year) within
or immediately following
those three completed fiscal years. However, a transition period
between the last day of the Company’s previous fiscal year end and the first day of
the
Company’s new fiscal year that comprises a period of nine to 12 months would be
deemed a completed fiscal year; and
(e) on
or after October 2, 2023.
E.
Excess
Compensation Subject to Recovery of the Policy
Excess
Compensation is the amount of Incentive-Based Compensation Received that exceeds the amount of Incentive-Based Compensation that otherwise
would
have been Received had such Incentive-Based Compensation been determined based on the restated amounts (this is referred to in
the listings standards as
“erroneously awarded incentive-based compensation”) and must be computed without regard to any
taxes paid.
To
determine the amount of Excess Compensation for Incentive-Based Compensation based on stock price or total shareholder return, where
it is not subject to
mathematical recalculation directly from the information in an Accounting Restatement, the amount must
be based on a reasonable estimate of the effect of the
Accounting Restatement on the stock price or total shareholder return upon which
the Incentive-Based Compensation was Received and the Company must maintain
documentation of the determination of that reasonable estimate
and provide the documentation to the Exchange.
F.
Repayment
of Excess Compensation
The
Company must recover Excess Compensation reasonably promptly and Executive Officers are required to repay Excess Compensation to the
Company. Subject
to applicable law, the Company may recover Excess Compensation by requiring the Executive Officer to repay such amount
to the Company by direct payment to the
Company or such other means or combination of means as the Committee determines to be appropriate
(these determinations do not need to be identical as to each
Executive Officer). These means may include:
(a) requiring
reimbursement of cash Incentive-Based Compensation previously paid;
(b) seeking
recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other
disposition of any equity-based awards;
(c) offsetting
the amount to be recovered from any unpaid or future compensation to be paid by the Company
or any affiliate of the Company to the Executive
Officer;
(d) cancelling
outstanding vested or unvested equity awards; and/or
(e) taking
any other remedial and recovery action permitted by law, as determined by the Committee.
2
The
repayment of Excess Compensation must be made by an Executive Officer notwithstanding any Executive Officer’s belief (whether or
not legitimate) that the
Excess Compensation had been previously earned under applicable law and therefore is not subject to recovery.
In
addition to its rights to recovery under the Policy, the Company or any affiliate of the Company may take any legal actions it determines
appropriate to enforce an
Executive Officer’s obligations to the Company or its affiliate or to discipline an Executive Officer,
including (without limitation) termination of employment,
institution of civil proceedings, reporting of misconduct to appropriate governmental
authorities, reduction of future compensation opportunities, or change in role.
The decision to take any actions described in the preceding
sentence will not be subject to the approval of the Committee and can be made by the Board, any
committee of the Board, or any duly authorized
officer of the Company or of any applicable affiliate of the Company.
G. Limited
Exceptions to the Policy
The
Company must recover Excess Compensation in accordance with the Policy except to the limited extent that any of the conditions set forth
below are met, and the
Committee determines that recovery of the Excess Compensation would be impracticable:
(a) The
direct expense paid to a third party to assist in enforcing the Policy would exceed the amount
to be recovered. Before reaching this conclusion, the
Company must make a reasonable attempt
to recover the Excess Compensation, document the reasonable attempt(s) taken to so recover,
and provide that
documentation to the Exchange;
(b) Recovery
would violate home country law where that law was adopted prior to November 28, 2022. Before
reaching this conclusion, the Company must
obtain an opinion of home country counsel, acceptable
to the Exchange, that recovery would result in such a violation, and must provide such opinion
to the
Exchange; or
(c) Recovery
would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly
available to employees of the Company, to fail to
meet the legal requirements as such.
H. Other
Important Information in the Policy
Notwithstanding
the terms of any of the Company’s organizational documents (including, but not limited to, the Company’s bylaws), any corporate
policy or any
contract (including, but not limited to, any indemnification agreement), neither the Company nor any affiliate of the Company
will indemnify or provide advancement
for any Executive Officer against any loss of Excess Compensation, or any claims relating to the
Company’s enforcement of its rights under the Policy. Neither the
Company nor any affiliate of the Company will pay for or reimburse
insurance premiums for an insurance policy that covers potential recovery obligations. In the
event that pursuant to the Policy the Company
is required to recover Excess Compensation from an Executive Officer who is no longer an employee, the Company
will be entitled to seek
recovery in order to comply with applicable law, regardless of the terms of any release of claims or separation agreement such individual
may
have signed. Neither the Company nor any affiliate of the Company will enter into any agreement that exempts any Incentive-Based
Compensation that is granted,
paid, or awarded to an Executive Officer from the application of the Policy or that waives the Company’s
right to recovery of any Excess Compensation, and the
Policy shall supersede any such agreement (whether entered into before, on, or
after the adoption of the Policy).
The
Committee or Board may review and modify the Policy from time to time.
3
If
any provision of the Policy or the application of any such provision to any Executive Officer is adjudicated to be invalid, illegal,
or unenforceable in any respect,
such invalidity, illegality, or unenforceability will not affect any other provisions of the Policy
or the application of such provision to another Executive Officer, and
the invalid, illegal or unenforceable provisions will be deemed
amended to the minimum extent necessary to render any such provision or application enforceable.
The
Policy will terminate and no longer be enforceable when the Company ceases to be a listed issuer within the meaning of Section 10D of
the Exchange Act.
I.
Definitions
“Accounting
Restatement Determination Date” means the earlier to occur of: (a) the date the Board, a committee of the Board, or one or
more of the officers of the
Company authorized to take such action if Board action is not required, concludes, or reasonably should have
concluded, that the Company is required to prepare an
Accounting Restatement; and (b) the date a court, regulator, or other legally authorized
body directs the Company to prepare an Accounting Restatement.
“Executive
Officer” means each individual who is or was ever designated as an “officer” by the Board in accordance with Exchange
Act Rule 16a-1(f).
“Financial
Reporting Measures” means measures that are determined and presented in accordance with the accounting principles used in preparing
the Company’s
financial statements, and any measures that are derived wholly or in part from such measures. Stock price and total
shareholder return are also Financial Reporting
Measures. A Financial Reporting Measure need not be presented within the financial statements
or included in a filing with the Securities and Exchange Commission.
“Incentive-Based
Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a Financial
Reporting
Measure (for the avoidance of doubt, no compensation that is potentially subject to recovery under the Policy will be earned
until the Company’s right to recover
under the Policy has lapsed) and excludes the following: salaries, bonuses paid solely at
the discretion of the Committee or Board that are not paid from a bonus pool
that is determined by satisfying a Financial Reporting Measure,
bonuses paid solely upon satisfying one or more subjective standards and/or completion of a specified
employment period, non-equity incentive
plan awards earned solely upon satisfying one or more strategic measures or operational measures, and equity awards for
which the grant
is not contingent upon achieving any Financial Reporting Measure performance goal and vesting is contingent solely upon completion of
a specified
employment period (e.g., time-based vesting equity awards) and/or attaining one or more non-Financial Reporting Measures.
“Received”
means, with respect to any Incentive-based Compensation, actual or deemed receipt, and Incentive-Based Compensation is “Received”
under the Policy
in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-Based Compensation
award is attained, even if the payment
or grant of the Incentive-Based Compensation occurs after the end of that period. For the avoidance
of doubt, the Policy does not apply to Incentive-Based
Compensation for which the Financial Reporting Measure is attained prior to October
2, 2023.
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ACKNOWLEDGEMENT
I
acknowledge that I have received and read the Compensation Recovery Policy (the “Policy”) of Jerash Holdings (US),
Inc. (the “Company”).
I
understand and acknowledge that the Policy applies to me, and all of my beneficiaries, heirs, executors, administrators, or other legal
representatives and that the
Company’s right to recovery in order to comply with applicable law will apply, regardless of the terms
of any release of claims or separation agreement I have signed
or will sign in the future.
I
agree to be bound by and to comply with the Policy and understand that determinations of the Committee (as such term is used in the Policy)
will be final and
binding and will be given the maximum deference permitted by law.
I
understand and agree that my current indemnification rights, whether in an individual agreement or the Company’s organizational
documents, exclude the right to be
indemnified for amounts required to be recovered under the Policy.
I
understand that my failure to comply in all respects with the Policy is a basis for termination of my employment with the Company and
any affiliate of the Company,
as well as any other appropriate discipline.
I
understand that neither the Policy, nor the application of the Policy to me, gives rise to a resignation for good reason (or similar
concept) by me under any applicable
employment agreement or arrangement.
I
acknowledge that if I have questions concerning the meaning or application of the Policy, it is my responsibility to seek guidance from
the Company’s legal
department or my own personal advisers.
I
acknowledge that neither this Acknowledgement nor the Policy is meant to constitute an employment contract.
Please
review, sign, and return this form to the Company.
(date)
(print
name and title)
(signature)
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