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 SeptemberJune 30, 20172022

☐ 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)

Florida65-0420146

(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)

(8625) 5209-683186 25-5209-6831

(Registrant’s telephone number, including area code)

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, and posted on its corporate Web site, if any, 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 ☒ YesNo ☐ 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,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Act

Large accelerated filer  ☐Accelerated filer ☐
Non-accelerated filer ☐☒  Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)7(a)(2)(B) of the ExchangeSecurities Act.  ☐

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

Securities registered under Section 12(b) of the Act: 

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001EVKNASDAQ Global Market

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

As of NovemberAugust 11, 2016, 14,795,9922022, 14,818,006 and 14,655,926 shares of the Company’s common stock, $0.001 par value, were issued and outstanding.outstanding, respectively.

 

 

EVER-GLORY INTERNATIONAL GROUP, INC.

FORM 10-Q

INDEX

Page

Number
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSii
PART I.  FINANCIAL INFORMATION1
Item 1.  Financial Statements (unaudited)1
Condensed Consolidated Balance Sheets (unaudited) as of SeptemberJune 30, 2017 (unaudited)2022 and December 31, 201620211
Condensed Consolidated Statements of IncomeOperations and Comprehensive Income (Loss) (unaudited) for the Three and NineSix Months Ended SeptemberJune 30, 20172022 and 2016 (unaudited)20212
Condensed Consolidated Statements of Equity (unaudited) for the Six Months Ended June 30, 2022 and 20213
Condensed Consolidated Statements of Cash Flows (unaudited) for the NineSix Months Ended SeptemberJune 30, 20172022 and 2016 (unaudited)202134
Notes to the Condensed Consolidated Financial Statements (unaudited)45
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations1417
Item 3.  Quantitative and Qualitative Disclosures About Market Risk2730
Item 4.  Controls and Procedures2830
PART II.  OTHER INFORMATION31
Item 1.  Legal Proceedings2931
Item 1A.Risk Factors2931
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds2931
Item 3.  Defaults Upon Senior Securities2931
Item 4.  Mine Safety Disclosure2931
Item 5.  Other Information2931
Item 6.  Exhibits29Exhibits32
SIGNATURES3033

 

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’(“SEC”).

ii

PART I.  FINANCIAL INFORMATION

ITEM 1.Financial Statements

ITEM 1. Financial Statements

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

AS OF SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

  2017  2016 
       
ASSETS      
       
CURRENT ASSETS      
Cash and cash equivalents $40,799  $45,288 
Accounts receivable, net  82,550   67,644 
Inventories  50,116   49,630 
Value added tax receivable  3,844   2,938 
Other receivables and prepaid expenses  6,672   3,674 
Advances on inventory purchases  4,927   3,139 
Amounts due from related parties  934   486 
Total Current Assets  189,842   172,799 
         
INTANGIBLE ASSETS  5,881   5,769 
PROPERTY AND EQUIPMENT, NET  23,815   22,694 
TOTAL ASSETS $219,538  $201,262 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
CURRENT LIABILITIES        
Bank loans $44,937  $29,232 
Accounts payable  56,447   58,170 
Accounts payable and other payables - related parties  4,660   4,337 
Other payables and accrued liabilities  13,690   15,007 
Value added and other taxes payable  2,728   5,118 
Income tax payable  1,651   1,842 
Total Current Liabilities  124,113   113,706 
         
NONCURRENT LIABILITIES        
Deferred tax liabilities  1,345   3,254 
TOTAL LIABILITIES  125,458   116,960 
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS’ EQUITY        
Stockholders’ equity:        
Preferred stock ($.001 par value, authorized 5,000,000 shares, no shares issued and outstanding)  -   - 
Common stock ($.001 par value, authorized 50,000,000 shares, 14,792,836 and 14,787,940 shares issued and outstanding As of September 30, 2017 and December 31, 2016, respectively)  15   15 
Additional paid-in capital  3,612   3,602 
Retained earnings  90,318   83,423 
Statutory reserve  17,107   17,107 
Accumulated other comprehensive income  50   (3,297)
Amounts due from related party  (15,999)  (15,936)
Total equity attributable to stockholders of the Company  95,103   84,914 
Noncontrolling interest  (1,023)  (612)
Total Equity  94,080   84,302 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $219,538  $201,262 

See the accompanying notes to the condensed consolidated financial statements.

(Unaudited)

1

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(In thousands of U.S. Dollars, except share and per share data or otherwise stated)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (UNAUDITED)

  June 30,
2022		  December 31,
2021		 
ASSETS      
       
CURRENT ASSETS        
Cash and cash equivalents $32,880  $56,573 
Restricted cash  42,316   40,768 
Trading securities  2,550   3,251 
Accounts receivable, net  60,039   69,859 
Inventories  66,003   63,841 
Advances on inventory purchases  4,683   8,179 
Value added tax receivable  2,072   1,693 
Other receivables and prepaid expenses  6,118   6,345 
Amounts due from related parties  1,387   220 
Total Current Assets  218,048   250,729 
         
NON-CURRENT ASSETS        
Equity security investment  5,416   5,682 
Intangible assets, net  4,494   4,794 
Property and equipment, net  33,621   36,340 
Operating lease right-of-use assets  40,131   50,077 
Deferred tax assets  -   899 
Other non-current assets  2,980   784 
Total Non-Current Assets  86,642   98,576 
TOTAL ASSETS $304,690  $349,305 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
CURRENT LIABILITIES        
Bank loans $65,560  $68,992 
Accounts payable  52,362   67,930 
Accounts payable and other payables – related parties  1,752   1,332 
Other payables and accrued liabilities  13,833   18,531 
Value added and other taxes payable  425   999 
Income tax payable  558   334 
Current operating lease liabilities  32,229   41,633 
Total Current Liabilities  166,719   199,751 
         
Deferred tax liabilities  243   - 
Non-current operating lease liabilities  8,070   8,596 
TOTAL LIABILITIES  175,032   208,347 
         
COMMITMENTS AND CONTINGENCIES (Note 9)        
         
STOCKHOLDERS’ EQUITY        
Common stock ($0.001 par value, authorized 50,000,000 shares, 14,814,354 and 14,652,274 issued and outstanding as of June 30, 2022, respectively, 14,812,312 and 14,664,978 issued and outstanding as of December 31, 2021, respectively)  15   15 
Additional paid-in capital  3,665   3,660 
Retained earnings  105,521   108,210 
Statutory reserve  21,245   21,245 
Treasury stock (at cost,162,080 and 147,334 shares at June 30, 2022 and December 31, 2021, respectively)  (400)  (363)
Accumulated other comprehensive (loss) income  (388)  8,191 
         
Total Equity  129,658   140,958 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $304,690  $349,305 

  Three months ended  Nine months ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
NET SALES $120,257  $109,926  $285,148  $282,295 
COST OF SALES  87,007   80,312   192,740   197,623 
                 
GROSS PROFIT  33,250   29,614   92,408   84,672 
                 
OPERATING EXPENSES                
Selling expenses  20,238   18,522   60,206   55,477 
General and administrative expenses  10,167   9,862   24,900   24,128 
Total Operating Expenses  30,405   28,384   85,106   79,605 
                 
INCOME FROM OPERATIONS  2,845   1,230   7,302   5,067 
                 
OTHER INCOME (EXPENSES)                
Interest income  370   233   909   854 
Interest expense  (562)  (580)  (1,207)  (1,511)
Other income  1,987   253   3,088   939 
Total Other Income (Expenses)  1,795   (94)  2,790   282 
                 
INCOME BEFORE INCOME TAX EXPENSE  4,640   1,136   10,092   5,349 
Income tax expense  (1,522)  (724)  (3,573)  (2,385)
                 
NET INCOME  3,118   412   6,519   2,964 
                 
Net loss attributable to the non-controlling interest  115   208   376   441 
NET INCOME ATTRIBUTABLE TO THE COMPANY  3,233   620   6,895   3,405 
                 
NET INCOME $3,118  $412  $6,519  $2,964 
                 
Foreign currency translation income(loss)  1,823   (471)  3,345   (2,860)
COMPREHENSIVE INCOME (LOSS)  4,941   (59)  9,864   104 
                 
Comprehensive loss attributable to the non-controlling interest  133   205   411   434 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY $5,074  $146  $10,275  $538 
                 
EARNINGS PER SHARE ATTRIBUTABLE TO THE COMPANY’S STOCKHOLDERS                
Basic and diluted $0.22  $0.04  $0.47  $0.23 
Weighted average number of shares outstanding                
Basic and diluted  14,792,836   14,787,940   14,791,778   14,787,044 

See the accompanying notes to the condensed consolidated financial statements.

2

1

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (UNAUDITED)

  Three months ended
  Six months ended
 
  June 30,  June 30, 
  2022  2021  2022  2021 
NET SALES $63,812  $60,555  $128,585  $131,369 
COST OF SALES  43,403   42,163   90,804   90,541 
                 
GROSS PROFIT  20,409   18,392   37,781   40,828 
                 
OPERATING EXPENSES                
Selling expenses  11,675   14,503   25,361   30,052 
General and administrative expenses  5,521   7,662   12,515   15,513 
Total Operating Expenses  17,196   22,165   37,876   45,565 
                 
INCOME (LOSS) FROM OPERATIONS  3,213   (3,773)  (95)  (4,737)
                 
OTHER INCOME (EXPENSES)                
Interest income  91   527   277   752 
Interest expense  (321)  (200)  (934)  (692)
Government subsidy  202   243   205   502 
Gain (loss) from changes in fair values of investments  90   2,041   (672)  2,275 
Other income  51   477   568   774 
Total Other Income (Expenses), Net  113   3,088   (556)  3,611 
                 
INCOME (LOSS) BEFORE INCOME TAX EXPENSE  3,326   (685)  (651)  (1,126)
                 
Income tax expense  (926)  (1,086)  (2,038)  (1,815)
                 
NET INCOME (LOSS) $2,400  $(1,771) $(2,689) $(2,941)
                 
Foreign currency translation (loss) gain  (7,743)  3,434   (8,579)  2,083 
                 
COMPREHENSIVE (LOSS) INCOME $(5,343)  1,663  $(11,268) $(858)
                 
EARNINGS (LOSS) PER SHARE                
Basic and diluted $0.16  $(0.12) $(0.18) $(0.20)
Weighted average number of shares outstanding basic and diluted  14,814,354   14,810,660   14,814,072   14,810,330 

  2017  2016 
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income $6,519  $2,964 
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization  5,066   5,337 
Loss from sale of property and equipment  5   40 
Provision of bad debt allowance  679   975 
Inventory write-down  4,624   7,111 
Deferred income tax  (2,004)  (79)
Stock-based compensation  10   5 
Changes in operating assets and liabilities        
Accounts receivable  (12,805)  4,127 
Inventories  (3,423)  19,293 
Value added tax receivable  (762)  (2,452)
Other receivables and prepaid expenses  (3,395)  (638)
Advances on inventory purchases  (1,619)  1,618 
Amounts due from related parties  (937)  1,918 
Accounts payable  (3,738)  (14,467)
Accounts payable and other payables- related parties  232   630 
Other payables and accrued liabilities  (2,219)  (3,289)
Value added and other taxes payable  (2,561)  (1,987)
Income tax payable  (256)  (2,460)
Net cash used in (provided by) operating activities  (16,584)  18,646 
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchases of property and equipment  (4,356)  (8,577)
Net cash used in investing activities  (4,356)  (8,577)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from bank loans  47,570   75,263 
Repayment of bank loans  (33,372)  (69,125)
Repayment of loans from related party  7,596   1,824 
Advances to related party  (6,464)  (1,216)
Net cash provided by financing activities  15,330   6,746 
         
EFFECT OF EXCHANGE RATE CHANGES ON CASH  1,121   (1,200)
       　 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  (4,489)  15,615 
       　 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD  45,288   22,702 
       　 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $40,799  $38,317 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
         
Cash paid during the period for:        
         
Interest $1,207  $1,511 
Income taxes $4,521  $5,362 

See the accompanying notes to the condensed consolidated financial statements.

3

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)

  Common Stock  Additional     Retained Earnings  Accumulated
other		  Amounts
due from		     
  Shares  Amount  paid-in
capital		  Treasury
stock		  Unrestricted  Statutory
reserve		  comprehensive
income (loss)		  related
party		  
Total equity		  
Balance at January 1, 2022  14,812,312  $15  $3,660  $(363) $108,210  $21,245  $8,191  $     -  $140,958  
Stock issued for compensation  2,042   -   5   -   -   -   -   -   5  
Net  loss  -   -   -   -   (5,089)  -   -   -   (5,089) 
Repurchase  of 14,746 shares of common stock  -   -   -   (37)      -   -   -   (37) 
Foreign currency translation loss                          (836)      (836) 
Balance at March 31, 2022  14,814,354  $15  $3,665  $(400) $103,121  $21,245  $7,355  $-  $135,001  
Net  income  -   -   -   -   2,400   -   -   -   2,400  
Foreign currency translation loss                          (7,743)      (7,743) 
Balance at June 30, 2022  14,814,354  $15  $3,665  $(400) $105,521  $21,245  $(388)  -  $129,658  

  Common Stock  Additional     Retained Earnings  Accumulated
other		  Amounts
due from		     
  Shares  Amount  paid-in
capital		  Treasury
Stock		  Unrestricted  Statutory
reserve		  Comprehensive
income		  related
party		  
Total equity		  
Balance at January 1, 2021  14,809,160  $15  $3,650  $-  $109,171  $20,376  $4,590  $(3,353) $134,449  
Stock issued for compensation  1,500   -   5   -   -   -   -   -   5  
Net  loss  -   -   -   -   (1,170)  -   -   -   (1,170) 
Net cash received from related party under counter guarantee agreement  -   -   -   -   -   -   -   379   379  
Foreign currency translation adjustment                          (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  
Net loss  -   -   -   -   (1,771)  -   -   -   (1,771) 
Transfer to reserve  -   -   -   -   -   -   -   -   -  
Net cash received from related party under counter guarantee agreement  -   -   -   -   -   -   -   386   386  
Foreign currency translation adjustment                          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  

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)

  Six Months Ended 
  June 30,
2022		  June 30,
2021		 
CASH FLOWS FROM OPERATING ACTIVITIES      
Net loss $(2,689)  (2,941)
Adjustments to reconcile net loss to cash used in operating activities:  　   　 
Depreciation and amortization  3,880   3,212 
Loss from sale of property and equipment  96   463 
Provision of bad debt allowance  677   652 
Provision for obsolete inventories  2,611   5,530 
Changes in fair value of trading securities  689   (321)
Changes in fair value of investments  (17)  (1,954)
Deferred income tax  1,136   604 
Stock-based compensation  5   5 
Changes in operating assets and liabilities        
Accounts receivable  6,649   13,433 
Inventories  (7,564)  (11,346)
Value added tax receivable  (479)  (562)
Other receivables and prepaid expenses  (122)  (632)
Advances on inventory purchases  3,197   2,928 
Amounts due from related parties  (1,176)  546 
Accounts payable  (11,734)  (17,753)
Accounts payable and other payables- related parties  494   (1,763)
Other payables and accrued liabilities  (5,066)  1,201 
Value added and other taxes payable  (543)  (1,209)
Income tax payable  250   (581)
Net cash used in operating activities  (9,706)  (10,488)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchases of property and equipment and intangible asset  (2,940)  (4,452)
Net proceeds from sale (purchase) of trading securities  11   (1,468)
Investment payment  (2,313)  - 
Net cash used in investing activities  (5,242)  (5,920)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from bank loans  24,672   12,841 
Repayment of bank loans  (24,672)  (13,905)
Repurchase of common stock  (37)  - 
Net collection of amounts due from related party (equity)  -   798 
Net cash used in provided by financing activities  (37)  (266)
   　   　 
EFFECT OF EXCHANGE RATE CHANGES ON CASH  (7,160)  1,639 
   　   　 
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH  (22,145)  (15,035)
   　   　 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD  97,341   121,723 
   　   　 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $75,196  $106,688 
         
Reconciliation of cash, cash equivalents and restricted cash reported within their consolidated balance sheets:        
         
Cash and Cash Equivalents  32,880   63,963 
Restricted cash  42,316   42,725 
  $75,196  $106,688 
         
Cash paid during the period for:        
Interest $934  $692 
Income taxes $2,038  $1,815 

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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172022 AND 20162021

(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 (“ChinaChina” 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 Tai Xin Garments TradingRui Lian Technology Company Limited (“Tai Xin”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- ownedwholly-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 YaLanYa Lan Fashion Company Limited (“YaLan”), Shanghai Yiduo Fashion Company Limited (“Shanghai Yiduo”Ya Lan”) and Xizang He MeidaNanjing Tai Xin Garments Trading Company Limited (“Tai Xin”).

He Meida”).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.

Nanjing Rui Lian was closed in April 2022, 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 SeptemberJune 30, 2017,2022, the condensed consolidated statements of incomeoperations and comprehensive income (loss), condensed consolidated statements of equity, and condensed consolidated statements of cash flows for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016.2021. 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 three and ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results of operations to be expected for the full fiscal year. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. 2021. 

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

We recognize wholesale revenue from product sales, net of value-added taxes, upon delivery for local sales and upon shipment of the products for export sales, at such time title passes to the customer provided however that (i) there are no uncertainties regarding customer acceptance (ii) persuasive evidence of an arrangement exists (iii) the sales price is fixed and determinable, and (iv) collectability is deemed probable. We recognize wholesale revenue from manufacturing fees charged to buyers for the assembly of garments from materials provided by the buyers upon completion of the manufacturing process and shipment of the products for export sales, provided that (i) there are no uncertainties regarding customer acceptance (ii) persuasive evidence of an arrangement exists (iii) the sales price is fixed and determinable, and (iv) collectability is deemed probable. Retail sales are recorded net of promotional discounts, rebates, and return allowances. Retail store sales are recognized at the time of the register receipt. Retail online sales are recognized when products are shipped and customers receive the products because we retain a portion of the risk of loss on these sales during transit. 

Financial Instruments

Management has estimated that the carrying amounts of non-related party financial instruments approximate their fair values due to their short-term maturities. The fair value of amounts due from (to) related parties is not practicable to estimate due to the related party nature of the underlying transactions.

Accounts Receivable

The Company extends unsecured credit to its customersuses the same accounting policies in the ordinary course of business but mitigates the associated risks by performing credit checkspreparing quarterly and actively pursuing past due accounts.  An allowance for doubtful accounts is establishedannual financial statements. Certain information and recorded based on management’s assessment of the credit history of its customers and current relationships with them. The Company writes off accounts receivable when amounts are deemed uncollectible.

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Fair Value Accounting

Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures”, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

At September 30, 2017, the Company’s financial assets (all Level 1) consist of cash placed with financial institutions that management considers to be of a high quality.

As of September 30, 2017, the Company has two derivative liability subjects to recurring fair value measurement (Level 3) with the change in fair value recognized in earnings (Note 5).

Foreign Currency Translation and Other Comprehensive Income

The reporting currency of the Company is the U.S. dollar. The functional currency of Ever-Glory, Perfect Dream and Ever-Glory HK is the U.S. dollar. The functional currency of Goldenway, New Tailun, Catch-luck, Ever-Glory Apparel, Shanghai LA GO GO, Jiangsu LA GO GO, Tianjin LA GO GO, Shanghai Yiduo, YaLan, He Meida, Huirui and Taixin is the Chinese RMB.

For subsidiaries whose functional currency is the RMB, all assets and liabilities were translated at the exchange rate at the balance sheet date; equity was translated at historical rates and items in the statement of income and comprehensive income (loss) were translated at the average rate for the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income. The resulting translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency arefootnote disclosures normally included in the results of operations as incurred. Itemsannual consolidated financial statements prepared in accordance with accounting principles generally accepted in the cash flow statement are translated atUnited States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the average exchange rateCompany’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the period. year ended December 31, 2021 filed with the SEC (“2021 Form 10-K.”)

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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, the estimates of the allowance for deferred tax assets, the accounts receivable allowance, impairment of long-lived assets, and inventory write off.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers, which supersedes the revenue recognition inRevenue Recognition(Topic 605), and requires entities to recognize revenue in a way that depicts the transfer of potential goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This new standard is now effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied retrospectively, with early adoption now permitted to the original effective date of December 15, 2016. The Company is currently evaluating this new standard and the potential impact this standard may have upon adoption.   

In March 2016, the FASB issued ASU No. 2016-08,Revenue from Contracts with Customers: Principal versus Agent Considerations. The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The effective date for this ASU is the same as the effective date for ASU 2014-09,Revenue from Contracts with Customers. The Company is currently assessing the potential impact of this ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02,Leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. The Company is currently assessing the impact of this ASU on its consolidated financial statements.

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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, 2019.2022. 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 INVENTORIESINVESTMENTS

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 six months are summarized as follows (In thousands of U.S. Dollars).

  Three months ended  Six months ended 
  June 30,  June 30, 
  2022  2021  2022  2021 
  (In thousands of U.S. Dollars) 
Net gains recognized during the period on equity securities  (406)  59   (689)  321 
Less: Net gains recognized during the period on equity securities sold during the period  14   -   12   54 
Unrealized gains recognized during the reporting period on equity securities still held at the reporting date $(420) $59  $(701) $267 

Equity security investment

In August 2020, Ever-Glory Apparel invested approximately $3.0 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-month 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.

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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. At each reporting period, the Company makes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. There is no significant adverse change in the regulatory, economic, or technological environment of the investee. Therefore, the investment was not impaired at June 30, 2022.

Investment advances

In September 2021, Goldenway signed an agreement and promised to invest approximately $7.5 million (RMB 50.0 million) cash for 20% interest of a Chinese private company. Under the agreement, Goldenway has the liquidation privilege to receive its share of the investee’s residual of its liquidated assets. If Goldenway’s share is less than its original investment amount plus 8% of annual return on investment, all other shareholders who signed this agreement shall use their shares of the liquidated assets to compensate Goldenway. The investee also shall compensate Goldenway if the investee cannot make agreed upon profits and maintain the number of customers. As of June 30, 2022, Goldenway advanced approximately $3.0 million (RMB 20.0 million) to the investee. The investment advances were recorded as other non-current assets.

NOTE 4 INVENTORIES

Inventories at SeptemberJune 30, 20172022 and December 31, 20162021 consisted of the following:

  June 30,
2022		  December 31,
2021		 
  (In thousands of
U.S. Dollars)		 
Raw materials $1,596  $1,375 
Work-in-progress  24,437   14,375 
Finished goods  39,970   48,091 
Total inventories $66,003  $63,841 

NOTE 5 RESTRICTED CASH

As of June 30, 2022 and December 31, 2021, restricted cash of approximately $41.7 million (RMB280.0 million) and approximately $39.2 million (RMB250.0 million) were cash on demand and time deposits pledged to Shanghai Pudong Development Bank for loans. As of June 30, 2022 and December 31, 2021, restricted cash of approximately $0.6 million (RMB4.0 million) and approximately $1.6 million (RMB10.0 million) were cash on demand and time deposits pledged to Nanjing Bank. (see Note 6)

 

  September 30,
2017		  December 31,
2016		 
  (In thousands of U.S. Dollars) 
Raw materials $1,750  $1,604 
Work-in-progress  17,572   9,347 
Finished goods  30,794   38,679 
Total inventories $50,116  $49,630 

NOTE 46 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-termShort term bank loans consisted of the following as of SeptemberJune 30, 20172022 and December 31, 2016.2021.

  June 30,
2022		  December 31,
2021		 
Bank (In thousands of
U.S. Dollars)		 
Shanghai Pudong Development Bank $41,720  $39,200 
Industrial and Commercial Bank of China  20,860   21,952 
Nanjing Bank  2,980   7,840 
  $65,560  $68,992 

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From March 2020 to July 2020, Ever-Glory Apparel entered into a certificate of three-year time deposit of approximately $28.3 million (RMB190.0 million) with the Shanghai Pudong Development Bank with annual interest rates ranging from 3.75% to 3.99%. From August to November 2021, Ever-Glory Apparel pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank and Ever-Glory Apparel had borrowed approximately $26.8 million (RMB 180.0 million) under this line of certificate with an annual interest rate from 2.60% to 2.65% and due between August to November 2022.

 

  September 30,
2017		  December 31,
2016		 
Bank (In thousands of U.S. Dollars) 
Industrial and Commercial Bank of China $21,028  $11,232 
Nanjing Bank  8,272   9,360 
HSBC  3,191   - 
China Everbright Bank  3,004   2,880 
Bank of Communications  3,004   2,880 
China Minsheng Banking  3,004   2,880 
Bank of China  2,082   - 
China Citic Bank  1,352   - 
  $44,937  $29,232 

In December 2020, Goldenway entered into a certificate of three-year time deposit of approximately $16.4 million (RMB110.0 million) with the Shanghai Pudong Development Bank with an annual interest rate of 3.85%. From February to June 2022, Goldenway pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank and Goldenway had borrowed approximately $14.9 million (RMB100.0 million) under this line of certificate with annual interest rate from 2.15% to 2.60%, due between February to April 2023.

 

In January 2014,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 $9.0$6.0 million (RMB60.0(RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of SeptemberJune 30, 2017,2022, Goldenway had borrowed approximately $6.0 million (RMB 40.0(RMB40.0 million) under this linefrom Industrial and Commercial Bank of creditChina with an annual interest rate of 4.6%4.57% and due on various dates from December 2017 to January 2018. As of September 30, 2017, approximately $3.0 million was unused and available under this line of credit.  in August 2022.

 

In September 2015,August 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $18.0$14.9 million (RMB120.0(RMB100.0 million) with Industrial and Commercial Bank of China, andwhich is collateralized by assets of Jiangsu Ever-Glory’s equity investee, Nanjing Knitting,LA GO GO, Tianjin LA GO GO and Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer, under a collateral agreement executed among Ever-Glory Apparel, Nanjing KnittingJiangsu LA GO GO , Tianjin LA GO GO, Jiangsu Ever-Glory and the bank. As of SeptemberJune 30, 2017,2022, Ever-Glory Apparel had borrowed $15.0approximately $14.9 million (RMB 100.0 million) under this line of credit with annual interest rate of 4.6%rates ranging from 3.92% to 4.35% and due on various dates from October 2017between August 2022 to September 2018. As of September 30, 2017, approximately $3.0 million was unused and available under this line of credit.June 2023.

 

In June 2016,April 2020, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $7.5$6.7 million (RMB50.0(RMB45.0 million). In May 2021, Goldenway pledged $0.6 million (RMB4.0 million) to Nanjing Bank, and the maximum amount available from this line of credit increased to $7.3 million (RMB49.0 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, 2017, approximately $7.5 million was unused and available under this line of credit.

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In June 2016, Ever-Glory Apparel entered into a line of credit agreement for approximately $9.0 million (RMB60.0 million) with Nanjing Bankequipment and guaranteed by Jiangsu Ever-Glory, Mr. Kang and Goldenway. As ofEver-Glory. In September 30, 2017, Ever-Glory Apparel had2021, Goldenway borrowed $6.0approximately $3.0 million (RMB40.0(RMB 20.0 million) from Nanjing Bank with an annual interest rate of 4.4% and due on various dates from Jan to March 2018. Ever-Glory Apparel had also borrowed $0.8 million from Nanjing Bank with an annual interest rate of 2.4%3.44% and due in October 2017, and collateralized by approximately $0.9 million of accounts receivable from our wholesale customers.September 2022. As of SeptemberJune 30, 2017,2022, approximately $2.2$4.3 million was unused and available under this line of credit.

In March 2017, LA GO GO entered into a revolving line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $3.0 million (RMB20.0(RMB 29.0 million). The line of credit is guaranteed by Mr. Kang and Goldenway. As of September 30, 2017, LA GO GO had borrowed $1.5 million (RMB10.0 million) from Nanjing Bank under this line of credit with annual interest rate of 5.0% and due in May 2018. As of September 30, 2017, approximately $1.5 million (RMB10.0 million) was unused and available under this line of credit.

In January 2015, Ever-Glory Apparel and Goldenway collectively entered into a secured banking facility agreement for a combined revolving import facility, letter of credit, invoice financing facilities and a credit line for treasury products of up to $12.6 million with the Nanjing Branch of HSBC (China) Company Limited (“HSBC”). This agreement is guaranteed by the Company and Mr. Kang. As of September 30, 2017, Ever-Glory Apparel had borrowed $3.2 million from HSBC with an annual interest rate of 3.0% and due in August 2017, and collateralized by approximately $3.8 million of accounts receivable from our wholesale customers. These bank loans are to be repaid upon receipt of payments from customers. As of September 30, 2017, approximately $9.4 million was unused and available under this line of credit.

In July 2016, Ever-Glory Apparel entered into a line of credit agreement for approximately $6.0 million (RMB40.0 million) with China Everbright Bank and guaranteed by Goldenway and Mr. Kang. These loans are also collateralized by Jiangsu Ever-Glory’s property. As of September 30, 2017, Ever-Glory Apparel had borrowed $3.0 million (RMB20.0 million) under this line of credit with an annual interest rates ranging from 2.8% to 3.0% and due in November 2017. As of September 30, 2017, approximately $3.0 million was unused and available under this line of credit.

In June 2014, LA GO GO entered into a line of credit agreement for approximately $4.9 million (RMB33.0 million) with the Bank of Communications and guaranteed by Jiangsu Ever-Glory, Ever-Glory Apparel and Mr. Kang. As of September 30, 2017, LA GO GO had borrowed $3.0 million (RMB20.0 million) from the Bank of Communications with annual interest rates ranging from 4.6% to 5.0% and due on various dates from November 2017 to September 2018. As of September 30, 2017, approximately $1.9 million was unused and available under this line of credit.

In December 2016, LA GO GO entered into a line of credit agreement for approximately $3.0 million (RMB20.0 million) with China Minsheng Bank and guaranteed by Ever-Glory Apparel and Mr. Kang. As of September 30, 2017, LA GO GO had borrowed $3.0 million (RMB20.0 million) from China Minsheng Bank with an annual interest rate of 4.6% and due in December 2017.  

In October 2016, Ever-Glory Apparel entered into a line of credit agreement for approximately $3.7 million (RMB25.0 million) with Bank of China and guaranteed by Jiangsu Ever-Glory. These loans are also collateralized by assets of Jiangsu Ever-Glory’s equity investee, Chuzhou Huarui, under a collateral agreement executed by Ever-Glory Apparel, Chuzhou Huarui and Bank of China. As of September 30, 2017, Ever-Glory Apparel had borrowed $1.5 million (RMB10.0 million) under this line of credit with an annual interest rate of 4.8% and due in November 2017. Ever-Glory Apparel had also borrowed $0.6 million from Bank of China with an annual interest rate of 1.7% and due in October 2017, and collateralized by approximately $0.7 million of accounts receivable from our wholesale customers. These bank loans are to be repaid upon receipt of payments from customers. As of September 30, 2017, approximately $1.6 million was unused and available under this line of credit. 

 

In December 2014, LA GO GO entered into a lineAll bank loans are used to fund our daily operations. There were no loans in default as of credit agreement for approximately $5.4 million (RMB36.0 million) with the China Citic Bank and guaranteed by Jiangsu Ever-Glory, Ever-Glory Apparel and Mr. Kang. As of SeptemberJune 30, 2017, LA GO GO had borrowed $1.4 million (RMB9.0 million) under this line of credit with an annual interest rate of 5.5% and due in December 2017. As of September 30, 2017, approximately $4.0 million was unused and available under this line of credit.2022.

  

All loans have been repaid before or at maturity date.

Total interest expense on bank loans amounted to $0.6 million, $1.2 million, $0.6approximately $0.9 million and $1.5$0.7 million for the six months ended June 30, 2022 and 2021, respectively, and approximately $0.3 million and $0.2 million for the three and nine months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.

NOTE 5 DERIVATIVE LIABILITY

As of September 30, 2017, the Company had two outstanding forward foreign exchange contracts (sell EUR dollars for RMB) with total notional amount of EUR€0.39 million. As of December 31, 2016, the Company had one outstanding forward foreign exchange contract (sell EUR dollars for RMB), with total notional amount of EUR€0.65 million. The fair value of these contracts as of September 30, 2017 and December 31, 2016, as well as realized gains and losses on these foreign currency derivative activities during 2016 and the nine months ended September 30, 2017 were not significant.

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NOTE 6 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, 2017.

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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.

AlthoughEver-Glory Supply Chain Service Co., Limited was incorporated in Hongkong, and under the Company’s parent entity is a U.S. entity, the Company’s primary operations are through subsidiaries located in China, certain apparel manufacturing is performed outsidecurrent laws of China in Southeast Asia, and sales are made globally. Therefore, the Company uses significant judgment to calculate and provide forHongkong, its income taxes in each of the tax jurisdictions in which it operates. In the ordinary course of the Company’s business, there are transactions and calculations undertaken whose ultimate tax outcome cannot be certain. Some of these uncertainties arise as a consequence of transfer pricing for transactions with the Company’s subsidiaries, potential challenges to nexus, value added estimates, and similar matters. In September 2009, the Company formed its subsidiary, Ever-Glory HK, domiciled in Samoa, in order to engage in certain limited import and export of apparel, fabric and accessories, as well as to efficiently address currency exchange matters with international transactions. Over the past few years, the operational matters handled by this subsidiary have expanded with respect to sub-contracting of certain manufacturing work outside of China, as well as to other operational matters with non-PRC customers and vendors. Additionally, over this time period, tax guidance, rules and positions taken by the PRC with respect to transfer pricing issues have evolved, and in certain cases, become more standardized. As part of the Company’s on-going process of evaluating its tax positions, the Company considered various factors as they relate to its Samoan subsidiary and as related to intercompany transactions. This evaluation resulted in a change in the Company’s estimate of exposure to potential unfavorable outcomes related to these uncertainties, and the Company recorded a tax liability of approximately $3.2 million as of December 31, 2013 based on the probability for such outcomes.

The Company and the PRC Tax Bureau have agreed that payments on the tax liability $3.2 million should be made by the Company prospectively over the next two to three years’ period. All $3.2 million was paid off as of December 31, 2016. Beginning January 1, 2014, all net income generated from Ever-Glory HK has been reported as a taxable income at 25% tax rate in PRC. 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 income (loss) for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 was taxable in the following jurisdictions:

  Three months ended  Nine months ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
  (In thousands of U.S. Dollars) 
PRC $4,641  $1,135  $10,097  $5,353 
BVI  -   4   -   4 
Others  (1)  (3)  (5)  (8)
 $4,640  $1,136  $10,092  $5,349 

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  Three months ended  Six months ended 
  June 30,  June 30, 
  2022  2021  2022  2021 
  (In thousands of U.S. Dollars) 
PRC  3,330   (682)  (644)  (1,121)
Others  (4)  (3)  (7)  (5)
　 $3,326  $(685) $(651) $(1,126)

The following table reconciles the PRCU.S. statutory rates to the Company’s effective tax rate for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:

  Three months ended  Nine months ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
PRC statutory rate  25.0%  25.0%  25.0%  25.0%
Effect of foreign income tax rates  -   (0.1)  -   - 
Net operating losses for which no deferred tax assets was recognized  7.8   38.8   10.4   19.6 
Other  -   -   -   - 
Effective income tax rate  32.8%  63.7%  35.4%  44.6%
  Three months ended  Six months ended 
  June 30,  June 30, 
  2022  2021  2022  2021 
U.S. tax rate  21.0%  21.0%  21.0%  21.0%
Valuation allowance recognized with respect to the loss  (1.6)%  (239.2)%  (315.1)%  (186.2)%
Foreign tax rate differential  4.0%  4.0%  4.0%  4.0%
Others  4.5%  55.8%  (23.0)%  - 
Effective income tax rate  27.9%  (158.4)%  (313.1)%  (161.2)%

Income tax expense for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 is as follows:

  Three months ended  Nine months ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
Current $1,752  $799  $5,482  $2,543 
Deferred  (230)  (75)  (1,909)  (158)
Income tax expense $1,522  $724  $3,573  $2,385 
  Three months ended  Six months ended 
  June 30,  June 30, 
  2022  2021  2022  2021 
Current               
U.S. Federal                
Foreign $481  $512  $896  $1,218 
Total Current $481  $512  $896  $1,218 
Deferred                
U.S. Federal                
Foreign $445  $574  $1,142  $597 
Total Deferred $445  $574  $1,142  $597 
Income tax expense $926  $1,086  $2,038  $1,815 

9

 Deferred tax assets net of valuation allowance as of:

  June 30,
2022		  December 31,
2021		 
  (In thousands of
U.S. Dollars)		 
Inventories, net $2,336  $1,684 
Accounts receivable, net  758   624 
Deferred income  889   2,387 
Accrued expenses  1,389   2,464 
Depreciation  187   108 
Net operating loss carryforward  4,690   3,782 
Deferred tax assets  10,249   11,049 
Valuation allowance  (10,249)  (10,150)
Deferred tax assets, net $0  $899 

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 has not recorded U.S.measured the current and deferred income taxes based on approximately $90.3 millionthe provisions of its non-U.S. subsidiaries’ undistributed earnings because such amounts are intended to be reinvested outside the United States indefinitely. If these earnings were repatriatedTax legislation. After the Company’s measurement, there is no deferred tax expense (income) relating to the United States, the Company would be required to accrue and pay U.S. federal income taxes and foreign withholding taxes, as adjusted for foreign tax credits. Determination of the amount of any unrecognized deferred income tax liability on these earnings is not practicable.   

NOTE 7 EARNINGS PER SHARE

The following demonstrates the calculation for earnings per shareTax Act changes for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016: 2021.

  Three months ended  Nine months ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
Weighted average number of common shares – Basic and diluted  14,792,836   14,787,940   14,791,778   14,787,044 
Earnings per share – Basic and diluted $0.22  $0.04  $0.47  $0.23 

NOTE 8 STOCKHOLDERS’ EQUITY

Common stock issued to independent directors

On April 29, 2016,February 9, 2021, the Company issued an aggregate of 2,0721,500 shares of itsthe Company’s common stock to two2 of the Company’s independent directors as compensation for their services inrendered during the third and fourth quartersquarter of 2015.2020. The shares issued in 2021 were valued at $2.43$3.34 per share, which was the average market price of the common stock for the five days before the grant date.

On February 28, 2017,January 26, 2022, the Company issued an aggregate of 2,5422,042 shares of itsthe Company’s common stock to two2 of the Company’s independent directors as compensation for their services inrendered during the firstthird and second quartersfourth quarter of 2016.2021. The shares issued in 2022 were valued at $1.96$2.47 per share, which was the average market price of the common stock for the five days before the grant date.

Treasury stock (after “stock issued to independent directors”)

On February 28, 2017,

In August 2021, the Company’s Board of Directors authorized and the Company issued an aggregate of 2,354repurchased 147,334 shares of its common stock to two ofthrough negotiated transactions.  In January 2022, the Company’s independent directors as compensation for their servicesCompany repurchased additional 14,746 shares. These treasury shares may be resold or cancelled in the third and fourth quartersfuture. The treasury stock is carried at cost of 2016. The shares were valued at $2.14 per share, which was the average market price$400 as of the common stock for the five days before the grant date.   

On October 19, 2017, the Company issued an aggregate of 3,156 shares of its common stock to two of the Company’s independent directors as compensation for their services in the first, second and third quarters of 2017. The shares were valued at $2.37 per share, which was the average market price of the common stock for the five days before the grant date.   

June 30, 2022.

9

10

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 certainsome Company’s retail stores since the third quarter of 2014. During

Other income from Wubijia for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016, the Company received $8,580, $26,063, $9,747 and $21,002 from the customers and paid $7,095, $20,651, $6,483 and $16,768 to Wubijia through the consignment, respectively. The net (loss) profit of $1,483, $5,411, $3,264 and $4,234 was recorded2021 are as other income (expenses) during the three and nine months ended September 30, 2017 and 2016, respectively. follows:

  

Three months ended

June 30,

  

Six months ended

June 30,

 
  2022  2021  2022  2021 
  (In thousands of
U.S. Dollars)		 
The Company received from the customers $        -  $      -  $      -  $3 
The Company paid to Wubijia  -   -   -   (3)
The net income recorded as other income $-  $-  $-  $- 

Nanjing Knitting Company Limited (“Nanjing Knitting”) is an entity engaged in knitted fabric products and knitting underwear sales and is controlled by Mr. Kang. Nanjing Knitting has sold their knitting underwear on consignment in some Company’s retail stores since the third quarter of 2015. During the three and nine months ended September 30, 2017 and 2016, the Company received $30, $6,395, $21,944 and $122,783 from the customers and paid $1,041, $11,575, $16,085 and $101,531 to Nanjing Knitting through the consignment, respectively. The net (loss) profit of ($1,009), ($5,179), $5,859 and $21,252 was recorded as other income (expenses) during the three and nine months ended September 30, 2017 and 2016, respectively.

Included in other income for the threeyears ended June 30, 2022 and nine months ended September 30, 2017 and 20162021 is rentrental income from EsC’Lav, the entity controlled by Mr. Kang under operating lease agreement with term though June 2017.through 2022. The rentrental income is $0, $14,529, $16,022$6,391, $6,502 and $48,455$12,757 for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The rent is exempted for three months ended June 30,2022 due to outbreak of Covid-19 in China.

Other expenses due to Related Parties

Included in other expenses for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 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, 
  2017  2016  2017  2016 
  (In thousands of U.S. Dollars) 
Jiangsu Ever-Glory $12  $12  $35  $36 
Chuzhou Huarui  53   57   157   171 
Kunshan Enjin  11   12   33   34 
Total $76  $81  $225  $241 
  Three months ended  Six months ended 
  June 30,  June 30, 
  2022  2021  2022  2021 
  (In thousands of U.S. Dollars) 
Chuzhou Huarui       54       55      110      110 
Kunshan Enjin  11   24   23   47 
Total $65  $79  $133  $157 

The Company leases Jiangsu Ever-Glory’s factory as the factory is in a location where there is a good supply of experienced workers. The Company leases Chuzhou Huarui and Kunshan Enjin’s warehouse spaces because the locations are convenient for transportation and distribution.

11

Purchases from and Sub-contractssub-contracts with Related Parties

The Company purchased raw materials from Nanjing Knitting totaling $0.36$0.2 million, $0.96$0.7 million, $0.11$0.4 million and $0.45$0.9 million during the three and ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.

In addition, the Company sub-contracted certain manufacturing work to related companies totaled $7.6 million, $5.3 million, $12.2 million and $10.1 million for the three and six months ended June 30, 2022 and 2021, 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 ninesix months ended SeptemberJune 30, 20172022 and 20162021 are as follows:

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2017  2016  2017  2016 
  (In thousands of U.S. Dollars) 
Chuzhou huarui $714  $1,228  $2,714  $4,922 
Fengyang huarui  4   344   855   846 
Nanjing Ever-Kyowa  361   490   1,181   1,485 
Ever-Glory Vietnam  6,773   6,196   12,504   11,253 
Ever-Glory Cambodia  15   996   239   3,091 
EsCeLav  1   -   5   5 
Jiangsu Ever-Glory  -   22   3   73 
  $7,868  $9,276  $17,501  $21,675 

10
  Three Months Ended
June 30,		  Six Months Ended
June 30,		 
  2022  2021  2022  2021 
  (In thousands of U.S. Dollars) 
Chuzhou Huarui $638  $370  $939  $861 
Fengyang Huarui  321   332   609   651 
Nanjing Ever-Kyowa  343   319   781   710 
Ever-Glory Vietnam  6,218   3,360   9,487   6,443 
Nanjing Knitting  121   917   366   917 
EsCeLav  -   31   -   37 
Jiangsu Ever-Glory  -   7   -   464 
  $7,641  $5,336  $12,182  $10,083 

Accounts Payable – Related Parties

The accounts payable to related parties at SeptemberJune 30, 20172022 and December 31, 20162021 are as follows:

  September 30,
2017		  December 31,
2016		 
  (In thousands of U.S. Dollars) 
Ever-Glory Vietnam $2,448   1,938 
Fengyang Huarui  478   709 
Nanjing Ever-Kyowa  724   785 
Chuzhou Huarui  473   643 
Ever-Glory Cambodia  60   262 
Jiangsu Ever-Glory  407   - 
Nanjing Knitting  70   - 
Total $4,660  $4,337 
  2022  2021 
  (In thousands of
U.S. Dollars)		 
Ever-Glory Vietnam $-   395 
Fengyang Huarui  -   161 
Nanjing Ever-Kyowa  279   - 
Chuzhou Huarui  842   59 
Nanjing Knitting  603   668 
Jiangsu Ever-Glory  28   49 
Total $1,752  $1,332 

Amounts Due From Related Parties-current assets

The amounts due from related parties as of Septemberat June 30, 20172022 and December 31, 20162021 are as follows:

  September 30,
2017		  December 31,
2016		 
  (In thousands of U.S. Dollars) 
Jiangsu Ever-Glory $819  $403 
Nanjing Knitting  -   9 
EsC’eLav  115   74 
Total $934  $486 
  2022  2021 
  (In thousands of
U.S. Dollars)		 
Jiangsu Ever-Glory $-  $220 
Fengyang Huarui  110   - 
Ever-Glory Vietnam  1,277   - 
Total $1,387  $220 

12

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 ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, 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 $0.7$0 million, $0.8$1.0 million, $0.2$0.02 million and $2.1$2.8 million during the three and ninesix months period ended SeptemberJune 30, 20172022 and 2016,2021, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at a cost of $0.25 million, $0.3 million, $0.2 million$0, $0, $0 and $0.5 million during the three and ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.  

NOTE 10 COMMITMENTS AND CONTINGENCIES

Operating Lease Commitment

Amounts Due From Related Party under Counter Guarantee Agreement

In March 2012,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 considerationthe 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 collateral providedno restrictions or covenants imposed by Jiangsu Ever-Glory and Nanjing Knitting, the Company agreed to provide Jiangsu Ever-Glory a counter guaranteeleases.

The weighted average remaining lease term excluding stores in the formshopping 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 cashsales. The Company estimates the next 12 months rent for the shopping mall stores by annualizing current period rent calculated with the percentage of not less than 70%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 six months ended June 30, 2022, the costs of the maximum aggregate linesleases recognized in cost 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 creditrevenues and is to pay annual interest at the rate of 6.0% of amounts provided. As of September 30, 2017 and December 31, 2016, Jiangsu Ever-Glory has provided guarantees for approximately $54.7 million (RMB 364.0 million) and $52.4 million (RMB 364.0 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 $30.9 million (RMB 205.5 million) and $29.6 million (RMB 205.5 million) as of September 30, 2017 and December 31, 2016, respectively. Mr. Kang has also provided a personal guarantee for $31.4 million (RMB 209.0 million) and $30.1 million (RMB 209.0 million) as of September 30, 2017 and December 31, 2016, respectively.

11

At December 31, 2016, $14.1 million (RMB 98.2 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the nine months ended September 30, 2017, an additional $6.5 million (RMB 44.0 million) was provided to and $7.6 million (RMB 51.7 million) was received from Jiangsu Ever-Glory under the counter-guarantee. As of September 30, 2017, the amount of the counter-guarantee was $13.6 million (RMB 98 million) (the difference represents currency exchange adjustment of $0.6 million), which was 24.9% of the aggregate amount of lines of credit. This amount plus accrued interest of $2.4 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At September 30, 2017 and December 31, 2016, the amount classified as a reduction of equity was $16.0 million and $15.9 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. Since April 1, 2015, interest rate has changed to 0.41% as the bank benchmark interest rate decreased. Interest income for the three and nine months ended September 30, 2017 and 2016 was approximately $0.2 million, $0.6 million, $0.2general administrative expenses are $9.9 million and $0.4 million, respectively. Cash paid for the operating leases including in the operating cash flows was $10.3 million. In the six months ended June 30, 2021, the costs of the leases recognized in cost of revenues and general administrative expenses are $15.9 and $0.2 million, respectively. Cash paid for the operating leases including in the operating cash flows was $16.1 million.

The following table summarizes the maturity of operating lease liabilities:

Year ending June 30, (In thousands of U.S. Dollars)   
2022 $361 
2023  835 
2024  417 
2025  417 
2026  418 
Thereafter  12,032 
Total lease payment  14,480 
Less: Interest  6,410 
Total $8,070 

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. 

13

NOTE 10 CONCENTRATIONS11 RISKS AND RISKSUNCERTAINTIES

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, 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. Based on management’s assessment of the amount of probable credit losses, if any, in existing accounts receivable. The allowance for doubtful accounts at September 30, 2017 and December 31, 2016 was $4.7 million and $3.1 million, respectively. 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 inof 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.  

Concentration risk 

For the three and nine months ended SeptemberJune 30, 2017,2022, the Company had two1 wholesale customerscustomer that represented approximately 20%, 21%, 12% and 13%33% of the Company’s revenues. For the nine-month periodsix months ended SeptemberJune 30, 2016,2022, the Company had no1 wholesale customer that represented more than 10%approximately 24% of the Company’s revenues. For the three-month periodthree months ended SeptemberJune 30, 2016,2021, the Company had one1 wholesale customer that represented approximately 12%19% of the Company’s revenues.

For the six months ended June 30, 2021, the Company had 1 wholesale customer that represented approximately 11% of the Company’s revenues.

For the wholesale business, during the three and nine months ended September 30, 2017 and 2016, noCompany did not rely on any raw material supplier that represented more than 10% of the total raw materials purchased.material purchases during the three and six months ended June 30, 2022 and 2021.

14

 

For the retail business, the Company relied on 2 raw material suppliers that represented approximately 62% and 14% of raw material purchases during the six months ended June 30, 2022. For the Company’s retail business, the Company had tworelied on 4 raw material suppliers that represented approximately 42%33%, 27%, 16% and 17%11% of raw materialsmaterial purchases during the threesix months ended SeptemberJune 30, 2017. The Company had one supplier that represented approximately 23% of raw materials purchases during the three months ended September 30, 2016. The Company had five suppliers that represented approximately 26%, 20%, 12%, 11% and 10% of raw materials purchases during the nine months ended September 30, 2017. The Company had no supplier that represented more than 10% of raw materials purchases during the nine months ended September 30, 2016.2021.

For the wholesale business, the Company relied on one manufacturers for 29.2% of purchased1 finished goods supplier which is a related party that represented 31.5% of the total raw material purchases during the ninesix months ended SeptemberJune 30, 2017. The Company relied on two manufacturers for 26.6% and 11.6% of purchased finished goods during2022. For the nine months ended September 30, 2016. During the three months ended September 30, 2017,wholesale business, the Company relied on one manufacturer for 35.9%1 finished goods supplier which is a related party that represented 31.1% of purchased finished goods. During the threetotal raw material purchases during the six months ended SeptemberJune 30, 2016, the Company relied on one manufacturer for 29.2% of purchased finished goods. 2021.

For the retail business, the Company had nodid not rely on any supplier that represented more than 10% of the total finished goods purchases during the three and ninesix months ended SeptemberJune 30, 20172022 and 2016.2021.

 

The Company’s revenues for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 were earned in the following geographic areas:

 

  Three months ended
September 30,		  Nine months ended
September 30,		 
  2017  2016  2017  2016 
  (In thousands of U.S. Dollars) 
The People’s Republic of China $23,885  $22,860  $34,000  $36,854 
Hong Kong, China  20,520   10,245   33,738   22,314 
Germany  2,239   3,517   7,007   5,760 
United Kingdom  5,599   6,149   11,174   12,568 
Europe-Other  10,899   14,724   25,288   32,999 
Japan  232   2,562   2,863   9,181 
United States  5,611   8,816   16,225   19,554 
Total wholesale business  68,985   68,873   130,295   139,230 
Retail business  51,272   41,053   154,853   143,065 
Total $120,257  $109,926  $285,148  $282,295 
  Three months ended
June 30,		  Six months ended
June 30,		 
  2022  2021  2022  2021 
  (In thousands of U.S. Dollars) 
The People’s Republic of China $5,816  $4,356  $14,991  $11,846 
Hong Kong China  3,659   2,914   7,952   6,971 
United Kingdom  4,760   2,485   5,519   3,538 
Europe-Other  7,985   5,913   12,912   10,059 
Japan  1,493   1,550   6,638   4,955 
United States  18,716   9,209   24,294   12,277 
Total wholesale business  42,429   26,427   72,306   49,646 
Retail business  21,383   34,128   56,279   81,723 
Total $63,812  $60,555  $128,585  $131,369 

 

NOTE 1112 SEGMENTS

 

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

 

(a)  Wholesale segment

(b)  Retail segment

(a)Wholesale segment

  

(b)12Retail segment

  Wholesale
segment		  Retail
segment		  Total 
  (In thousands of U.S. Dollars) 
Six months ended June 30, 2022   
Segment profit or loss:         
Net revenue from external customers $72,305   56,280   128,585 
Loss (Income) from operations $3,969   (4,064)  (95)
Interest income $260   17   277 
Interest expense $934   -   934 
Depreciation and amortization $818   3,062   3,880 
Loss before income tax expense  3,066   (3,717)  (651)
Income tax expense $919   1,119   2,038 
Segment assets:            
Additions to property, plant and equipment  1,984   931   2,915 
Inventory  29,418   36,585   66,003 
Total assets  177,548   127,142   304,690 

15

 

  Wholesale
segment		  Retail
segment		  Total 
  (In thousands of U.S. Dollars) 
Six months ended June 30, 2021   
Segment profit or loss:         
Net revenue from external customers $49,646   81,723   131,369 
Loss from operations $(3,371)  (1,366)  (4,737)
Interest income $699   53   752 
Interest expense $639   53   692 
Depreciation and amortization $310   2,902   3,212 
Loss before income tax expense  (440)  (686)  (1,126)
Income tax expense $804   1,011   1,815 
Segment assets:            
Additions to property, plant and equipment  1,778   2,674   4,452 
Inventory  26,931   33,259   60,190 
Total assets  178,713   141,624   320,337 

  Wholesale
segment		  Retail
segment		  Total 
  (In thousands of U.S. Dollars) 
Three months ended June 30, 2022   
Segment profit or loss:         
Net revenue from external customers $42,429   21,383   63,812 
Income(loss) from operations $3,478   (265)  3,213 
Interest income $88   3   91 
Interest expense $321   -   321 
Depreciation and amortization $355   1,378   1,733 
Income before income tax expense  3,560   (234)  3,326 
Income tax expense $506   420   926 

  Wholesale
segment		  Retail
segment		  Total 
  (In thousands of U.S. Dollars) 
Three months ended June 30, 2021   
Segment profit or loss:         
Net revenue from external customers $26,427   34,128   60,555 
Loss from operations $(2,666)  (1,107)  (3,773)
Interest income $502   25   527 
Interest expense $173   27   200 
Depreciation and amortization $70   1,800   1,870 
Loss before income tax expense  (53)  (632)  (685)
Income tax expense $479   607   1,086 

NOTE 13 SUBSEQUENT EVENTS

The Company also provides general corporate serviceshas evaluated subsequent events through the date which the consolidated financial statements were available to its segmentsbe issued. All subsequent events requiring recognition as of June 30, 2022 have been incorporated into these consolidated financial statements and these coststhere are reported as “corporate and others”:no other significant subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.” 

  Wholesale
segment		  Retail
segment		  Total 
  (In thousands of U.S. Dollars) 
Nine months ended September 30, 2017   
Segment profit or loss:         
Net revenue from external customers $130,295   154,853   285,148 
Income (Loss) from operations $5,050   2,252   7,302 
Interest income $854   55   909 
Interest expense $932   275   1,207 
Depreciation and amortization $824   4,242   5,066 
Income tax expense $1,443   2,130   3,573 
             
Nine months ended September 30, 2016            
Segment profit or loss:            
Net revenue from external customers $139,231   143,064   282,295 
Income from operations $5,959   (892)  5,067 
Interest income $807   47   854 
Interest expense $1,170   341   1,511 
Depreciation and amortization $758   4,579   5,337 
Income tax expense $1,425   960   2,385 

  Wholesale
segment		  Retail
segment		  Total 
  (In thousands of U.S. Dollars) 
Three months ended September 30, 2017   
Segment profit or loss:         
Net revenue from external customers $68,985   51,272   120,257 
Income (Loss) from operations $2,388   457   2,845 
Interest income $355   15   370 
Interest expense $462   100   562 
Depreciation and amortization $272   1,314   1,586 
Income tax expense $686   836   1,522 
             
Three months ended September 30, 2016            
Segment profit or loss:            
Net revenue from external customers $68,873   41,053   109,926 
Income from operations $2,510   (1,280)  1,230 
Interest income $217   16   233 
Interest expense $468   112   580 
Depreciation and amortization $254   1,753   2,007 
Income tax expense $584   140   724 

 

13

16

 

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

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 ninesix months ended SeptemberJune 30, 20172022 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), NanjingHaian 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”). Nanjing Rui Lian was closed in April 2022.

 

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”), 78% owned subsidiary Shanghai Yiduo FashionNanjing Tai Xin Garments Trading Company Limited (“Shanghai Yiduo”Tai Xin”), and Xizang He Meida Trading Company Limited (“He Meida”). He Media was closed in April 2021.

 

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.

14

 

17

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;
   
 ●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 SeptemberJune 30, 2017,2022, we had 1,363816 stores (including store-in-stores), including 174which includes 11 stores that were opened and 18975 stores that were closed duringin the nine months ended September 30, 2017.first half year of 2022. We expect to increase an additional 50 to 100 stores in 2022.

 

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
   
 ●BecomingTaking advantage of our position as a multi-brand operator.

 

Equity Investments

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.

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In September 2021, Goldenway signed an agreement and promised to invest approximately $7.5 million (RMB 50.0 million) in a Chinese private company for 20% shares of the investee. As of June 30, 2022, Goldenway advanced approximately $3.0 million (RMB 20.0 million) to the investee. The investment advances were recorded as other non-current assets.

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 2017.

2021 and 2022.

15

 

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, 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.

19

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.

 

Revenue Recognition

We recognize wholesale revenue from product sales, net of value-added taxes, upon delivery for local salesThe Company uses the same accounting policies in preparing quarterly and upon shipment ofannual financial statements. Certain information and footnote disclosures normally included in the products for export sales, at such time title passes to the customer provided however that (i) there are no uncertainties regarding customer acceptance (ii) persuasive evidence of an arrangement exists (iii) the sales price is fixed and determinable, and (iv) collectability is deemed probable. We recognize wholesale revenue from manufacturing fees charged to buyers for the assembly of garments from materials provided by the buyers upon completion of the manufacturing process and shipment of the products for export sales, provided that (i) there are no uncertainties regarding customer acceptance (ii) persuasive evidence of an arrangement exists (iii) the sales price is fixed and determinable, and (iv) collectability is deemed probable. Retail sales are recorded net of promotional discounts, rebates, and return allowances. Retail store sales are recognized at the time of the register receipt. Retail online sales are recognized when products are shipped and customers receive the products because we retain a portion of the risk of loss on these sales during transit.

Estimates and Assumptions

In preparing ourannual consolidated financial statements we useprepared 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, 2021, filed with the SEC on April 12, 2022 (“2021 Form 10-K.”)  

Estimates and Assumptions

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and disclosures. Ourliabilities and disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. If these 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 causediffer significantly from actual results, the impact to differthe condensed consolidated financial statements may be material. There have been no material changes in our critical accounting policies and estimates from estimated amounts. Significant estimatesthose disclosed in 2017on the 2021 Form 10-K. Please refer to Part II, Item 7 of such a report for a discussion of our critical accounting policies and 2016 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 inventory reservation.estimates.

  

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers, which supersedes the revenue recognition inRevenue Recognition(Topic 605), and requires entities to recognize revenue in a way that depicts the transfer of potential goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This new standard is now effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied retrospectively, with early adoption now permitted to the original effective date of December 15, 2016. The Company is currently evaluating this new standard and the potential impact this standard may have upon adoption. 

In March 2016, the FASB issued ASU No. 2016-08,Revenue from Contracts with Customers: Principal versus Agent Considerations. The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The effective date for this ASU is the same as the effective date for ASU 2014-09,Revenue from Contracts with Customers. The Company is currently assessing the potential impact of this ASU on its consolidated financial statements. 

In February 2016, the FASB issued ASU No. 2016-02,Leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. The Company is currently assessing the impact of this ASU on its consolidated financial statements.  

16

 

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, 2019.2022. 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.

20

Results of Operations for the three months ended SeptemberJune 30, 20172022 and 20162021

 

The following table summarizes our results of operations for the three months ended SeptemberJune 30, 20172022 and 2016.2021. 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,		 
  2017  2016 
  (In thousands of U.S. dollars, except for percentages) 
Sales $120,257   100.0% $109,926   100.0%
Gross Profit $33,250   27.6% $29,614   26.9%
Operating Expense $30,405   25.3% $28,384   25.8%
Income From Operations $2,845   2.4% $1,230   1.1%
Other Income (Expenses) $1,795   1.5% $(94)  (0.1)%
Income tax expense $1,522   1.3% $724   0.7%
Net Income $3,118   2.6% $412   0.4%
  Three Months Ended June 30, 
  2022  2021 
  (In thousands of U.S. dollars, except for percentages) 
Sales $63,812   100.0% $60,555   100.0%
Gross Profit $20,409   32.0% $18,392   30.4%
Operating Expense $17,196   26.9% $22,165   36.6%
Income (Loss) From Operations $3,213   5.0% $(3,773)  (6.2)%
Other Income $113   0.2% $3,088   5.1%
Income tax expense $926   1.5% $1,086   1.8%
Net Income (Loss) $2,400   3.8% $(1,771)  (2.9)%

  

Revenue

 

The following table sets forth a breakdown of our total sales, by region, for the three months ended SeptemberJune 30, 20172022 and 2016. 2021.

 

  2017     2016     

Growth
(Decrease)

 
Wholesale business (In thousands of U.S. dollars)  % of total sales  (In thousands of U.S. dollars)  % of total sales  

in 2017 compared
with 2016

 
Mainland China $23,885   19.9% $22,860   20.8%  4.5%
Hong Kong, China  20,520   17.1   10,245   9.3   100.3 
Germany  2,239   1.9   3,517   3.2   (36.3)
United Kingdom  5,599   4.7   6,149   5.6   (8.9)
Europe-Other  10,899   9.1   14,724   13.4   (26.0)
Japan  232   0.2   2,562   2.4   (90.9)
United States  5,611   4.7   8,816   8.0   (36.4)
Total Wholesale business  68,985   57.4   68,873   62.7   0.2 
Retail business  51,272   42.6   41,053   37.3   24.9 
Total sales $120,257   100.0% $109,926   100.0%  9.4%
  2022     2021     Growth (Decrease) 
Wholesale business (In thousands of U.S. dollars)  % of
total sales		  (In thousands of U.S. dollars)  % of
total sales		  in 2022 compared
with 2021		 
Mainland China $5,816   9.1% $4,356   7.2%  33.5%
Hong Kong China  3,659   5.7   2,914   4.8   25.6 
United Kingdom  4,760   7.5   2,485   4.1   91.5 
Europe-Other  7,985   12.5   5,913   9.8   35.0 
Japan  1,493   2.3   1,550   2.6   (3.7)
United States  18,716   29.3   9,209   15.2   103.2 
Total Wholesale business  42,429   66.5   26,427   43.6   60.5 
Retail business  21,383   33.5   34,128   56.4   (37.3)
Total sales $63,812   100.0% $60,555   100.0%  5.4%

 

Sales for the three months ended SeptemberJune 30, 20172022 were $120.3$63.8 million, a 9.4%5.4% increase compared with the three months ended SeptemberJune 30, 2016.2021. This increase was primarily attributable to a 0.2%60.5% ($16.0 million) increase in sales in our wholesale business, andoffset by a 24.9% increase37.3% ($12.7 million) decrease in our retail business.

 

Sales generated from our wholesale business contributed 57.4%66.5% or $69.0$42.4 million of our total sales for the three months ended SeptemberJune 30, 2017,2022, a 0.2%60.5% increase compared with $68.943.6% or $26.4 million in the three months ended SeptemberJune 30, 2016.2021. This increase was primarily attributable to an increase in sales in Mainland China, and Hong Kong, ChinaUnited Kingdom , Europe-Other and United States, partially offset by a decrease in sales in Germany, the United Kingdom, Europe-Other, Japan and the United States. Japan.

 

Sales generated from our retail business contributed 42.6%33.5% or $51.3$21.4 million of our total sales for the three months ended SeptemberJune 30, 2017, an 24.9% increase2022, a 37.3% decrease compared with 37.3%56.4% or $41.1$34.1 million in the three months ended SeptemberJune 30, 2016.2021. This increasedecrease was primarily due to an increaseoutbreak of COVID-19 . The outbreak in same storeChina resulted in the reduction of customer traffic and temporary closures of shopping malls as mandated by the provincial governments in various provinces of China, which had adversely affected our retail business with a decline in sales.

17

 

21

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 SeptemberJune 30, 20172022 and 2016.2021.  

 

              Growth 
              (Decrease) in 
  Three months ended
September 30,		  2017 Compared 
  2017  2016  with 2016 
  (In thousands of U.S. dollars, except for percentages)    
Net Sales for Wholesale Sales $68,985   100.0% $68,873   100.0%  0.2%
Raw Materials  31,092   45.1   31,451   45.7   (1.1)
Labor  1,468   2.1   1,310   1.9   12.1 
Outsourced Production Costs  25,999   37.7   25,927   37.6   0.3 
Other and Overhead  199   0.3   123   0.2   60.6 
Total Cost of Sales for Wholesale  58,758   85.2   58,811   85.4   (0.1)
Gross Profit for Wholesale  10,227   14.8   10,062   14.6   1.6 
Net Sales for Retail  51,272   100.0   41,053   100.0   24.9 
Production Costs  18,081   35.3   11,145   27.1   62.2 
Rent  10,168   19.8   10,356   25.2   (1.8)
Total Cost of Sales for Retail  28,249   55.1   21,501   52.4   31.4 
Gross Profit for Retail  23,023   44.9   19,552   47.6   17.8 
Total Cost of Sales  87,007   72.4   80,312   73.1   8.3 
Gross Profit $33,250   27.6% $29,614   26.9%  12.3%
              Growth 
              (Decrease) in 
  Three months ended June 30,  2022 
  2022  2021  Compared 
  (In thousands of U.S. dollars, except for percentages)  with 2021 
Net Sales for Wholesale Sales $42,429   100.0% $26,427   100.0%  60.5%
Raw Materials  16,701   39.4   11,407   43.2   46.4 
Labor  475   1.1   386   1.4   23.1 
Outsourced Production Costs  17,117   40.3   10,943   41.4   56.4 
Other and Overhead  149   0.4   95   0.4   56.8 
Total Cost of Sales for Wholesale  34,442   81.2   22,831   86.4   50.9 
Gross Profit for Wholesale  7,987   18.8   3,596   13.6   122.1 
Net Sales for Retail  21,383   100.0   34,128   100.0   (37.3)
Production Costs  6,075   28.4   13,390   39.2   (54.6)
Rent  2,886   13.5   5,942   17.4   (51.4)
Total Cost of Sales for Retail  8,961   41.9   19,332   56.6   (53.6)
Gross Profit for Retail  12,422   58.1   14,796   43.4   (16.0)
Total Cost of Sales  43,403   68.0   42,163   69.6   2.9 
Gross Profit $20,409   32.0% $18,392   30.4%  11.0%

 

Raw material costs for our wholesale business were 45.1%39.4% of our total wholesale business sales in the three months ended SeptemberJune 30, 2017,2021, compared with 45.7%43.2% in the three months ended SeptemberJune 30, 2016.2021. The decrease was mainly due to lower raw material prices.

 

Labor costs for our wholesale business were 2.1%1.1% (0.5 million) of our total wholesale business sales in the three months ended SeptemberJune 30, 2017,2022, compared with 1.9%1.4%（0.4 million) in the three months ended SeptemberJune 30, 2016. The marginal increase was mainly due to a higher number of outsourced orders in 2016.2021. There were no significant changes.

 

Outsourced production costs for our wholesale business for the three months ended SeptemberJune 30, 20172022 increased 0.3%by 56.4% to $26.0$17.1 million from $25.9$10.9 million for the three months ended SeptemberJune 30, 2016.2021. Outsourced production costs accounted for 37.7%40.3% of our total wholesale business sales in the three months ended SeptemberJune 30, 2017, a 0.1% increase from2022, compare with 41.4% in the three months ended SeptemberJune 30, 2016. This increase was primarily attributable to higher average employee salaries at our outsourced manufacturing factories.2021. There were no significant changes in percentage of sales.

 

22

Overhead and other expenses for our wholesale business accounted for 0.3%0.4% of our total wholesale business sales for the three months ended SeptemberJune 30, 2017,2022, compared with 0.2%0.4% of total wholesale business sales for the three months ended SeptemberJune 30, 2016.2021.

 

Wholesale business gross profit for the three months ended SeptemberJune 30, 20172022 was $10.2$8.0 million compared with $10.1$3.6 million for the three months ended SeptemberJune 30, 2016.2021. Gross profit accounted for 14.8%18.8% of our total wholesale sales for the three months ended SeptemberJune 30, 2017,2022, compared with 14.6%13.6% for the three months ended SeptemberJune 30, 2016.2021. The increase was mainly due to purchase a decrease inlarge amount raw Materials costs.materials at lower prices.

 

Production costs for our retail business were $18.1$6.1 million for the three months ended SeptemberJune 30, 20172022 compared with $11.1$13.4 million during the three months ended SeptemberJune 30, 2016.2021. Retail production costs accounted for 35.3%28.4% of our total retail sales in the three months ended SeptemberJune 30, 2017,2022, compared with 27.1%39.2% for the three months ended SeptemberJune 30, 2016.2021. The increasedecrease in amount was due to higher discounts on our out-of-season productslower sales in the three months ended September 30, 2017 compared with the same period2022 because of the prior year.COVID-19. 

 

Rent costs for our retail business for the three months ended SeptemberJune 30, 20172022 were $10.2$2.9 million compared with $10.4$5.9 million for the three months ended SeptemberJune 30, 2016.2021. Rent costs for our retail business accounted for 19.8%13.5% of our total retail sales for the three months ended SeptemberJune 30, 2017,2022, compared with 25.2%17.4% for the three months ended SeptemberJune 30, 2016.2021. The decrease was primarily attributable to lower variablethe rent charged at certain locations.

reduction in 2022 for the influence of COVID-19.

18

  

Gross profit in our retail business for the three months ended SeptemberJune 30, 20172022 was $23.0$12.4 million and gross margin was 44.9%58.1%. Gross profit in our retail business for the three months ended SeptemberJune 30, 20162021 was $19.6$14.8 million and gross margin was 47.6%43.4%.

 

Total cost of sales for the three months ended SeptemberJune 30, 20172022 was $87.0$43.4 million, an 8.3%a 2.9% increase from $80.3$42.2 million for the three months ended SeptemberJune 30, 2016.2021. Total cost of sales as a percentage of total sales for the three months ended SeptemberJune 30, 20172022 was 72.4%68.0%, compared with 73.1%69.6% for the three months ended SeptemberJune 30, 2016.2021. Gross margin for the three months ended SeptemberJune 30, 20172022 was 27.6%32.0% compared with 26.9%30.4% for the three months ended SeptemberJune 30, 2016.2021.  

 

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 2017 Compared 
  2017  2016  to 2016 
  (In thousands of U.S. dollars, except for percentages)    
Gross Profit $33,250   27.6% $29,614   26.9%  12.3%
Operating Expenses:                  　 
Selling Expenses  20,238   16.8   18,522   16.8   9.3 
General and Administrative Expenses  10,167   8.5   9,862   9.0   3.1 
Total  30,405   25.3   28,384   25.8   7.1 
Income from Operations $2,845   2.4% $1,230   1.1%  131.3%
  Three Months Ended June 30,  Increase (Decrease) in 2022 
  2022  2021  Compared 
  (In thousands of U.S. dollars, except for percentages)  to 2021 
Gross Profit $20,409   32.0% $18,392   30.4%  11.0%
Operating Expenses:      　       　   　 
Selling Expenses  11,675   18.3   14,503   24.0   (19.5)
General and Administrative Expenses  5,521   8.7   7,662   12.7   (27.9)
Total  17,196   26.9   22,165   36.6   (22.4)
Income (loss) from Operations $3,213   5.0% $(3,773)  (6.2)%  185.1%

 

Selling expenses for the three months ended SeptemberJune 30, 2017 increased 9.3%2022 decreased by 19.5% to $20.2$11.7 million from $18.5$14.5 million for the three months ended SeptemberJune 30, 2016.2021. The increasedecrease was attributable to higher retail sales. the decreased average salaries and decreased business trips.

 

General and administrative expenses for the three months ended SeptemberJune 30, 2017 increased 3.1%2022 decreased by 27.9% to $10.2$5.5 million from $9.9$7.7 million for the three months ended SeptemberJune 30, 2016.2021. The decrease was attributable to the decreased publicity expense and the depreciation of RMB .

 

Income

23

Income(Loss) from Operations

 

Income from operations for the three months ended SeptemberJune 30, 2017 increased 131.2% to $2.82022 was $3.2 million, an increase of 185.1% from $1.2$3.8 million of loss for the three months ended SeptemberJune 30, 2016.2021. Income from operations for the three months ended SeptemberJune 30, 20172022 accounted for 2.4%5.0% of our total sales, a 1.3% increase compared withwhile the three months ended SeptemberJune 30, 2016 as a result2021 accounted for 6.2% of increased gross profit.our total sales.

 

Interest Expense

 

Interest expense for the three months ended SeptemberJune 30, 20172022 was $0.6$0.3 million, a 3.1% decrease compared with the same period in 2016.

Income Tax Expenses

Income taxwhile interest expense was $0.2 million for the three months ended SeptemberJune 30, 2017 was $1.5 million, an increase of 110.7% compared to the same period of 2016.2021. The increase was primarily due to the slightly increased profits of our business.bank loans.

 

Our PRCIncome Tax Expenses

Income tax expense was $0.9 million and $1.1 million for the three months ended June 30, 2022 and 2021, respectively.

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. Each of our consolidated entities files its own separate income tax return.

laws (“the Income Tax Laws”). 

19

 

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

He Meida incorporated in Xizang (Tibet) Autonomous Region is subject to income tax at the 15%25% statutory rate. The local government has implemented an income tax reduction from 15% to 9% valid through December 31, 2017.

 

Perfect Dream Limited 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 International Group (HK) LtdHK was incorporated in Samoa, on September 15, 2009, and under the current laws of Samoa, has no liabilities for income tax.taxes.

 

AlthoughEver-Glory Supply Chain Service Co., Limited was incorporated in Hongkong, and under the Company’s parent entitycurrent laws of Hongkong, are subject to income tax at the 16.5% statutory rate.

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 US entity, the Company’s primary operations are through subsidiaries located intax treaty arrangement between mainland China certain apparel manufacturing is performed outside of China in Southeast Asia, sales are made globally, and the Company has other subsidiary operations in Hong Kong and Samoa. Therefore, the Company uses significant judgment to calculate and provide for income taxes in eachjurisdiction of the foreign holding company. The foreign invested enterprise became subject to the withholding tax jurisdictions in which it operates. Instarting from January 1, 2008. Given that the ordinary courseundistributed profits of the Company’s subsidiaries in China are intended to be retained in China for business there are transactionsdevelopment and calculations undertaken whose ultimateexpansion purposes, no withholding tax outcome cannot be certain. Some of these uncertainties arise as a consequence of transfer pricing for transactions with the Company’s subsidiaries, potential challenges to nexus, value added estimates, and similar matters.  In September 2009, the Company formed its subsidiary, Ever-Glory Hong Kong, domiciled in Samoa, in order to engage in certain limited import and export of apparel, fabric and accessories, as well as to efficiently address currency exchange matters with international transactions. Over the past few years, the operational matters handled by this subsidiary have expanded with respect to sub-contracting of certain manufacturing work outside of China, as well as to other operational matters with non-PRC customers and vendors.  Additionally, over this time period, tax guidance, rules and positions taken by the PRC with respect to transfer pricing issues have evolved, and in certain cases, become more standardized.  As part of the Company’s on-going process of evaluating our tax positions, the Company considered various factors as they relate to its Samoan subsidiary and as related to intercompany transactions. This evaluation resulted in a change in the Company’s estimate of exposure to potential unfavorable outcomes related to these uncertainties, and the Company recorded a tax liability of approximately $3.2 million as of December 31, 2013 based on the probability for such outcomes.

The Company and the PRC Tax Bureau have agreed that payments on the tax liability $3.2 million will be made by the Company prospectively over two to three years’ period. All $3.2 million was paid off as of December 31, 2016. Beginning January 1, 2014, all net income generated from Ever-Glory HKaccrual has been reported as a taxable income at 25% tax rate in PRC.made.  

 

Ever-Glory International Group Inc. was incorporated in the United States and has incurred net operating losses for income tax purposes through September 30, 2017. The net operating loss carry forwards for the United States income taxes may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, through 2035. Management believes that the realization of the benefits from these losses is uncertain due to our limited operating history and continuing losses for the United States income tax purposes. Accordingly, we provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero.Net Income (Loss)

 

Net Income

Net income for the three months ended SeptemberJune 30, 20172022 was $3.1$2.4 million, a 656.6% increase compared with the same period in 2016. Our basic and diluted earnings per share were $0.22 and $0.04net loss for the three months ended SeptemberJune 30, 2017 and 2016, respectively.2021 was $1.8 million.

 

Results of Operations for the ninesix months ended SeptemberJune 30, 20172022 and 20162021

 

The following table summarizes our results of operations for the ninesix months ended SeptemberJune 30, 20172022 and 2016.2021. 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,		 
  2017  2016 
  (in thousands of U.S. Dollars, except for percentages) 
Sales $285,148   100.0% $282,295   100.0%
Gross Profit  92,408   32.4   84,672   30.0 
Operating Expense  85,106   29.8   79,605   28.2 
Income From Operations  7,302   2.6   5,067   1.8 
Other Income (Expenses)  2,790   1.0   282   0.1 
Income tax expense  3,573   1.3   2,385   0.8 
Net Income $6,519   2.3% $2,964   1.1%

20

 

  Six Months Ended June 30, 
  2022  2021 
  (In thousands of U.S. Dollars, except for percentages) 
Sales $128,585   100.0% $131,369   100.0%
Gross Profit  37,781   29.4   40,828   31.1 
Operating Expense  37,876   29.5   45,565   34.7 
Loss From Operations  (95)  (0.1)  (4,737)  (3.6)
Other Expense(Income)  (556)  (0.4)  3,611   2.7 
Income tax expense  2,038   1.6   1,815   1.4 
Net Loss $(2,689)  (2.1)% $(2,941)  (2.2)%

24

Revenue

 

The following table sets forth a breakdown of our total sales, by region, for the ninesix months ended SeptemberJune 30, 20172022 and 2016.2021.

 

  2017     2016     Growth
(Decrease)		 
Wholesale business (In thousands of U.S. dollars)  % of total sales  (In thousands of U.S. dollars)  % of total sales  in 2017 compared
with 2016		 
Mainland China $34,000   11.9% $36,854   13.1%  (7.7)%
Hong Kong China  33,738   11.8   22,314   7.9   51.2 
Germany  7,007   2.5   5,760   2.0   21.7 
United Kingdom  11,174   3.9   12,568   4.5   (11.1)
Europe-Other  25,288   8.9   32,999   11.7   (23.4)
Japan  2,863   1.0   9,181   3.2   (68.8)
United States  16,225   5.7   19,554   6.9   (17.0)
Total Wholesale business  130,295   45.7   139,230   49.3   (6.4)
Retail business  154,853   54.3   143,065   50.7   8.2 
Total sales $285,148   100.0% $282,295   100.0%  1.0%
  2022     2021     Growth (Decrease) 
Wholesale business (In thousands of U.S. dollars)  % of total sales  (In thousands of U.S. dollars)  % of total sales  in 2022 compared
with 2021		 
Mainland China $14,991   11.7% $11,846   9.0%  26.5%
Hong Kong China  7,952   6.2   6,971   5.3   14.1 
United Kingdom  5,519   4.3   3,538   2.7   56.0 
Europe-Other  12,912   10.0   10,059   7.7   28.4 
Japan  6,638   5.2   4,955   3.8   34.0 
United States  24,294   18.8   12,277   9.3   97.9 
Total Wholesale business  72,306   56.2   49,646   37.8   45.6 
Retail business  56,279   43.8   81,723   62.2   (31.1)
Total sales $128,585   100.0% $131,369   100.0%  (2.1)%

  

Sales for the ninesix months ended SeptemberJune 30, 20172022 were $285.1$128.6 million, an increasea decrease of 1.0%2.1% from the ninesix months ended SeptemberJune 30, 2016.2021. This increasedecrease was primarily attributable to an 8.2%a 45.6% (22.7million) increase in sales in our retailwholesale business partially offset byand a 6.4% sales31.1% (25.4 million) decrease in our wholesaleretail business.

 

Sales generated from our wholesale business contributed 45.7%56.2% or $130.3$72.3 million of our total sales for the ninesix months ended SeptemberJune 30, 2017, a decrease2022, an increase of 6.4%45.6% compared with $139.237.8% or $49.6 million in the ninesix months ended SeptemberJune 30, 2016.2021. This decreaseincrease was primarily attributable to decreased sales in Mainland China, the United Kingdom, Europe-Other, Japan and the United States partially offset by increased sales in Hong Kong, China and Germany. all countries we have wholesale business with.

 

Sales generated from our retail business contributed 54.3%43.8% or $154.9$56.3 million of our total sales for the ninesix months ended SeptemberJune 30, 2017, an increase2022, a decrease of 8.2%31.1% compared with $143.162.2% or $81.7 million in the ninesix months ended SeptemberJune 30, 2016.2021. This increasedecrease was primarily due to an increasea decrease in same store sales and 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, which had adversely affected our retail business with a decline in sales.

 

Total retail store square footage and sales per square foot for the ninesix months ended SeptemberJune 30, 20172022 and 20162021 are as follows:

 

  2017  2016 
Total store square footage  1,370,117   1,329,708 
Number of stores  1,363   1,345 
Average store size, square foot  1,005   989 
Total store sales (in thousands of U.S. dollars) $154,853  $143,065 
Sales per square foot $113  $108 
  2022  2021 
Total store square footage  922,423   1,011,506 
Number of stores  816   931 
Average store size, square feet  1,130   1,086 
Total store sales (in thousands of U.S. dollars) $56,279  $81,723 
Sales per square foot $61  $81 

   

Same-storeSame store sales and newly opened store sales for the ninesix months ended SeptemberJune 30, 20172022 and 20162021 are as follows:

 

  2017  2016 
  (In thousands of U.S. dollars) 
Sales from stores opened for a full year $130,790  $113,734 
Sales from newly opened store sales $12,944  $14,137 
Sales from e-commerce platform $7,716  $9,368 
Other* $3,403  $5,826 
Total $154,853  $143,065 
  2022  2021 
  (In thousands of U.S. dollars) 
Sales from stores opened for a full year $45,514  $62,067 
Sales from newly opened store sales $2,769  $7,566 
Sales from e-commerce platform $5,838  $6,649 
Other* $2,158  $5,441 
Total $56,279  $81,723 

  

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

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

 

We remodeled or relocated 200137 stores in 2016,year 2021, and 19513 stores during the ninesix months ended SeptemberJune 30, 2017.We2022. We plan to relocate or remodel an aggregate of 150-20050 to 100 stores in 2017.2022. 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 2017.2022.  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.

 

25

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 ninesix months ended SeptemberJune 30, 20172022 and 2016.2021.

 

  ��           Growth 
              (Decrease) in 
  Nine months ended
September 30,		  2017 Compared 
  2017  2016  with 2016 
  (In thousands of U.S. dollars, except for percentages)    
Net Sales for Wholesale Sales $130,295   100.0% $139,230   100.0%  (6.4)%
Raw Materials  56,766   43.6   61,935   44.5   (8.3)
Labor  3,236   2.5   3,932   2.8   (17.7)
Outsourced Production Costs  47,542   36.5   50,603   36.3   (6.1)
Other and Overhead  325   0.2   370   0.3   (12.2)
Total Cost of Sales for Wholesale  107,869   82.8   116,840   83.9   (7.7)
Gross Profit for Wholesale  22,426   17.2   22,390   16.1   0.2 
Net Sales for Retail  154,853   100.0   143,065   100.0   8.2 
Production Costs  49,769   32.1   45,172   31.6   10.2 
Rent  35,102   22.7   35,611   24.9   (1.4)
Total Cost of Sales for Retail  84,871   54.8   80,783   56.5   5.1 
Gross Profit for Retail  69,982   45.2   62,282   43.5   12.4 
Total Cost of Sales  192,740   67.6   197,623   70.0   (2.5)
Gross Profit $92,408   32.4% $84,672   30.0%  9.1%
              Growth 
              (Decrease) in 
  Six months ended June 30,  2022 
  2022  2021  Compared 
  (In thousands of U.S. dollars, except for percentages)  with 2021 
Net Sales for Wholesale Sales $72,306   100.0% $49,646   100.0%  45.6%
Raw Materials  30,075   41.6   21,793   43.9   38.0 
Labor  920   1.3   719   1.4   28.0 
Outsourced Production Costs  27,322   37.8   18,776   37.8   45.5 
Other and Overhead  290   0.4   200   0.4   45.0 
Total Cost of Sales for Wholesale  58,608   81.1   41,488   83.6   41.3 
Gross Profit for Wholesale  13,698   18.9   8,158   16.4   67.9 
Net Sales for Retail  56,279   100.0   81,723   100.0   (31.1)
Production Costs  22,125   39.3   33,151   40.6   (33.3)
Rent  10,071   17.9   15,902   19.5   (36.7)
Total Cost of Sales for Retail  32,196   57.2   49,053   60.0   (34.4)
Gross Profit for Retail  24,083   42.8   32,670   40.0   (26.3)
Total Cost of Sales  90,804   70.6   90,541   68.9   0.3 
Gross Profit $37,781   29.4% $40,828   31.1%  (7.5)%

 

Raw material costs for our wholesale business were 43.6%41.6% of our total wholesale business sales in the ninesix months ended SeptemberJune 30, 2017,2022, compared with 44.5%43.9% in the ninesix months ended SeptemberJune 30, 2016.2021. The decrease was mainly due to lower cost of raw materials prices.materials.

 

Labor costs for our wholesale business were 2.5%1.3% of our total wholesale business sales in the ninesix months ended SeptemberJune 30, 2017,2022, compared with 2.8%1.4% in the ninesix months ended SeptemberJune 30, 2016. The marginal decrease was mainly due to a higher number of outsourced orders in the nine months ended September 30, 2017.2021. There were no significant changes.

 

Outsourced manufacturingproduction costs for our wholesale business were 36.5%37.8% of our total wholesale sales in the ninesix months ended SeptemberJune 30, 2017,2022, compared with 36.3%37.8% in the ninesix months ended SeptemberJune 30, 2016. This increase was primarily attributable to increased average salaries of the employees at our outsourced manufacturing factories.2021. There were no significant changes.

 

Overhead and other expenses for our wholesale business accounted for 0.2%0.4% and 0.3%0.4% of our total wholesale sales for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.

 

Gross profit for our wholesale business for the ninesix months ended SeptemberJune 30, 20172022 was $22.4$13.7 million, a 0.2%67.9% increase compared with the ninesix months ended SeptemberJune 30, 2016.2021. As a percentage of total wholesale business sales, gross profit was 17.2%18.9% of our total wholesale business sales for the ninesix months ended SeptemberJune 30, 2017,2022, compared with 16.1%16.4% for the ninesix months ended SeptemberJune 30, 2016.2021. The increase was mainly due to decreasedlower cost of raw material costs.materials. 

 

Production costs for our retail business for the ninesix months ended SeptemberJune 30, 20172022 were $49.8$22.1 million compared with $45.2$33.2 million for the ninesix months ended SeptemberJune 30, 2016.2021. As a percentage of our total retail sales, production costs were 32.1%39.3% of our total retail sales for the ninesix months ended SeptemberJune 30, 2017,2022, compared with 31.6%40.6% for the ninesix months ended SeptemberJune 30, 2016. The increase was due to higher discounts on our out-of-season products in the nine months ended September 30, 2017 compared with the same period of the prior year.

2021.There were no significant changes. 

22

 

Rent costs for our retail business for the ninesix months ended SeptemberJune 30, 20172022 were $35.1$10.1 million compared with $35.6$15.9 million for the ninesix months ended SeptemberJune 30, 2016.2021. As a percentage of total retail sales, rent costs were 22.7%17.9% of our total retail sales for the ninesix months ended SeptemberJune 30, 20172022 compared with 24.9%19.5% for the ninesix months ended SeptemberJune 30, 2016.2021. The decrease in percentage was primarily attributable to lowerthe rent at certain locations.reduction in 2022 due to outbreak of COVID-19 in China.

 

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Gross profit for our retail business for the ninesix months ended SeptemberJune 30, 20172022 was $70.0$24.1 million compared with $62.3$32.7 million for the ninesix months ended SeptemberJune 30, 2016.2021. Gross margin for our retail business for the ninesix months ended SeptemberJune 30, 20172022 was 45.2%42.8% compared with 43.5%40.0% for the ninesix months ended SeptemberJune 30, 2016.2021.

 

Total cost of sales for the ninesix months ended SeptemberJune 30, 20172022 was $192.7$90.8 million, a 2.5% decrease0.3% increase compared with the ninesix months ended SeptemberJune 30, 2016.2021. As a percentage of total sales, total costs were 67.6%70.6% of total sales for the ninesix months ended SeptemberJune 30, 2017,2022, compared with 70.0%68.9% for the ninesix months ended SeptemberJune 30, 2016.2021. Total gross margin for the ninesix months ended SeptemberJune 30, 20172022 was 32.4%29.4% compared with 30.0%31.1% for the ninesix months ended SeptemberJune 30, 2016.2021.

 

We purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. For our wholesale business, purchases from our five largest suppliers represented approximately 14.9% and 14.8% of raw material purchases for the nine months ended September 30, 2017 and 2016, respectively. No one supplier provided more than 10% of our raw material purchases for the nine months ended September 30, 2017 and 2016. For our retail business, purchases from our five largest suppliers represented approximately 79.8% and 33.0% of raw material purchases for the nine months ended September 30, 2017 and 2016, respectively. Five suppliers provided approximately 25.9%, 20.4%, 11.7%, 11.0 and 10.8% of our raw material purchases for the nine months ended September 30, 2017. No one supplier provided more than 10% of our raw material purchases for the nine months ended September 30, 2016. We have not experienced difficulty in obtaining raw materials essential to our business, and we believe we maintain good relationships with our suppliers.

We also purchase finished goods from contract manufacturers. For our wholesale business, purchases from our five largest contract manufacturers represented approximately 49.2% and 54.4% of finished goods purchases for the nine months ended September 30, 2017 and 2016, respectively. One contract manufacturer provided approximately 29.2% of our finished goods purchases for the nine months ended September 30, 2017. Two contract manufacturers provided approximately 26.6% and 11.6% of our finished goods purchases for the nine months ended September 30, 2016. For our retail business, our five largest contract manufacturers represented approximately 16.7% and 14.8% of finished goods purchases for the nine months ended September 30, 2017 and 2016, respectively. No contract manufacturer provided more than 10% of our retail finished goods purchases for the nine months ended September 30, 2017 and 2016. We have not experienced difficulty in obtaining finished products from our contract manufacturers and we believe we maintain good relationships with our contract manufacturers.

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 2017 Compared 
  2017�� 2016  to 2016 
  (In thousands of U.S. dollars, except for percentages)    
Gross Profit $92,408   32.4% $84,672   30.0%  9.1%
Operating Expenses:      　           　 
Selling Expenses  60,206   21.1   55,477   19.7   8.5 
General and Administrative Expenses  24,900   8.7   24,128   8.5   3.2 
Total  85,106   29.8   79,605   28.2   6.9 
Income from Operations $7,302   2.6% $5,067   1.8%  44.1%

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  Six months ended June 30,  Increase (Decrease) in 2022 
  2022  2021  Compared 
  (In thousands of U.S. dollars, except for percentages)  to 2021 
Gross Profit $37,781   29.4% $40,828   31.1%  (7.5)%
Operating Expenses:      　       　   　 
Selling Expenses  25,361   19.7   30,052   22.9   (15.6)
General and Administrative Expenses  12,515   9.7   15,513   11.8   (19.3)
Total  37,876   29.5   45,565   34.7   (16.9)
Loss from Operations $(95)  (0.1)% $(4,737)  (3.6)%  (98.0)%

Selling expenses for the ninesix months ended SeptemberJune 30, 20172022 were $60.2$25.4 million, an 8.5% increasea 15.6% decrease compared with $30.1 million in the ninesix months ended SeptemberJune 30, 2016.2021. The increasedecrease was attributable to higherthe decreased average salaries and the marketing expenses associated with the promotion of the retail sales.brand. 

 

General and administrative expenses for the ninesix months ended SeptemberJune 30, 20172022 were $24.9$12.5 million a 3.2% increase19.3% decrease compared with the ninesix months ended SeptemberJune 30, 2016.2021. As a percentage of total sales, general and administrative expenses accounted for 8.7%9.7% of total sales for the ninesix months ended SeptemberJune 30, 2017,2022, compared with 8.5%11.8% of total sales for the ninesix months ended SeptemberJune 30, 2016.2021. The increasedecrease was mainly attributable to the increased average salaries.decreased publicity expense and the depreciation of RMB .

 

IncomeLoss from Operations

 

IncomeLoss from operations for the ninesix months ended SeptemberJune 30, 20172022 was $7.3$0.1 million, a 44.1% increase98.0% decrease from $5.1$4.7 million of loss for the six months ended June 30, 2021.

Interest Expense

Interest expense was $0.9 million and $0.7 million for the ninesix months ended SeptemberJune 30, 2016. This2022 and 2021, respectively. The increase was due to increased gross profit.

Interest Expense

Interest expense was $1.2 million and $1.5 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease was due to the decreasedincreased bank loans.

 

Income Tax ExpensesExpense

 

Income tax expense for the ninesix months ended SeptemberJune 30, 20172022 was $3.6$2.0 million, a 49.8%12.3% increase compared to the same period of 2016.2021. The increase was primarily due to the higher business profits.PRC income which resulted in a higher income tax expense.

 

Net Income

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Net incomeLoss

Net loss for the ninesix months ended SeptemberJune 30, 20172022 was $6.5$2.7 million, an increasea decrease of 119.9%8.7% compared with $2.9 million of net loss from the same period in 2016. Our2021. Basic and diluted earningsloss per share were $0.47was $0.18 and $0.23$0.20 for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.

 

Summary of Cash Flows

 

Summary cash flows information for the ninesix months ended SeptemberJune 30, 20172022 and 20162021 is as follows:

 

  2017  2016 
  (In thousands of U.S. dollars) 
Net cash used in (provided by) operating activities $(16,584)  18,646 
Net cash used in investing activities $(4,356)  (8,577)
Net cash provided by financing activities $15,330  $6,746 
  2022  2021 
  (In thousands of U.S. dollars) 
Net cash used in operating activities $(9,706) $(10,488)
Net cash used in investing activities $(5,242) $(5,920)
Net cash used in financing activities $(37) $(266)

Net cash used in operating activities was $16.6$9.7 million for the ninesix months ended SeptemberJune 30, 2017,2022, compared with net cash provided by $18.6$10.5 million used during the ninesix months ended SeptemberJune 30, 2016.2021. The decrease was primarily due to increasea decrease in accounts receivable.payable and other payable payments.

 

Net cash used in investing activities was $4.4$5.2 million for the ninesix months ended SeptemberJune 30, 2017,2022, compared with $8.5$5.9 million used during the ninesix months ended SeptemberJune 30, 2016.2021. This decrease was mainly due to the decreased in purchase of propertythat we purchased less properties and equipment and remodeling expenditure in 2017.than the same period last year.

 

Net cash provided byused in financing activities was $15.3$0.04 million for the ninesix months ended SeptemberJune 30, 20172022, compared with $6.7$0.3 million net cash used during the ninesix months ended SeptemberJune 30, 2016.2021. This increase was primarily due to repayment of the bank loans. During the ninesix months ended SeptemberJune 30, 2017,2022, we repaid $33.4 millionthe same amount of bank loans andas we received bank loan proceeds of $47.6 million. Also, underproceeds. During the counter-guarantee agreement,same period last year, we repaid more bank loans than we received $7.6 million from and paid $6.5 million to the related party during the nine months ended September 30, 2017.additional bank loan proceeds.

 

Liquidity and Capital Resources

 

As of SeptemberJune 30, 2017,2022, we had cash and cash equivalents of $40.8$32.9 million, other current assets of $149.0$185.2 million and current liabilities of $124.1$166.7 million. We presently finance our operations primarily from cash flows from operations and bank loansborrowings from banks, and we anticipate that these will continue to be our primary sourcessource of funds to finance our short-term cash needs.

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Bank Loans

 

From March 2020 to July 2020, Ever-Glory Apparel entered into a certificate of three-year time deposit of $28.3 million (RMB190.0 million) with the Shanghai Pudong Development Bank with annual interest rates ranging from 3.75% to 3.99%. From August to November 2021, Ever-Glory Apparel pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank and Ever-Glory Apparel had borrowed $26.8 million (RMB 180.0 million) under this line of certificate with an annual interest rate from 2.60% to 2.65% and due between August to November 2022.

In January 2014,December 2020, Goldenway entered into a certificate of three-year time deposit of $16.4 million (RMB110.0 million) with the Shanghai Pudong Development Bank with an annual interest rate of 3.85%. From February to June 2022, Goldenway pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank and Goldenway had borrowed $14.9 million (RMB100.0 million) under this line of certificate with annual interest rate from 2.15% to 2.60%, due between February to April 2023.

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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 $9.0$6.0 million (RMB60.0(RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of SeptemberJune 30, 2017,2022, Goldenway had borrowed $6.0 million (RMB 40.0(RMB40.0 million) under this linefrom Industrial and Commercial Bank of creditChina with an annual interest rate of 4.6%4.57% and due on various dates from December 2017 to January 2018. As of September 30, 2017, approximately $3.0 million was unused and available under this line of credit.  in August 2022.

 

In September 2015,August 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $18.0$14.9 million (RMB120.0(RMB100.0 million) with Industrial and Commercial Bank of China, andwhich is collateralized by assets of Jiangsu Ever-Glory’s equity investee, Nanjing Knitting,LA GO GO, Tianjin LA GO GO and Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer, under a collateral agreement executed among Ever-Glory Apparel, Nanjing KnittingJiangsu LA GO GO , Tianjin LA GO GO, Jiangsu Ever-Glory and the bank. As of SeptemberJune 30, 2017,2022, Ever-Glory Apparel had borrowed $15.0$14.9 million (RMB 100.0 million) under this line of credit with annual interest rate of 4.6%rates ranging from 3.92% to 4.35% and due on various dates from October 2017between August 2022 to September 2018. As of September 30, 2017, approximately $3.0 million was unused and available under this line of credit.June 2023.

 

In June 2016,April 2020, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $7.5$6.7 million (RMB50.0(RMB45.0 million). TheseIn May 2021,Goldenway pledged $0.6 million (RMB4.0 million) to Nanjing Bank, and the maximum amount available from this line of credit increased to $7.3 million (RMB49.0 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.equipment and guaranteed by Jiangsu Ever-Glory. In September 2021, Goldenway borrowed $3.0 million (RMB 20.0 million) with an annual interest rate 3.44% and due in September 2022. As of SeptemberJune 30, 2017,2022, approximately $7.5$4.3 million (RMB 29.0 million) was unused and available under this line of credit. 

In June 2016, Ever-Glory Apparel entered into a line of credit agreement for approximately $9.0 million (RMB60.0 million) with Nanjing Bank and guaranteed by Jiangsu Ever-Glory, Mr. Kang and Goldenway. As of September 30, 2017, Ever-Glory Apparel had borrowed $6.0 million (RMB40.0 million) from Nanjing Bank with an annual interest rate of 4.4% and due on various dates from Jan to March 2018. Ever-Glory Apparel had also borrowed $0.8 million from Nanjing Bank with an annual interest rate of 2.4% and due in October 2017, and collateralized by approximately $0.9 million of accounts receivable from our wholesale customers. As of September 30, 2017, approximately $2.2 million was unused and available under this line of credit.

In March 2017, LA GO GO entered into a revolving line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $3.0 million (RMB20.0 million). The line of credit is guaranteed by Mr. Kang and Goldenway. As of September 30, 2017, LA GO GO had borrowed $1.5 million (RMB10.0 million) from Nanjing Bank under this line of credit with annual interest rate of 5.0% and due in May 2018. As of September 30, 2017, approximately $1.5 million (RMB10.0 million) was unused and available under this line of credit.

In January 2015, Ever-Glory Apparel and Goldenway collectively entered into a secured banking facility agreement for a combined revolving import facility, letter of credit, invoice financing facilities and a credit line for treasury products of up to $12.6 million with the Nanjing Branch of HSBC (China) Company Limited (“HSBC”). This agreement is guaranteed by the Company and Mr. Kang. As of September 30, 2017, Ever-Glory Apparel had borrowed $3.2 million from HSBC with an annual interest rate of 3.0% and due in August 2017, and collateralized by approximately $3.8 million of accounts receivable from our wholesale customers. These bank loans are to be repaid upon receipt of payments from customers. As of September 30, 2017, approximately $9.4 million was unused and available under this line of credit.

In July 2016, Ever-Glory Apparel entered into a line of credit agreement for approximately $6.0 million (RMB40.0 million) with China Everbright Bank and guaranteed by Goldenway and Mr. Kang. These loans are also collateralized by Jiangsu Ever-Glory’s property. As of September 30, 2017, Ever-Glory Apparel had borrowed $3.0 million (RMB20.0 million) under this line of credit with an annual interest rates ranging from 2.8% to 3.0% and due in November 2017. As of September 30, 2017, approximately $3.0 million was unused and available under this line of credit.

In June 2014, LA GO GO entered into a line of credit agreement for approximately $4.9 million (RMB33.0 million) with the Bank of Communications and guaranteed by Jiangsu Ever-Glory, Ever-Glory Apparel and Mr. Kang. As of September 30, 2017, LA GO GO had borrowed $3.0 million (RMB20.0 million) from the Bank of Communications with annual interest rates ranging from 4.6% to 5.0% and due on various dates from November 2017 to September 2018. As of September 30, 2017, approximately $1.9 million was unused and available under this line of credit.

In December 2016, LA GO GO entered into a line of credit agreement for approximately $3.0 million (RMB20.0 million) with China Minsheng Bank and guaranteed by Ever-Glory Apparel and Mr. Kang. As of September 30, 2017, LA GO GO had borrowed $3.0 million (RMB20.0 million) from China Minsheng Bank with an annual interest rate of 4.6% and due in December 2017.  

25

 

In October 2016, Ever-Glory Apparel entered into a line of credit agreement for approximately $3.7 million (RMB25.0 million) with Bank of China and guaranteed by Jiangsu Ever-Glory. These loans are also collateralized by assets of Jiangsu Ever-Glory’s equity investee, Chuzhou Huarui, under a collateral agreement executed by Ever-Glory Apparel, Chuzhou Huarui and Bank of China. As of September 30, 2017, Ever-Glory Apparel had borrowed $1.5 million (RMB10.0 million) under this line of credit with an annual interest rate of 4.8% and due in November 2017. Ever-Glory Apparel had also borrowed $0.6 million from Bank of China with an annual interest rate of 1.7% and due in October 2017, and collateralized by approximately $0.7 million of accounts receivable from our wholesale customers. These bank loans are to be repaid upon receipt of payments from customers. As of September 30, 2017, approximately $1.6 million was unused and available under this line of credit.    

In December 2014, LA GO GO entered into a line of credit agreement for approximately $5.4 million (RMB36.0 million) with the China Citic Bank and guaranteed by Jiangsu Ever-Glory, Ever-Glory Apparel and Mr. Kang. As of September 30, 2017, LA GO GO had borrowed $1.4 million (RMB9.0 million) under this line of credit with an annual interest rate of 5.5% and due in December 2017. As of September 30, 2017, approximately $4.0 million was unused and available under this line of credit.

All bank loans are used to fund our daily operations.

DERIVATIVE LIABILITY

As of September 30, 2017, the Company had two outstanding forward foreign exchange contracts (sell EUR dollars for RMB) with total notional amount of EUR€0.39 million. As of December 31, 2016, the Company had one outstanding forward foreign exchange contract (sell EUR dollars for RMB), with total notional amount of EUR€0.65 million. The fair value of these contracts There were no loans in default as of SeptemberJune 30, 2017 and December 31, 2016, as well as realized gains and losses on these foreign currency derivative activities during 2016 and the nine months ended September 30, 2017 were not significant.2022.

 

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 twelve monthsyear 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 twelve months.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 SeptemberJune 30, 2017,2022, we had access to approximately $82.1$28.2 million in lines of credit, of which approximately $37.1$4.3 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 more 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 under agreements executed between the Company, Jiangsu Ever-Glory and the banks. The maximum aggregate lines of credit and available borrowings was approximately $54.7 million (RMB364 million) and approximately $13.6 million (RMB90.5 million) was provided to Jiangsu Ever-Glory as the counter guarantee as of September 30, 2017.

 

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29

 

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 SeptemberJune 30, 2017,2022, the market foreign exchange rate had increased to RMB 6.666.71 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 Goldenway, New-Tailun, Catch-Luck, Ever-Glory Apparel, Taixin, He Meida, Huirui, Shanghai LA GO GO, Yalan, Shanghai Yiduo, Tianjin LA GO GO and Jiangsu LA GO GOsubsidiaries 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 (loss) gain (loss) for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 was $1.8($7.7) million, $3.3$3.4 million, ($0.5)8.6) million and ($2.9)$2.1 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. 

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments consist of cash and cash equivalents, trade accounts receivable, accounts payable, bank loans and long-term obligations. We consider investments in highly-liquid instruments purchased with a remaining maturity of 90 days or less from the date of purchase to be cash equivalents.

Interest Rates: Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and short-term obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities. On September 30, 2017, we had $40.8 million in cash and cash equivalents. A hypothetical 5% increase or decrease in either the short term or long term interest rates would not have any material impact on our earnings or loss, or the fair market value or cash flows of these instruments.

Foreign Exchange Rates: We pay our suppliers and employees in Chinese RMB, however, most of our wholesale customers are located in the U.S., Japan and Europe and we generate sales from them in U.S. Dollars, Euros and British Pounds. Accordingly, our business has substantial exposure to changes in exchange rates between and among the Chinese RMB, the U.S. Dollar, the Euro and the British Pound. In the last decade, the RMB was initially pegged at RMB 8.26 to one U.S. Dollar. On July 21, 2005 it was revalued to 8.09 per U.S. Dollar. Following the removal of the peg to the U.S. Dollar and pressure from the United States, the People’s Bank of China also announced that the RMB would be pegged to a basket of foreign currencies, rather than being strictly tied to the U.S. Dollar, and would be allowed to float trade within a narrow 0.3% daily band against this basket of currencies. The PRC government has stated that the basket is dominated by the U.S. Dollar, Euro, Japanese Yen and South Korean Won, with a smaller proportion made up of the British Pound, Thai Baht, Russian Ruble, Australian Dollar, Canadian Dollar and Singapore Dollar. There can be no assurance that the relationship between the RMB and these currencies will remain stable over time, especially in light of the significant political pressure on the Chinese government to permit the free flotation of the RMB, which could result in greater and more frequent fluctuations in the exchange rate between the RMB, the U.S. Dollar and the Euro. On September 30, 2017, the exchange rate between the RMB and U.S. Dollar was RMB6.66 to one U.S. Dollar. For additional discussion regarding our foreign currency risk, see the section titled Risk Factors in the Annual Report on Form 10-K for our fiscal year ended December 31, 2016. Fluctuation in the value of Chinese RMB relative to other currencies may have a material adverse effect on our business and/or an investment in our shares.

 

27

Not applicable.

 

ITEM 4.CONTROLS AND PROCEDURES

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(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 our Chief Executive Officerits chief executive officer and Chief Financial Officer,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. As of September 30, 2017, the end of the fiscal quarter covered by this report, we carried out an evaluation, underProcedures.  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.procedures for the period ended June 30, 2022. 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 not operating effectively as of September 30, 2017. Our disclosure controls and procedures were not effective because of certain “material weaknesses” described in the “Management’s Annual Report on Internal Control over Financial Reporting” section in Item 9 of our annual report for fiscal year ended December 31, 2016. As of September 30, 2017, we had not completed the remediation of these material weaknesses.effectively. 

 

Limitations on the Effectiveness of Disclosure Controls.  Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control overOver Financial Reporting

 

Our management has worked, and will continue to work to improve our internal controls over financial reporting. DuringOther than described above, during the nine months ended September 30, 2017,second quarter of 2022, 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.

28

 

30

PART II. OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

ITEM 1. LEGAL PROCEEDINGS

 

We knoware not aware of noany 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.

 

ITEM 1A.RISK FACTORS

ITEM 1A. RISK FACTORS

 

There hasAs of the date of this report and except as set forth below, there have been no material changechanges to the risk factors disclosed in the information provided in Item 1A ofour annual report on Form 10-K Annual Report for the year ended December 31, 2016 filed with the SEC on March 30, 2017.April 12, 2022.

 

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

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

 

None.

On October 31, 2017, we issued 1,578 shares of Company’s common stock to Jianhua Wang, a director of the Company. The shares were issued as compensation for his services rendered during the first, second, and third quarters of 2017 as a director.

 

On October 31, 2017, we issued 1,578 shares of Company’s common stock to Zhixue Zhang, a director of the Company. The shares were issued as compensation for his services rendered during the first, second, and third quarters of 2017 as a director.

The securities issued in the abovementioned transactions were issued in connection with transactions which were exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to the terms of Section 4(2) of that Act.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.MINE SAFETY DISCLOSURE

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

Securities Authorized for Issuance under Equity Incentive Plans

The following table presents information regarding equity instruments outstanding under our 2014 Equity Incentive Plan as of June 30, 2022:

ITEM 5.OTHER INFORMATIONEquity Incentive Plan Information
Number of Securities to be issued upon exercise of outstanding options, warrants and rightsWeighted-
average exercise price of outstanding options, warrants and rights		Number of securities available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Plan Category(a)(b)(c)
Equity incentive plans approved by security holders           -$           -1,500,000
Total-$-1,500,000

 

None.

31

 

ITEM 6.EXHIBITS

ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

Exhibit No.  Description
   
31.13.1 Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-KSB, filed March 29, 2006);
3.2Articles 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);
3.3Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of our Current Report Form 8-K filed on April 22, 2008);
31.1Certifications 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 Document.
101.SCH Inline XBRL Taxonomy Extension Schema DocumentDocument.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase DocumentDocument.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase DocumentDocument.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase DocumentDocument.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase DocumentDocument.

104 29Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

SIGNATURES

32

 

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 13, 2017August 12, 2022EVER-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)

 

 

3033

 

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