UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

☐ 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:  0-28806

 

Ever-Glory International Group Inc.

(Exact name of registrant as specified in its charter)

 

Florida   65-0420146 

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Ever-Glory Commercial Center,

509 Chengxin Road, Jiangning Development Zone,

Nanjing, Jiangsu Province,

People’s Republic of China

(Address of principal executive offices)

 

86-25-5209-6831

 (Registrant’s telephone number, including area code)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 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 and posted 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 and post 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 to Section 7(a)(2)(B) of the Securities Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

Securities registered under 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   EVK   NASDAQ Global Market

  

Securities registered under Section 12(g) of the Act:  None. 

 

As of November 10, 2021, 14,812,312 shares of the Company’s common stock, $0.001 par value, were issued and outstanding.

 

 

 

 

 

 

EVER-GLORY INTERNATIONAL GROUP, INC.

FORM 10-Q

 

INDEX

 

    Page
Number
     
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ii
     
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
     
Item 4. Controls and Procedures 32
     
PART II.  OTHER INFORMATION  
     
Item 1. Legal Proceedings 33
     
Item 1A. Risk Factors 33
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 33
     
Item 3. Defaults Upon Senior Securities 33
     
Item 4. Mine Safety Disclosure 33
     
Item 5. Other Information 33
     
Item 6. Exhibits 34
     
SIGNATURES 35

 

i

 

 

Cautionary Note Regarding Forward-Looking Statements

 

Statements contained in this Quarterly Report on Form 10-Q, which are not historical facts, are forward-looking statements, as the term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, whether expressed or implied, are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated, due to a number of factors, which include, but are not limited to:

 

  ● Competition within our industry;
     
  ● The impact (including travel and entry restrictions and quarantine) of public health epidemics, including the COVID-19 pandemic in China and the rest of the world, on the market we operate in and our business, results of operations and financial condition;
     
  ● Seasonality of our sales;
     
  ● Success of our investments in new product development
     
  ● Our plans and ability to open new retail stores;
     
  ● Success of our acquired businesses;
     
  ● Our relationships with our major customers;
     
  ● The popularity of our products;
     
  ● Relationships with suppliers and cost of supplies;
     
  ● Financial and economic conditions in Asia, Japan, Europe and the U.S.;
     
  ● Anticipated effective tax rates in future years;
     
  ● Regulatory requirements affecting our business;
     
  ● Currency exchange rate fluctuations;
     
  ● Our management of business through a U.S. publicly-traded and reporting company and the general reputation and potential scrutiny of U.S. publicly-traded companies with their principal operations in China;
     
  ● Our future financing needs; and
     
  ● Our ability to obtain future financing on acceptable terms.

 

Forward-looking statements also include the assumptions underlying or relating to any of the foregoing or other such statements. When used in this report, the words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “continue,” and similar expressions are generally intended to identify forward-looking statements.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the factors described in the Section entitled “Risk Factors” on Form 10-K and other documents we file from time to time with the Securities and Exchange Commission (“SEC”).

  

ii

 

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands of U.S. Dollars, except share and per share data or otherwise stated)

 

    September 30,
2021 		    December 31,
2020 		 
ASSETS            
             
CURRENT ASSETS            
Cash and cash equivalents   $ 48,336     $ 81,865  
Restricted cash     43,176       39,858  
Trading securities     3,068       1,792  
Accounts receivable, net     61,525       53,285  
Inventories     67,275       53,893  
Advances on inventory purchases     9,864       10,261  
Value added tax receivable     2,484       1,244  
Other receivables and prepaid expenses     6,638       5,479  
Amounts due from related parties     1,994       567  
Total Current Assets     244,360       248,244  
                 
NON-CURRENT ASSETS                
Equity security investment     5,903       3,932  
Intangible assets, net     4,686       4,794  
Property and equipment, net     32,747       32,164  
Operating lease right-of-use assets     49,002       41,690  
Deferred tax assets     265       902  
Other non-current assets     771      
-
 
Total Non-Current Assets     93,374       83,482  
TOTAL ASSETS   $ 337,734     $ 331,726  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
CURRENT LIABILITIES                
Bank loans   $ 67,848     $ 65,919  
Accounts payable     73,120       67,762  
Accounts payable and other payables – related parties     1,016       3,764  
Other payables and accrued liabilities     13,758       16,073  
Value added and other taxes payable     554       909  
Income tax payable     1,900       1,062  
Current operating lease liabilities     40,590       33,481  
Total Current Liabilities     198,786       188,970  
                 
NON-CURRENT LIABILITIES                
Non-current operating lease liabilities     8,549       8,307  
TOTAL LIABILITIES     207,335       197,277  
                 
COMMITMENTS AND CONTINGENCIES (Note 9)    
 
     
 
 
                 
STOCKHOLDERS’ EQUITY                
Common stock ($0.001 par value, authorized 50,000,000 shares, 14,812,312 and 14,809,160 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively)     15       15  
Additional paid-in capital     3,660       3,650  
Retained earnings     103,013       109,171  
Statutory reserve     20,376       20,376  
Accumulated other comprehensive income     5,610       4,590  
Amounts due from related party     (2,275 )     (3,353 )
Total equity     130,399       134,449  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 337,734     $ 331,726  

 

See the accompanying notes to the condensed consolidated financial statements.

  

1

 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

(In thousands of U.S. Dollars, except share and per share data or otherwise stated)

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
NET SALES   $ 94,406     $ 79,908     $ 225,776     $ 188,350  
COST OF SALES     71,196       56,235       161,738       134,193  
                                 
GROSS PROFIT     23,210       23,673       64,038       54,157  
                                 
OPERATING EXPENSES                                
Selling expenses     14,443       12,996       44,495       39,101  
General and administrative expenses     9,467       7,818       24,980       19,574  
Total Operating Expenses     23,910       20,814       69,475       58,675  
                                 
(LOSS) INCOME FROM OPERATIONS     (700 )     2,859       (5,437 )     (4,518 )
                                 
OTHER INCOME (EXPENSES)                                
Interest income     176       313       928       930  
Interest expense     (1,218 )     (700 )     (1,909 )     (1,607 )
Government subsidy     340       235       842       926  
(Loss) Gain from changes in fair values of investments     (123 )     (4 )     2,151       -  
Other income (expenses)     253       343       1,027       1,310  
Total Other Income (expenses), Net     (572 )     187       3,039       1,559  
                                 
(LOSS) INCOME BEFORE INCOME TAX EXPENSE     (1,272 )     3,046       (2,398 )     (2,959 )
                                 
Income tax expense     (1,945 )     (822 )     (3,759 )     (1,315 )
                                 
NET (LOSS) INCOME     (3,217 )     2,224       (6,157 )     (4,274 )
                                 
Net loss attributable to the non-controlling interest    
-
      (8 )     -       (4 )
NET LOSS ATTRIBUTABLE TO THE COMPANY     (3,217 )     2,216       (6,157 )     (4,278 )
                                 
NET (LOSS) INCOME   $ (3,217 )   $ 2,224     $ (6,157 )   $ (4,274 )
                                 
Foreign currency translation gain (loss)     (1,061 )     4,664       1,020       2,964  
COMPREHENSIVE INCOME (LOSS)     (4,278 )     6,888       (5,137 )     (1,310 )
                                 
Comprehensive loss attributable to the non-controlling interest    
-
      51       -       53  
COMPREHENSIVE INCOME  (LOSS) ATTRIBUTABLE TO THE COMPANY   $ (4,278 )   $ 6,939     $ (5,137 )   $ (1,257 )
                                 
LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY’S STOCKHOLDERS                                
Basic and diluted   $ (0.22 )   $ 0.15     $ (0.42 )   $ (0.29 )
Weighted average number of shares outstanding Basic and diluted     14,811,073       14,808,737       14,810,585       14,805,987  

 

See the accompanying notes to the condensed consolidated financial statements.

 

2

 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(In thousands of U.S. Dollars, except share and per share data or otherwise stated)

 

          Additional     Retained Earnings     Accumulated
other 		    Amounts
due from 		    Total
equity
attributable
to stockholders 		       
    Common Stock     paid-in           Statutory     Comprehensive     related     of the     Total   
    Shares     Amount     capital     Unrestricted     reserve     loss     party     Company     equity  
Balance at January  1, 2021     14,809,160     $ 15     $ 3,650     $ 109,171     $ 20,376     $ 4,590     $ (3,353 )   $ 134,449     $ 134,449  
Stock issued for compensation     1,500      
-
      5      
-
     
-
     
-
     
-
      5       5  
Net loss     -      
-
      -       (1,170 )    
-
     
-
     
-
      (1,170 )     (1,170 )
Net cash received from related party under counter guarantee agreement     -      
-
      -      
-
     
-
     
-
      379       379       379  
Foreign currency translation gain (loss)            
 
             
 
     
 
      (1,352 )    
-
      (1,352 )     (1,352 )
Balance at March 31, 2021     14,810,660       15       3,655       108,001       20,376       3,238       (2,974 )     132,311       132,311  
Net loss            
 
              (1,771 )    
 
     
 
     
 
      (1,771 )     (1,771 )
Net cash received from related party under counter guarantee agreement            
 
             
 
     
 
     
 
      386       386       386  
Foreign currency translation loss            
 
             
 
     
 
      3,434      
 
      3,434       3,434  
Balance at June 30, 2021     14,810,660     $ 15     $ 3,655     $ 106,230     $ 20,376     $ 6,672     $ (2,588 )   $ 134,360     $ 134,360  
Stock issued for compensation     1,652      
-
      5      
-
     
-
     
-
     
-
      5       5  
Net (Loss) income            
 
              (3,217 )    
 
     
 
     
 
      (3,217 )     (3,217 )
Net cash received from related party under counter guarantee agreement            
 
             
 
     
 
     
 
      313       313       313  
Foreign currency translation gain            
 
             
 
     
 
      (1,062 )    
 
      (1,062 )     (1,062 )
Balance at September 30, 2021     14,812,312     $ 15     $ 3,660     $ 103,013     $ 20,376     $ 5,610     $ (2,275 )   $  130,399     $ 130,399  

 

          Additional     Retained Earnings     Accumulated
other 		    Amounts
due from 		    Total
equity
attributable
to stockholders 		    Non-        
    Common Stock     paid-in           Statutory     Comprehensive     related     of the     controlling     Total  
    Shares     Amount     capital     Unrestricted     reserve     loss     party     Company     Interest     equity  
Balance at January  1, 2020     14,801,770     $ 15     $ 3,640     $ 106,328     $ 19,939     $ (4,330 )   $ (4,932 )   $ 120,660       (1,510 )   $ 119,150  
Stock issued for compensation     3,062      
-
      5      
-
     
-
     
-
     
-
      5      
 
      5  
Net loss     -      
-
      -       (2,701 )    
-
     
-
     
-
      (2,701 )     3       (2,698 )
Net cash received from related party under counter guarantee agreement     -      
-
      -      
-
     
-
     
-
      785       785      
-
      785  
Foreign currency translation gain (loss)            
 
             
 
     
 
      (1,440 )    
-
      (1,440 )     3       (1,437 )
Balance at March 31, 2020     14,804,832       15       3,645       103,627       19,939       (5,770 )     (4,147 )     117,309       (1,504 )     115,805  
Net loss            
 
              (3,794 )    
 
     
 
     
 
      (3,794 )     (6 )     (3,800 )
Net cash received from related party under counter guarantee agreement            
 
             
 
     
 
     
 
      151       151      
 
      151  
Foreign currency translation loss            
 
             
 
     
 
      (261 )    
 
      (261 )     (2 )     (263 )
Balance at June 30, 2020     14,804,832     $ 15     $ 3,645     $ 99,833     $ 19,939     $ (6,031 )   $ (3,996 )   $ 113,405       (1,512 )   $ 111,893  
Stock issued for compensation     4,328      
-
      5      
-
     
-
     
-
     
-
      5      
 
      5  
Net income            
 
              2,216      
 
     
 
     
 
      2,216       8       2,224  
Net cash received from related party under counter guarantee agreement            
 
             
 
     
 
     
 
      566       566      
-
      566  
Foreign currency translation gain            
 
             
 
     
 
      4,723      
 
      4,723       (59 )     4,664  
Balance at September 30, 2020     14,809,160     $ 15     $ 3,650     $ 102,049     $ 19,939     $ (1,308 )   $ (3,430 )   $ 120,915       (1,563 )   $ 119,352  

 

See the accompanying notes to the condensed consolidated financial statements.

 

3

 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands of U.S. Dollars, except share and per share data or otherwise stated)

 

    Nine Months Ended  
    September 30,
2021 		    September 30,
2020 		 
CASH FLOWS FROM OPERATING ACTIVITIES            
Net loss   $ (6,157 )   $ (4,274 )
Adjustments to reconcile net loss to cash provided by operating activities:     　       　  
Depreciation and amortization     4,384       4,114  
Loss from sale of property and equipment     590       283  
Provision of bad debt allowance     676       683  
Write off obsolete inventories     7,595       5,786  
Changes in fair value of investment     (2,151 )     13  
Deferred income tax     644       (165 )
Stock-based compensation     10       10  
Changes in operating assets and liabilities                
Accounts receivable     (8,614 )     15,571  
Inventories     (20,702 )     16,135  
Value added tax receivable     (1,235 )     (577 )
Other receivables and prepaid expenses     (1,096 )     50  
Advances on inventory purchases     586       2,461  
Amounts due from related parties     (1,514 )     (848 )
Accounts payable     5,930       (7,842 )
Accounts payable and other payables- related parties     (3,204 )     (1,112 )
Other payables and accrued liabilities     (3,332 )     (6,093 )
Value added and other taxes payable     (360 )     467  
Income tax payable     831       (64 )
Net cash (used in) provided by operating activities     (27,119 )     24,598  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchases of property and equipment     (5,109 )     (2,769 )
Net (purchase) sale of trading securities     (1,077 )     (901 )
Investment payment     (773 )     (2,860 )
Net cash (used in) investing activities     (6,959 )     (6,530 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from bank loans     56,110       66,599  
Repayment of bank loans     (54,565 )     (49,278 )
Net collection (advance) of amounts due from related party (equity)     1,630       1,618  
Net cash  used in (provided by) financing activities     3,175       18,939  
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH     693       2,740  
      　       　  
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH     (30,211 )     39,747  
      　       　  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD     121,723       50,755  
      　       　  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD   $ 91,512     $ 90,502  
                 
Reconciliation of cash, cash equivalents and restricted cash reported within their consolidated balance sheets:                
                 
Cash and Cash Equivalents     48,336       69,950  
Restricted cash     43,176       20,552  
    $ 91,512     $ 90,502  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash paid during the period for:                
Interest   $ 1,909     $ 1,607  
Income taxes   $ 2,272     $ 1,455  

 

See the accompanying notes to the condensed consolidated financial statements.

 

4

 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

 

NOTE 1 Nature of Operations and Basis of Presentation

 

Ever-Glory International Group, Inc. (the “Company” or “We” or “Ours”), together with its subsidiaries, is an apparel manufacturer, supplier and retailer in The People’s Republic of China (“China” or “PRC”), with a wholesale segment and a retail segment. The Company’s wholesale business consists of recognized brands for department and specialty stores located in China, Europe, Japan and the United States. The Company’s retail business consists of flagship stores and store-in-stores for the Company’s own-brand products.

 

The Company’s wholesale operations are provided primarily through the Company’s wholly-owned PRC subsidiaries, Goldenway Nanjing Garments Co. Ltd. (“Goldenway”), Nanjing Catch-Luck Garments Co. Ltd. (“Catch-Luck”), Nanjing New-Tailun Garments Co. Ltd (“New-Tailun”), Haian Tai Xin Garments Trading Company Limited (“Haian Tai Xin”), Ever-Glory International Group Apparel Inc. (“Ever-Glory Apparel”), Chuzhou Huirui Garments Co. Ltd. (“Huirui”), and Nanjing Rui Lian Technology Company Limited (“Nanjing Rui Lian”), and the Company’s wholly-owned Samoa subsidiary, Ever-Glory International Group (HK) Ltd. (“Ever-Glory HK”) and the Company’s wholly-owned Hong Kong subsidiary, Ever-Glory Supply Chain Service Co., Limited (“Ever-Glory Supply Chain”).  The Company’s retail operations are provided through its wholly-owned subsidiaries, Shanghai LA GO GO Fashion Company Limited (“Shanghai LA GO GO”), Jiangsu LA GO GO Fashion Company Limited (“Jiangsu LA GO GO”), Tianjin LA GO GO Fashion Company Limited (“Tianjin LA GO GO”), Shanghai Ya Lan Fashion Company Limited (“Ya Lan”) and Nanjing Tai Xin Garments Trading Company Limited (“Tai Xin”).

 

Shanghai Yiduo Fashion Company Limited, the only then subsidiary with non-controlling interests, was deconsolidated from the financial statements as of December 31, 2020 as a result of bankruptcy liquidation.

 

He Meida was closed in April 2021, which is not a strategic shift and does not have major effect on the Company’s operations or financial results and the disposal loss was immaterial to the financial statements.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations and comprehensive income (loss), condensed consolidated statements of equity, and condensed consolidated statements of cash flows for the three and nine months ended September 30, 2021 and 2020. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Rule 8-03 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they have been condensed and do not include all of the information and footnotes required by GAAP for complete financial statements.

 

Wholesale revenues are generally higher in the third and fourth fiscal quarters, while retail revenues are generally higher in the first and fourth fiscal quarters. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. 

 

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC (“2020 Form 10-K.”)

 

Use of Estimates

 

In preparing our condensed consolidated financial statements, we use estimates and assumptions that affect the reported amounts and disclosures. Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but that are inherently uncertain and unpredictable. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts. Significant estimates include the assumptions used to value tax liabilities, derivative financial instruments, the estimates of the allowance for deferred tax assets, and the accounts receivable allowance, and impairment of long-lived assets and inventory write off.

 

5

 

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”; In November 2019, the FASB issued ASU No. 2019-10 “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”; In March 2020, the FASB issued ASU No. 2020-03 “Codification Improvements to Financial Instruments”; which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2022. The Company is currently assessing the impact of this ASU on its consolidated financial statements.

 

The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements. 

 

NOTE 3 INVESTMENTS

 

Trading securities

 

Investments in equity securities of certain US and HK public companies are accounted for as trading securities and measured subsequently at fair value in the consolidated balance sheets. Net gains and losses recognized during the three and nine-month periods are summarized as follows (In thousands of U.S. Dollars).

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
    (In thousands of U.S. Dollars)  
Net (loss) gains recognized during the period on equity securities     (121)       (14 )     200       (14 )
Less: Net gains recognized during the period on equity securities sold during the period    
-
      (1 )     54       (1 )
Unrealized (loss) gains recognized during the reporting period on equity securities still held at the reporting date   $ (121)     $ (13 )   $ 146     $ (13 )

 

Equity security investment

 

In August 2020, Ever-Glory Apparel invested $2.9 million (RMB 20.0 million) for 2.38% ownership in a partnership (“Partnership”). In December 2020, the Partnership invested in a public company in China. As a limited partner, the Company does not have ability to exercise significant influence due to lack of kick-out rights through voting interests. In the meantime, the Company entered an agreement with the general partner of the Partnership (GP) and an individual that the Company has the privilege to sell the ownership interests in the Partnership to GP or the individual for the consideration of the average net asset value ten trading days prior to the closing date, if the Company is not able to withdraw any part of the original investment from the Partnership in the twelve months period beginning the third year of the initial investment (“optional withdrawal period”). If the Company opts to withdraw entire investment during the optional withdrawal period, the GP will compensate up to 8% of annual return on investment. If the return on investment is in excess of 8% for any portion of the investment withdrawn during the optional withdrawal period, then 20% of the return in excess of 8% will be shared with the individual. The Company may also continue to invest in the Partnership beyond the optional withdrawal period, but none of above agreement with the GP and the individual is in place.

 

In December 2020, the Partnership invested in a public company in China. Since there is readily determinable fair value of the equity investment, the Company started to measure its equity investment at fair value using the public company’s stock price and the Company’s shares since December 31, 2020.

 

6

 

 

Investment advances

 

In September 2021, Goldenway signed an agreement and promised to invest $7.7 million (RMB 50.0 million) in a Chinese private company. Goldenway advanced $0.8 million (RMB 5.0 million) in September 2021 for 20% shares of the investee. The investee completed the registration in October 2021. As of September 30, 2021 the investment advances were recorded as the other non-current assets. Goldenway and the investee are in the process of finalizing the detail terms terms for the whole investment.

 

NOTE 4 INVENTORIES

 

Inventories at September 30, 2021 and December 31, 2020 consisted of the following:

 

    September 30,
2021 		    December 31,
2020 		 
    (In thousands of
U.S. Dollars) 		 
Raw materials   $ 1,832     $ 1,297  
Work-in-progress     22,593       8,130  
Finished goods     42,850       44,466  
Total inventories   $ 67,275     $ 53,893  

 

NOTE 5 RESTRICTED CASH

 

As of September 30, 2021, restricted cash of $43.2 million (RMB280.0 million) was cash on demand and time deposits pledged for loans to Shanghai Pudong Development Bank. Restricted cash $41.7 million (RMB 270.0 million) of time deposit was pledged for loans to Shanghai Pudong Development Bank. And $1.5 million (RMB10.0 million) was deposit for $7.7 million (RMB 50.0 million) loan received in July and September, 2021.

 

NOTE 6 BANK LOANS

 

Bank loans represent amounts due to various banks and are generally due on demand or within one year. These loans can be renewed with the banks. Short term bank loans consisted of the following as of September 30, 2021 and December 31, 2020.

 

    September 30,
2021 		    December 31,
2020 		 
Bank   (In thousands of
U.S. Dollars) 		 
Shanghai Pudong Development Bank   $ 41,634     $ 42,157  
Industrial and Commercial Bank of China     18,504       21,462  
Nanjing Bank     7,710       2,300  
    $ 67,848     $ 65,919  

 

From March 2020 to July 2020, Ever-Glory Apparel entered into a deposit certificate of $29.3 million (RMB190.0 million) with the Shanghai Pudong Development Bank with annual interest rates ranging from 3.75% to 3.99%. From October 2020 to September 2021, Ever-Glory Apparel pledged the deposit certificate to the Shanghai Pudong Development Bank and Ever-Glory Apparel had borrowed $24.7 million (RMB 160.0 million) under this line of certificate with an annual interest rate from 2.60% to 3.10% and due on between October 2021 and September 2022.

 

In December 2020, Goldenway entered into a deposit certificate of $17.0 million (RMB110.0 million) with the Shanghai Pudong Development Bank with an annual interest rate of 3.85%. From December 2020 to September 2021, Goldenway pledged the deposit certificate to the Shanghai Pudong Development Bank and Goldenway had borrowed $17.0 million (RMB 110.0 million) under this line of certificate with annual interest rate from 2.60% to 3.4% and due on between December 2021 and June 2022.

 

7

 

 

In April 2020, Goldenway entered into a line of credit agreement with Industrial and Commercial Bank of China, which allows the Company to borrow up to approximately $6.2 million (RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of September 30, 2021, Goldenway had borrowed $6.2 million (RMB40.0 million) from Industrial and Commercial Bank of China with an annual interest rate 4.57% and due in August 2022.

 

In July 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $15.4 million (RMB100.0 million) with Industrial and Commercial Bank of China, which is collateralized by assets of Nanjing Knitting, an equity investee of Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), under a collateral agreement executed among Ever-Glory Apparel, Nanjing Knitting and the bank. As of September 30, 2021, Ever-Glory Apparel had borrowed $12.3 million (RMB 80.0 million) under this line of credit with annual interest rates ranging from 3.92% to 4.35% and due between October 2021 to May 2022. As of September 30, 2021, approximately $3.1 million was unused and available under this line of credit.

 

In April 2020, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $6.9 million (RMB45.0 million). These loans are guaranteed by Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer. These loans are also collateralized by the Company’s property and equipment. As of September 30, 2021, approximately $6.9 million was unused and available under this line of credit.

 

In June 2021, Goldenway entered into a margin contract with Nanjing Bank. Goldenway had borrowed $4.6 million (RMB 30.0 million) under this contract for $0.9 million (RMB 6.0 million) was restricted with an annual interest rate 3.36% and due on June 2022. In September 2021, Goldenway entered into another margin contract with Nanjing Bank. Goldenway had borrowed $3.1 million (RMB 20.0 million) under this contract for $0.6 million (RMB 4.0 million) was restricted with an annual interest rate 3.44% and due on September 2022.

  

In September 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $9.3 million (RMB60.0 million) with Nanjing Bank and guaranteed by Jiangsu Ever-Glory, Mr. Kang and Goldenway. As of September 30, 2021, approximately $9.3 million was unused and available under this line of credit.

   

All bank loans are used to fund our daily operations. All loans have been repaid before or at maturity date.

 

Total interest expense on bank loans amounted to $1.9 million and $1.6 million for the nine months ended September 30, 2021 and 2020, respectively, and $1.2 million and $0.7 million for the three months ended September 30, 2021 and 2020, respectively.

 

NOTE 7 INCOME TAX

 

The Company’s operating subsidiaries are governed by the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws (“the Income Tax Laws”).

 

All PRC subsidiaries, except for He Meida, are subject to income tax at the 25% statutory rate.

 

He Meida incorporated in Xizang (Tibet) Autonomous Region is subject to income tax at 15% statutory rate. The local government has implemented an income tax reduction from 15% to 9% valid through December 31, 2020. He Meida was closed in April 2021.

 

Perfect Dream was incorporated in the British Virgin Islands (BVI), and under the current laws of the BVI dividends and capital gains arising from the Company’s investments in the BVI are not subject to income taxes.

 

Ever-Glory HK was incorporated in Samoa, and under the current laws of Samoa has no liabilities for income taxes.

 

8

 

 

Ever-Glory Supply Chain Service Co., Limited was incorporated in Hongkong, and under the current laws of Hongkong, its income tax rate is 8.25% when its profit is under HKD 2.0 million and its income tax rate is 16.5% when its profit is over HKD 2.0 million.

 

The PRC’s Enterprise Income Tax Law imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise in PRC to its immediate holding company outside China; such distributions were exempted under the previous income tax law and regulations. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding company. The foreign invested enterprise became subject to the withholding tax starting from January 1, 2008. Given that the undistributed profits of the Company’s subsidiaries in China are intended to be retained in China for business development and expansion purposes, no withholding tax accrual has been made.

  

After the tax liability adjustment resulted from the reevaluation of the Company’s tax position (resulting in the company allocating substantially all of the earnings of the Samoan subsidiary to the PRC and reporting such earnings as taxable in the PRC), pre-tax (loss) income for the three and nine months ended September 30, 2021 and 2020 was taxable in the following jurisdictions:

  

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
    (In thousands of U.S. Dollars)  
Mainland China   $ (1,923 )   $ 3,057     $ (2,390 )   $ (2,943 )
Hongkong, PRC     653      
-
      (1 )    
-
 
Others     (2 )     (11 )     (7 )     (16 )
　   $ (1,272 )   $ 3,046     $ (2,398 )   $ (2,959 )

 

The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the three and nine months ended September 30, 2021 and 2020:

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
PRC statutory rate     25.0 %     25.0 %     25.0 %     25.0 %
Valuation allowance against subsidiaries with pretax losses     (98.4 )     2.0       (100.1 )     (60.6 )
Timing difference between US GAAP and PRC tax accounting     (117.9 )    
-  
      (103.0 )    
-  
 
Provision of bad debt allowance unrecognized in PRC     (4.3 )    
-  
      (7.0 )    
-  
 
Changes in fair value of investment and trading securities     35.8      
-  
      22.3      
-  
 
Other not deductible expenses in PRC tax filing     7.0      
-  
      6.0       (8.9 )
Effective income tax rate     (152.8 )%     27.0 %     (156.8 )%     (44.5 )%

 

Income tax expense for the three and nine months ended September 30, 2021 and 2020 is as follows:

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
Current   $ 1,903     $ 1,115     $ 3,121     $ 1,418  
Deferred     42       (293 )     638       (103 )
Income tax expense   $ 1,945     $ 822     $ 3,759     $ 1,315  

 

The Company’s deferred tax liabilities arise from differences between US GAAP and PRC tax accounting for certain revenue and expense items, including timing of deduction of losses from allowances. 

 

The Company has not recorded U.S. deferred income taxes on approximately $105.2 million of its non-U.S. subsidiaries’ undistributed earnings because such amounts are intended to be reinvested outside the United States indefinitely. The U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, there is no deferred tax expense (income) relating to the Tax Act changes for the year ended September 30, 2021.

   

9

 

 

NOTE 8 STOCKHOLDERS’ EQUITY

 

On January 15, 2020, the Company issued 3,062 shares of Company’s common stock to two of the Company’s independent directors as compensation for their services rendered during the third and fourth quarter of 2019. The shares issued in 2020 were valued at $1.41 per share, which was the average market price of the common stock for the five days before the grant date. 

 

On February 9, 2021, the Company issued 1,500 shares of the Company’s common stock to two of the Company’s independent directors as compensation for their services rendered during the third and fourth quarter of 2020. The shares issued in 2021 were valued at $3.34 per share, which was the average market price of the common stock for the five days before the grant date.

 

On September 8, 2021, the Company issued 1,652 shares of Company’s common stock to two of the Company’s independent directors as compensation for their services rendered during the first and second quarter of 2021. The shares issued in 2021were valued at $3 per share, which was the average market price of the common stock for the five days before the grant date. 

 

NOTE 9 RELATED PARTY TRANSACTIONS

 

Mr. Kang is the Company’s Chairman and Chief Executive Officer. Ever-Glory Enterprises (HK) Ltd. (Ever-Glory Enterprises) is the Company’s major shareholder. Mr. Xiaodong Yan was Ever-Glory Enterprises’ sole shareholder and sole director. Mr. Huake Kang, Mr. Kang’s son, acquired 83% interest of Ever-Glory Enterprises and became its sole director in 2014. All transactions associated with the following companies controlled by Mr. Kang or his son are considered to be related party transactions, and it is possible that the terms of these transactions may not be the same as those that would result from transactions between unrelated parties. All related party outstanding balances are short-term in nature and are expected to be settled in cash.

 

Other income from Related Parties

 

Jiangsu Wubijia Trading Company Limited (“Wubijia”) is an entity engaged in high-grade home goods sales and is controlled by Mr. Kang. Wubijia has sold their home goods on consignment in some Company’s retail stores since the third quarter of 2014.

  

Other income from Wubijia for the three and nine months ended at September 30, 2021 and 2020 are as follows:

 

   

Three months ended

September 30,

   

Nine months ended

September 30,

 
    2021     2020     2021     2020  
    (In thousands of
U.S. Dollars) 		 
The Company received from the customers   $
         -
    $ 3     $ 3     $ 12  
The Company paid to Wubijia    
-
      (3 )     (3 )     (12 )
The net income recorded as other income   $
-
    $
-
    $
-
    $
-
 

  

Included in other income for the nine months ended September 30, 2021 and 2020 is rental income from EsC’Lav, the entity controlled by Mr. Kang under operating lease agreement with term through 2021. The rental income is $6,378, $5,970, $19,135 and $17,711 for the three and nine months ended September 30, 2021 and 2020, respectively.

 

10

 

 

Other expenses due to Related Parties

 

Included in other expenses for the three and nine months ended September 30, 2021 and 2020 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows:  

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
    (In thousands of U.S. Dollars)  
Chuzhou Huarui     56       51       166       153  
Kunshan Enjin     23       22       70       65  
Total   $ 79     $ 73     $ 236     $ 218  

 

The Company leases Chuzhou Huarui and Kunshan Enjin’s warehouse spaces because the locations are convenient for transportation and distribution.

  

Purchases from and Sub-contracts with Related Parties

 

The Company purchased raw materials from Nanjing Knitting totaling $0.3 million, $0.6 million, $1.2 million and $1.0 million during the three and nine months ended September 30, 2021 and 2020, respectively.

 

In addition, the Company sub-contracted certain manufacturing work to related companies totaled $6.9 million, $5.9 million, $17.0 million and $14.3 million for the three and nine months ended September 30, 2021 and 2020, respectively. The Company provided raw materials to the sub-contractors and charged a fixed fee for labor provided by the sub-contractors.

 

Sub-contracts with related parties included in cost of sales for the three and nine months ended September 30, 2021 and 2020 are as follows:

 

    Three Months Ended
September 30, 		    Nine Months Ended
September 30, 		 
    2021     2020     2021     2020  
    (In thousands of U.S. Dollars)  
Chuzhou Huarui   $ 449     $ 421     $ 1,310     $ 1,411  
Fengyang Huarui     665       625       1,316       1,025  
Nanjing Ever-Kyowa     392       166       1,102       608  
Ever-Glory Vietnam     5,154       4,019       11,597       9,498  
Nanjing Knitting     300       504       1,217       991  
EsCeLav     0       9       37       33  
Jiangsu Ever-Glory     0       144       464       771  
    $ 6,960     $ 5,888     $ 17,043     $ 14,337  

 

Accounts Payable – Related Parties

 

The accounts payable to related parties at September 30, 2021 and December 31, 2020 are as follows:

 

    2021     2020  
    (In thousands of
U.S. Dollars) 		 
Ever-Glory Vietnam   $ -       1,727  
Fengyang Huarui     47       150  
Nanjing Ever-Kyowa     57       384  
Chuzhou Huarui     415       1,234  
Nanjing Knitting     465       257  
Jiangsu Ever-Glory     32       12  
Total   $ 1,016     $ 3,764  

 

11

 

 

Amounts Due From Related Parties-current assets

 

The amounts due from related parties at September 30, 2021 and December 31, 2020 are as follows:

 

    2021     2020  
    (In thousands of
U.S. Dollars) 		 
Jiangsu Ever-Glory   $ 1,630     $ 567  
Ever-Glory Vietnam     364      
-
 
Total   $ 1,994     $ 567  

 

Jiangsu Ever-Glory is an entity engaged in importing/exporting, apparel-manufacture, real-estate development, car sales and other activities. Jiangsu Ever-Glory is controlled by Mr. Kang. During three and nine months ended September 30, 2021 and 2020, the Company and Jiangsu Ever-Glory purchased raw materials on behalf of each other in order to obtain cheaper purchase prices.  The Company purchased raw materials on Jiangsu Ever-Glory’s behalf and sold to Jiangsu Ever-Glory at a cost of $0.1 million, $0.7 million, $2.9 million and $0.8 million during the three and nine months period ended September 30, 2021 and 2020, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at a cost of nil, $0 million, $0.5 million and $0.8 million during the three and nine months ended September 30, 2021 and 2020, respectively.  

   

Amounts Due From Related Party under Counter Guarantee Agreement

 

In March 2012, in consideration of the guarantees and collateral provided by Jiangsu Ever-Glory and Nanjing Knitting, the Company agreed to provide Jiangsu Ever-Glory a counter guarantee in the form of cash of not less than 70% of the maximum aggregate lines of credit obtained by the Company. Jiangsu Ever-Glory is obligated to return the full amount of the counter-guarantee funds provided upon expiration or termination of the underlying lines of credit and is to pay annual interest at the rate of 6.0% of amounts provided. As of September 30, 2021 and December 31, 2020, Jiangsu Ever-Glory has provided guarantees for approximately $31.6 million (RMB 205 million) and $36.0 million (RMB 235.0 million) of lines of credit obtained by the Company, respectively. Jiangsu Ever-Glory and Nanjing Knitting have also provided their assets as collateral for certain of these lines of credit. The value of the collateral, as per appraisals obtained by the banks in connection with these lines of credit is approximately $18.5 million (RMB 120.2 million) and $31.5 million (RMB 205.5 million) as of September 30, 2021 and December 31, 2020 respectively. Mr. Kang has also provided a personal guarantee for $9.3 million (RMB 60.0 million) and $14.8 million (RMB 96.3 million) as of September 30, 2021 and December 31, 2020, respectively.

 

At December 31, 2020, $3.1 million (RMB 20.0 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the nine months ended September 30, 2021, an additional $0.3 million (RMB 1.8 million) was provided to and repayment of $1.4million (RMB 9.3 million) was received from Jiangsu Ever-Glory under the counter-guarantee. As of September 30, 2021, the amount of the counter-guarantee was $2.0 million (RMB 12.6 million) (the difference represents currency exchange adjustment of $0.02 million), which was 6.13% of the aggregate amount of lines of credit. This amount plus accrued interest of $0.3 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At September 30, 2021 and December 31, 2020, the amount classified as a reduction of equity was $2.3 million and $3.4 million, respectively. Interest of 0.5% was charged on net amounts due from Jiangsu Ever-Glory at each month end. Since January 1, 2019, interest rate has changed to 0.3625% charged at each month end as the bank benchmark interest rate decreased. Interest income for the three and nine months ended September 30, 2021 and 2020 was approximately $0.04 million, $0 million, $0.05 million and $0.05 million, respectively.

 

12

 

 

NOTE 10 COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitment

 

The Company recognized operating lease liabilities and operating lease right-of-use (ROU) assets on its balance sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company has leases with fixed payments for land-use-rights, warehouses and logistics centers, flagship stores, and leases with variable payments for stores within shopping malls (“shopping mall stores”) in the PRC, which are classified as operating leases. Options to extend or renew are recognized as part of the lease liabilities and recognized as right of use assets. There are no residual value guarantees and no restrictions or covenants imposed by the leases.

  

The weighted average remaining lease term excluding stores in the shopping malls is 30 years and the weighted average discount rate is 4.35%. The lease term for shopping mall stores is commonly one year with options to extend or renew, and the rent is predetermined with a percentage of sales. The Company estimates the next 12 months rent for the shopping mall stores by annualizing current period rent calculated with the percentage of sales. Thus, the ROU assets and lease liabilities may vary significantly at different period ends. For stores closed before the lease end, we would incur insignificant amounts in net of loss on impairment of ROU assets and gain on extinguishment of lease liabilities, which are recorded in the current period statement of income (loss) and comprehensive income (loss). 

 

In the nine months ended September 30, 2021, the costs of the leases recognized in cost of revenues and general administrative expenses are $22.5 million and $0.6 million, respectively. Cash paid for the operating leases including in the operating cash flows was $23.1 million. In the nine months ended September 30, 2020, the costs of the leases recognized in cost of revenues and general administrative expenses are $18.9 million and $0.6 million, respectively. Cash paid for the operating leases including in the operating cash flows was $19.5 million.

 

The following table summarizes the maturity of operating lease liabilities:

 

Year ending December 31, (In thousands of U.S. Dollars)      
2021   $ 188  
2022     751  
2023     766  
2024     432  
2025     432  
Thereafter     12,883  
Total lease payment     15,452  
Less: Interest     6,904  
Total   $ 8,548  

 

Legal Proceedings

 

We are not aware of any pending legal proceedings to which we are a party which is material or potentially material, either individually or in the aggregate. We are from time to time, during the normal course of our business operations, subject to various litigation claims and legal disputes. We do not believe that the ultimate disposition of any of these matters will have a material adverse effect on our financial position, results of operations or liquidity. 

 

Lawsuits against Client A

 

In November 2020, the Company’s two subsidiaries, Ever-Glory International Group Apparel Inc. and Goldenway Nanjing Garments Company Limited filed a complaint against Client A (“Client A”) for unpaid goods worth RMB 70.15 million ($10.86 million) in the Tianjin No.1 Intermediate People’s Court based on processing contracts between the parties. The Company has applied for interim measures with the court and has frozen bank accounts of Client A for a total amount of RMB 68.12 million ($10.54 million). The Company has delivered goods worth RMB 62.06 million ($9.51 million) to Client A pursuant to the processing contracts. The Company also seeks Client A for the payment of the loss incurred from the cost of raw materials paid to suppliers in the amount of RMB 8.09 million ($1.25 million) in reliance on the processing contracts. The Company received RMB 71.4 million ($11.05 million) from Client A in April 2021 which settled the complaint amount.

 

13

 

 

NOTE 11 RISKS AND UNCERTAINTIES

 

Economic and Political Risks

 

The Company’s results of operations could be adversely affected by general conditions in the global economy, including conditions that are outside of its control, such as the impact of health and safety concerns from the outbreak of COVID-19. The outbreak in China has resulted in the reduction of customer traffic and temporary closures of shopping malls as mandated by the provincial governments in various provinces of China from late January to March, which has adversely affected the company in the retail business with a decline in sales since February 2020. The Company’s wholesale business is also significantly affected as the Company is facing a sharp decline in its order quantities. Some of the Company’s wholesale clients have also cancelled or postponed existing orders.  Due to the Chinese factories’ shutdowns and traffic restrictions during the outbreak in China and potential shutdowns and traffic restrictions in the countries where the Company’s suppliers are located, The Company’s supply chain and business operations of its suppliers may be affected. Disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of the Company’s or its suppliers’ or customers’ products, could have adverse ripple effects on the Company’s manufacturing output and delivery schedule. The Company could also face difficulties in collecting its accounts receivables due to the effects of COVID-19 on its customers and risk gaining a large amount of bad debt. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which the Company, its suppliers and customers operate.

 

Although China has already begun to recover from the outbreak of COVID-19, the epidemic continues to spread on a global scale and there is the risk of the epidemic returning to China in the future, thereby causing further business interruption. While the potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect the Company’s business and the value of its common stock. If the Company’s future sales continue to decline significantly, it may risk facing financial difficulties due to its recurring fixed expenses. The extent to which COVID-19 impacts the Company’s operating is uncertain and cannot be predicted at this time, and it will depend on many factors and future developments, including new information about COVID-19 and any new government regulations which may emerge to contain the virus, among others. 

 

The majority of the Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation. 

 

Credit risk

 

The Company extends unsecured credit to its customers in the normal course of business and generally does not require collateral. As a result, management performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of accounts receivable. In the analysis, management primarily considers the age of the customer’s receivable and also considers the credit worthiness of the customer, the economic conditions of the customer’s industry, and general economic conditions and trends, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts.  If judgments regarding the collectability of accounts receivables are incorrect, adjustments to the allowance may be required, which would reduce profitability.  

 

14

 

 

Concentration risk 

  

For the three months ended September 30, 2021, the Company had one wholesale customer that represented approximately 17% of the Company’s revenues. For the nine months ended September 30, 2021, the Company had one wholesale customer that represented approximately 15% of the Company’s revenues. For the three months ended September 30, 2020, the Company had two wholesale customers that represented approximately 18.0% and 11.5% of the Company’s revenues. For the nine months ended September 30, 2020, the Company had two wholesale customers that represented approximately 12.2% and 10.3% of the Company’s wholesale revenues.

 

For the wholesale business, the Company did not rely on any raw material supplier that represented more than 10% of the total raw material purchases during the three and nine months ended September 30, 2021 and 2020.

 

For the retail business, the Company relied on five raw material suppliers that represented approximately 30%, 24%, 19%,11% and 10% of raw material purchases during the nine months ended September 30, 2021. For the Company’s retail business, the Company had four suppliers that represented approximately 37%, 21%, 17% and 14% of raw materials purchases during the nine months ended September 30, 2020.

  

For the wholesale business, the Company relied on one finished goods supplier which is a related-party that represented 29.7% of the total finished goods purchases during the nine months ended September 30, 2021. For the wholesale business, the Company had two suppliers that represented approximately 11% and 10% of finished goods purchases during the nine months ended September 30, 2020.

  

For the retail business, the Company did not rely on any supplier that represented more than 10% of the total finished goods purchases during the nine months ended September 30, 2021 and 2020.

 

The Company’s revenues for the three and nine months ended September 30, 2021 and 2020 were earned in the following geographic areas:

 

    Three months ended
September 30, 		    Nine months ended
September 30, 		 
    2021     2020     2021     2020  
    (In thousands of U.S. Dollars)  
The People’s Republic of China   $ 16,376     $ 7,171     $ 28,222     $ 14,935  
Hong Kong China     9,153       12,019       16,124       17,063  
United Kingdom     2,020       7,116       5,558       8,425  
Europe-Other     8,846       8,690       18,905       16,443  
Japan     8,435       3,124       13,390       9,714  
United States     17,373       6,945       29,650       22,823  
Total wholesale business     62,202       45,065       111,849       89,403  
Retail business     32,204       34,843       113,927       98,947  
Total   $ 94,406     $ 79,908     $ 225,776     $ 188,350  

 

15

 

 

NOTE 12 SEGMENTS

 

The Company reports financial and operating information in the following two segments:

 

(a) Wholesale segment

  

(b) Retail segment

   

    Wholesale
segment 		    Retail
segment 		    Total  
    (In thousands of U.S. Dollars)  
Nine months ended September 30, 2021                  
Segment profit or loss:                  
Net revenue from external customers   $ 111,849       113,927       225,776  
Income (loss) from operations   $ 199       (5,635 )     (5,437 )
Interest income   $ 849       79       928  
Interest expense   $ 1,828       82       1,909  
Depreciation and amortization   $ 657       3,727       4,384  
Income (loss) before income tax expense     2,135       (4,533 )     (2,398 )
Income tax expense   $ 2,735       1,024       3,759  
Segment assets:                        
Additions to property, plant and equipment     1,406       3,703       5,109  
Inventory     24,972       42,303       67,275  
Total assets     186,276       151,458       337,734  

 

    Wholesale
segment 		    Retail
segment 		    Total  
    (In thousands of U.S. Dollars)  
Nine months ended September 30, 2020      
Segment profit or loss:                  
Net revenue from external customers   $ 89,403       98,947       188,350  
Income (Loss) from operations   $ 3,467       (7,985 )     (4,518 )
Interest income   $ 865       65       930  
Interest expense   $ 1,382       225       1,607  
Depreciation and amortization   $ 841       3,273       4,114  
Income (Loss) before income tax expense     4,143       (7,102 )     (2,959 )
Income tax expense   $ 965       350       1,315  
Segment assets:                        
Additions to property, plant and equipment     2,494       275       2,769  
Inventory     9,712       36,731       46,443  
Total assets     126,755       164,258       291,013  

  

16

 

 

    Wholesale
segment 		    Retail
segment 		    Total  
    (In thousands of U.S. Dollars)  
Three months ended September 30, 2021      
Segment profit or loss:                  
Net revenue from external customers   $ 62,203       32,203       94,406  
Income (loss) from operations   $ 3,570       (4,270 )     (700 )
Interest income   $ 150       26       176  
Interest expense   $ 1,189       29       1,218  
Depreciation and amortization   $ 347       825       1,172  
Income (Loss)before income tax expense     2,575       (3,847 )     (1,272 )
Income tax expense   $ 1,932       13       1,945  

  

    Wholesale
segment 		    Retail
segment 		    Total  
    (In thousands of U.S. Dollars)  
Three months ended September 30, 2020      
Segment profit or loss:                  
Net revenue from external customers   $ 45,065       34,843       79,908  
Income from operations   $ 2,466       393       2,859  
Interest income   $ 289       24       313  
Interest expense   $ 662       38       700  
Depreciation and amortization   $ 257       261       518  
Income before income tax expense     2,417       629       3,046  
Income tax expense   $ 497       325       822  

 

NOTE 13 SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through the date which the consolidated financial statements were available to be issued. All subsequent events requiring recognition as of September 30, 2021 have been incorporated into these consolidated financial statements and there are no other significant subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.” 

 

17

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2021 should be read in conjunction with the Financial Statements and corresponding notes included in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions to identify forward-looking statements.

 

Overview

 

Our Business

 

We are a retailer of branded fashion apparel and leading global apparel supply chain solution provider based in China. We are listed on the NASDAQ Global Market under the symbol of “EVK”.

 

We classify our businesses into two segments: Wholesale and Retail. Our wholesale business consists of wholesale-channel sales made principally to domestically and international recognized brands, and department stores located throughout Europe, the U.S., Japan and the People’s Republic of China (“PRC”). We focus on well-known, middle-to-high end casual wear, sportswear, and outerwear brands. Our retail business consists of retail-channel sales directly to consumers through retail stores located throughout the PRC as well as sales via online stores at Tmall, Dangdang mall, JD.com, VIP.com and etc.

 

Although we have our own manufacturing facilities, we currently outsource most of the manufacturing to our long-term contractors as part of our overall business strategy. We believe outsourcing allows us to maximize our production capacity and maintain flexibility while reducing capital expenditures and the costs of keeping skilled workers on production lines during slow seasons. We oversee our long-term contractors with our advanced management solutions and inspect products manufactured by them to ensure that they meet our high-quality control standards and timely delivery requirement.

 

Wholesale Business

 

We conduct our original design manufacturing (“ODM”) operations through seven wholly owned subsidiaries which are located in the Nanjing Jiangning Economic and Technological Development Zone and Shang Fang Town in the Jiangning District in Nanjing, Jiangsu province, China, Chuzhou, Anhui province, China and Samoa: Ever-Glory International Group Apparel Inc. (“Ever-Glory Apparel”), Goldenway Nanjing Garments Company Limited (“Goldenway”), Nanjing New-Tailun Garments Company Limited (“New Tailun”), Nanjing Catch-Luck Garments Co., Ltd. (“Catch-Luck”), Chuzhou Huirui Garments Co., Ltd. (“Huirui), Nanjing Tai Xin Garments Trading Company Limited (“Tai Xin”), Haian Tai Xin Garments Trading Company Limited (“Haian Tai Xin”), Nanjing Rui Lian Technology Company Limited (“Nanjing Rui Lian”), Ever-Glory Supply Chain Service Co., Limited (“Ever-Glory Supply Chain”) and Ever-Glory International Group (HK) Ltd. (“Ever-Glory HK”).

 

Retail Business

 

We conduct our retail operations through Shanghai LA GO GO Fashion Company Limited (“LA GO GO”), Jiangsu LA GO GO Fashion Company Limited (“Jiangsu LA GO GO”), Tianjin LA GO GO Fashion Company Limited (“Tianjin LA GO GO”), Shanghai Ya Lan Fashion Company Limited (“Ya Lan”), Nanjing Tai Xin Garments Trading Company Limited (“Tai Xin”), and Xizang He Meida Trading Company Limited (“He Meida”). He Media was closed in April 2021.

 

Shanghai Yiduo Fashion Company Limited, the only then subsidiary with non-controlling interests, was deconsolidated from the financial statements as of December 31, 2020 as a result of bankruptcy liquidation.

 

18

 

 

Business Objectives

 

Wholesale Business

 

We believe the enduring strength of our wholesale business is mainly due to our consistent emphasis on innovative and distinctive product designs that stand for exceptional styling and quality. We maintain long-term, satisfactory relationships with a portfolio of well-known and mid-class global brands.

  

The primary business objective for our wholesale segment is to expand our portfolio into higher-class brands, expand our customer base and improve our profit. We believe that our growth opportunities and continued investment initiatives include:

 

  ● Expanding our global sourcing network;
     
  ● Expanding our overseas low-cost manufacturing base (outside of mainland China);
     
  ● Focusing on high value-added products and continuing our strategy to produce mid-to-high end apparel;

 

  ● Continuing to emphasize product design and technology utilization;
     
  ● Seeking strategic acquisitions of international distributors that could enhance global sales and our distribution network; and
     
  ● Maintaining stable revenue increase in the markets while shifting focus to higher margin wholesale markets such as mainland China.

  

Retail Business

 

The business objectives for our retail segment are to establish leading brands of women’s apparel and to build a nationwide retail network in China. As of September 30, 2021, we had 893 stores (including store-in-stores), which includes 83 stores that were opened and 126 stores that were closed in the three quarters of 2021. We had 31 stores that were opened and 69 stores that were closed during the three months ended September 30, 2021.

 

We believe that our growth opportunities and continued investment initiatives include:

 

  ● Building our retail brand to be recognized as a major player in the mid-to-high end women’s apparel market in China;
     
  ● Expanding our retail network throughout China;
     
  ● Improving our retail stores’ efficiency and increasing same-store sales;
     
  ● Continuing to launch retail flagship stores in Tier-1 cities and increasing our penetration and coverage in Tier-2 and Tier-3 cities; and
     
  ● Taking advantage of our position as a multi-brand operator.

 

Partnership Investment

 

The Company had idle cash and cash equivalent in operation. In order to realize the capital preservation and appreciation, Ever-Glory Apparel invested in a Partnership in August 2020. As a limited partner of the Partnership, Ever-Glory Apparel does not have the right to kick-out and appointment of general manager. Therefore, Ever-Glory does not have ability to exercise significant influence. In the meantime, the Company entered an agreement with the GP and an individual that the Company has the privilege to sell the ownership interests in the Partnership to GP or the individual for the consideration of the average net asset value ten days prior to the closing date, if the Company is not able to withdraw any part of the original investment from the Partnership during the optional withdrawal period. If the Company opts to withdraw entire investment during the optional withdrawal period, the GP will compensate up to 8% of annual return on investment. If the return on investment is in excess of 8% for any portion of the investment withdrawn during the optional withdrawal period, then 20% of the return in excess of 8% will be shared with the individual. The Company may also continue to invest in the Partnership beyond the optional withdrawal period, but none of above agreement with the GP and the individual is in place. In December 2020, the Partnership invested in a public company in China.

 

19

 

 

In September 2021, Goldenway signed an agreement and promised to invest in a Chinese private company. Goldenway advanced $0.8 million (RMB 5.0 million) in September 2021 for 20% shares of the investee. The investee completed the registration in October 2021. As of September 30, 2021 the investment advances were recorded as the other non-current assets. Goldenway and the investee are in the process of finalizing the detail terms for the whole investment.

 

Seasonality of Business

 

Our business is affected by seasonal trends, with higher levels of wholesale sales in our third and fourth quarters and higher retail sales in our first and fourth quarters. These trends primarily result from the timing of seasonal wholesale shipments and holiday periods in the retail segment.

  

Collection Policy

 

Wholesale business

 

For our new customers, we generally require orders placed to be backed by letters of credit. For our long-term and established customers with good payment track records, we generally provide payment terms between 30 to 180 days following the delivery of finished goods.

 

Retail business

 

For store-in-store shops, we generally receive payments from the stores between 60 to 90 days following the date of the register receipt. For our own flagship stores, we receive payments on the same day of the register receipt. For sales from e-commerce platforms such as Tmall, Dangdang mall, JD.com, VIP.com and etc., we generally receive payments between 5 to 15 days following the date of the register receipt.

 

Global Economic Uncertainty

 

Our business is dependent on consumer demand for our products. We believe that the significant uncertainty in the global economy and the slowdown of economies in the United States and Europe have increased our clients’ sensitivity to the cost of our products. We have experienced continued pricing pressure. If the global economic environment continues to be weak, these worsening economic conditions could have a negative impact on our sales growth and operating margins in our wholesale segment in 2020 and 2021.

 

In addition, economic conditions in the United States and other foreign markets in which we operate could substantially affect our sales profitability, cash position and collection of accounts receivable. Global credit and capital markets have experienced unprecedented volatility and disruption. Business credit and liquidity have tightened in much of the world. Some of our suppliers and customers may face credit issues and could experience cash flow problems and other financial hardships. These factors currently have not had an impact on the timeliness of receivable collections from our customers. We cannot predict at this time how this situation will develop and whether accounts receivable may need to be allowed for or written off in the coming quarters.

 

Our results of operations could be adversely affected by general conditions in the global economy, including conditions that are outside of our control, such as the impact of health and safety concerns from the outbreak of COVID-19. The outbreak in China resulted in the reduction of customer traffic and temporary closures of shopping malls as mandated by the provincial governments in various provinces of China from late January to March, which had adversely affected our retail business with a decline in sales since February 2020. Our wholesale business was also significantly affected as we were facing a sharp decline in our order quantities. Some of our wholesale clients had also cancelled or postponed existing orders.  Due to the Chinese factories’ shutdowns and traffic restrictions during the outbreak in China and potential shutdowns and traffic restrictions in the countries where our suppliers are located, our supply chain and business operations of our suppliers may be affected. Disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, could have adverse ripple effects on our manufacturing output and delivery schedule. We also face difficulties in collecting our accounts receivables due to the effects of COVID-19 on our customers and risk gaining a large amount of bad debt. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which we or our suppliers and customers operate.

 

20

 

 

Although China has already begun to recover from the outbreak of COVID-19, the epidemic continues to spread on a global scale and there is the risk of the epidemic returning to China in the future, thereby causing further business interruption. While the potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. If our future sales continue to decline significantly, we may risk facing bankruptcy due to our recurring fixed expenses. The extent to which COVID-19 impacts our results will depend on many factors and future developments, including new information about COVID-19 and any new government regulations which may emerge to contain the virus, among others.

 

Despite the various risks and uncertainties associated with the current global economy, we believe our core strengths will continue to allow us to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow.

 

Summary of Critical Accounting Policies

 

We have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operation involved could result in material changes to our financial position or results of operations under different conditions or using different assumptions.

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 30, 2021 (“2020 Form 10-K.”)

 

Estimates and Assumptions

 

In preparing our condensed consolidated financial statements, we use estimates and assumptions that affect the reported amounts and disclosures. Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but that are inherently uncertain and unpredictable. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts. Significant estimates in 2021 and 2020 include the assumptions used to value tax liabilities, the estimates of the allowance for deferred tax assets, and the accounts receivable allowance, and impairment of long-lived assets and inventory write-offs.

  

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13 ”Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”; In November 2019, the FASB issued ASU No. 2019-10 “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”; In March 2020, the FASB issued ASU No. 2020-03 “Codification Improvements to Financial Instruments”; which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2022. The Company is currently assessing the impact of this ASU on its consolidated financial statements.

 

The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements.

 

21

 

 

Results of Operations for the three months ended September 30, 2021 and 2020

 

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020. The table and the discussion below should be read in conjunction with our condensed consolidated financial statements and the notes thereto appearing elsewhere in this report.

 

    Three Months Ended September 30,  
    2021     2020  
    (In thousands of U.S. dollars, except for percentages)  
Sales   $ 94,406       100.0 %   $ 79,908       100.0 %
Gross Profit   $ 23,210       24.6 %   $ 23,673       29.6 %
Operating Expense   $ 23,910       25.3 %   $ 20,814       26.0 %
(Loss) Income From Operations   $ (700 )     (0.7 )%   $ 2,859       3.6 %
Other (Expenses) Income   $ (572 )     (0.6 )%   $ 187       0.2 %
Income tax expense   $ 1,945       2.1 %   $ 822       1.0 %
Net (Loss) Income   $ (3,217 )     (3.4 )%   $ 2,224       2.8 %

 

Revenue

 

The following table sets forth a breakdown of our total sales, by region, for the three months ended September 30, 2021 and 2020.

 

    2021     % of
total sales 		    2020     % of
total sales 		   

Growth
(Decrease)

in 2021
compared
with 2020

 
Wholesale business   (In thousands
of
U.S. dollars) 		          (In thousands
of
U.S. dollars) 		             
Mainland China   $ 16,376       17.3 %   $ 7,171       9.0 %     128.4 %
Hong Kong China     9,153       9.7       12,019       15.0       (23.8 )
United Kingdom     2,020       2.1       7,116       8.9       (71.6 )
Europe-Other     8,846       9.4       8,690       10.9       1.8  
Japan     8,435       8.9       3,124       3.9       170.0  
United States     17,372       18.5       6,945       8.7       150.1  
Total Wholesale business     62,202       65.9       45,065       56.4       38.0  
Retail business     32,204       34.1       34,843       43.6       (7.6 )
Total sales   $ 94,406       100.0 %   $ 79,908       100.0 %     18.1 %

  

Sales for the three months ended September 30, 2021 were $94.4 million, an 18.1% increase compared with the three months ended September 30, 2020. This increase was primarily attributable to a 38.0% increase in sales in our wholesale business, partially offset by a 7.6% decrease in our retail business.

 

Sales generated from our wholesale business contributed 65.9% or $62.2 million of our total sales for the three months ended September 30, 2021, a 38.0% increase compared with 56.4% or $45.1 million in the three months ended September 30, 2020. This increase was primarily attributable to an increase in sales in Mainland China, Europe-Other, Japan and United States partially offset by a decrease in sales in Hong Kong and United Kingdom.

 

22

 

 

Sales generated from our retail business contributed 34.1% or $32.2 million of our total sales for the three months ended September 30, 2021, a 7.6% decrease compared with 43.6% or $34.8 million in the three months ended September 30, 2020. This decrease was primarily due to a decrease in the e-commerce sales.

 

Costs and Expenses

 

Cost of Sales and Gross Margin

 

Cost of goods sold includes the direct raw material cost, direct labor cost, and manufacturing overhead including depreciation of production equipment and rent, consistent with the revenue earned. Cost of goods sold excludes warehousing costs, which historically have not been significant.

 

The following table sets forth the components of our cost of sales and gross profit both in amounts and as a percentage of total sales for the three months ended September 30, 2021 and 2020.  

 

                            Growth  
                            (Decrease) in
2021 		 
    Three months ended September 30,     Compared  
    2021     2020     with 2020  
    (In thousands of U.S. dollars, except for percentages)        
Net Sales for Wholesale Sales   $ 62,202       100.0 %   $ 45,065       100.0 %     38.0 %
Raw Materials     29,507       47.4       20,435       45.3       44.4  
Labor     422       0.7       366       0.8       15.3  
Outsourced Production Costs     20,967       33.7       14,915       33.1       40.6  
Other and Overhead     1,090       1.8       157       0.3       545.3  
Total Cost of Sales for Wholesale     51,986       83.6       35,873       79.6       44.9  
Gross Profit for Wholesale     10,217       16.4       9,192       20.4       11.2  
Net Sales for Retail     32,204       100.0       34,843       100.0       (7.6 )
Production Costs     12,632       39.2       13,212       37.9       (4.4 )
Rent     6,579       20.4       7,150       20.5       (8.0 )
Total Cost of Sales for Retail     19,210       59.7       20,362       58.4       (5.7 )
Gross Profit for Retail     12,993       40.3       14,481       41.6       (10.3 )
Total Cost of Sales     71,196       75.4       56,235       70.4       26.6  
Gross Profit   $ 23,210       24.6 %   $ 23,673       29.6 %     (2.0 )%

  

Raw material costs for our wholesale business were 47.4% of our total wholesale business sales in the three months ended September 30, 2021, compared with 45.3% in the three months ended September 30, 2020. The increase was mainly due to higher raw material purchase prices. 

 

Labor costs for our wholesale business were 0.7% of our total wholesale business sales in the three months ended September 30, 2021, compared with 0.8% in the three months ended September 30, 2020.

 

Outsourced production costs for our wholesale business for the three months ended September 30, 2021 increased to $21.0 million from $14.9 million for the three months ended September 30, 2020. Outsourced production costs accounted for 33.7% of our total wholesale business sales in the three months ended September 30, 2021, a 40.6% increase from the three months ended September 30, 2020. This increase in percentage was primarily attributable to higher labor costs.

 

23

 

 

Overhead and other expenses for our wholesale business accounted for 1.8% of our total wholesale business sales for the three months ended September 30, 2021, compared with 0.3% of total wholesale business sales for the three months ended September 30, 2020.

 

Wholesale business gross profit for the three months ended September 30, 2021 was $10.2 million compared with $9.2 million for the three months ended September 30, 2020. Gross profit accounted for 16.4% of our total wholesale sales for the three months ended September 30, 2021, compared with 20.4% for the three months ended September 30, 2020. The decrease was mainly due to an increase in wholesale raw material prices and outsourced production costs.

 

Production costs for our retail business were $12.6 million for the three months ended September 30, 2021 compared with $13.2 million during the three months ended September 30, 2020. Retail production costs accounted for 39.2% of our total retail sales in the three months ended September 30, 2021, compared with 37.9% for the three months ended September 30, 2020. The decrease in amount was due to decrease in sales. 

 

Rent costs for our retail business for the three months ended September 30, 2021 were $6.6 million compared with $7.2 million for the three months ended September 30, 2020. Rent costs for our retail business accounted for 20.4% of our total retail sales for the three months ended September 30, 2021, compared with 20.5% for the three months ended September 30, 2020. There were no significant changes.

  

Gross profit in our retail business for the three months ended September 30, 2021 was $13.0 million and gross margin was 40.3%. Gross profit in our retail business for the three months ended September 30, 2020 was $14.5 million and gross margin was 41.6%. The decrease was primarily due to increased production costs and write off obsolete inventories.

 

Total cost of sales for the three months ended September 30, 2021 was $71.2 million, a 26.6% increase from $56.2 million for the three months ended September 30, 2020. Total cost of sales as a percentage of total sales for the three months ended September 30, 2021 was 75.4%, compared with 70.4% for the three months ended September 30, 2020. Gross margin for the three months ended September 30, 2021 was 24.6% compared with 29.6% for the three months ended September 30, 2020.  

 

Selling, General and Administrative Expenses

 

Our selling expenses consist primarily of local transportation, unloading charges, product inspection charges, salaries for retail staff and decoration and marketing expenses associated with our retail business.

 

Our general and administrative expenses include administrative salaries, office expense, certain depreciation and amortization charges, repairs and maintenance, legal and professional fees, warehousing costs and other expenses that are not directly attributable to our revenues.

 

Costs of our distribution network that are excluded from cost of sales consist of local transportation and unloading charges and product inspection charges. Accordingly, our gross profit amounts may not be comparable to those of other companies who include these amounts in cost of sales.

   

    Three Months Ended September 30,     Increase
(Decrease)
in 2021
Compared 		 
    2021     2020     to 2020  
    (In thousands of U.S. dollars, except for percentages)        
Gross Profit   $ 23,210       24.6 %   $ 23,673       29.6 %     (2.0 )%
Operating Expenses:             　               　       　  
Selling Expenses     14,443       15.3       12,996       16.3       11.1  
General and Administrative Expenses     9,467       10.0       7,818       9.8       21.1  
Total     23,910       25.3       20,814       26.0       14.9  
(Loss) Income from Operations   $ (700 )     (0.7 )%   $ 2,859       3.6 %     (124.5 )%

 

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Selling expenses for the three months ended September 30, 2021 increased 11.1% to $14.4 million from $13.0 million for the three months ended September 30, 2020. The increase was attributable to the higher travelling expenses. 

 

General and administrative expenses for the three months ended September 30, 2021 increased 21.1% to $9.5 million from $7.8 million for the three months ended September 30, 2020. The increase was attributable to the increased salaries.

 

(Loss) Income from Operations

 

(Loss) income from operations for the three months ended September 30, 2020 decreased 124.5% to ($0.7) million from $2.9 million for the three months ended September 30, 2020. (Loss) income from operations accounted for (0.7%) and 3.6% of our total sales during the three months ended September 30, 2021 and 2020.

 

Interest Expense

 

Interest expense for the three months ended September 30, 2021 was $1.2 million, a 74.0% increase compared with the same period in 2020. The increase was due to the increased bank loans. 

 

Income Tax Expenses

 

Income tax expense was $1.9 million and $0.8 million for the three months ended September 30, 2021 and 2020, respectively. The increased income tax expenses are mainly due to some subsidiaries are profitable and there are higher income tax expenses but other subsidiaries are loss.

   

Net (Loss) Income

 

Net (loss) income for the three months ended September 30, 2021 was ($3.2) million, a 244.9% decrease compared with the same period in 2020. Our basic and diluted (loss) earnings per share were ($0.22) and $0.15 for the three months ended September 30, 2021 and 2020, respectively. 

 

Results of Operations for the nine months ended September 30, 2021 and 2020

 

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020. The table and the discussion below should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this report.

 

    Nine Months Ended September 30,  
    2021     2020  
    (In thousands of U.S. Dollars, except for percentages)  
Sales   $ 225,776       100.0 %   $ 188,350       100.0 %
Gross Profit     64,038       28.4       54,157       28.8  
Operating Expense     69,475       30.8       58,675       31.2  
(Loss) Income From Operations     (5,437 )     (2.4 )     (4,518 )     (2.4 )
Other Income     3,039       1.3       1,559       0.8  
Income tax expense     3,759       1.7       1,315       0.7  
Net (Loss) Income   $ (6,157 )     (2.7 )%   $ (4,274 )     (2.3 )%

  

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Revenue

 

The following table sets forth a breakdown of our total sales, by region, for the nine months ended September 30, 2021 and 2020.

 

    2021     % of total sales     2020     % of total sales    

Growth (Decrease)

in 2021 compared
with 2020

 
Wholesale business   (In thousands
of
U.S. dollars) 		          (In thousands
of
U.S. dollars) 		             
Mainland China   $ 28,222       12.5 %   $ 14,935       7.9 %     89.0 %
Hong Kong China     16,124       7.1       17,063       9.1       (5.5 )
United Kingdom     5,558       2.5       8,425       4.7       (34.0 )
Europe-Other     18,905       8.4       16,443       8.6       15.0  
Japan     13,390       5.9       9,714       5.2       37.8  
United States     29,650       13.1       22,823       12.1       29.9  
Total Wholesale business     111,849       49.5       89,403       47.5       25.1  
Retail business     113,927       50.5       98,947       52.5       15.1  
Total sales   $ 225,776       100.0 %   $ 188,350       100.0 %     19.9 %

  

Sales for the nine months ended September 30, 2021 were $225.8 million, an increase of 19.9% from the nine months ended September 30, 2020. This increase was primarily attributable to a 25.1% increase in sales in our wholesale business and a 15.1% increase in our retail business.

 

Sales generated from our wholesale business contributed 49.5% or $111.8 million of our total sales for the nine months ended September 30, 2021, an increase of 25.1% compared with 47.5% or $89.4 million in the nine months ended September 30, 2020. This increase was primarily attributable to increased sales in Mainland China, Europe-Other, Japan and the United States, partially offset by decreased sales in Hong Kong China and United Kingdom,.

 

Sales generated from our retail business contributed 50.5% or $113.9 million of our total sales for the nine months ended September 30, 2021, an increase of 15.1% compared with $98.9 million in the nine months ended September 30, 2020. This increase was primarily due to an increase in same store sales.

 

Total retail store square footage and sales per square foot for the nine months ended September 30, 2021 and 2020 are as follows:

 

    2021     2020  
Total store square footage     982,683       983,291  
Number of stores     893       923  
Average store size, square feet     1,100       1,065  
Total store sales (in thousands of U.S. dollars)   $ 113,927     $ 98,947  
Sales per square foot   $ 116     $ 101  

   

Same store sales and newly opened store sales for the nine months ended September 30, 2021 and 2020 are as follows:

 

    2021     2020  
    (In thousands of U.S. dollars)  
Sales from stores opened for a full year   $ 89,478     $ 77,727  
Sales from newly opened store sales   $ 6,950     $ 6,060  
Sales from e-commerce platform   $ 9,725     $ 10,355  
Other*   $ 7,774     $ 4,805  
Total   $ 113,927     $ 98,947  

  

* Primarily sales from stores that were closed in the current reporting period.

 

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We remodeled or relocated 54 stores in year 2020, and 113 stores during the nine months ended September 30, 2021. We plan to relocate or remodel 100 to 150 stores in 2021. Remodels and relocations typically drive incremental same-store sales growth. A relocation typically results in an improved, more visible and accessible location, and usually includes increased square footage. We believe we will continue to have opportunities for additional remodels and relocations beyond 2021.  Same-store sales are calculated based upon stores that were open at least 12 full fiscal months in each reporting period and remain open at the end of each reporting period.

  

Costs and Expenses

 

Cost of Sales and Gross Margin

 

Cost of goods sold includes the direct raw material cost, direct labor cost, and manufacturing overhead including depreciation of production equipment and rent, consistent with the revenue earned. Cost of goods sold excludes warehousing costs, which historically have not been significant.

  

The following table sets forth the components of our cost of sales and gross profit both in amounts and as a percentage of total sales for the nine months ended September 30, 2021 and 2020.

 

                            Growth  
                            (Decrease) in
2021 		 
    Nine months ended September 30,     Compared  
    2021     2020     with 2020  
    (In thousands of U.S. dollars, except for percentages)        
Net Sales for Wholesale Sales   $ 111,849       100.0 %   $ 89,403       100.0 %     25.1 %
Raw Materials     51,299       45.9       39,139       43.8       31.1  
Labor     1,141       1.0       910       1.0       25.4  
Outsourced Production Costs     39,744       35.5       31,909       35.7       24.6  
Other and Overhead     1,290       1.2       395       0.4       226.3  
Total Cost of Sales for Wholesale     93,474       83.6       72,353       80.9       29.2  
Gross Profit for Wholesale     18,375       16.4       17,050       19.1       7.8  
Net Sales for Retail     113,927       100.0       98,947       100.0       15.1  
Production Costs     45,784       40.2       42,923       43.4       6.7  
Rent     22,480       19.7       18,917       19.1       18.8  
Total Cost of Sales for Retail     68,264       59.9       61,840       62.5       10.4  
Gross Profit for Retail     45,663       40.1       37,107       37.5       23.1  
Total Cost of Sales     161,738       71.6       134,193       71.2       20.5  
Gross Profit   $ 64,038       28.4 %   $ 54,157       28.8 %     18.2 %

  

Raw material costs for our wholesale business were 45.9% of our total wholesale business sales in the nine months ended September 30, 2021, compared with 43.8% in the nine months ended September 30, 2020. The increase was mainly due to higher raw material purchase prices.

 

Labor costs for our wholesale business were 1.0% of our total wholesale business sales in the nine months ended September 30, 2021, compared with 1.0% in the nine months ended September 30, 2020.

 

Outsourced manufacturing costs for our wholesale business were 35.5% or $39.7 million in the nine months ended September 30, 2021, compared with 35.7% or $31.9 million in the nine months ended September 30, 2020. There were no significant changes in percentage of sales.

 

Overhead and other expenses for our wholesale business accounted for 1.2% and 0.4% of our total wholesale sales for the nine months ended September 30, 2021 and 2020, respectively.

 

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Gross profit for our wholesale business for the nine months ended September 30, 2021 was $18.4 million, a 7.8% increase compared with the nine months ended September 30, 2020. As a percentage of total wholesale business sales, the gross margin was 16.4% of our total wholesale business sales for the nine months ended September 30, 2021, compared with 19.1% for the nine months ended September 30, 2020. The decrease in gross margin was mainly due to an increase in raw material prices.

 

Production costs for our retail business for the nine months ended September 30, 2021 were $45.8 million compared with $42.9 million for the nine months ended September 30, 2020. As a percentage of our total retail sales, production costs were 40.2% of our total retail sales for the nine months ended September 30, 2021, compared with 43.4% for the nine months ended September 30, 2020. The increase was due to higher discounts on our past season products in the nine months ended September 30, 2021 compared with the same period of the prior year of sales.

   

Rent costs for our retail business for the nine months ended September 30, 2021 were $22.5 million compared with $18.9 million for the nine months ended September 30, 2020. As a percentage of total retail sales, rent costs were 19.7% of our total retail sales for the nine months ended September 30, 2021 compared with 19.1% for the nine months ended September 30, 2020. The increase was primarily attributable to higher rent at certain locations.

 

Gross profit for our retail business for the nine months ended September 30, 2021 was $45.7 million compared with $37.1 million for the nine months ended September 30, 2020. Gross margin for our retail business for the nine months ended September 30, 2021 was 40.1% compared with 37.5% for the nine months ended September 30, 2020.

 

Total cost of sales for the nine months ended September 30, 2021 was $161.7 million, a 20.5% increase compared with the nine months ended September 30, 2020. As a percentage of total sales, total costs were 71.6% of total sales for the nine months ended September 30, 2021, compared with 71.2% for the nine months ended September 30, 2020. Total gross margin for the nine months ended September 30, 2021 was 28.4% compared with 28.8% for the nine months ended September 30, 2020.

   

Selling, General and Administrative Expenses

 

Our selling expenses consist primarily of local transportation, unloading charges, product inspection charges, salaries for retail staff and decoration and marketing expenses associated with our retail business.

 

Our general and administrative expenses include administrative salaries, office expense, certain depreciation and amortization charges, repairs and maintenance, legal and professional fees, warehousing costs and other expenses that are not directly attributable to our revenues.

  

Costs of our distribution network that are excluded from cost of sales consist of local transportation and unloading charges, and product inspection charges. Accordingly, our gross profit amounts may not be comparable to those of other companies who include these amounts in costs of sales.

  

    Nine months ended September 30,     Increase (Decrease) in 2021 Compared  
    2021     2020     to 2020  
    (In thousands of U.S. dollars, except for percentages)        
Gross Profit   $ 64,038       28.4 %   $ 54,157       28.8 %     18.2 %
Operating Expenses:             　               　       　  
Selling Expenses     44,495       19.7       39,101       20.8       13.8  
General and Administrative Expenses     24,980       11.1       19,574       10.4       27.6  
Total     69,475       30.8       58,675       31.2       18.4  
Loss from Operations   $ (5,437 )     (2.4 )%   $ (4,518 )     (2.4 )%     20.3 %

   

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Selling expenses for the nine months ended September 30, 2021 were $44.5 million, a 13.8% increase compared with the nine months ended September 30, 2020. The increase was attributable to the increased travelling expenses.

 

General and administrative expenses for the nine months ended September 30, 2021 were $25.0 million a 27.6% increase compared with the nine months ended September 30, 2020. As a percentage of total sales, general and administrative expenses accounted for 11.1% of total sales for the nine months ended September 30, 2021, compared with 10.4% of total sales for the nine months ended September 30, 2020. The increase was attributable to the increased salaries.

 

Loss from Operations

 

Loss from operations for the nine months ended September 30, 2021 was ($5.4) million, a 20.3% decrease from ($4.5) million for the nine months ended September 30, 2020. This decrease was due to decreased gross profit.

 

Interest Expense

 

Interest expense was $1.9 million and $1.6 million for the nine months ended September 30, 2021 and 2020, respectively. The increase was due to the increased bank loans.

 

Income Tax Expense

 

Income tax expense for the nine months ended September 30, 2021 was $3.8 million, a 185.9% increase compared to the same period of 2020. The increase was primarily due to higher taxable income from certain PRC subsidiaries.

 

Net Loss

 

Net loss was $6.2 million and $4.3 million during the nine months ended September 30, 2021 and 2020. Basic and diluted earnings per share were ($0.42) and ($0.29) for the nine months ended September 30, 2021 and 2020, respectively.

 

Summary of Cash Flows

 

Summary cash flows information for the nine months ended September 30, 2021 and 2020 is as follows:

 

    2021     2020  
    (In thousands of U.S. dollars)  
Net cash  (used in) provided by operating activities   $ (27,119 )   $ 24,598  
Net cash used in investing activities   $ (6,959 ))   $ (6,530 )
Net cash provided by financing activities   $ 3,175     $ 18,939  

  

Net cash used in operating activities was $7.1 million for the nine months ended September 30, 2021 compared with net cash provided by $24.6 million during the nine months ended September 30, 2020. The increase was primarily due to more inventories purchased this year.

  

Net cash used in investing activities was $7.0 million for the nine months ended September 30, 2021, compared with $6.5 million during the nine months ended September 30, 2020. This increase was mainly due to the increase in purchase of property and equipment and remodeling expenditure in 2021.

 

Net cash provided by financing activities was $3.2 million for the nine months ended September 30, 2021 compared with $18.9 million net cash provided by financing activities during the nine months ended September 30, 2020. The decrease was primarily because we received less loan proceeds from and repaid more loans to the banks this year. During the nine months ended September 30, 2021, we repaid $54.6 million of bank loans and received bank loan proceeds of $56.1 million. Also, under the counter-guarantee agreement, we received $1.4 million from and paid $0.3 million to the related party during the nine months ended September 30, 2021.

 

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Liquidity and Capital Resources

 

As of September 30, 2021, we had cash and cash equivalents of $48.3 million, other current assets of $202.7 million and current liabilities of $200.2 million. We presently finance our operations primarily from cash flows from operations and borrowings from banks, and we anticipate that these will continue to be our primary source of funds to finance our short-term cash needs.

 

Bank Loans

 

From March 2020 to July 2020, Ever-Glory Apparel entered into a deposit certificate of $29.3 million (RMB190.0 million) with the Shanghai Pudong Development Bank with annual interest rates ranging from 3.75% to 3.99%. From October 2020 to September 2021, Ever-Glory Apparel pledged the deposit certificate to the Shanghai Pudong Development Bank and Ever-Glory Apparel had borrowed $24.7 million (RMB 160.0 million) under this line of certificate with an annual interest rate from 2.60% to 3.10% and due on between October 2021 and September 2022.

 

In December 2020, Goldenway entered into a deposit certificate of $17.0 million (RMB110.0 million) with the Shanghai Pudong Development Bank with an annual interest rate of 3.85%. From December 2020 to September 2021, Goldenway pledged the deposit certificate to the Shanghai Pudong Development Bank and Goldenway had borrowed $17.0 million (RMB 110.0 million) under this line of certificate with annual interest rate from 2.60% to 3.4% and due on between December 2021 and June 2022.

 

In April 2020, Goldenway entered into a line of credit agreement with Industrial and Commercial Bank of China, which allows the Company to borrow up to approximately $6.2 million (RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of September 30, 2021, Goldenway had borrowed $6.2 million (RMB40.0 million) from Industrial and Commercial Bank of China with an annual interest rate 4.57% and due in August 2022.

 

In July 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $15.4 million (RMB100.0 million) with Industrial and Commercial Bank of China, which is collateralized by assets of Nanjing Knitting, an equity investee of Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), under a collateral agreement executed among Ever-Glory Apparel, Nanjing Knitting and the bank. As of September 30, 2021, Ever-Glory Apparel had borrowed $12.3 million (RMB 80.0 million) under this line of credit with annual interest rates ranging from 3.92% to 4.35% and due between October 2021 to May 2022. As of September 30, 2021, approximately $3.1 million was unused and available under this line of credit.

 

In April 2020, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $6.9 million (RMB45.0 million). These loans are guaranteed by Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer. These loans are also collateralized by the Company’s property and equipment. As of September 30, 2021, approximately $6.9 million was unused and available under this line of credit.

 

In June 2021, Goldenway entered into a margin contract with Nanjing Bank. Goldenway had borrowed $4.6 million (RMB 30.0 million) under this contract for $0.9 million (RMB 6.0 million) was restricted with an annual interest rate 3.36% and due on June 2022. In September 2021, Goldenway entered into another margin contract with Nanjing Bank. Goldenway had borrowed $3.1 million (RMB 20.0 million) under this contract for $0.6 million (RMB 4.0 million) was restricted with an annual interest rate 3.44% and due on September 2022.

  

In September 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $9.3 million (RMB60.0 million) with Nanjing Bank and guaranteed by Jiangsu Ever-Glory, Mr. Kang and Goldenway. As of September 30, 2021, approximately $9.3 million was unused and available under this line of credit.

   

All bank loans are used to fund our daily operations. All loans have been repaid before or at maturity date.

 

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Capital Commitments

 

We have a continuing program for the purpose of improving our manufacturing facilities and extending our retail stores. We anticipate that cash flows from operations and borrowings from banks will be used to pay for these capital commitments.  

  

Uses of Liquidity

 

Our cash requirements for the next year will be primarily to fund daily operations and the growth of our business, some of this being used to fund new stores.

 

Sources of Liquidity

 

Our primary sources of liquidity for our short-term cash needs are expected to be from cash flows generated from operations, and cash equivalents currently on hand. We believe that we will be able to borrow additional funds if necessary.

 

We believe our cash flows from operations together with our cash and cash equivalents currently on hand will be sufficient to meet our needs for working capital, capital expenditure and other commitments for the next year. No assurance can be made that additional financing will be available to us if required, and adequate funds may not be available on terms acceptable to us. If funding is insufficient at any time in the future, we will develop or enhance our products or services and expand our business through our own cash flows from operations.

 

As of September 30, 2021, we had access to approximately $37.8 million in lines of credit, of which approximately $19.3 million was unused and available. These credit facilities do not include any covenants. We have agreed to provide Jiangsu Ever-Glory a counter-guarantee of not less than 70% of the maximum aggregate lines of credit and borrowings guaranteed by Jiangsu Ever-Glory and collateralized by the assets of Jiangsu Ever-Glory and its equity investee, Nanjing Knitting, under agreements executed between the Company, Jiangsu Ever-Glory, Nanjing Knitting, and the banks. The maximum aggregate lines of credit and available borrowings was approximately $31.7 million (RMB 205 million) and approximately $1.9 million (RMB 12.6 million) was provided to Jiangsu Ever-Glory as the counter guarantee as of September 30, 2021.

 

Foreign Currency Translation Risk

 

Our operations are, for the most part, located in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between the United States dollar and the Chinese RMB. Most of our sales are in dollars. During 2003 and 2004, the exchange rate of RMB to the dollar remained constant at RMB 8.26 to the dollar. On July 21, 2005, the Chinese government adjusted the exchange rate from RMB 8.26 to 8.09 to the dollar. From that time, the RMB continued to appreciate against the U.S. dollar. As of September 30, 2021, the market foreign exchange rate had increased to RMB 6.49 to one U.S. dollar. We are continuously negotiating price adjustments with most of our customers based on the daily market foreign exchange rates, which we believe will reduce our exposure to exchange rate fluctuations in the future and will pass some of the increased cost to our customers.

 

In addition, the financial statements of subsidiaries located in China (whose functional currency is RMB) are translated into US dollars using the closing rate method. The balance sheet items are translated into US dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation gain (loss) for the three and nine months ended September 30, 2021 and 2020 was ($1.1) million, $4.7 million, $1.0 million and $3.0 million, respectively.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors. 

 

31

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)  is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Limitations on the Effectiveness of Disclosure Controls.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Evaluation of Disclosure Controls and Procedures.  Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures for the period ended September 30, 2020. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were operating effectively. 

 

Changes in Internal Control Over Financial Reporting

 

Other than described above, during the third quarter of 2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

32

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not aware of any pending legal proceedings to which we are a party which is material or potentially material, either individually or in the aggregate. We are from time to time, during the normal course of our business operations, subject to various litigation claims and legal disputes. We do not believe that the ultimate disposition of any of these matters will have a material adverse effect on our financial position, results of operations or liquidity. 

 

Lawsuits against Client A

 

In November 2020, the Company’s two subsidiaries, Ever-Glory International Group Apparel Inc. and Goldenway Nanjing Garments Company Limited filed a complaint against Client A (“Client A”) for unpaid goods worth RMB 70.15 million ($10.86 million) in the Tianjin No.1 Intermediate People’s Court based on processing contracts between the parties. The Company has applied for interim measures with the court and has frozen bank accounts of Client A for a total amount of RMB 68.12 million ($10.54 million). The Company has delivered goods worth RMB 62.06 million ($9.51 million) to Client A pursuant to the processing contracts. The Company also seeks Client A for the payment of the loss incurred from the cost of raw materials paid to suppliers in the amount of RMB 8.09 million ($1.25 million) in reliance on the processing contracts. The Company received RMB 71.4 million ($11.05 million) from Client A in April 2021 which settled the complaint amount.

 

ITEM 1A. RISK FACTORS

 

As of the date of this report and except as set forth below, there have been no material changes to the risk factors disclosed in our annual report on Form 10-K filed with the SEC on March 30, 2021.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

33

 

 

ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

Exhibit No.    Description
     
3.1   Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-KSB, filed March 29, 2006);
     
3.2   Articles of Amendment as filed with the Department of State of Florida, effective November 20, 2007 (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K, filed November 29, 2007);
     
3.3   Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of our Current Report Form 8-K filed on April 22, 2008);
     
31.1   Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2   Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   Inline XBRL Instance Document 
101.SCH   Inline XBRL Taxonomy Extension Schema Document
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

34

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

November 12, 2021 EVER-GLORY INTERNATIONAL GROUP, INC.
   
  By: /s/ Edward Yihua Kang
    Edward Yihua Kang
    Chief Executive Officer
    (Principal Executive Officer)
     
  By: /s/ Jiansong Wang
    Jiansong Wang
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

35

 

 

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Ever Glory (NASDAQ:EVK)
과거 데이터 주식 차트
부터 10월(10) 2024 으로 11월(11) 2024 Ever Glory 차트를 더 보려면 여기를 클릭.
Ever Glory (NASDAQ:EVK)
과거 데이터 주식 차트
부터 11월(11) 2023 으로 11월(11) 2024 Ever Glory 차트를 더 보려면 여기를 클릭.