UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

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

For the transition period from ____________ to ____________

Commission file number: 0-28806

Ever-Glory International Group Inc.

(Exact name of registrant as specified in its charter)

Florida

65-0420146

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Ever-Glory Commercial Center,

509 Chengxin Road, Jiangning Development Zone,

Nanjing, Jiangsu Province,

People’s Republic of China

(Address of principal executive offices)

86-25-5209-6831

(Registrant’s telephone number, including area code)

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act

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

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

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

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001		EVK		NASDAQ Global Market

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

As of ~~November 13, 2019, 14,801,770~~May 8, 2020, 14,804,832 shares of the Company’s common stock, $0.001 par value, were issued and outstanding.

EVER-GLORY INTERNATIONAL GROUP, INC.

FORM 10-Q

INDEX

		Page Number

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		ii

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (unaudited)	1

	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income ~~(Loss)~~ for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	2

	Condensed Consolidated Statements of Equity for The Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	4

	Notes to the Condensed Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1918

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3529

Item 4.	Controls and Procedures	3529

PART II. OTHER INFORMATION		3630

Item 1.	Legal Proceedings	3630

Item 1A.	Risk Factors	3630

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3630

Item 3.	Defaults Upon Senior Securities	3630

Item 4.	Mine Safety Disclosure	3630

Item 5.	Other Information	3630

Item 6.	Exhibits	3731

SIGNATURES		3832

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;

	●	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 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’).

PART I. FINANCIAL INFORMATION

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, 2019~~MARCH 31, 2020 AND DECEMBER 31, ~~2018~~2019 (UNAUDITED)

	2019			2018			2020			2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	45,837		$	47,012		$	70,036		$	48,551
Accounts receivable, net		83,863			86,527			42,265			78,053
Inventories		65,288			65,929			52,152			67,355
Advances on inventory purchases		9,358			6,420			1,248			2,495
Value added tax receivable		3,799			2,580			6,961			7,497
Other receivables and prepaid expenses		7,563			10,204			6,723			9,681
Amounts due from related parties		123			192			102			123
Total Current Assets		215,831			218,864			179,487			213,755

NONCURRENT ASSETS												��
Intangible assets, net		4,711			4,962			4,529			4,729
Property and equipment, net		27,615			28,445			26,886			28,812
Operating lease right-of-use assets		35,226			-			42,583			53,379
Deferred tax assets		1,862			-			878			996
Total Non-Current Assets		69,414			33,407			74,876			87,916
TOTAL ASSETS	$	285,245		$	252,271		$	254,363		$	301,671

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Bank loans	$	35,492		$	29,497		$	26,104		$	29,931
Accounts payable		77,172			78,412			52,173			72,418
Accounts payable and other payables – related parties		4,355			4,756			3,889			4,811
Other payables and accrued liabilities		15,230			21,958			13,033			19,137
Value added and other taxes payable		530			2,569			598			1,657
Income tax payable		2,249			1,569			121			1,142
Current operating lease liabilities		26,757			-			34,315			44,888
Total Current Liabilities		161,785			138,761			130,233			173,984

NONCURRENT LIABILITIES
Deferred tax liabilities		-			354
Non-current operating lease liabilities		8,504			-			8,325			8,537
TOTAL LIABILITIES		170,289			139,115			138,558			182,521

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Stockholders’ equity:
Preferred stock ($0.001 par value, authorized 5,000,000 shares, no shares issued and outstanding)		-			-			-			-
Common stock ($0.001 par value, authorized 50,000,000 shares, 14,801,770 and 14,798,198 shares issued and outstanding As of September 30, 2019 and December 31, 2018, respectively)		15			15
Common stock ($0.001 par value, authorized 50,000,000 shares, 14,804,832 and 14,801,770 shares issued and outstanding As of March 31, 2020 and December 31, 2019, respectively)								15			15
Additional paid-in capital		3,640			3,627			3,645			3,640
Retained earnings		106,173			105,914			103,627			106,328
Statutory reserve		19,083			19,083			19,939			19,939
Accumulated other comprehensive income		(5,822	)		(3,578	)
Accumulated other comprehensive loss								(5,770	)		(4,330	)
Amounts due from related party		(6,648	)		(10,354	)		(4,147	)		(4,932	)
Total equity attributable to stockholders of the Company		116,441			114,707			117,309			120,660
Noncontrolling interest		(1,485	)		(1,551	)		(1,504	)		(1,510	)
Total Equity		114,956			113,156			115,805			119,150
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	285,245		$	252,271		$	254,363		$	301,671

See the accompanying notes to the condensed consolidated financial statements.

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES CONDENSED

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

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)

Three months ended Nine months ended
September 30, September 30,
2019 2018 2019 2018
NET SALES $ 113,326 $ 125,480 $ 278,598 $ 306,806
COST OF SALES 88,967 95,419 195,895 210,858

GROSS PROFIT 24,359 30,061 82,703 95,948

OPERATING EXPENSES
Selling expenses 17,944 17,588 58,651 62,405
General and administrative expenses 7,584 8,519 22,450 25,015
Total Operating Expenses 25,528 26,107 81,101 87,420

(LOSS)INCOME FROM OPERATIONS (1,169 ) 3,954 1,602 8,528

OTHER INCOME (EXPENSES)
Interest income 215 307 699 1,003
Interest expense (265 ) (278 ) (1,036 ) (1,202 )
Other income 502 101 1,616 1,102
Total Other Income, Net 452 130 1,279 903

(LOSS) INCOME BEFORE INCOME TAX EXPENSE (717 ) 4,084 2,881 9,431
Income tax expense (387 ) (908 ) (2,667 ) (2,949 )

NET (LOSS) INCOME (1,104 ) 3,176 214 6,482

Net loss attributable to the non-controlling interest 28 140 46 425
NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY (1,076 ) 3,316 260 6,907

NET (LOSS) INCOME $ (1,104 ) $ 3,176 $ 214 $ 6,482

Foreign currency translation (loss) gain (3,729 ) (3,674 ) (2,244 ) (5,742 )
Unrealized loss of derivative contracts designated as cash flow hedge - (614 ) - (1,083 )
COMPREHENSIVE (LOSS) INCOME (4,833 ) (1,112 ) (2,030 ) (343 )

Comprehensive (loss) income attributable to the non-controlling interest 15 57 67 366
COMPREHENSIVE (LOSS) INCOME  ATTRIBUTABLE TO THE COMPANY $ (4,818 ) $ (1,055 ) $ (1,963 ) $ 23

EARNINGS PER SHARE ATTRIBUTABLE TO THE COMPANY’S STOCKHOLDERS
Basic and diluted $ (0.07 ) $ 0.22 $ 0.02 $ 0.47
Weighted average number of shares outstanding Basic and diluted 14,801,770 14,798,198 14,801,770 14,796,527
2020 2019

SALES $ 58,355 $ 87,956

COST OF SALES 42,317 58,598

GROSS PROFIT 16,038 29,358

OPERATING EXPENSES
Selling expenses 13,478 21,008
General and administrative expenses 5,785 7,529
Total operating expenses 19,263 28,537
　   　
(LOSS) INCOME FROM OPERATIONS (3,225 ) 821

OTHER INCOME (EXPENSE)
Interest income 277 207
Interest expense (341 ) (363 )
Other income (expense), net 818 (295 )
Total other income (expense), net 754 (451 )

(LOSS) INCOME BEFORE INCOME TAX (2,471 ) 370

INCOME TAX EXPENSE (227 ) (825 )

NET LOSS (2,698 ) (455 )
Net (income) loss attributable to the non-controlling interest (3 ) (66 )
NET LOSS ATTRIBUTABLE TO THE COMPANY $ (2,701 ) $ (521 )

NET LOSS $ (2,698 ) $ (455 )
Foreign currency translation gain (loss) (1,437 ) 4,006
COMPREHENSIVE (LOSS) INCOME $ (4,135 ) $ 3,551

Comprehensive loss attributable to the noncontrolling interest 6 100

COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY $ (4,129 ) $ 3,651
EARNINGS (LOSS) PER SHARE:
Basic and diluted $ (0.18 ) $ (0.04 )
Weighted average number of shares outstanding Basic and diluted 14,804,832 14,800,140

See the accompanying notes to the condensed consolidated financial statements.

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands of U.S. Dollars, except share and per share data or otherwise stated)
FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~March 31, 2020 AND 2019 ~~AND 2018 (UNAUDITED)~~(Unaudited)

Additional Retained Earnings Accumulated
other Amounts
due from Total
equity
attributable
to stockholders Non-
Common Stock paid-in Statutory Comprehensive related of the controlling Total
Shares Amount capital Unrestricted reserve income party Company Interest equity
Balance at January 1, 2019 14,798,198 $ 15 $ 3,627 $ 105,914 $ 19,083 $ (3,578 ) $ (10,354 ) $ 114,707 (1,551 ) $ 113,156

Stock issued for compensation 1,942 0.004 8 - - - - 8 8
Net income (loss) - - - (521 ) - - - (521 ) 66 (455 )
Net cash received from related party under counter guarantee agreement - - - - - - 1,101 1,101 - 1,101
Foreign currency translation gain 3,972 - 3,972 34 4,006
Balance at March 31, 2019 14,800,140 15 3,635 105,393 19,083 394 (9,253 ) 119,267 (1,451 ) 117,816
Net income (loss) 1,856 1,856 (83 ) 1,773
Net cash received from related party under counter guarantee agreement 1,390 1,390 1,390
Foreign currency translation loss (2,487 ) (2,487 ) 34 (2,453 )
Balance at June 30, 2019 14,800,140 $ 15 $ 3,635 $ 107,249 $ 19,083 $ (2,093 ) $ (7,863 ) $ 120,026 (1,500 ) $ 118,526
Stock issued for compensation 1,630 0.002 5 5 5

Net income (loss) (1,076 ) (1,076 ) (28 ) (1,104 )
Net cash advanced to related party under counter guarantee agreement 1,215 1,215 1,215
Foreign currency translation loss (3,729 ) (3,729 ) 43 (3,686 )
Balance at September 30, 2019 14,801,770 $ 15 $ 3,640 $ 106,173 $ 19,083 $ (5,822 ) $ (6,648 ) $ 116,441 (1,485 ) $ 114,956
Additional Retained Earnings Accumulated
other Amounts
due from Total
equity
attributable
to
stockholders Non-
Common Stock paid-in Statutory Comprehensive related of the controlling Total
Shares Amount capital Unrestricted reserve loss party Company Interest equity
Balance at January 1, 2020 14,801,770 $ 15 $ 3,640 $ 106,328 $ 19,939 $ (4,330 ) $ (4,932 ) $ 120,660 (1,510 ) $ 119,150

Stock-based compensation 3,062 0.003 5 - - - - 5 5
Net income (loss) - - - (2,701 ) - - (2,701 ) 3 (2,698 )
Net cash received from (paid to) related party under counter guarantee agreement - - - - - - 785 785 - 785
Foreign currency translation income (loss) (1,440 ) - (1,440 ) 3 (1,437 )
Balance at March 31, 2020 14,804,832 $ 15 $ 3,645 $ 103,627 $ 19,939 $ (5,770 ) $ (4,147 ) $ 117,309 (1,504 ) $ 115,805

Additional Retained Earnings Accumulated
other Amounts
due from Total
equity
attributable
to stockholders Non-
Common Stock paid-in Statutory Comprehensive related of the controlling Total
Shares Amount capital Unrestricted reserve income party Company Interest equity
Balance at January 1, 2018 14,795,992 $ 15 $ 3,620 $ 95,195 $ 17,794 $ 2,585 $ (15,449 ) $ 103,760 (1,062 ) $ 102,698

Net income (loss) - - - 815 - - - 815 (228 ) 587
Net cash paid to related party under counter guarantee agreement - - - - - - (8,479 ) (8,479 ) - (8,479 )
Foreign currency translation gain(loss) 4,023 - 4,023 (42 ) 3,981
Balance at March 31, 2018 14,795,992 15 3,620 96,010 17,794 6,608 (23,928 ) 100,119 (1,332 ) 98,787
Net income (loss) 2,776 2,776 (57 ) 2,719
Net cash advanced to related party under counter guarantee agreement 2,339 2,339 2,339
Foreign currency translation loss (6,656 ) (6,656 ) 70 (6,586 )
Balance at June 30, 2018 14,795,992 $ 15 $ 3,620 $ 98,786 $ 17,794 $ (48 ) $ (21,589 ) $ 98,578 (1,319 ) $ 97,259
Stock issued for compensation 2,206 7 7 7
Net income (loss) 3,316 3,316 (140 ) 3,176
Net cash advanced to related party under counter guarantee agreement 1,337 1,337 1,337
reign currency translation loss (4,192 ) (4,192 ) 31 (4,161 )
Balance at September 30, 2018 14,798,198 $ 15 $ 3,627 $ 102,102 $ 17,794 $ (4,240 ) $ (20,252 ) $ 99,046 (1,428 ) $ 97,618
Additional Retained Earnings Accumulated
other Amounts
due from Total
equity
attributable
to
stockholders Non-
Common Stock paid-in Statutory Comprehensive related of the controlling Total
Shares Amount capital Unrestricted reserve income party Company Interest equity
Balance at January 1, 2019 14,798,198 $ 15 $ 3,627 $ 105,914 $ 19,083 $ (3,578 ) $ (10,354 ) $ 114,707 (1,551 ) $ 113,156

Stock-based compensation 1,942 0.004 8 - - - - 8 8
Net (loss) income - - - (521 ) - - - (521 ) 66 (455 )
Net cash received from (paid to) related party under counter guarantee agreement - - - - - - 1,101 1,101 - 1,101
Foreign currency translation income (loss) 3,972 - 3,972 34 4,006
Balance at March 31, 2019 14,800,140 $ 15 $ 3,635 $ 105,393 $ 19,083 $ 394 $ (9,253 ) $ 119,267 (1,451 ) $ 117,816

See the accompanying notes to the condensed consolidated financial statements.

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. Dollars, except share and per share data or otherwise stated)
FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)

2019 2018 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 214 $ 6,482
Adjustments to reconcile net income to cash provided by operating activities: 　
Net loss $ (2,698 ) $ (455 )
Adjustments to reconcile net loss to cash provided by operating activities: 　　
Depreciation and amortization 6,824 6,523 1,587 2,225
Gain on disposal of intangible assets (268 ) -
Loss from sale of property and equipment 16 102 102 52
Provision of bad debt allowance 820 - 278 -
Provision for obsolete inventories 3,846 2,697 4,204 1,824
Deferred income tax (2,388 ) (1,706 ) 104 (145 )
Stock-based compensation 12 7 5 8
Changes in operating assets and liabilities
Accounts receivable 312 (15,012 ) 34,906 31,027
Inventories (4,979 ) (32,831 ) 10,303 10,557
Value added tax receivable (281 ) 430 210 1,406
Other receivables and prepaid expenses 3,738 (19,792 ) 364 3,975
Advances on inventory purchases (3,214 ) (8,199 ) 2,855 490
Amounts due from related parties 16 4 142 103
Accounts payable 6,253 29,547 (19,864 ) (26,505
Accounts payable and other payables- related parties (692 ) 153 (1,038 ) (741 )
Other payables and accrued liabilities (10,594 ) 14,054 (5,587 ) (9,565 )
Value added and other taxes payable (4,120 ) (3,892 ) (31 ) (2,788 )
Income tax payable 746 311 (1,019 ) (327 )
Net cash used in operating activities (3,471 ) (21,122 )
Net cash provided by operating activities 24,555 11,141

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (6,555 ) (9,144 )
Net cash used in investing activities (6,555 ) (9,144 )
Purchase of property and equipment (78 ) (2,131 )
Disposal of intangible assets 353 -
Net cash provided by (used in) investing activities 275 (2,131 )

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans 42,570 39,872 11,464 6,029
Repayment of bank loans (35,620 ) (40,225 ) (14,884 ) (7,408 )
Repayment of loans from related party 10,692 3,232
Repayment of counter guarantee from related party 748 3,488
Advances to related party (6,755 ) (8,183 ) - (2,163 )
Net cash used in financing activities 10,887 (5,304 )
Net cash provided by (used in) financing activities (2,672 ) (54 )

EFFECT OF EXCHANGE RATE CHANGES ON CASH (650 ) (2,827 ) 1,497 1,908
　　
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 211 (38,397 )
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 23,655 10,864
　　
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 47,012 62,876 48,551 47,012
　　
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 47,223 $ 24,479 $ 72,206 $ 57,876

Reconciliation of cash, cash equivalents and restricted cash reported within their consolidated balance sheets:

Cash and Cash Equivalents 70,036 47,012
Restricted cash (booked in other receivables and prepaid expenses) 2,170 -
$ 72,206 $ 47,012

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for:
Interest $ 1,036 $ 1,202 $ 341 $ 363
Income taxes $ 4,196 $ 4,427 $ 1,218 $ 126

See the accompanying notes to the condensed consolidated financial statements.

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2020 AND 2019 ~~AND 2018~~
(UNAUDITED)

NOTE 1 BASIS OF PRESENTATION

Ever-Glory International Group, Inc. (the “Company”), together with its subsidiaries, is an apparel manufacturer, supplier and retailer in The People’s Republic of China (“~~China”~~China or “PRC”), with a wholesale segment and a retail segment. The Company’s wholesale business consists of recognized brands for department and specialty stores located in China, Europe, Japan and the United States. The Company’s retail business consists of flagship stores and store-in-stores located in China 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 Trading Company Limited (“Tai Xin”~~) and Haian Tai Xin Garments Trading Company Limited (“Haian Taixin”~~), and the Company’s wholly-owned Samoa subsidiary, Ever-Glory International Group (HK) Ltd. (“Ever-Glory HK”) and Ever-Glory Supply Chain Service Co., Limited (“Ever-Glory Supply Chain”). The Company’s retail operations are provided through its wholly- owned subsidiaries, Shanghai LA GO Fashion Company Limited (“Shanghai LA GO GO”), Jiangsu LA GO Fashion Company Limited (“Jiangsu LA GO GO”), Tianjin LA GO Fashion Company Limited (“Tianjin LA GO GO”), Shanghai Ya Lan Fashion Company Limited (“Ya Lan”), Shanghai Yiduo Fashion Company Limited (“Shanghai Yiduo”) and Xizang He Meida Trading Company Limited (“He Meida”).

In March ~~2019,~~2020, the Company incorporated ~~Haian Tai Xin Garments Trading~~Nanjing Rui Lian Technology Company Limited (“~~Haian Tai Xin”~~Nanjing Rui Lian”) and it is the Company’s wholly-owned PRC ~~subsidiary. Haian Tai Xin~~subsidiaries. Nanjing Rui Lian is engaged in the business of garments ~~manufacturing.~~
trading.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated balance sheet as of ~~September 30, 2019,~~March 31, 2020 the condensed consolidated statements of income (loss) and comprehensive ~~income (loss) and~~income(loss), condensed consolidated statements of equity, ~~for the three and nine months ended September 30, 2019 and 2018,~~ and cash flows for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Rule 8-03 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they have been condensed and do not include all of the information and footnotes required by GAAP for complete financial statements.

Wholesale revenues are generally higher in the third and fourth fiscal quarters, while retail revenues are generally higher in the first and fourth fiscal quarters. The results of operations for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

~~We recognize~~The company recognizes 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. 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. 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.

Our revenue recognition policy is in compliance with ASC 606,Revenue from Contracts with Customers that revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that we expect to receive in exchange for those goods. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods. We apply the following five-step model in order to determine this amount:

(i) identification of the promised goods and services in the contract;

(ii) determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations; and

(v) recognition of revenue when (or as) the Company satisfies each performance obligation.

We only apply the five-step model to contracts when it is probable that we will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, our performance obligations are transferred to customers at a point in time, typically upon delivery for local sales and upon shipment of the products for export sale.

For all reporting periods, we have not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.
~~Derivatives financial instruments~~
From time to time, the Company uses derivative financial instruments to manage its exposure to foreign currency risks arising from operational activities or on certain existing assets and liabilities. The Company does not hold or issue derivative instruments for trading purposes. The Company may enter into forward foreign exchange contracts, foreign exchange options, or foreign exchange currency swap contracts to manage exposure to certain foreign currency operating transactions. These instruments may offset a portion of the foreign currency re-measurement gains or losses, or changes in fair value.
The Company may also enter into above similar derivative instruments to hedge the exposure to variability in the expected cash flows of forecasted transactions such as international sales or purchases that the Company expects to receive or commit to remit foreign currencies. In these cases, the Company designates these instruments as the cash flow hedges.

Derivative financial instruments are recognized initially at fair value and transaction costs are expensed immediately. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on re-measurement to fair value is recognized immediately in earnings when such instruments are designated as fair value hedges or ineffective portion of cash flow hedges. The accumulated gain or loss from effective portions of cash flow hedges are recorded in accumulated other comprehensive income/(loss) (“AOCI”) until the hedged item is recognized in earnings. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively.
Accounts Receivable, net

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts.  An allowance for doubtful accounts is established 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.
For the three months ended March 31, 2020 and 2019, $0.26 million and $0 million of bad debt expenses have been provided in the consolidated financial statements, respectively. The allowance for doubtful account balances as of March 31, 2020 and December 31, 2019 are $5.6 million and $5.3 million, respectively.

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

Level 2 Quoted 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 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The fair value of forward exchange contracts is based on broker quotes, if available. If broker quotes are not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price at the reporting date for the residual maturity of the contract using a risk-free interest rate based on government bonds.

~~As of September 30,~~At March 31, 2020 and December 31, 2019, ~~and 2018,~~ 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, 2019, the Company has one derivative liability subjects to recurring fair value measurement (Level 2) with the change in fair value recognized in earnings (Note 5).~~

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.

The Company has adopted ASC 825-10 “Financial Instruments”, which allows an entity to choose to measure certain financial instruments and liabilities at fair value on a contract-by-contract basis. Subsequent fair value measurement for the financial instruments and liabilities an entity chooses to measure will be recognized in earnings.

Foreign Currency Translation and Other Comprehensive Income (Loss)

The reporting currency of the Company is the U.S. dollar. The functional currency of Ever-Glory, Perfect Dream, Ever-Glory HK and Ever-Glory Supply Chain 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, Ya Lan, He Meida, Huirui, Taixin, ~~and~~ Haian Taixin and Nanjing Rui Lian 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 comprehensive income 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 are included in the results of operations as incurred. Items in the cash flow statement are translated at the average exchange rate for the period.

Income Taxes

ASC 740 states “Deferred tax assets are recognized in full and then reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be recognized.” A deferred tax asset is a tax reduction whose recognition is delayed due to deductible temporary differences and loss carryforwards. This can result in a change in taxes payable or refundable in future periods. A business should create a valuation allowance for a deferred tax asset if there is a more than 50% probability that the company will not realize some portion of the asset. Any changes to this allowance are to be recorded within income from continuing operations on the income statement. The need for a valuation allowance is especially likely if a business has a history of letting various loss carryforwards expire unused, or it expects to incur losses in the next few years.

Lease

The Company ~~determines if an arrangement contains a lease at inception. The Company elected the practical expedient, for all asset classes,~~adopted ASC No. 842, Leases effective January 1, 2019 to account for ~~each~~all Company’s leases. All leases are recorded in the balance sheets. The lease ~~component~~liability is measured at present value of ~~a contract~~outstanding lease payments, both at commencement date and its associated non-lease components as a single lease component, rather than allocating a standalone value to each component of a lease. For purposes of calculating operating lease obligations under the standard, the Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company’s leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms.subsequently. The discount rate ~~used to measure a lease obligation~~ is ~~usually~~generally the Company’s incremental borrowing rate as the lessor’s rate implicit in the ~~lease; however,~~lease is not readily determinable. The right-of-use (ROU) asset costs at commencement date consist of initial lease liability, any initial direct costs, and any lease payments made to the ~~Company’s operating leases generally do not provide an implicit rate. Accordingly,~~lessor at or before the ~~Company uses its incremental borrowing rate at~~commencement date, minus any lease ~~commencement to determine~~incentives received. Subsequently, the ~~present value~~carrying amount of ROU asset is derived from the carrying amount of the lease liability, plus unamortized direct costs and prepaid lease payments, and minus unamortized balance of lease ~~payments.~~incentives received. The ~~incremental borrowing rate is an entity-specific rate which represents the rate~~annual amortization expenses will be recorded in consolidated statement of ~~interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.~~
~~Significant assumptions~~operations and ~~judgments made as part~~allocating between cost of ~~the adoption of this new lease standard include determining (i) whether a contract contains a lease, (ii) whether a contract involves an identified asset,~~sales and (iii) which party to the contract directs the use of the asset. The discount rates used to calculate the present value of lease payments were determined based on hypothetical borrowing rates available to the Company over terms similar to the lease terms.operating expenses.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”; In November 2019, the FASB issued ASU No. 2019-10 “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”; In March 2020, the FASB issued ASU No. 2020-03 “Codification Improvements to Financial Instruments”; which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, ~~2019.~~2022. The Company is currently assessing the impact of this ASU on its ~~condensed consolidated financial statements.~~
~~In October 2018, the FASB issued ASU No. 2018-17~~ ~~“Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities”~~ which could be improved in the following areas: 1. Applying the variable interest entity (VIE) guidance to private companies under common control. 2. Considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.
~~In April 2019, the FASB issued ASU No. 2019-04~~~~“Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, 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. The Company is currently assessing the impact of this ASU on its condensed 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 ~~condensed~~ consolidated financial statements.


NOTE 3 INVENTORIES

Inventories at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 consisted of the following:

September 30,
2019 December 31,
2018 March 31,
2020 December 31,
2019
(In thousands of
U.S. Dollars) (In thousands of
U.S. Dollars)
Raw materials $ 995 $ 6,805 $ 1,137 $ 1,468
Work-in-progress 13,542 3,308 10,081 8,025
Finished goods 50,751 55,816 40,934 57,862
Total inventories $ 65,288 $ 65,929 $ 52,152 $ 67,355

NOTE 4 BANK LOANS

Bank loans represent amounts due to various banks and are generally due on demand or within one year. These loans can be renewed with the banks. Short term bank loans consisted of the following as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

September 30,
2019 December 31,
2018 March 31,
2020 December 31,
2019
Bank (In thousands of
U.S. Dollars) (In thousands of
U.S. Dollars)
Industrial and Commercial Bank of China $ 18,382 $ 14,540 $ 19,754 $ 18,629
Nanjing Bank 9,191 5,089 3,528 6,449
China Minsheng Bank 2,828 2,908 2,822 2,866
Bank of Communications 2,814 2,893 - 1,426
Shanghai Pudong Development Bank - 2,613
China Everbright Bank - 1,454
HSBC 2,277 - - 561
$ 35,492 $ 29,497 $ 26,104 $ 29,931

In December ~~2016,~~2019, Goldenway entered into a line of credit agreement with Industrial and Commercial Bank of China, which allows the Company to borrow up to approximately ~~$8.5~~$5.6 million ~~(RMB60.0~~(RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of ~~September 30, 2019,~~March 31, 2020, Goldenway had borrowed ~~$5.7~~$5.6 million ~~(RMB 40.0~~(RMB40.0 million) ~~under this line~~from Industrial and Commercial Bank of ~~credit~~China with an annual interest rate ~~of 3.92%~~4.57% and due on ~~November 2019. As of September 30, 2019, approximately $2.8 million was unused and available under this line of credit.~~  August 2020.

In November 2018, Ever-Glory Apparel entered into a line of credit agreement for approximately $14.1 million (RMB100.0 million) with Industrial and Commercial Bank of China and collateralized by assets of Jiangsu Ever-Glory’s equity investee, Nanjing Knitting, under a collateral agreement executed among Ever-Glory Apparel, Nanjing Knitting and the bank. As of ~~September 30, 2019,~~March 31, 2020, Ever-Glory Apparel had borrowed ~~$12.7~~$14.1 million (RMB ~~90.0~~100.0 million) under this line of credit with annual interest rates ranging from ~~4.57%~~3.92% to ~~4.70%~~4.7% and due on ~~various dates~~ from ~~October 2019~~May 2020 to ~~May 2020. As of September 30, 2019, approximately $1.4 million was unused and available under this line of credit.~~March 2021.


In August 2018, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $7.1 million (RMB50.0 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, 2019,~~March 31, 2020, approximately $7.1 million was unused and available under this line of credit.

In August 2018, Ever-Glory Apparel entered into a line of credit agreement for approximately $8.5 million (RMB60.0 million) with Nanjing Bank and guaranteed by Jiangsu Ever-Glory, Mr. Kang and Goldenway. As of ~~September 30, 2019,~~March 31, 2020, Ever-Glory Apparel had borrowed ~~$7.1~~$1.4 million ~~(RMB50.0~~(RMB10.0 million) from Nanjing Bank with an annual interest rate 5.0% and due on ~~various dates from December 2019 to~~ June 2020. As of ~~September 30, 2019,~~March 31, 2020, approximately ~~$1.4~~$7.1 million was unused and available under this line of credit.

In ~~May 2018,~~June 2019, LA GO GO entered into a revolving line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $2.8 million (RMB20.0 million). The line of credit is guaranteed by Mr. Kang and Goldenway. As of ~~September 30, 2019,~~March 31, 2020, LA GO GO had borrowed $2.1 million (RMB15.0 million) ~~from Nanjing Bank~~under this line of credit with an annual interest rate ~~5.2%~~of 5.22% and due onin June 2020. As of ~~September 30, 2019,~~March 31, 2020, approximately $0.7 million was unused and available under this line of credit.

In June 2018, LA GO GO entered into a line of credit agreement for approximately $2.8 million (RMB20.0 million) with China Minsheng Bank and guaranteed by Ever-Glory Apparel and Mr. Kang. As of ~~September 30, 2019,~~March 31, 2020, LA GO GO had borrowed $2.8 million (RMB20.0 million) from China Minsheng Bank with an annual interest rate of ~~4.79%~~5.0% and due in ~~October 2019.~~November 2020.

In ~~November 2018,~~September 2019, LA GO GO entered into a line of credit agreement for approximately $2.8 million ~~(RMB19.9~~(RMB20.0 million) with the Bank of Communications and guaranteed by Jiangsu Ever-Glory, Ever-Glory Apparel and Jiangsu LAGOGO. As of September 30, 2019, LA GO GO had borrowed $2.8 million (RMB19.9 million) from the Bank of Communications with an annual interest rate 4.57% and due on variable dates from November 2019 to January 2020.
In July 2018, Ever-Glory Apparel entered into a line of credit agreement for approximately $2.8 million (RMB20.0 million) with the Shanghai Pudong Development Bank and guaranteed by Goldenway. As of September 30, 2019,March 31, 2020, approximately $2.8 million was unused and available under this line of credit.

In September 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $5.6 million (RMB40.0 million) with the Shanghai Pudong Development Bank and guaranteed by Goldenway. As of March 31, 2020, approximately $5.6 million was unused and available under this line of credit.
In August 2019, 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 $2.5 million with the Nanjing Branch of HSBC (China) Company Limited (“HSBC”). This agreement is guaranteed by the Company and Mr. Kang. As of ~~September 2019, Ever-Glory Apparel had collateralized~~March 31, 2020, approximately ~~$2.3 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, 2019, approximately $0.2~~$2.5 million was unused and available under this line of credit.

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

Total interest expense on bank loans amounted to ~~$1.0~~$0.3 million and ~~$1.2 million for the nine months ended September 30, 2019 and 2018, respectively, and $0.2 million and $0.2~~$0.4 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

NOTE 5 ~~Derivative Financial Instruments~~
~~Foreign currency swap contracts~~
During 2018, the Company had entered into four foreign currency swap contracts with three banks. Due to the increased demand of effective control on financial management for daily operations, Ever-Glory Apparel had entered into different foreign currency swap contracts to exchange $6.0 million for equivalent RMB with Bank of China in May, entered into a foreign currency swap contract to exchange $3.0 million for equivalent RMB with Industrial and Commercial Bank of China in June and entered into a foreign currency swap contract to exchange $6.0 million and $4.0 million for equivalent RMB with Shanghai Pudong Development Bank in July. The terms of the three foreign currency contracts are both six months and the contract of $4.0 million with Shanghai Pudong Development Bank is three months. Ever-Glory Apparel and the banks swapped two currencies by same pre-determined exchange rate at the beginning and end of the contracts. During the period, the Company pays annual interest of 1.43% for the RMB received and receives 0 interest for the USD exchanged with the Bank of China and Industrial and Commercial Bank of China. The company pays annual interest of 0.98% for the RMB received and receives 0.0001% interest for the USD exchanged with Shanghai Pudong Development Bank. If the Company failed to execute the exchange at the expiration of contracts, the banks would sell the USD at the market rate then the difference in RMB will be converted into bank loan for the Company. As of December 31, 2018, the fair value of principal amounts are included in other receivable ($4.0 million plus unrealized gain) and other payables (equivalent RMB payables) in the consolidated balance sheets, and unrealized gain of $0.2 million for the year ended December 31, 2018 is recognized in the income from operations.

In September 2019, Ever-Glory Apparel entered into a 15-day foreign currency swap contract with Industrial and Commercial Bank of China. The Company agreed to exchanged $4.9 million for EUR on September 26 and then to re-exchange these currencies on the swap maturity date of October 8, 2019. As of September 30, 2019, the unrealized foreign currency exchange gain of the asset was $2.6 thousands. The final realized gain is $4.1 thousands in October 2019.
~~Forward foreign exchange contracts~~
To avoid foreign currency fluctuation on forecasted international sales and secure the profits on such revenues, the Company entered several forward foreign exchange contracts with banks from time to time. According to ASC 815-20-25, the Company designated above contracts as cash flow hedges. At December 31, 2018, the Company did not have any outstanding derivative contracts.
As of September 30, 2019, the Company had one outstanding forward foreign exchange contracts (sell USD dollars for RMB), with total notional amount of $8.0 million. The unrealized gain of this contract at September 30, 2019 was $58.6 thousands.
~~NOTE 6 LEASES~~
The Company recognized operating lease liabilities and operating lease right-of-use assets on its balance sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The company has leases with fixed payments for land-use-rights, warehouses and logistics centers, flagship stores, and leases with variable payments for stores within shopping malls (“shopping mall stores”) in the PRC, which are classified as operating leases. Options to extend or renew are recognized as part of the lease liabilities and recognized as right of use assets. There are no residual value guarantees and no restrictions or covenants imposed by the leases.
The followings are lists of leases: (i) the terms of Shanghai LAGOGO land use right and buildings are 34 years; (ii) the terms of Kunshan logistics center and Chuzhou logistics center are 5 years; (iii) the terms of flagship stores are 3 years. The lease term for shopping mall stores is commonly one year with options to extend or renew, and the rent is predetermined with a percentage of sales. The Company estimates the next 12 months rent for the shopping mall stores by annualizing current period rent calculated with the percentage of sales. Thus, the ROU assets and lease liabilities may vary significantly at different period ends.
In the nine months ended September 30, 2019, the costs of the leases recognized in cost of revenues and general administrative expenses are $5.9 and $0.6 million, respectively. Cash paid for the operating leases including in the operating cash flows was $6.5 million. As of September 30, 2019, the Company has $35.2 million of right-of-use assets, $26.8 million in current operating lease liabilities and $8.4 million in non-current operating lease liabilities as of September 30, 2019.

~~NOTE 7~~ INCOME TAX

The Company’s operating subsidiaries are governed by the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws ~~(the “Income~~(“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, ~~2019.~~2020.

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.

Ever-Glory Supply Chain Service Co., Limited was incorporated in ~~Hong Kong,~~Hongkong, and under the current laws of ~~Hong Kong, are subject to~~Hongkong, its income tax ~~at the~~rate is 8.25% when its profit is under HKD 2.0 million and its income tax rate is 16.5% ~~statutory rate.~~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 ~~assets and liabilities~~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~~years ended March 31, 2020 and ~~nine months ended September 30,~~ 2019 ~~and 2018~~ was taxable in the following jurisdictions:

Three months ended Nine months ended
September 30, September 30,
2019 2018 2019 2018 2020 2019
(In thousands of U.S. Dollars) (In thousands of
U.S. Dollars)
PRC $ (714 ) $ 4,084 $ 2,891 $ 9,445 $ (1,748 ) $ 389
BVI (720 ) (2 )
Others (3 ) - (10 ) (14 ) (3 ) (5 )
$ (717 ) $ 4,084 $ 2,881 $ 9,431 $ (2,471 ) $ 382

The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Three months ended Nine months ended
September 30, September 30,
2019 2018 2019 2018 2020 2019
PRC statutory rate 25.0 % 25.0 % 25.0 % 25.0 % 25.0 % 25.0 %
Net operating losses 0.2 18.5 78.0 8.1
Other (79.1 ) (21.3 ) (10.5 ) (1.8 )
Temporary difference between US GAAP and PRC tax accounting (34.2 ) 198.0
Effective income tax rate (53.9 )% 22.2 % 92.5 % 31.3 % (9.2 )% 223.0 %

Income tax expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ is as follows:

Three months ended Nine months ended
September 30, September 30, 2020 2019
2019 2018 2019 2018 (In thousands of
U.S. Dollars)
Current $ 387 $ 1,853 $ 2,377 $ 4,737 $ 345 $ 495
Deferred - (945 ) 290 (1,788 ) (118 ) 330
Income tax expense $ 387 $ 908 $ 2,667 $ 2,949 $ 227 $ 825

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

The Company has not recorded U.S. deferred income taxes on approximately ~~$104.3~~$103.6 million of its non-U.S. subsidiaries’ undistributed earnings because such amounts are intended to be reinvested outside the United States indefinitely. ~~The U.S. Tax Reform signed into law on~~On December 22, 2017 ~~significantly modified~~ the U.S. ~~Internal Revenue Code by, among other things, reducing~~enacted the ~~statutory~~ “Tax Cuts and Jobs Act” (“U.S. ~~federal~~Tax Reform”) which made significant changes to corporate income tax law. One significant change was to decrease the general corporate income tax rate from ~~35%~~34% to 21%. This reduction had no effect on the Company’s income tax expense as the reduction in deferred tax assets was offset by an equivalent reduction in the valuation allowance. Another significant change resulting from U.S. Tax Reform is that any future remittances to the parent company from business income earned by its subsidiaries outside of the U.S. will no longer to taxable to the Company under U.S. tax law. The Company would be liable for ~~taxable years beginning after~~payment of income tax, or reduction of the net operating loss carryover, at a reduced rate for any accumulated earnings and profits of its non-U.S. subsidiaries at December 31, ~~2017; limiting and/or eliminating many business deductions; migrating~~2017. U.S. Tax Reform includes provisions for Global Intangible Low-Taxed Income (“GILTI”) under which taxes on foreign income are imposed on the ~~U.S. to~~excess of a ~~territorial tax system with a one-time transition tax~~deemed return on ~~a mandatory deemed repatriation of previously deferred foreign earnings~~tangible assets of certain foreign ~~subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries;~~subsidiaries and ~~providing~~ for ~~new~~Base Erosion and Anti-Abuse Tax (“BEAT”) under which taxes are imposed on certain base eroding payments to affiliated foreign ~~earnings.~~companies. Consistent with accounting guidance, we treat BEAT as a period tax charge in the period the tax is incurred and have made an accounting policy election to treat GILTI taxes in a similar manner. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, no deferred tax expense (income) relating to the Tax Act ~~changed~~changes for the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020.

NOTE 86 EARNINGS PER SHARE

The following demonstrates the calculation for earnings per share for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~ 2019:

Three months ended Nine months ended
September 30, September 30,
2019 2018 2019 2018
Weighted average number of common shares – Basic and diluted 14,801,770 14,798,198 14,801,770 14,796,527
Earnings per share – Basic and diluted $ (0.07 ) $ 0.22 $ 0.02 $ 0.47
2020 2019
Weighted average number of common shares- Basic and diluted 14,804,832 14,800,140

Earnings (loss) per share - basic and diluted $ (0.18 ) $ (0.04 )

NOTE 97 STOCKHOLDERS’ EQUITY
On July 26, 2018, the Company issued 2,206 shares of Company’s common stock to two of the Company’s independent directors as compensation for their services rendered during the fourth quarter of 2017, and the first and second quarters of 2018 as directors. The shares issued in 2018 were valued at $3.39 per share, which was the average market price of the common stock for the five days before the grant date.

On January 31, 2019, the Company issued 1,942 shares of the Company’s common stock to two of the Company’s independent directors as compensation for their services rendered during the third and fourth quarter of 2018. The shares issued in 2019 were valued at $3.8 per share, which was the average market price of the common stock for the five days before the grant date.

On ~~July 26, 2019,~~January 15, 2020, the Company issued ~~1,630~~3,062 shares of Company’s common stock to two of the Company’s independent directors as compensation for their services rendered during the ~~first~~third and ~~second~~fourth quarter of 2019. The shares issued in ~~2019~~2020 were valued at ~~$3.04~~$1.41 per share, which was the average market price of the common stock for the five days before the grant date.

NOTE 108 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 certain Company’s retail stores since the third quarter of 2014. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company received ~~$10,868, $56,523, $17,961~~$2,517 and ~~$69,502~~$31,479 from the customers and paid ~~$10,935, $50,021, $18,077~~$2,517 and ~~$57,395~~$25,838 to Wubijia through the consignment, respectively. The net ~~income (loss)~~profit of ~~($67), $6,503, ($117)~~$0 and ~~$12,106~~$5,641 was recorded as other income ~~(expenses)~~ during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

Other expenses due to Related Parties

Included in other expenses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ 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,
2019 2018 2019 2018 2020 2019
(In thousands of U.S. Dollars) (In thousands of
U.S. Dollars)
Chuzhou Huarui 52 48 140 157 50 53
Kunshan Enjin 22 11 66 38 22 22
Total $ 74 $ 59 $ 206 $ 195 $ 72 $ 75

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

Purchases from and Sub-contracts with Related Parties

The Company purchased raw materials from Nanjing Knitting totaled $0 million and $0.20 million during the three months ended March 31, 2020 and 2019, respectively.
In addition, ~~sub-contracts~~the Company sub-contracted certain manufacturing work to related companies totaled $3.1 million and $5.1 million for the three months ended March 31, 2020 and 2019, respectively. The Company provided raw materials to the sub-contractors and charged a fixed fee for labor provided by the sub-contractors.
Sub-contracts with related parties included in cost of sales for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ are as follows:

Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019
2019 2018 2019 2018 (In thousands of
U.S. Dollars)
(In thousands of U.S. Dollars)
Ever-Glory Vietnam $ 1,884 $ 2,579
Chuzhou Huarui $ 1,197 $ 653 $ 4,664 $ 2,526 513 1,507
Fengyang Huarui 1,071 911 1,619 1,962 158 106
Nanjing Ever-Kyowa 342 392 1,097 1,067 254 347
Ever-Glory Vietnam 4,689 6,754 9,737 11,928
Nanjing Knitting 339 - 939 -
EsCeLav 28 10 129 31
EsC’eLav 10 88
Jiangsu Ever-Glory 345 664 815 685 246 425
$ 8,011 $ 9,384 $ 19,000 $ 18,199
Total $ 3,065 $ 5,052


Accounts Payable – Related Parties

The accounts payable to related parties at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows:

2019 2018 2020 2019
(In thousands of
U.S. Dollars) (In thousands of
U.S. Dollars)
Ever-Glory Vietnam $ 1,920 1,863 $ 1,561 2,260
Fengyang Huarui 388 622 351 414
Nanjing Ever-Kyowa 279 580 380 386
Chuzhou Huarui 1,142 888 1,360 1,064
Nanjing Knitting 146 171 171 186
Jiangsu Ever-Glory 480 632 66 501
Total $ 4,355 $ 4,756 $ 3,889 $ 4,811

Amounts Due From Related Parties-current assets

The amounts due from related parties at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows:

2019 2018 2020 2019
(In thousands of
U.S. Dollars) (In thousands of
U.S. Dollars)
Jiangsu Ever-Glory $ 123 $ 122 $ 102 $ 123
Esc’elav - 70 - -
Total $ 123 $ 192 $ 102 $ 123

Jiangsu Ever-Glory is an entity engaged in importing/exporting, apparel-manufacture, real-estate development, car sales and other activities. Jiangsu Ever-Glory is controlled by Mr. Kang. During three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ 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 $0.8 million, $0.8 million, $0.4~~for $0.2 million and ~~$0.7 million~~$0 during the three ~~and nine months~~month period ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at a cost ~~of $0 million, $0.1 million, $0.3~~for $0.7 million and $0.4 million during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

Amounts Due From Related Party under Counter Guarantee Agreement

In March 2012, in consideration of the guarantees and collateral provided by Jiangsu Ever-Glory and Nanjing Knitting, the Company agreed to provide Jiangsu Ever-Glory a counter guarantee in the form of cash of not less than 70% of the maximum aggregate lines of credit obtained by the Company. Jiangsu Ever-Glory is obligated to return the full amount of the counter-guarantee funds provided upon expiration or termination of the underlying lines of credit and is to pay annual interest at the rate of 6.0% of amounts provided. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, Jiangsu Ever-Glory has provided guarantees for approximately ~~$32.5~~$33.0 million (RMB 230 million) and ~~$33.4~~$33 million (RMB ~~230~~230.0 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 ~~$29.1~~$29.4 million (RMB 205.5 million) and ~~$29.9~~$29.4 million (RMB 205.5 million) as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019 respectively. Mr. Kang has also provided a personal guarantee for ~~$16.4~~$14.3 million (RMB ~~117.7~~100.0 million) and $14.5 million (RMB 100.0 million) as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

At December 31, ~~2018, $9.9~~2019, $4.7 million (RMB ~~68.2~~32.8 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the ~~nine~~three months ended ~~September 30, 2019, an additional $6.8 million (RMB 46.3 million)~~March 31, 2020, no advance was provided to and ~~$10.7~~repayment of $0.7 million ~~(RMB 73.3~~(RMB5.2 million) was received from Jiangsu Ever-Glory under the counter-guarantee. As of ~~September 30, 2019,~~March 31, 2020, the amount of the counter-guarantee was ~~$5.8~~$3.9 million (RMB ~~41.3~~27.5 million) (the difference represents currency exchange adjustment of ~~$0.1~~$0.07 million), which was ~~17.9%~~11.97% of the aggregate amount of lines of credit. ~~The increase of the percentage in this quarter was mainly due to China’s credit tightening policy. Obtaining bank loan requires a higher guarantee deposit in this quarter.~~ This amount plus accrued interest of ~~$0.6~~$0.3 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the amount classified as a reduction of equity was ~~$6.6~~$4.1 million and ~~$10.4~~$5 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. Since January 1, 2019, interest rate has changed to 0.3625% as the bank benchmark interest rate decreased. Interest income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ was approximately ~~$0.05 million, $0.2 million, $0.3~~$0.02 million and ~~$1.0~~$0.1 million, respectively.

~~NOTE 11 CONCENTRATIONS AND RISKS~~
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, 2019 and December 31, 2018 was $4.5 million and $5.9 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 of the customer’s industry, and general economic conditions and trends, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts.  If judgments regarding the collectability of accounts receivables are incorrect, adjustments to the allowance may be required, which would reduce profitability.
For the nine months ended September 30, 2019, the Company had one wholesale customer that represented approximately 17%of the Company’s revenues. For the three months ended September 30, 2019, the Company had one wholesale customer that represented approximately 10% of the Company’s revenues. For the nine-months ended September 30, 2018, the Company had two wholesale customers that represented more than 11% and 12% of the Company’s revenues. For the three-month period ended September 30, 2018, the Company had two wholesale customers that represented approximately 7% and 7% of the Company’s revenues.
For the wholesale business, the Company did not rely on any raw material supplier that represented more than 10% of the total raw material purchases during the three and nine months ended September 30, 2019 and 2018.
For the retail business, the Company relied on four raw material suppliers that represented approximately 28%, 27%, 18% and 15% of raw material purchases during the nine months ended September 30, 2019. For the Company’s retail business, the Company had two suppliers that represented approximately 22% and 19% of raw materials purchases during the three months ended September 30, 2018.
For the wholesale business, the Company did not rely on any finished goods supplier that represented more than 10% of the total raw material purchases during the three and nine months ended September 30, 2019 and 2018.
For the retail business, the Company did not rely on any supplier that represented more than 10% of the total finished goods purchases during the three and nine months ended September 30, 2019 and 2018.
~~The Company’s revenues for the three and nine months ended September 30, 2019 and 2018 were earned in the following geographic areas:~~
Three months ended
September 30, Nine months ended
September 30,
2019 2018 2019 2018
(In thousands of U.S. Dollars)
The People’s Republic of China $ 23,241 $ 25,853 $ 40,486 $ 39,195
Hong Kong China 14,574 18,427 22,291 30,982
Germany 981 2,750 2,708 5,515
United Kingdom 10,555 8,254 13,393 13,353
Europe-Other 12,523 19,707 21,977 29,993
Japan 10,056 2,371 16,304 6,689
United States 9,807 8,321 29,931 24,026
Total wholesale business 81,737 85,683 147,090 149,753
Retail business 31,589 39,797 131,508 157,053
Total $ 113,326 $ 125,480 $ 278,598 $ 306,806

~~NOTE 12 SEGMENTS~~
~~The Company reports financial and operating information in the following two segments:~~
~~(a)~~ ~~Wholesale segment~~
~~(b)~~ ~~Retail segment~~
Wholesale
segment Retail
segment Total
(In thousands of U.S. Dollars)
Nine months ended September 30, 2019
Segment profit or loss:
Net revenue from external customers $ 147,090 131,508 278,598
Income from operations $ 6,925 (5,323 ) 1,602
Interest income $ 673 26 699
Interest expense $ 775 261 1,036
Depreciation and amortization $ 1,179 5,645 6,824
Income tax expense $ 1,617 1,050 2,667
Segment assets:
Additions to property, plant and equipment 1,069 5,486 6,555
Total assets 114,789 170,456 285,245

Nine months ended September 30, 2018
Segment profit or loss:
Net revenue from external customers $ 149,753 157,053 306,806
Income from operations $ 6,935 1,593 8,528
Interest income $ 968 35 1,003
Interest expense $ 976 226 1,202
Depreciation and amortization $ 834 5,689 6,523
Income tax expense $ 1,800 1,149 2,949
Segment assets:
Additions to property, plant and equipment 1,322 7,822 9,144
Total assets 121,951 150,334 272,285

Wholesale
segment Retail
segment Total
(In thousands of U.S. Dollars)
Three months ended September 30, 2019
Segment profit or loss:
Net revenue from external customers $ 81,737 31,589 113,326
Income from operations $ 4,551 (5,720 ) (1,169 )
Interest income $ 206 9 215
Interest expense $ 203 62 265
Depreciation and amortization $ 706 1,628 2,334
Income tax expense $ 143 244 388

Three months ended September 30, 2018
Segment profit or loss:
Net revenue from external customers $ 85,683 39,797 125,480
Income from operations $ 4,302 (348 ) 3,954
Interest income $ 304 3 307
Interest expense $ 194 84 278
Depreciation and amortization $ 233 1,387 1,620
Income tax expense $ 1,085 (177 ) 908

NOTE ~~13 COMMITMENT~~9 COMMITMENTS AND CONTINGENCIES

Operating Lease Commitment
The Company recognized operating lease liabilities and operating lease right-of-use assets on its balance sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The company has leases with fixed payments for land-use-rights, warehouses and logistics centers, flagship stores, and leases with variable payments for stores within shopping malls (“shopping mall stores”) in the PRC, which are classified as operating leases. Options to extend or renew are recognized as part of the lease liabilities and recognized as right of use assets. There are no residual value guarantees and no restrictions or covenants imposed by the leases.
The weighted average remaining lease term excluding stores in the shopping malls is 31 years and the weighted average discount rate is 4.35%. The lease term for shopping mall stores is commonly one year with options to extend or renew, and the rent is predetermined with a percentage of sales. The Company estimates the next 12 months rent for the shopping mall stores by annualizing current period rent calculated with the percentage of sales. Thus, the ROU assets and lease liabilities may vary significantly at different period ends.
In the three months ended March 31, 2020, the costs of the leases recognized in cost of revenues and general administrative expenses are $6.0 and $0.2 million, respectively. Cash paid for the operating leases including in the operating cash flows was $6.2 million.

Future minimum lease payments for leases with initial or remaining noncancelable lease terms in excess of one year are as follows:
Year ending December 31,(In thousands of U.S. Dollars)
2020 387
2021 387
2022 387
2023 401
2024 401
Thereafter 12,374
$ 14,337
Legal Proceedings
On March 2019, Shanghai La Go Go Fashion Company Limited (“LA GO GO”) filed a complaint against Shanghai Chijing Investment Management Co., Ltd. (“Shanghai Chijing”) for unpaid rent of RMB2.45 million ($0.36 million) in the Shanghai People’s Court (the “Court”). On July 2019, Shanghai Chijing filed a counterclaim against LA GO GO for RMB15.38 million ($2.17 million), alleging that LA GO GO had not fulfilled its corresponding obligations as a landlord. As a result, the Court has frozen the bank accounts of both Shanghai Chijing and LA GO GO. As of ~~September 30,~~December 31, 2019, a total balance of ~~RMB9.79~~RMB15.38 million ($~~1.4~~2.2 million) was frozen in the bank accounts of LA GO GO. LA GO GO believes that Shanghai Chijing’s counterclaim is frivolous and without merit, and ~~intends to~~is rigorously ~~defend~~defending against the counterclaim. As of ~~September 30,~~December 31, 2019, the company had booked this restricted cash in other receivables. On March 10, 2020, the Court entered a judgment in favor of LA GO GO and dismissed Shanghai Chijing’s counterclaim. LA GO GO believes that the damages awarded by the Court in favor of LA GO GO were insufficient. As of the date of this report, both LA GO GO and Shanghai Chijing have appealed the decision of the Court entered on March 10, 2020 and the date of the appeal hearing has not been determined yet.
In addition to the foregoing, we may become subject to other legal proceedings that arise in the ordinary course of business and have not been finally adjudicated. Adverse decisions in any of the foregoing may have a material adverse effect on our results of operations, cash flows or our financial condition.
NOTE 10 RISKS AND UNCERTAINTIES
Economic and Political Risks
The Company’s results of operations could be adversely affected by general conditions in the global economy, including conditions that are outside of its control, such as the impact of health and safety concerns from the outbreak of COVID-19. The outbreak in China has resulted in the reduction of customer traffic and temporary closures of shopping malls as mandated by the provincial governments in various provinces of China from late January to March, which has adversely affected the company is the retail business with a decline in sales since February 2020. The Company’s wholesale business is also significantly affected as the Company is facing a sharp decline in its order quantities. Some of the Company’s wholesale clients have also cancelled or postponed existing orders. Due to the Chinese factories’ shutdowns and traffic restrictions during the outbreak in China and potential shutdowns and traffic restrictions in the countries where the Company’s suppliers are located, The Company’s supply chain and business operations of its suppliers may be affected. Disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of the Company’s or its suppliers’ or customers’ products, could have adverse ripple effects on the Company’s manufacturing output and delivery schedule. The Company could also face difficulties in collecting its accounts receivables due to the effects of COVID-19 on its customers and risk gaining a large amount of bad debt. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which the Company, its suppliers and customers operate.
Although China has already begun to recover from the outbreak of COVID-19, the epidemic continues to spread on a global scale and there is the risk of the epidemic returning to China in the future, thereby causing further business interruption. While the potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect the Company’s business and the value of its common stock. If the Company’s future sales continue to decline significantly, it may risk facing financial difficulties due to its recurring fixed expenses. The extent to which COVID-19 impacts the Company’s operating is uncertain and cannot be predicted at this time, and it will depend on many factors and future developments, including new information about COVID-19 and any new government regulations which may emerge to contain the virus, among others.

The majority of the Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.
Credit risk
The Company extends unsecured credit to its customers in the normal course of business and generally does not require collateral. As a result, management performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of accounts receivable. In the analysis, management primarily considers the age of the customer’s receivable and also considers the credit worthiness of the customer, the economic conditions of the customer’s industry, and general economic conditions and trends, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts.  If judgments regarding the collectability of accounts receivables are incorrect, adjustments to the allowance may be required, which would reduce profitability.
Concentration risk
For the three-month period ended March 31, 2020, the Company had four wholesale customers that represented approximately 20%, 10%, 10% and 10% of the Company’s revenues. For the three-month period ended March 31, 2019, the Company had two wholesale customers that represented approximately 26% and 11% of the Company’s revenues.
For the wholesale business, the Company relied on one raw material supplier that represented 11% of the total raw material purchases during the three months ended March 31, 2020. The Company did not rely on any raw material supplier that represented more than 10% of the total raw material purchases during the three months ended March 31, 2019.
For the retail business, the Company relied on two raw material suppliers that represented approximately 60% and 34% of raw material purchases during the three months ended March 31, 2020. For the retail business, the Company relied on three raw material suppliers that represented approximately 36%, 35% and 23% of raw material purchases during the three months ended March 31, 2019.
For the wholesale business, during the three months ended March 31, 2020, the Company relied on one manufacturer that represented 11% of finished goods purchases, and during the three months ended March 31, 2019, the Company relied on two manufacturers that represented 11% and 10% of finished goods purchases.
The Company’s revenues for the three months ended March 31, 2020 and 2019 were earned in the following geographic areas:
2020 2019
(In thousands of
U.S. Dollars)
Mainland China $ 4,653 $ 10,754
Hong Kong China 2,992 1,253
Germany 195 850
United Kingdom 837 800
Europe-Other 3,898 5,229
Japan 4,385 4,938
United States 5,328 4,278
Total wholesale business 22,288 28,102
Retail business 36,067 59,854
Total $ 58,355 $ 87,956

NOTE 11 SEGMENTS
The Company reports financial and operating information in the following two segments:
(a)  Wholesale segment
(b)  Retail segment
Wholesale
segment Retail
segment Total
(In thousands of U.S. Dollars)
As of and for the period ended March 31, 2020
Segment profit or loss:
Net revenue from external customers $ 22,288 36,067 58,355
Income from operations $ (674 ) (2,551 ) (3,225 )
Interest income $ 262 15 277
Interest expense $ 218 123 341
Depreciation and amortization $ 254 1,333 1,587
Income tax expense $ 186 41 227
Segment assets:
Additions to property, plant and equipment 419 (341 ) 78
Total assets 82,846 171,517 254,363
Wholesale
segment Retail
segment Total
(In thousands of U.S. Dollars)
As of and for the period ended March 31, 2019
Segment profit or loss:
Net revenue from external customers $ 28,102 59,854 87,956
Income from operations $ 769 52 821
Interest income $ 199 8 207
Interest expense $ 262 101 363
Depreciation and amortization $ 290 1,935 2,225
Income tax expense $ 219 606 825
Segment assets:
Additions to property, plant and equipment 367 1,764 2,131
Total assets 78,419 204,573 282,992

NOTE 1412 SUBSEQUENT EVENTS

~~The Company has performed an evaluation~~As of May 14, 2020, there is no material subsequent ~~events through the time of filing this quarterly report on Form 10-Q with the SEC. During this period the Company did not have any additional material recognizable subsequent events.~~event to be disclosed.

~~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 nine~~ months ended ~~September 30, 2019~~March 31, 2020 should be read in conjunction with the Financial Statements and corresponding notes included in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions to identify forward-looking statements.

Overview

Our Business

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

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

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

Wholesale Business

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

Retail Business

We conduct our retail operations through Shanghai LA GO GO Fashion Company Limited (“LA GO GO”), Jiangsu LA GO GO Fashion Company Limited (“Jiangsu LA GO GO”), Tianjin LA GO GO Fashion Company Limited (“Tianjin LA GO GO”), Shanghai Ya Lan Fashion Company Limited (“Ya Lan”), Shanghai Yiduo Fashion Company Limited (“Shanghai Yiduo”) and Xizang He Meida Trading Company Limited (“He Meida”).


Business Objectives

Wholesale Business

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

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

● Expanding our global sourcing network;

● Expanding our overseas low-cost manufacturing base (outside of mainland China);

● Focusing on high value-added products and continuing our strategy to produce mid-to-high end apparel;

● Continuing to emphasize product design and technology utilization;

● Seeking strategic acquisitions of international distributors that could enhance global sales and our distribution network; and

● Maintaining stable revenue increase in the markets while shifting focus to higher margin wholesale markets such as mainland China.

Retail Business

The business objectives for our retail segment are to establish leading brands of women’s apparel and to build a nationwide retail network in China. As of ~~September 30, 2019,~~March 31, 2020, we had ~~1,157~~1,038 stores (including store-in-stores), ~~including 77~~which includes 4 stores that were opened and ~~301~~67 stores that were closed ~~during~~in the ~~nine months ended September 30, 2019.~~first quarter of 2020. We expect to open an additional 100 to 150 stores in 2020.

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

● Becoming a multi-brand operator.

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 ~~2019.~~2020.

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 has resulted in the reduction of customer traffic and temporary closures of shopping malls as mandated by the provincial governments in various provinces of China from late January to March, which has adversely affected our retail business with a decline in sales since February 2020. Our wholesale business is also significantly affected as we are facing a sharp decline in our order quantities. Some of our 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 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.
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 sales and upon shipment of the products for export sales, at such time title passes to the customer. 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. 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.

Our revenue recognition policy is in compliance with ASC 606,Revenue from Contracts with Customers that revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that we expect to receive in exchange for those goods. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods. We apply the following five-step model in order to determine this amount:

(i) identification of the promised goods and services in the contract;

(ii) determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the contract;


(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations; and

(v) recognition of revenue when (or as) the Company satisfies each performance obligation.

We only apply the five-step model to contracts when it is probable that we will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, our performance obligations are transferred to customers at a point in time, typically upon delivery for local sales and upon shipment of the products for export sale.

For all reporting periods, we have not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.

Estimates and Assumptions

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

~~Lease~~
The Company determines if an arrangement contains a lease at inception. The Company elected the practical expedient, for all asset classes, to account for each lease component of a contract and its associated non-lease components as a single lease component, rather than allocating a standalone value to each component of a lease. For purposes of calculating operating lease obligations under the standard, the Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company’s leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms. The discount rate used to measure a lease obligation is usually the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.
Significant assumptions and judgments made as part of the adoption of this new lease standard include determining (i) whether a contract contains a lease, (ii) whether a contract involves an identified asset, and (iii) which party to the contract directs the use of the asset. The discount rates used to calculate the present value of lease payments were determined based on hypothetical borrowing rates available to the Company over terms similar to the lease terms.
Recently Issued Accounting Pronouncements

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

~~In October 2018, the FASB issued ASU No. 2018-17~~ ~~“Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities”~~ which could be improved in the following areas: 1. Applying the variable interest entity (VIE) guidance to private companies under common control. 2. Considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.

~~In April 2019, the FASB issued ASU No. 2019-04~~~~“Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, 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. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.
Results of Operations ~~for the three months ended September 30, 2019 and 2018~~

The following table summarizes our results of operations for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. The table and the discussion below should be read in conjunction with ~~our~~the condensed consolidated financial statements and the notes thereto appearing elsewhere in this report.

Three Months Ended September 30,
2019 2018
(In thousands of U.S. dollars, except for percentages)
Sales $ 113,326 100.0 % $ 125,480 100.0 %
Gross Profit $ 24,359 21.5 % $ 30,061 24.0 %
Operating Expense $ 25,528 22.5 % $ 26,107 20.8 %
Income From Operations $ (1,169 ) (1.0 )% $ 3,954 3.2 %
Other Income (Expenses) $ 452 0.4 % $ 130 0.1 %
Income tax expense $ 387 0.3 % $ 908 0.7 %
Net Income $ (1,104 ) (1.0 )% $ 3,176 2.5 %
Three Months Ended March 31,
2020 2019
(In thousands of U.S. dollars, except for percentages)
Sales $ 58,355 100.0 % $ 87,956 100.0 %
Gross Profit 16,038 27.5 29,358 33.4
Operating Expenses 19,263 33.0 28,537 32.4
(Loss) Income From Operations (3,225 ) (5.5 ) 821 0.9
Other Income (Expenses) 754 1.3 (451 ) (0.5 )
Income Tax Expense 227 0.4 825 0.9
Net Loss $ (2,698 ) (4.6 )% $ (455 ) (0.5 )%

Revenue

The following table sets forth a breakdown of our total sales, by region, for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

2019 % of
total sales 2018 % of
total sales
Growth (Decrease)
in 2019 compared
with 2018
2020 % of total sales 2019 % of total sales Growth in 2020 compared
with 2019
Wholesale business (In thousands of U.S. dollars) (In thousands of U.S. dollars) (In thousands of U.S. dollars) (In thousands of U.S. dollars)
Mainland China $ 23,241 20.4 % $ 25,853 20.6 % (10.1 )% $ 4,653 8.0 % $ 10,754 12.2 % (56.7 )%
Hong Kong China 14,574 12.8 18,427 14.7 (20.9 )
Hong Kong 2,992 5.1 1,253 1.4 138.7
Germany 981 0.9 2,750 2.2 (64.3 ) 195 0.3 850 1.0 (77.1 )
United Kingdom 10,555 9.3 8,254 6.6 27.9 837 1.4 800 0.9 4.7
Europe-Other 12,523 11.1 19,707 15.7 (36.5 ) 3,898 6.7 5,229 5.9 (25.5 )
Japan 10,056 8.9 2,371 1.9 324.1 4,385 7.5 4,938 5.7 (11.2 )
United States 9,807 8.7 8,321 6.6 17.9 5,328 9.1 4,278 4.9 24.5
Total Wholesale business 81,737 72.1 85,683 68.3 (4.6 ) 22,288 38.2 28,102 32.0 (20.7 )
Retail business 31,589 27.9 39,797 31.7 (20.6 ) 36,067 61.8 59,854 68.0 (39.7 )
Total sales $ 113,326 100.0 % $ 125,480 100.0 % (9.7 )% $ 58,355 100.0 % $ 87,956 100.0 % (33.7 )%

~~Sales~~Total sales for the three months ended ~~September 30, 2019~~March 31, 2020 were ~~$113.3~~$58.4 million, a ~~9.7%~~ decrease ~~compared with~~of 33.7% from the three months ended ~~September 30, 2018.~~March 31, 2019. This decrease was primarily attributable to a ~~4.6%~~20.7% decrease ~~in sales~~ in our wholesale business and a ~~20.6%~~39.7% decrease in our retail business.

Sales generated from our wholesale business contributed ~~72.1%~~38.2% or ~~$81.7~~$22.3 million of our total sales for the three months ended ~~September 30, 2019,~~March 31, 2020, a ~~4.6%~~ decrease of 20.7% compared ~~with 68.3% or $85.7~~to $28.1 million in the three months ended ~~September 30, 2018.~~March 31, 2019. This decrease was primarily attributable to ~~a decrease in~~decreased sales in Mainland China, Germany, other European markets and Japan partially offset for increased sales in Hong Kong, ~~Germany, Europe-Other, Japan and~~the United States ~~partially offset by an increase in sales in~~and the United Kingdom.

Sales generated from our retail business contributed ~~27.9%~~61.8% or ~~$31.6~~$36.1 million of our total sales for the three months ended ~~September 30, 2019,~~March 31, 2020, a ~~20.6%~~ decrease of 39.7% compared ~~with 31.7%~~to 68.0% or ~~$39.8~~$59.9 million in the three months ended ~~September 30, 2018.~~March 31, 2019. This decrease was primarily due to athe decrease in ~~the amounts of stores and same store~~same-store sales.

Total retail store square footage and sales per square foot for the three months ended March 31, 2020 and 2019 are as follows:
2020 2019
Total store square footage 1,088,007 1,340,174
Number of stores 1,038 1,315
Average store size, square feet 1,048 1,019
Total store sales (in thousands of U.S. dollars) $ 36,067 $ 59,854
Sales per square foot $ 33 $ 45
Same-store sales and newly opened store sales for the three months ended March 31, 2020 and 2019 are as follows:
2020 2019
(In thousands of U.S. dollars)
Sales from stores opened for a full year $ 24,813 $ 45,955
Sales from newly opened store sales $ 3,900 $ 6,310
Sales from e-commerce platform $ 4,217 $ 3,701
Other* $ 3,137 $ 3,888
Total $ 36,067 $ 59,854
* Primarily sales from stores that were closed in the current reporting period.
We remodeled or relocated 117 stores in year 2019, and 2 stores during the three months ended March 31, 2020. We plan to relocate or remodel 50-100 stores in 2020. 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 2020.  Same-store sales are calculated based upon stores that were open at least 12 full fiscal months in each reporting period and remain open at the end of each reporting period.
Costs and Expenses

Cost of Sales and Gross Margin

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

The following table sets forth the components of our cost of sales and gross profit both in amounts and as a percentage of total sales for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~  2019.

Growth Three Months Ended March 31, Growth
(Decrease)
in 2020
(Decrease) in
2019 2020 2019 compared
Three months ended September 30, Compared (In thousands of U.S. dollars, except for percentages) with 2019
2019 2018 with 2018
(In thousands of U.S. dollars, except for percentages)
Net Sales for Wholesale Sales $ 81,737 100.0 % $ 85,683 100.0 % (4.6 )%
Wholesale Sales $ 22,288 100.0 % $ 28,102 100.0 % (20.7 )%
Raw Materials 39,488 48.3 40,745 47.4 (3.1 ) 10,090 45.3 11,308 40.2 (10.8 )
Labor 635 0.8 1,159 1.4 (45.2 ) 245 1.1 307 1.1 (20.2 )
Outsourced Production Costs 31,176 38.1 33,401 39.0 (6.7 ) 8,370 37.6 9,871 35.1 (15.2 )
Other and Overhead 181 0.2 138 0.2 31.4 86 0.4 58 0.3 46.4
Total Cost of Sales for Wholesale 71,480 87.4 75,443 88.0 (5.3 ) 18,791 84.3 21,544 76.7 (12.8 )
Gross Profit for Wholesale 10,257 12.6 10,240 12.0 0.2 3,497 15.7 6,558 23.3 (46.7 )

Net Sales for Retail 31,589 100.0 39,797 100.0 (20.6 ) 36,067 100.0 59,854 100.0 (39.7 )
Production Costs 12,765 40.4 11,677 29.3 9.3 15,847 43.9 24,203 40.4 (34.5 )
Rent 4,722 14.9 8,300 20.9 (43.1 ) 7,679 21.3 12,851 21.5 (40.2 )
Total Cost of Sales for Retail 17,487 55.3 19,976 50.2 (12.5 ) 23,526 65.2 37,054 61.9 (36.5 )
Gross Profit for Retail 14,102 44.7 19,821 49.8 (28.9 ) 12,541 34.8 22,800 38.1 (45.0 )

Total Cost of Sales 88,967 78.5 95,420 76.0 (6.8 ) 42,317 72.5 58,598 66.6 (27.8 )
Gross Profit $ 24,359 21.5 % $ 30,061 24.0 % (19.0 )% $ 16,038 27.5 % $ 29,358 33.4 % (45.4 )%

Raw material costs for our wholesale business were ~~48.3%~~45.3% of our total wholesale business sales in the three months ended ~~September 30, 2019,~~March 31, 2020, a decrease of 10.8% compared ~~with 47.4%~~to 40.2% in the three months ended ~~September 30, 2018.~~March 31, 2019.  The cost percentage to total sale increase was mainly due to the higher raw ~~materials~~material prices.

Labor costs for our wholesale business were ~~0.8%~~1.1% of our total wholesale business sales in the three months ended ~~September 30, 2019,~~March 31, 2020, a decrease of 20.2% compared ~~with 1.4%~~to 1.1% in the three months ended ~~September 30, 2018.~~March 31, 2019. The marginal decrease was mainly due to ~~higher number~~the fact that we outsourced most of ~~outsourced~~the new orders in ~~2019.~~2020.

Outsourced production costs for our wholesale business ~~for~~decreased by 15.2% to $8.4 million in the three months ended ~~September 30, 2019 decreased 6.7% to $31.2~~March 31, 2020 from $9.9 million ~~from $33.4 million for~~in the three months ended ~~September 30, 2018. Outsourced~~March 31, 2019. As a percentage of total wholesale sales, outsourced production costs ~~accounted for 38.1%~~were 37.6% of our total wholesale ~~business~~ sales in the three months ended ~~September 30, 2019,~~March 31, 2020, a ~~6.7%~~ decrease of 15.2% from the three months ended ~~September 30, 2018.~~March 31, 2019. This decrease ~~in percentage~~ was primarily attributable to increased outsourced orders to our related entities in Vietnam, which have lower labor costs compared to orders outsourced to Chinese factories.

Overhead and other expenses for our wholesale business accounted for ~~0.2%~~0.4% and 0.3% of our total wholesale business sales for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~compared with 0.2% of total~~respectively.
Gross profit for our wholesale business ~~sales~~ for the three months ended ~~September 30, 2018.~~
~~Wholesale business gross profit~~March 31, 2020 was $3.5 million, a decrease of 46.7% compared to the three months ended March 31, 2019. Gross margin was 15.7% for the three months ended ~~September 30, 2019 was $10.3 million~~March 31, 2020, a decrease of 46.7% compared ~~with $10.2 million~~to 23.3% for the three months ended ~~September 30, 2018. Gross profit accounted for 12.6% of our total wholesale sales for the three months ended September 30, 2019, compared with 12.0% for the three months ended September 30, 2018.~~March 31, 2019. The ~~increase~~decrease in gross margin was mainly due to ~~a decrease in~~the higher raw material ~~costs.~~prices.

Production costs for our retail business were ~~$12.8 million for the three months ended September 30, 2019 compared with $11.7~~$15.8 million during the three months ended ~~September 30, 2018. Retail~~March 31, 2020 compared to $24.2 million during the three months ended March 31, 2019. As a percentage of retail sales, retail production costs accounted for ~~40.4%~~43.9% of our total retail sales in the three months ended ~~September 30, 2019,~~March 31, 2020, compared ~~with 29.3% for~~to 40.4% of total retail sales in the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease was due to ~~increase in overall purchase costs.~~ higher discounts on our out-of-season products ended March 31, 2020 compared with the same period of the prior year.

Rent costs for our retail business ~~for the three months ended September 30, 2019~~ were ~~$4.7 million compared with $8.3~~$7.7 million for the three months ended ~~September 30, 2018. Rent~~March 31, 2020 compared to $12.9 million for the three months ended March 31, 2019. As a percentage of retail sales, rent costs ~~for our retail business~~ accounted for ~~14.9%~~21.3% of our total retail sales for the three months ended ~~September 30, 2019,~~March 31, 2020, compared ~~with 20.9%~~to 21.5% of total retail sales for the three months ended ~~September 30, 2018.~~March 31, 2019. The decrease was primarily attributable to ~~the decline in number of stores and the decreased of sales.~~lower rent at certain locations.


Gross profit in our retail business for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$14.1~~$12.5 million and gross margin was ~~44.7%~~34.8%. Gross profit in our retail business for the three months ended ~~September 30,~~March 31, 2018 was ~~$19.8~~$22.8 million and gross margin was ~~49.8%~~38.1%. The decrease in gross margin was attributable to decreased rent costs and decrease in production costs.

Total cost of sales for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$89.0~~$42.3 million, ~~a 6.8% decrease from $95.4~~compared to $58.6 million for the three months ended ~~September 30, 2018. Total~~March 31, 2019, a decrease of 27.8%. As a percentage of total sales, cost of sales ~~as a percentage~~increased to 72.5% of total sales for the three months ended ~~September 30, 2019 was 78.5%,~~March 31, 2020, compared ~~with 76.0%~~to 66.6% of total sales for the three months ended ~~September 30, 2018. Gross~~March 31, 2019. Consequently, gross margin decreased to 27.5% for the three months ended ~~September 30, 2019 was 21.5% compared with 24.0%~~March 31, 2020 from 33.4% for the three months ended ~~September 30, 2018.~~  March 31, 2019.

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 2019 Compared Three Months Ended March 31,
2019 2018 to 2018 2020 2019 Increase
(In thousands of U.S. dollars, except for percentages) (In thousands of U.S. dollars, except for percentages)
Gross Profit $ 24,359 21.5 % $ 30,061 25.0 % (19.0 )% $ 16,038 27.5 % $ 29,358 33.4 % (45.4 )%
Operating Expenses: 　　
Operating Expenses 　　　
Selling Expenses 17,944 15.8 17,588 14.6 2.0 13,478 23.1 21,008 23.9 (35.8 )
General and Administrative Expenses 7,584 6.7 8,519 7.1 (11.0 ) 5,785 9.9 7,529 8.6 (23.2 )
Total 25,528 22.5 26,107 21.7 (2.2 )
Income from Operations $ (1,169 ) (1.0 )% $ 3,954 3.3 % (129.6 )%
Total Operating Expenses 19,263 33.0 28,537 32.4 (32.5 )
(Loss)Income from Operations $ (3,225 ) (5.5 )% $ 821 0.9 % (493.0 )%

Selling expenses ~~for the three months ended September 30, 2019 increased 2.0%~~decreased 35.8% to ~~$17.9 million from $17.6~~$13.5 million for the three months ended ~~September 30, 2018.~~March 31, 2020 from $21.0 million for the three months ended March 31, 2019. The ~~increase~~decrease was attributable to the ~~marketing expenses associated with the promotion of the retail brand.~~ decreased sales.

General and administrative expenses ~~for the three months ended September 30, 2019~~ decreased ~~11.0%~~23.2% to ~~$7.6 million from $8.5~~$5.8 million for the three months ended ~~September 30, 2018.~~March 31, 2020 from $7.5 million for the three months ended March 31, 2019. As a percentage of total sales, general and administrative expenses increased to 9.9% of total sales for the three months ended March 31, 2020, compared to 8.6% of total sales for the three months ended March 31, 2019. The decrease was mainly attributable to the ~~decline in number of stores.~~decreased office expenses.

(Loss) Income ~~(Loss)~~ from Operations

~~Income (loss)~~Loss from operations was $3.2 million for the three months ended March 31, 2020, compared to $0.8 million of income from operations for the three months ended ~~September 30,~~March 31, 2019. As a percentage of sales, loss from operations accounted for 5.5% of our total sales for the three months ended March 31, 2020, a decrease of 493.0% compared to 0.9% the three months ended March 31, 2019 as a result of decreased ~~129.6% to ($1.2) million from $4.0~~gross profit.

Interest Expense
Interest expense was $0.3 million for the three months ended ~~September 30, 2018. Income from operations for the three months ended September 30, 2019 accounted for (1.0%)~~March 31, 2020, a decrease of ~~our total sales, a 129.6% decrease~~6.1% compared ~~with the three months ended September 30, 2018.~~
~~Interest Expense~~
~~Interest expense for the three months ended September 30, 2019 was $0.3 million, a 4.7% decrease compared with~~to the same period in ~~2018.~~2019. The decrease was due to the decreased bank ~~loans.~~loans borrowed.

Income Tax Expenses

Income tax expense was ~~$0.4~~$0.2 million and ~~$0.9~~$0.8 million for the three months ~~end September 30,~~ended March 31, 2020 and 2019, ~~and 2018,~~ 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 (“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, ~~2019.~~2020.

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.

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

Net Income (Loss)

Net ~~income (loss)~~loss for the three months ended ~~September 30,~~March 31, 2020 and 2019 was ~~($1.1)~~$2.7 million ~~a 134.8% decrease compared with the same period in 2018.~~and $0.5 million, respectively. Our basic and diluted ~~earnings~~loss per share were ~~($0.07)~~$0.18 and ~~$0.22~~$0.04 for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

~~Results of Operations for the nine months ended September 30, 2019 and 2018~~
The following table summarizes our results of operations for the nine months ended September 30, 2019 and 2018. 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,
2019 2018
(In thousands of U.S. Dollars, except for percentages)
Sales $ 278,598 100.0 % $ 306,806 100.0 %
Gross Profit 82,703 29.7 95,948 31.3
Operating Expense 81,100 29.1 87,420 28.5
Income From Operations 1,602 0.6 8,528 2.8
Other Income 1,279 0.5 903 0.3
Income tax expense 2,667 1.0 2,949 1.0
Net Income $ 214 0.1 % $ 6,482 2.1 %
~~Revenue~~
~~The following table sets forth a breakdown of our total sales, by region, for the nine months ended September 30, 2019 and 2018.~~
2019 % of total sales 2018 % of total sales
Growth (Decrease)
in 2019 compared
with 2018

Wholesale business (In thousands of U.S. dollars) (In thousands of U.S. dollars)
Mainland China $ 40,487 14.5 % $ 39,195 12.8 % 3.3 %
Hong Kong China 22,291 8.0 30,982 10.1 (28.1 )
Germany 2,708 1.0 5,515 1.8 (50.9 )
United Kingdom 13,393 4.8 13,353 4.4 0.3
Europe-Other 21,977 7.9 29,993 9.8 (26.7 )
Japan 16,304 5.9 6,689 2.2 143.8
United States 29,930 10.7 24,026 7.7 24.6
Total Wholesale business 147,090 52.8 149,753 48.8 (1.8 )
Retail business 131,508 47.2 157,053 51.2 (16.3 )
Total sales $ 278,598 100.0 % $ 306,806 100.0 % (9.2 )%

Sales for the nine months ended September 30, 2019 were $278.6 million, a decrease of 9.2% from the nine months ended September 30, 2018. This decrease was primarily attributable to a 1.8% decrease in sales in our wholesale business and a 16.3% decrease in our retail business.
Sales generated from our wholesale business contributed 52.8% or $147.1 million of our total sales for the nine months ended September 30, 2019, a decrease of 1.8% compared with 48.8% or $149.8 million in the nine months ended September 30, 2018. This decrease was primarily attributable to decreased sales in Hong Kong China, Germany and Europe-Other partially offset by increased sales in Mainland China, United Kingdom, Japan and the United States.
Sales generated from our retail business contributed 47.2% or $131.5 million of our total sales for the nine months ended September 30, 2019, a decrease of 16.3% compared with 51.2% or $157.1 million in the nine months ended September 30, 2018. This decrease was primarily due to a decrease in same store sales.
~~Total retail store square footage and sales per square foot for the nine months ended September 30, 2019 and 2018 are as follows:~~
2019 2018
Total store square footage 1,219,459 1,405,399
Number of stores 1,157 1,396
Average store size, square feet 1,054 1,007
Total store sales (in thousands of U.S. dollars) $ 131,508 $ 157,053
Sales per square foot $ 108 $ 112
~~Same store sales and newly opened store sales for the nine months ended September 30, 2019 and 2018 are as follows:~~
2019 2018
(In thousands of U.S. dollars)
Sales from stores opened for a full year $ 111,739 $ 128,588
Sales from newly opened store sales $ 6,027 $ 12,212
Sales from e-commerce platform $ 9,000 $ 11,491
Other* $ 4,742 $ 4,762
Total $ 131,508 $ 157,053
* ~~Primarily sales from stores that were closed in the current reporting period.~~
We remodeled or relocated 250 stores in 2018, and 89 stores during the nine months ended September 30, 2019. 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 2018.  Same-store sales are calculated based upon stores that were open at least 12 full fiscal months in each reporting period and remain open at the end of each reporting period.

~~Costs and Expenses~~
~~Cost of Sales and Gross Margin~~
Cost of goods sold includes the direct raw material cost, direct labor cost, and manufacturing overhead including depreciation of production equipment and rent, consistent with the revenue earned. Cost of goods sold excludes warehousing costs, which historically have not been significant.
~~The following table sets forth the components of our cost of sales and gross profit both in amounts and as a percentage of total sales for the nine months ended September 30, 2019 and 2018.~~
Growth
(Decrease) in
2019
Nine months ended September 30, Compared
2019 2018 with 2018
(In thousands of U.S. dollars, except for percentages)
Net Sales for Wholesale Sales $ 147,090 100.0 % $ 149,753 100.0 % (1.8 )%
Raw Materials 67,172 45.7 67,469 45.0 (0.4 )
Labor 1,340 0.9 1,940 1.3 (30.9 )
Outsourced Production Costs 55,455 37.7 56,848 38.0 (2.4 )
Other and Overhead 295 0.2 294 0.2 0.1
Total Cost of Sales for Wholesale 124,262 84.5 126,551 84.5 (1.8 )
Gross Profit for Wholesale 22,828 15.5 23,202 15.5 (1.6 )
Net Sales for Retail 131,508 100.0 157,053 100.0 (16.3 )
Production Costs 47,051 35.8 51,731 32.9 (9.0 )
Rent 24,582 18.7 32,576 20.8 (24.5 )
Total Cost of Sales for Retail 71,633 54.5 84,307 53.7 (15.0 )
Gross Profit for Retail 59,875 45.5 72,746 46.3 (17.7 )
Total Cost of Sales 195,895 70.3 210,858 68.7 (7.1 )
Gross Profit $ 82,703 29.7 % $ 95,948 31.3 % (13.8 )%
Raw material costs for our wholesale business were 45.7% of our total wholesale business sales in the nine months ended September 30, 2019, compared with 45.0% in the nine months ended September 30, 2018. The increase was mainly due to higher raw materials prices.
Labor costs for our wholesale business were 0.9% of our total wholesale business sales in the nine months ended September 30, 2019, compared with 1.3% in the nine months ended September 30, 2018. The marginal decrease was mainly due to higher number of outsourced orders in 2019.
Outsourced manufacturing costs for our wholesale business were 37.7% of our total wholesale sales in the nine months ended September 30, 2019, compared with 38.0% in the nine months ended September 30, 2018. This decrease in percentage was primarily attributable to increased outsourced orders to our related entities in Vietnam, which have lower labor costs compared to orders outsourced to Chinese factories.
~~Overhead and other expenses for our wholesale business accounted for 0.2% and 0.2% of our total wholesale sales for the nine months ended September 30, 2019 and 2018, respectively.~~
Gross profit for our wholesale business for the nine months ended September 30, 2019 was $22.8 million, a 1.6% decrease compared with the nine months ended September 30, 2018. As a percentage of total wholesale business sales, gross profit was 15.5% of our total wholesale business sales for the nine months ended September 30, 2019, compared with 15.5% for the nine months ended September 30, 2018. The decrease in gross profits was mainly due to increased raw material costs and outsourced production costs.
Production costs for our retail business for the nine months ended September 30, 2019 were $47.1 million compared with $51.7 million for the nine months ended September 30, 2018. As a percentage of our total retail sales, production costs were 35.8% of our total retail sales for the nine months ended September 30, 2019, compared with 32.9% for the nine months ended September 30, 2018. The increase was due to higher discounts on our out-of-season products in the nine months ended September 30, 2019 compared with the same period of the prior year in percentage of sales.

Rent costs for our retail business for the nine months ended September 30, 2019 were $24.6 million compared with $32.6 million for the nine months ended September 30, 2018. As a percentage of total retail sales, rent costs were 18.7% of our total retail sales for the nine months ended September 30, 2019 compared with 20.8% for the nine months ended September 30, 2018. The decrease was primarily attributable to lower rent at certain locations.
Gross profit for our retail business for the nine months ended September 30, 2019 was $59.9 million compared with $72.7 million for the nine months ended September 30, 2018. Gross margin for our retail business for the nine months ended September 30, 2019 was 45.5% compared with 46.3% for the nine months ended September 30, 2018.
Total cost of sales for the nine months ended September 30, 2019 was $195.9 million, a 7.1% decrease compared with the nine months ended September 30, 2018. As a percentage of total sales, total costs were 70.3% of total sales for the nine months ended September 30, 2019, compared with 68.7% for the nine months ended September 30, 2018. Total gross margin for the nine months ended September 30, 2019 was 29.7% compared with 31.3% for the nine months ended September 30, 2018.
We purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. For our wholesale business, purchases from our two largest suppliers represented approximately 7.6% and 16.8% of raw material purchases for the nine months ended September 30, 2019 and 2018, respectively. No one supplier provided more than 10.0% of our raw material purchases for the nine months ended September 30, 2019 and 2018. For our retail business, purchases from our two largest suppliers represented approximately 55.3% and 82.7% of raw material purchases for the nine months ended September 30, 2019 and 2018, respectively. Four suppliers provided approximately 28.0%, 27.3%, 18.0% and 14.8% of our total purchases for the nine months ended September 30, 2019. Five suppliers provided approximately 22.1%, 19.6%, 15.3%, 13.9 and 11.8% of our raw material purchases for the nine months ended September 30, 2018. 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 32.5% and 26.8% of finished goods purchases for the nine months ended September 30, 2019 and 2018, respectively. No manufacturer provided more than 10% of our finished goods purchases for the nine months ended September 30, 2019 and 2018. For our retail business, our five largest contract manufacturers represented approximately 20.2% and 17.3% of finished goods purchases for the nine months ended September 30, 2019 and 2018, respectively. No manufacturer provided more than 10% of our finished goods purchases for the nine months ended September 30, 2019 and 2018. 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 2019 Compared
2019 2018 to 2018
(In thousands of U.S. dollars, except for percentages)
Gross Profit $ 82,703 29.7 % $ 95,948 33.6 % (13.8 )%
Operating Expenses: 　　　
Selling Expenses 58,651 21.1 62,405 21.9 (6.0 )
General and Administrative Expenses 22,450 8.1 25,015 8.8 (10.3 )
Total 81,101 29.2 87,420 30.7 (7.2 )
Income from Operations $ 1,602 0.5 % $ 8,528 3.0 % (81.2 )%
Selling expenses for the nine months ended September 30, 2019 were $58.7 million, a 6.0% decrease compared with the nine months ended September 30, 2018. The decrease was attributable to lower retail sales.
General and administrative expenses for the nine months ended September 30, 2019 were $22.3 million a 10.3% decrease compared with the nine months ended September 30, 2018. As a percentage of total sales, general and administrative expenses accounted for 8.1% of total sales for the nine months ended September 30, 2019, compared with 8.8% of total sales for the nine months ended September 30, 2018. The decrease was mainly attributable to the decline in number of stores.
~~Income from Operations~~
Income from operations for the nine months ended September 30, 2018 was $1.6 million, an 81.2% decrease from $8.5 million for the nine months ended September 30, 2018. This decrease was due to decreased gross profit.
~~Interest Expense~~
~~Interest expense was $1.0 million and $1.2 million for the nine months ended September 30, 2019 and 2018, respectively.~~
~~Income Tax Expense~~
Income tax expense for the nine months ended September 30, 2019 was $2.7 million, a 9.6% decrease compared to the same period of 2018. The decrease was primarily due to deferred tax asset valuation allowance which resulted in a slightly higher income tax expense.
~~Net Income~~
Net income for the nine months ended September 30, 2019 was $0.2 million, a decrease of 96.7% compared with the same period in 2018. Basic and diluted earnings per share were $0.02 and $0.47 for the nine months ended September 30, 2019 and 2018, respectively.
Summary of Cash Flows

Summary cash flows information for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ is as follows:

2019 2018
(In thousands of U.S. dollars)
Net cash used in operating activities $ (3,471 ) $ (21,122 )
Net cash used in investing activities $ (6,555 ) $ (9,144 )
Net cash provided by (used in) financing activities $ 10,887 $ (5,304 )
31
2020 2019
(In thousands of U.S. dollars)
Net cash provided by operating activities $ 24,555 $ 11,141
Net cash provided by (used in) investing activities $ 275 $ (2,131 )
Net cash used in financing activities $ (2,672 ) $ (54 )

Net cash ~~used in~~provided by operating activities was ~~$3.5~~$24.6 million and $11.1 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~compared with net~~respectively. This increase was mainly due to decreased accounts receivable and inventories, offset by decreased accounts payable.

Net cash provided by ~~$21.1~~(used in) investing activities was $0.3 million ~~during~~and ($2.1) million for the ~~nine~~three months ended ~~September 30, 2018. The decrease~~March 31, 2020 and 2019. This change was ~~primarily~~mainly due to ~~decrease~~we purchased property and equipment in ~~inventories.~~the three months ended March 31, 2020 less than the same period of 2019.

Net cash used in ~~investing~~financing activities ~~was $6.6~~were $2.7 million and $0.05 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~compared with $9.1 million during~~respectively. During the ~~nine~~three months ended ~~September 30, 2018. This decrease was mainly due to~~March 31, 2020, we received new bank loans of $11.5 million and repaid the ~~decreased in purchase~~bank loans of ~~property and equipment and remodeling expenditure in 2018.~~$14.9 million.

Net cash provided by (used in) financing activities was $10.9 million for the nine months ended September 30, 2019 compared with $5.3 million net cash provided by financing activities during the nine months ended September 30, 2018. During the nine months ended September 30, 2019, we repaid $35.6 million of bank loans and received bank loan proceeds of $42.6 million. Also, under the counter-guarantee agreement, we received $10.7 million from and paid $6.8 million to the related party during the nine months ended September 30, 2019.
Liquidity and Capital Resources

As of ~~September 30, 2019,~~March 31, 2020, we had cash and cash equivalents ~~of $45.8~~$70.0 million, ~~other~~ current assets ~~of $170.0~~other than cash $109.5 million and current liabilities ~~of $161.8~~$130.3 million. We presently finance our operations primarily from cash flows from operations and borrowings from banks, and we anticipate that these will continue to be our primary source of funds to finance our short-term cash needs.

Bank Loans

In December ~~2016,~~2019, Goldenway entered into a line of credit agreement with Industrial and Commercial Bank of China, which allows the Company to borrow up to approximately ~~$8.5~~$5.6 million ~~(RMB60.0~~(RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of ~~September 30, 2019,~~March 31, 2020, Goldenway had borrowed ~~$5.7~~$5.6 million ~~(RMB 40.0~~(RMB40.0 million) ~~under this line~~from Industrial and Commercial Bank of ~~credit~~China with an annual interest rate ~~of 3.92%~~4.57% and due on ~~November 2019. As of September 30, 2019, approximately $2.8 million was unused and available under this line of credit.~~  August 2020.

In November 2018, Ever-Glory Apparel entered into a line of credit agreement for approximately $14.1 million (RMB100.0 million) with Industrial and Commercial Bank of China and collateralized by assets of Jiangsu Ever-Glory’s equity investee, Nanjing Knitting, under a collateral agreement executed among Ever-Glory Apparel, Nanjing Knitting and the bank. As of ~~September 30, 2019,~~March 31, 2020, Ever-Glory Apparel had borrowed ~~$12.7~~$14.1 million (RMB ~~90.0~~100.0 million) under this line of credit with annual interest rates ranging from ~~4.57%~~3.92% to ~~4.70%~~4.7% and due on ~~various dates~~ from ~~October 2019~~May 2020 to ~~May 2020. As of September 30, 2019, approximately $1.4 million was unused and available under this line of credit.~~March 2021.

In August 2018, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $7.1 million (RMB50.0 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, 2019,~~March 31, 2020, approximately $7.1 million was unused and available under this line of credit.

In August 2018, Ever-Glory Apparel entered into a line of credit agreement for approximately $8.5 million (RMB60.0 million) with Nanjing Bank and guaranteed by Jiangsu Ever-Glory, Mr. Kang and Goldenway. As of ~~September 30, 2019,~~March 31, 2020, Ever-Glory Apparel had borrowed ~~$7.1~~$1.4 million ~~(RMB50.0~~(RMB10.0 million) from Nanjing Bank with an annual interest rate 5.0% and due on ~~various dates from December 2019 to~~ June 2020. As of ~~September 30, 2019,~~March 31, 2020, approximately ~~$1.4~~$7.1 million was unused and available under this line of credit.

In ~~May 2018,~~June 2019, LA GO GO entered into a revolving line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $2.8 million (RMB20.0 million). The line of credit is guaranteed by Mr. Kang and Goldenway. As of ~~September 30, 2019,~~March 31, 2020, LA GO GO had borrowed $2.1 million (RMB15.0 million) ~~from Nanjing Bank~~under this line of credit with an annual interest rate ~~5.2%~~of 5.22% and due onin June 2020. As of ~~September 30, 2019,~~March 31, 2020, approximately $0.7 million was unused and available under this line of credit.


In June 2018, LA GO GO entered into a line of credit agreement for approximately $2.8 million (RMB20.0 million) with China Minsheng Bank and guaranteed by Ever-Glory Apparel and Mr. Kang. As of ~~September 30, 2019,~~March 31, 2020, LA GO GO had borrowed $2.8 million (RMB20.0 million) from China Minsheng Bank with an annual interest rate of ~~4.79%~~5.0% and due in ~~October 2019.~~November 2020.

In ~~November 2018,~~September 2019, LA GO GO entered into a line of credit agreement for approximately $2.8 million ~~(RMB19.9~~(RMB20.0 million) with the Bank of Communications and guaranteed by Jiangsu Ever-Glory, Ever-Glory Apparel and Jiangsu LAGOGO. As of ~~September 30, 2019, LA GO GO had borrowed~~March 31, 2020, approximately $2.8 million ~~(RMB19.9 million) from the Bank~~was unused and available under this line of ~~Communications with an annual interest rate 4.57% and due on variable dates from November 2019 to January 2020.~~credit.

In ~~July 2018,~~September 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately ~~$2.8~~$5.6 million ~~(RMB20.0~~(RMB40.0 million) with the Shanghai Pudong Development Bank and guaranteed by Goldenway. As of ~~September 30, 2019,~~March 31, 2020, approximately ~~$2.8~~$5.6 million was unused and available under this line of credit.

In ~~March 2019,~~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 $2.5 million with the Nanjing Branch of HSBC (China) Company Limited (“HSBC”). This agreement is guaranteed by the Company and Mr. Kang. As of ~~September 2019, Ever-Glory Apparel had collateralized~~March 31, 2020, approximately ~~$2.3 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, 2019, approximately $0.2~~$2.5 million was unused and available under this line of credit.

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

~~Derivative Financial Instruments~~
~~Foreign currency swap contracts~~
During 2018, the Company had entered into four foreign currency swap contracts with three banks. Due to the increased demand of effective control on financial management for daily operations, Ever-Glory Apparel had entered into different foreign currency swap contracts to exchange $6.0 million for equivalent RMB with Bank of China in May, entered into a foreign currency swap contract to exchange $3.0 million for equivalent RMB with Industrial and Commercial Bank of China in June and entered into a foreign currency swap contract to exchange $6.0 million and $4.0 million for equivalent RMB with Shanghai Pudong Development Bank in July. The terms of three foreign currency contracts are both six months and the contract of $4.0 million with Shanghai Pudong Development Bank is three months. Ever-Glory Apparel and the banks swapped two currencies by same pre-determined exchange rate at the beginning and end of the contracts. During the period, the Company pays annual interest of 1.43% for the RMB received and receives 0 interest for the USD exchanged with the Bank of China and Industrial and Commercial Bank of China. The company pays annual interest of 0.98% for the RMB received and receives 0.0001% interest for the USD exchanged with Shanghai Pudong Development Bank. If the Company failed to execute the exchange at the expiration of contracts, the banks would sell the USD at the market rate then the difference in RMB will be converted into bank loan for the Company. As of December 31, 2018, the fair value of principal amounts are included in other receivable ($4.0 million plus unrealized gain) and other payables (equivalent RMB payables) in the consolidated balance sheets, and unrealized gain of $0.2 million for the year ended December 31, 2018 is recognized in the income from operations.
In September 2019, Ever-Glory Apparel entered into a 15-day foreign currency swap contract with Industrial and Commercial Bank of China. The Company agreed to exchanged $4.9 million for EUR on September 26 and then to re-exchange these currencies on the swap maturity date of October 8, 2019. As of September 30, 2019, the unrealized foreign currency exchange gain of the asset was not significant. The final realized gain is $4,102.88 in October 2019.

~~Forward foreign exchange contracts~~
To avoid foreign currency fluctuation on forecasted international sales and secure the profits on such revenues, the Company entered several forward foreign exchange contracts with banks from time to time. According to ASC 815-20-25, the Company designated above contracts as cash flow hedges. At December 31, 2018, the Company did not have any outstanding derivative contracts.DERIVATIVE LIABILITY

As of ~~September 30,~~March 31, 2020 and December 31, 2019, the Company had one outstanding forward foreign exchange contracts (sell USD dollars for RMB), with total notional amount of $8.0 million. The unrealized income of this contract at September 30, 2019 was not significant. there is no derivative liability.

Capital Commitments

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

Uses of Liquidity

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

Sources of Liquidity

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

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

As of ~~September 30, 2019,~~March 31, 2020, we had access to approximately ~~$51.9~~$49.3 million in lines of credit, of which approximately ~~$16.4~~$23.2 million was unused and available. These credit facilities do not include any covenants. We have agreed to provide Jiangsu Ever-Glory a counter-guarantee of not less than 70% of the maximum aggregate lines of credit and borrowings guaranteed by Jiangsu Ever-Glory and collateralized by the assets of Jiangsu Ever-Glory and its equity investee, Nanjing Knitting, under agreements executed between the Company, Jiangsu Ever-Glory, Nanjing Knitting, and the banks. The maximum aggregate lines of credit and available borrowings was approximately ~~$32.5~~$32.46 million (RMB 230.0 million) and approximately ~~$7.3~~$3.9 million (RMB ~~50.0~~27.5 million) was provided to Jiangsu Ever-Glory as the counter guarantee as of ~~September 30, 2019.~~March 31, 2020.

Foreign Currency Translation Risk

Our operations are, for the most part, located in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between the United States dollar and the Chinese RMB. Most of our sales are in dollars. During 2003 and 2004, the exchange rate of RMB to the dollar remained constant at RMB 8.26 to the dollar. On July 21, 2005, the Chinese government adjusted the exchange rate from RMB 8.26 to 8.09 to the dollar. From that time, the RMB continued to appreciate against the U.S. dollar. As of ~~September 30, 2019,~~March 31, 2020, the market foreign exchange rate had increased to RMB ~~6.87~~7.09 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, Haian Taixin, Ever-Glory Apparel, Taixin, He Meida, Huirui, Shanghai LA GO GO, Yalan, Shanghai Yiduo, Tianjin LA GO GO and Jiangsu LA GO GO~~subsidiaries located in China (whose functional currency is RMB) are translated into US dollars using the closing rate method. The balance sheet items are translated into US dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation (loss) gain ~~(loss)~~ for the ~~three and nine~~3 months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ was ($~~3.7) million, ($2.2) million, ($3.6)~~1.3) million and ~~($5.7)~~$4.0 million, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
~~ITEM 3.~~ ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 “Exchange Act”)  is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures for the period ended ~~September 30, 2019.~~March 31, 2020. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were operating effectively.

Changes in Internal Control Over Financial Reporting

Other than described above, during the ~~third~~first quarter of ~~2019,~~2020, 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.

PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

From time to time, we may become involved in claims, suits, investigations and proceedings arising in the ordinary course of business.

On March 2019, Shanghai La Go Go Fashion Company Limited (“LA GO GO”) filed a complaint against Shanghai Chijing Investment Management Co., Ltd. (“Shanghai Chijing”) for unpaid rent of RMB2.45 million ($0.36 million) in the Shanghai People’s Court (the “Court”). On July 2019, Shanghai Chijing filed a counterclaim against LA GO GO for RMB15.38 million ($2.17 million), alleging that LA GO GO had not fulfilled its corresponding obligations as a landlord. As a result, the Court has frozen the bank accounts of both Shanghai Chijing and LA GO GO. As of ~~September 30,~~December 31, 2019, a total balance of ~~RMB9.79~~RMB15.38 million ($~~1.4~~2.2 million) was frozen in the bank accounts of LA GO GO. LA GO GO believes that Shanghai Chijing’s counterclaim is frivolous and without merit, and ~~intends to~~is rigorously ~~defend~~defending against the counterclaim. As of ~~September 30,~~December 31, 2019, the company had booked this restricted cash in other receivables. On March 10, 2020, the Court entered a judgment in favor of LA GO GO and dismissed Shanghai Chijing’s counterclaim. LA GO GO believes that the damages awarded by the Court in favor of LA GO GO were insufficient. As of the date of this report, both LA GO GO and Shanghai Chijing have appealed the decision of the Court entered on March 10, 2020 and the date of the appeal hearing has not been determined yet.

ITEM 1A.RISK FACTORS

As of the date of this report and except as set forth below, there have been no material changes to the risk factors disclosed in our annual report on Form 10-K filed with the SEC on March ~~29, 2019.~~30, 2020.

~~Changes to United States tax, tariff and import/export regulations may have a negative effect on~~Unfavorable global economic conditions, including as a result of health and safety concerns, could adversely affect our business, financial ~~markets and our business.~~condition or results of operations.

The ~~current political climate has introduced greater uncertainty with respect to trade policies, tariffs and government regulations affecting trade between~~Company’s results of operations could be adversely affected by general conditions in the ~~U.S. and other countries, especially to trade between U.S. and China. Our products~~global economy, including conditions that are ~~sold to many countries including the U.S.  Major developments in tax policy or trade relations,~~outside of its control, such as the ~~disallowance~~impact of ~~tax deductions for imported products~~health and safety concerns from the outbreak of COVID-19. The outbreak in China has resulted in the reduction of customer traffic and temporary closures of shopping malls as mandated by the provincial governments in various provinces of China from late January to March, which has adversely affected the company is 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 ~~imposition~~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 ~~unilateral tariffs~~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 ~~imported~~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 ~~material adverse effect~~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 ~~results~~and the value of ~~operations~~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 ~~liquidity.~~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.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION
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 ~~September 30, 2019:~~March 31, 2020:

Equity Incentive Plan Information
Number of Securities to be issued upon exercise of outstanding options, warrants and rights Weighted-
average exercise price of outstanding options, warrants and rights Number of securities 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

ITEM 6. EXHIBITS~~EXHIBITS~~

The following exhibits are filed herewith:

Exhibit No. Description

3.1 Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-KSB, filed March 29, 2006);

3.2 Articles of Amendment as filed with the Department of State of Florida, effective November 20, 2007 (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K, filed November 29, 2007);

3.3 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of our Current Report Form 8-K filed on April 22, 2008);

31.1 Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~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.~~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.~~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.~~2002.

101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

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, 2019~~May 14, 2020 EVER-GLORY INTERNATIONAL GROUP, INC.

By: /s/ Edward Yihua Kang
Edward Yihua Kang
Chief Executive Officer
(Principal Executive Officer)

By: /s/ Jiansong Wang
Jiansong Wang
Chief Financial Officer
(Principal Financial and Accounting Officer)

3832

	Three months ended						Nine months ended
	September 30,						September 30,
	2019			2018			2019			2018
NET SALES	$	113,326		$	125,480		$	278,598		$	306,806
COST OF SALES		88,967			95,419			195,895			210,858

GROSS PROFIT		24,359			30,061			82,703			95,948

OPERATING EXPENSES
Selling expenses		17,944			17,588			58,651			62,405
General and administrative expenses		7,584			8,519			22,450			25,015
Total Operating Expenses		25,528			26,107			81,101			87,420

(LOSS)INCOME FROM OPERATIONS		(1,169	)		3,954			1,602			8,528

OTHER INCOME (EXPENSES)
Interest income		215			307			699			1,003
Interest expense		(265	)		(278	)		(1,036	)		(1,202	)
Other income		502			101			1,616			1,102
Total Other Income, Net		452			130			1,279			903

(LOSS) INCOME BEFORE INCOME TAX EXPENSE		(717	)		4,084			2,881			9,431
Income tax expense		(387	)		(908	)		(2,667	)		(2,949	)

NET (LOSS) INCOME		(1,104	)		3,176			214			6,482

Net loss attributable to the non-controlling interest		28			140			46			425
NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY		(1,076	)		3,316			260			6,907

NET (LOSS) INCOME	$	(1,104	)	$	3,176		$	214		$	6,482

Foreign currency translation (loss) gain		(3,729	)		(3,674	)		(2,244	)		(5,742	)
Unrealized loss of derivative contracts designated as cash flow hedge		-			(614	)		-			(1,083	)
COMPREHENSIVE (LOSS) INCOME		(4,833	)		(1,112	)		(2,030	)		(343	)

Comprehensive (loss) income attributable to the non-controlling interest		15			57			67			366
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY	$	(4,818	)	$	(1,055	)	$	(1,963	)	$	23

EARNINGS PER SHARE ATTRIBUTABLE TO THE COMPANY’S STOCKHOLDERS
Basic and diluted	$	(0.07	)	$	0.22		$	0.02		$	0.47
Weighted average number of shares outstanding Basic and diluted		14,801,770			14,798,198			14,801,770			14,796,527

	2020			2019

SALES	$	58,355		$	87,956

COST OF SALES		42,317			58,598

GROSS PROFIT		16,038			29,358

OPERATING EXPENSES
Selling expenses		13,478			21,008
General and administrative expenses		5,785			7,529
Total operating expenses		19,263			28,537

(LOSS) INCOME FROM OPERATIONS		(3,225	)		821

OTHER INCOME (EXPENSE)
Interest income		277			207
Interest expense		(341	)		(363	)
Other income (expense), net		818			(295	)
Total other income (expense), net		754			(451	)

(LOSS) INCOME BEFORE INCOME TAX		(2,471	)		370

INCOME TAX EXPENSE		(227	)		(825	)

NET LOSS		(2,698	)		(455	)
Net (income) loss attributable to the non-controlling interest		(3	)		(66	)
NET LOSS ATTRIBUTABLE TO THE COMPANY	$	(2,701	)	$	(521	)

NET LOSS	$	(2,698	)	$	(455	)
Foreign currency translation gain (loss)		(1,437	)		4,006
COMPREHENSIVE (LOSS) INCOME	$	(4,135	)	$	3,551

Comprehensive loss attributable to the noncontrolling interest		6			100

COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY	$	(4,129	)	$	3,651
EARNINGS (LOSS) PER SHARE:
Basic and diluted	$	(0.18	)	$	(0.04	)
Weighted average number of shares outstanding Basic and diluted		14,804,832			14,800,140

					Additional		Retained Earnings					Accumulated other			Amounts due from			Total equity attributable to stockholders			Non-
	Common Stock				paid-in					Statutory		Comprehensive			related			of the			controlling			Total
	Shares		Amount		capital		Unrestricted			reserve		income			party			Company			Interest			equity
Balance at January 1, 2019		14,798,198	$	15	$	3,627	$	105,914		$	19,083	$	(3,578	)	$	(10,354	)	$	114,707			(1,551	)	$	113,156

Stock issued for compensation		1,942		0.004		8		-			-		-			-			8						8
Net income (loss)		-		-		-		(521	)		-		-			-			(521	)		66			(455	)
Net cash received from related party under counter guarantee agreement		-		-		-		-			-		-			1,101			1,101			-			1,101
Foreign currency translation gain													3,972			-			3,972			34			4,006
Balance at March 31, 2019		14,800,140		15		3,635		105,393			19,083		394			(9,253	)		119,267			(1,451	)		117,816
Net income (loss)								1,856											1,856			(83	)		1,773
Net cash received from related party under counter guarantee agreement																1,390			1,390						1,390
Foreign currency translation loss													(2,487	)					(2,487	)		34			(2,453	)
Balance at June 30, 2019		14,800,140	$	15	$	3,635	$	107,249		$	19,083	$	(2,093	)	$	(7,863	)	$	120,026			(1,500	)	$	118,526
Stock issued for compensation		1,630		0.002		5													5						5

Net income (loss)								(1,076	)										(1,076	)		(28	)		(1,104	)
Net cash advanced to related party under counter guarantee agreement																1,215			1,215						1,215
Foreign currency translation loss													(3,729	)					(3,729	)		43			(3,686	)
Balance at September 30, 2019		14,801,770	$	15	$	3,640	$	106,173		$	19,083	$	(5,822	)	$	(6,648	)	$	116,441			(1,485	)	$	114,956

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

	Level 2	Quoted 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 3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(In thousands of U.S. Dollars)				(In thousands of U.S. Dollars)
Raw materials	$	995	$	6,805	$	1,137	$	1,468
Work-in-progress		13,542		3,308		10,081		8,025
Finished goods		50,751		55,816		40,934		57,862
Total inventories	$	65,288	$	65,929	$	52,152	$	67,355

	2020			2019
Weighted average number of common shares- Basic and diluted		14,804,832			14,800,140

Earnings (loss) per share - basic and diluted	$	(0.18	)	$	(0.04	)

	Three Months Ended September 30,				Nine Months Ended September 30,				2020		2019
	2019		2018		2019		2018		(In thousands of U.S. Dollars)
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam									$	1,884	$	2,579
Chuzhou Huarui	$	1,197	$	653	$	4,664	$	2,526		513		1,507
Fengyang Huarui		1,071		911		1,619		1,962		158		106
Nanjing Ever-Kyowa		342		392		1,097		1,067		254		347
Ever-Glory Vietnam		4,689		6,754		9,737		11,928
Nanjing Knitting		339		-		939		-
EsCeLav		28		10		129		31
EsC’eLav										10		88
Jiangsu Ever-Glory		345		664		815		685		246		425
	$	8,011	$	9,384	$	19,000	$	18,199
Total									$	3,065	$	5,052

	Wholesale segment		Retail segment			Total
	(In thousands of U.S. Dollars)
Nine months ended September 30, 2019
Segment profit or loss:
Net revenue from external customers	$	147,090		131,508			278,598
Income from operations	$	6,925		(5,323	)		1,602
Interest income	$	673		26			699
Interest expense	$	775		261			1,036
Depreciation and amortization	$	1,179		5,645			6,824
Income tax expense	$	1,617		1,050			2,667
Segment assets:
Additions to property, plant and equipment		1,069		5,486			6,555
Total assets		114,789		170,456			285,245

Nine months ended September 30, 2018
Segment profit or loss:
Net revenue from external customers	$	149,753		157,053			306,806
Income from operations	$	6,935		1,593			8,528
Interest income	$	968		35			1,003
Interest expense	$	976		226			1,202
Depreciation and amortization	$	834		5,689			6,523
Income tax expense	$	1,800		1,149			2,949
Segment assets:
Additions to property, plant and equipment		1,322		7,822			9,144
Total assets		121,951		150,334			272,285

Year ending December 31,(In thousands of U.S. Dollars)
2020		387
2021		387
2022		387
2023		401
2024		401
Thereafter		12,374
	$	14,337

	●	Expanding our global sourcing network;

	●	Expanding our overseas low-cost manufacturing base (outside of mainland China);

	●	Focusing on high value-added products and continuing our strategy to produce mid-to-high end apparel;

	●	Continuing to emphasize product design and technology utilization;

	●	Seeking strategic acquisitions of international distributors that could enhance global sales and our distribution network; and

	●	Maintaining stable revenue increase in the markets while shifting focus to higher margin wholesale markets such as mainland China.

	●	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

	●	Becoming a multi-brand operator.

	Three Months Ended September 30,
	2019					2018
	(In thousands of U.S. dollars, except for percentages)
Sales	$	113,326		100.0	%	$	125,480	100.0	%
Gross Profit	$	24,359		21.5	%	$	30,061	24.0	%
Operating Expense	$	25,528		22.5	%	$	26,107	20.8	%
Income From Operations	$	(1,169	)	(1.0	)%	$	3,954	3.2	%
Other Income (Expenses)	$	452		0.4	%	$	130	0.1	%
Income tax expense	$	387		0.3	%	$	908	0.7	%
Net Income	$	(1,104	)	(1.0	)%	$	3,176	2.5	%

	Three Months Ended March 31,
	2020					2019
	(In thousands of U.S. dollars, except for percentages)
Sales	$	58,355		100.0	%	$	87,956		100.0	%
Gross Profit		16,038		27.5			29,358		33.4
Operating Expenses		19,263		33.0			28,537		32.4
(Loss) Income From Operations		(3,225	)	(5.5	)		821		0.9
Other Income (Expenses)		754		1.3			(451	)	(0.5	)
Income Tax Expense		227		0.4			825		0.9
Net Loss	$	(2,698	)	(4.6	)%	$	(455	)	(0.5	)%

	2019		% of total sales			2018		% of total sales			Growth (Decrease) in 2019 compared with 2018			2020		% of total sales			2019		% of total sales			Growth in 2020 compared with 2019
Wholesale business	(In thousands of U.S. dollars)					(In thousands of U.S. dollars)								(In thousands of U.S. dollars)					(In thousands of U.S. dollars)
Mainland China	$	23,241		20.4	%	$	25,853		20.6	%		(10.1	)%	$	4,653		8.0	%	$	10,754		12.2	%		(56.7	)%
Hong Kong China		14,574		12.8			18,427		14.7			(20.9	)
Hong Kong															2,992		5.1			1,253		1.4			138.7
Germany		981		0.9			2,750		2.2			(64.3	)		195		0.3			850		1.0			(77.1	)
United Kingdom		10,555		9.3			8,254		6.6			27.9			837		1.4			800		0.9			4.7
Europe-Other		12,523		11.1			19,707		15.7			(36.5	)		3,898		6.7			5,229		5.9			(25.5	)
Japan		10,056		8.9			2,371		1.9			324.1			4,385		7.5			4,938		5.7			(11.2	)
United States		9,807		8.7			8,321		6.6			17.9			5,328		9.1			4,278		4.9			24.5
Total Wholesale business		81,737		72.1			85,683		68.3			(4.6	)		22,288		38.2			28,102		32.0			(20.7	)
Retail business		31,589		27.9			39,797		31.7			(20.6	)		36,067		61.8			59,854		68.0			(39.7	)
Total sales	$	113,326		100.0	%	$	125,480		100.0	%		(9.7	)%	$	58,355		100.0	%	$	87,956		100.0	%		(33.7	)%

	2020		2019
Total store square footage		1,088,007		1,340,174
Number of stores		1,038		1,315
Average store size, square feet		1,048		1,019
Total store sales (in thousands of U.S. dollars)	$	36,067	$	59,854
Sales per square foot	$	33	$	45

									Growth			Three Months Ended March 31,								Growth (Decrease) in 2020
									(Decrease) in 2019			2020				2019				compared
	Three months ended September 30,								Compared			(In thousands of U.S. dollars, except for percentages)								with 2019
	2019				2018				with 2018
	(In thousands of U.S. dollars, except for percentages)
Net Sales for Wholesale Sales	$	81,737	100.0	%	$	85,683	100.0	%		(4.6	)%
Wholesale Sales												$	22,288	100.0	%	$	28,102	100.0	%		(20.7	)%
Raw Materials		39,488	48.3			40,745	47.4			(3.1	)		10,090	45.3			11,308	40.2			(10.8	)
Labor		635	0.8			1,159	1.4			(45.2	)		245	1.1			307	1.1			(20.2	)
Outsourced Production Costs		31,176	38.1			33,401	39.0			(6.7	)		8,370	37.6			9,871	35.1			(15.2	)
Other and Overhead		181	0.2			138	0.2			31.4			86	0.4			58	0.3			46.4
Total Cost of Sales for Wholesale		71,480	87.4			75,443	88.0			(5.3	)		18,791	84.3			21,544	76.7			(12.8	)
Gross Profit for Wholesale		10,257	12.6			10,240	12.0			0.2			3,497	15.7			6,558	23.3			(46.7	)

Net Sales for Retail		31,589	100.0			39,797	100.0			(20.6	)		36,067	100.0			59,854	100.0			(39.7	)
Production Costs		12,765	40.4			11,677	29.3			9.3			15,847	43.9			24,203	40.4			(34.5	)
Rent		4,722	14.9			8,300	20.9			(43.1	)		7,679	21.3			12,851	21.5			(40.2	)
Total Cost of Sales for Retail		17,487	55.3			19,976	50.2			(12.5	)		23,526	65.2			37,054	61.9			(36.5	)
Gross Profit for Retail		14,102	44.7			19,821	49.8			(28.9	)		12,541	34.8			22,800	38.1			(45.0	)

Total Cost of Sales		88,967	78.5			95,420	76.0			(6.8	)		42,317	72.5			58,598	66.6			(27.8	)
Gross Profit	$	24,359	21.5	%	$	30,061	24.0	%		(19.0	)%	$	16,038	27.5	%	$	29,358	33.4	%		(45.4	)%

	Three Months Ended September 30,									Increase (Decrease) in 2019 Compared			Three Months Ended March 31,
	2019					2018				to 2018			2020					2019				Increase
	(In thousands of U.S. dollars, except for percentages)												(In thousands of U.S. dollars, except for percentages)
Gross Profit	$	24,359		21.5	%	$	30,061	25.0	%		(19.0	)%	$	16,038		27.5	%	$	29,358	33.4	%		(45.4	)%
Operating Expenses:
Operating Expenses
Selling Expenses		17,944		15.8			17,588	14.6			2.0			13,478		23.1			21,008	23.9			(35.8	)
General and Administrative Expenses		7,584		6.7			8,519	7.1			(11.0	)		5,785		9.9			7,529	8.6			(23.2	)
Total		25,528		22.5			26,107	21.7			(2.2	)
Income from Operations	$	(1,169	)	(1.0	)%	$	3,954	3.3	%		(129.6	)%
Total Operating Expenses														19,263		33.0			28,537	32.4			(32.5	)
(Loss)Income from Operations													$	(3,225	)	(5.5	)%	$	821	0.9	%		(493.0	)%

	Nine Months Ended September 30,
	2019				2018
	(In thousands of U.S. Dollars, except for percentages)
Sales	$	278,598	100.0	%	$	306,806	100.0	%
Gross Profit		82,703	29.7			95,948	31.3
Operating Expense		81,100	29.1			87,420	28.5
Income From Operations		1,602	0.6			8,528	2.8
Other Income		1,279	0.5			903	0.3
Income tax expense		2,667	1.0			2,949	1.0
Net Income	$	214	0.1	%	$	6,482	2.1	%

	Equity Incentive Plan Information
	Number of Securities to be issued upon exercise of outstanding options, warrants and rights		Weighted- average exercise price of outstanding options, warrants and rights		Number of securities 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

Exhibit No.		Description

3.1		Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-KSB, filed March 29, 2006);

3.2		Articles of Amendment as filed with the Department of State of Florida, effective November 20, 2007 (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K, filed November 29, 2007);

3.3		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of our Current Report Form 8-K filed on April 22, 2008);

31.1		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~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.~~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.~~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.~~2002.

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

~~November 13, 2019~~May 14, 2020	EVER-GLORY INTERNATIONAL GROUP, INC.

	By:	/s/ Edward Yihua Kang
		Edward Yihua Kang
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Jiansong Wang
		Jiansong Wang
		Chief Financial Officer
		(Principal Financial and Accounting Officer)