UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

FORM 10-Q☒

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

 

For the quarterly period ended June 30, 2020March 31, 2021

 

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

 

For the transition period from ____________ to ____________

 

Commission file number:  001-341240-28806

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 (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 August 13, 2020, 14,809,160May 8, 2021, 14,810,660 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 STATEMENTSii
   
PART I.  FINANCIAL INFORMATION 
   
Item 1.  Financial Statements1
   
Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 (unaudited)1
Condensed Consolidated Statements of Income (loss) and Comprehensive Income (loss) for the Three Months Ended March 31, 2021 and 2020 (unaudited)2
Condensed Consolidated Statements of Equity for The Three Months Ended March 31, 2021 and 2020 (unaudited)3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)4
Notes to the Condensed Consolidated Financial Statements (unaudited)5
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations1816
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk3327
   
Item 4.  Controls and Procedures3327
   
PART II.  OTHER INFORMATION28
   
Item 1.  Legal Proceedings3428
   
Item 1A.Risk Factors3428
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds3528
   
Item 3.  Defaults Upon Senior Securities3528
   
Item 4.  Mine Safety Disclosure35 28
   
Item 5.  Other Information3528
   
Item 6.  Exhibits3629
   
SIGNATURES3730

 

i

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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 (the “SEC”(’SEC’).

  

ii

ii

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.Financial Statements

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

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

AS OF JUNE 30, 2020 AND DECEMBER 31, 2019 (UNAUDITED)

 

 2020  2019  March 31,
2021		  December 31,
2020		 
ASSETS          
          
CURRENT ASSETS          
Cash and cash equivalents $59,238  $48,551  $78,056  $81,865 
Restrict cash  17,716   2,204 
Restricted cash  45,660   39,858 
Trading securities  825   -   3,036   1,792 
Accounts receivable, net  45,766   78,053   46,719   53,285 
Inventories  51,254   67,355   43,342   53,893 
Advances on inventory purchases  5,726   9,681   7,802   10,261 
Value added tax receivable  1,340   2,495   1,183   1,244 
Other receivables and prepaid expenses  4,328   5,293   5,956   5,479 
Amounts due from related parties  329   123   674   567 
Total Current Assets  186,522   213,755   232,428   248,244 
                
NONCURRENT ASSETS        
NON-CURRENT ASSETS        
Equity security investment  3,877   3,932 
Intangible assets, net  4,499   4,729   4,712   4,794 
Property and equipment, net  25,964   28,812   31,881   32,164 
Operating lease right-of-use assets  34,496   53,379   55,839   41,690 
Deferred tax assets  807   996   879   902 
Total Non-Current Assets  65,766   87,916   97,188   83,482 
TOTAL ASSETS $252,288  $301,671  $329,616  $331,726 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                
CURRENT LIABILITIES                
Bank loans $40,271  $29,931  $71,534  $65,919 
Accounts payable  51,169   72,418   52,083   67,762 
Accounts payable and other payables – related parties  4,050   4,811   2,829   3,764 
Other payables and accrued liabilities  10,118   19,137   13,522   16,073 
Value added and other taxes payable  -   1,657   684   909 
Income tax payable  222   1,142   704   1,062 
Current operating lease liabilities  26,309   44,888   47,327   33,481 
Total Current Liabilities  132,139   173,984   188,683   188,970 
                
NONCURRENT LIABILITIES        
NON-CURRENT LIABILITIES        
Non-current operating lease liabilities  8,256   8,537   8,622   8,307 
TOTAL LIABILITIES  140,395   182,521   197,305   197,277 
                
COMMITMENTS AND CONTINGENCIES (Note 8)        
COMMITMENTS AND CONTINGENCIES (Note 9)        
                
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, 14,804,832 and 14,801,770 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively)  15   15 
Common stock ($0.001 par value, authorized 50,000,000 shares, 14,810,660 and 14,809,160 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively)  15   15 
Additional paid-in capital  3,645   3,640   3,655   3,650 
Retained earnings  99,833   106,328   108,001   109,171 
Statutory reserve  19,939   19,939   20,376   20,376 
Accumulated other comprehensive (loss)  (6,031)  (4,330)
Accumulated other comprehensive income  3,238   4,590 
Amounts due from related party  (3,996)  (4,932)  (2,974)  (3,353)
Total equity attributable to stockholders of the Company  113,405   120,660 
Noncontrolling interest  (1,512)  (1,510)
Total Equity  111,893   119,150 
Total equity  132,311   134,449 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $252,288  $301,671  $329,616  $331,726 

 

See the accompanying notes to the condensed consolidated financial statements.

  

 1 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES CONDENSED

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

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (UNAUDITED)

 

  Three months ended  Six months ended 
  June 30,  June 30, 
  2020  2019  2020  2019 
NET SALES $50,086  $77,316  $108,441  $165,272 
COST OF SALES  35,641   48,330   77,958   106,928 
                 
GROSS PROFIT  14,445   28,986   30,483   58,344 
                 
OPERATING EXPENSES                
Selling expenses  12,626   19,699   26,105   40,706 
General and administrative expenses  5,971   7,337   11,755   14,867 
Total Operating Expenses  18,597   27,036   37,860   55,573 
                 
(LOSS) INCOME FROM OPERATIONS  (4,152)  1,950   (7,377)  2,771 
                 
OTHER INCOME (EXPENSES)                
Interest income  339   277   616   484 
Interest expense  (566)  (408)  (907)  (771)
Other income  845   1,409   1,663   1,114 
Total Other Income, Net  618   1,278   1,372   827 
                 
(LOSS) INCOME BEFORE INCOME TAX EXPENSE  (3,534)  3,228   (6,005)  3,598 
Income tax expense  (266)  (1,455)  (493)  (2,280)
                 
NET (LOSS) INCOME  (3,800)  1,773   (6,498)  1,318 
                 
Non-controlling interest  6   83   3   17 
NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY  (3,794)  1,856   (6,495)  1,335 
                 
NET (LOSS) INCOME $(3,800) $1,773  $(6,498) $1,318 
                 
Foreign currency translation (loss) gain  (263)  (2,453)  (1,700)  1,553 
COMPREHENSIVE (LOSS) INCOME  (4,063)  (680)  (8,198)  2,871 
                 
Comprehensive loss (income) attributable to the non-controlling interest  8   49   2   (51)
COMPREHENSIVE (LOSS) INCOME  ATTRIBUTABLE TO THE COMPANY $(4,055) $(631) $(8,196) $2,820 
                 
(LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO THE COMPANY’S STOCKHOLDERS                
Basic and diluted $(0.26) $0.13  $(0.44) $0.09 
Weighted average number of shares outstanding Basic and diluted  14,804,832   14,800,140   14,804,595   14,800,140 
  Three Months Ended 
  March 31,
2021		  March 31,
2020		 
       
SALES $70,814  $58,355 
         
COST OF SALES  48,379   42,317 
         
GROSS PROFIT  22,435   16,038 
         
OPERATING EXPENSES        
Selling expenses  15,548   13,478 
General and administrative expenses  7,851   5,785 
Total operating expenses  23,399   19,263 
   　     　   
LOSS FROM OPERATIONS  (964)  (3,225)
         
OTHER INCOME (EXPENSE)        
Interest income  224   277 
Interest expense  (492)  (341)
Government subsidy  259   460 
Other income (expense), net  532   358 
Total other income (expense), net  523   754 
         
LOSS BEFORE INCOME TAX  (441)  (2,471)
         
INCOME TAX EXPENSE  (729)  (227)
         
NET LOSS  (1,170)  (2,698)
Net income attributable to the non-controlling interest  -   (3)
NET LOSS ATTRIBUTABLE TO THE COMPANY $(1,170) $(2,701)
         
NET LOSS $(1,170) $(2,698)
Foreign currency translation loss  (1,352)  (1,437)
COMPREHENSIVE LOSS $(2,522) $(4,135)
         
Comprehensive loss attributable to the non-controlling interest  -   6 
         
COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY $(2,522) $(4,129)
LOSS PER SHARE:        
Basic and diluted $(0.08) $(0.18)
Weighted average number of shares outstanding Basic and diluted  14,810,001   14,804,832 

 

See the accompanying notes to the condensed consolidated financial statements.

  

 2 

 

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

FOR THE THREE MONTHS ENDED March 31, 2021 AND 2020 (Unaudited)

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

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (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  loss  party  Company  Interest  equity 
Balance at January  1, 2020  14,801,770  $15  $3,640  $106,328  $19,939  $(4,330) $(4,932) $120,660   (1,510) $119,150 
                                         
Stock issued for compensation  3,062   0.003   5   -   -   -   -   5       5 
Net income (loss)  -   -   -   (2,701)  -   -   -   (2,701)  3   (2,698)
Net cash received from related party under counter guarantee agreement  -   -   -   -   -   -   785   785   -   785 
Foreign currency translation gain (loss)                      (1,440)  -   (1,440)  3   (1,437)
Balance at March 31, 2020  14,804,832   15   3,645   103,627   19,939   (5,770)  (4,147)  117,309   (1,504)  115,805 
Net (loss)              (3,794)              (3,794)  (6)  (3,800)
Net cash received from related party under counter guarantee agreement                          151   151       151 
Foreign currency translation loss                      (261)      (261)  (2)  (263)
Balance at June 30, 2020  14,804,832  $15  $3,645  $99,833  $19,939  $(6,031) $(3,996) $113,405   (1,512) $111,893 
     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 (loss)  party  Company  Interest  equity 
Balance at January 1, 2021  14,809,160  $15  $3,650  $109,171  $20,376  $4,590  $(3,353) $134,449  $-  $134,449 
                                         
Stock-based compensation  1,500   -   5   -   -   -   -   5   -   5 
Net loss  -   -   -   (1,170)  -   -   -   (1,170)  -   (1,170)
Net cash received from related party under counter guarantee agreement  -   -   -   -   -   -   379   379   -   379 
Foreign currency translation loss  -   -   -   -   -   (1,352)  -   (1,352)  -   (1,352)
Balance at March 31, 2021  14,810,660  $15  $3,655  $108,001  $20,376  $3,238  $(2,974) $132,311   -  $132,311 

 

     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) 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 
     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 (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   -   5   -   -   -   -   5   -   5 
Net income (loss)  -   -   -   (2,701)  -   -   -   (2,701)  3   (2,698)
Net cash received from 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 

 

See the accompanying notes to the condensed consolidated financial statements.

 

 3 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

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

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (UNAUDITED)

 Three Months Ended 
 2020  2019  March 31,
2021		  March 31,
2020		 
CASH FLOWS FROM OPERATING ACTIVITIES             
Net (loss) income $(6,498) $1,318 
Adjustments to reconcile net income to cash provided by operating activities:  　   　 
Net loss $(1,170) $(2,698)
Adjustments to reconcile net loss to cash provided by operating activities:  　   　 
Depreciation and amortization  3,597   4,491   1,377   1,587 
Gain on disposal of intangible assets  -   (268)
Loss from sale of property and equipment  189   53   102   102 
Provision of bad debt allowance  969   682 
(Recovering from) Provision of bad debt allowance  (196)  278 
Provision for obsolete inventories  3,681   1,824   3,583   4,204 
Changes in fair value of trading securities  (262)  - 
Changes in fair value of investment  28   - 
Deferred income tax  71   (1,461)  17   104 
Stock-based compensation  3   8   5   5 
Changes in operating assets and liabilities                
Accounts receivable  30,444   21,793   6,509   34,906 
Inventories  11,659   1,145   6,805   10,303 
Value added tax receivable  1,076   504   52   210 
Other receivables and prepaid expenses  737   3,502   (367)  364 
Advances on inventory purchases  3,845   (2,353)  2,544   2,855 
Amounts due from related parties  (214)  (129)  (71)  142 
Accounts payable  (22,522)  (25,954)  (14,690)  (19,864)
Accounts payable and other payables- related parties  (466)  58   (769)  (1,038)
Other payables and accrued liabilities  (7,027)  (10,789)  (3,221)  (5,587)
Value added and other taxes payable  (1,593)  (4,684)  (220)  (31)
Income tax payable  (910)  207   (358)  (1,019)
Net cash provided (used in) operating activities  17,041   (9,785)
Net cash (used in) provided by operating activities  (302)  24,555 
                
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchases of property and equipment  (1,018)  (4,082)  (1,378)  (78)
Disposal of intangible assets  -   353 
Purchases of trading securities  (825)  -   (1,238)  - 
Net cash used in investing activities  (1,843)  (4,082)
Proceeds from trading securities  255   - 
Net cash (used in) provided by investing activities  (2,361)  275 
                
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from bank loans  31,995   16,320   12,336   11,464 
Repayment of bank loans  (21,173)  (19,904)  (6,168)  (14,884)
Repayment of loans from related party  4,027   8,149 
Advances to related party  (3,129)  (5,454)
Net cash provided (used in) financing activities  11,720   (889)
Net collection (advance) of amounts due from related party (equity)  148   748 
Net cash provided by (used in) financing activities  6,316   (2,672)
                
EFFECT OF EXCHANGE RATE CHANGES ON CASH  (721)  2,270   (1,659)  1,497 
  　   　   　   　 
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH  26,197   (12,486)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH  1,993   23,655 
  　   　   　   　 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD  50,755   47,012   121,723   48,551 
  　   　   　   　 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $76,952  $34,526  $123,716  $72,206 
                
Reconciliation of cash, cash equivalents and restricted cash reported within their consolidated balance sheets:                
                
Cash and Cash Equivalents  59,236   47,012   78,056   70,036 
Restricted cash  17,716   -   45,660   2,170 
 $76,952  $47,012  $123,716  $72,206 
                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
        
Cash paid during the period for:                
Interest $907  $771  $492  $341 
Income taxes $493  $2,436  $729  $1,218 

 

See the accompanying notes to the condensed consolidated financial statements.

 4 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2021 AND 2020 AND 2019

(UNAUDITED)

 

NOTE 1 Nature of Operations and Basis of PresentationBASIS OF PRESENTATION

 

Ever-Glory International Group, Inc. (the “Company” or “We” or “Ours”), together with its subsidiaries, is an apparel manufacturer, supplier and retailer in The People’s Republic of China (“China”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 TradingRui Lian Technology Company Limited (“Tai Xin”Nanjing Rui Lian”), and the Company’s wholly-owned Samoa subsidiary, Ever-Glory International Group (HK) Ltd. (“Ever-Glory HK”) and the Company’s wholly-owned Hong Kong subsidiary,Ever-Glory Supply Chain Service Co., Limited (“Ever-Glory Supply Chain”).  The Company’s retail operations are provided through its wholly- owned subsidiaries, Shanghai LA GO GO Fashion Company Limited (“Shanghai LA GO GO”), Jiangsu LA GO GO Fashion Company Limited (“Jiangsu LA GO GO”), Tianjin LA GO GO Fashion Company Limited (“Tianjin LA GO GO”), Shanghai Ya Lan Fashion Company Limited (“Ya Lan”), Shanghai Yiduo Fashion Company Limited (“Shanghai Yiduo”) and Xizang He Meida Trading Company Limited (“He Meida”), and Nanjing Tai Xin Garments Trading Company Limited (“Tai Xin”).

 

In March 2020, the Company incorporated Nanjing Rui Lian TechnologyShanghai Yiduo Fashion Company Limited, (“Nanjing Rui Lian”)the only then subsidiary with non-controlling interests, was deconsolidated from the financial statements as of December 31, 2020 as a result of bankruptcy liquidation.

He Meida was closed in April 2021, which is not a strategic shift and it isdoes not have major effect on the Company’s wholly-owned PRC subsidiaries. Nanjing Rui Lian is engaged in the business of garments trading.operations or financial results.

 

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 June 30, 2020March 31, 2021 the condensed consolidated statements of income (loss) and comprehensive income (loss), condensed consolidated statements of equity, and condensed consolidated statements of cash flows for the three and six months ended June 30, 2020March 31, 2021 and 2019.2020. 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 the SEC.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 sixthree months ended June 30, 2020March 31, 2021 are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. 

  

 5 

 

 

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company'sCompany’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on March 30, (“2020 (“2019 Form 10-K.”)

Fair Value Accounting

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

Level 1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

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 June 30, 2020 and 2019, the Company’s financial assets (all Level 1) consist of cash placed with financial institutions and trading securities that management considers to be of a high quality.

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.

As of June 30, 2020, the Company’s financial assets (all Level 1) consist of cash placed with financial institutions and trading securities (nil at December 31, 2019) with brokerage accounts that management considers to be high quality.

6

Foreign Currency Translation and Other Comprehensive Income

The reporting currency of the Company is the U.S. dollar. The functional currency of Ever-Glory, Perfect Dream, 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, 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.

  

Use of Estimates

 

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

 

Recently Issued Accounting Pronouncements

 

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

 

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

 

ReclassificationNOTE 3 INVESTMENTS

 

Certain amountsTrading securities

Investments in equity securities of certain US public companies are accounted for as trading securities and measured subsequently at fair value in the prior period presented have been reclassified to conform toconsolidated balance sheets. Net gains and losses recognized during the current year presentation. There was no impact on previously reported assets, net income or total cash flows.three months periods are summarized as follows (In thousands of U.S. Dollars).

   

NOTE 3 INVENTORIES

  March 31,
2021		  March 31,
2020		 
  (In thousands of
U.S. Dollars)		 
Net gains recognized during the period on equity securities $262  $   - 
Less: Net gains recognized during the period on equity securities sold during the period  54   - 
Unrealized gains recognized during the reporting period on equity securities still held at the reporting date $208  $- 

 

Inventories at June 30, 2020 and December 31, 2019 consisted of the following:

  June 30,
2020		  December 31,
2019		 
  (In thousands of
U.S. Dollars)		 
Raw materials $1,451  $1,468 
Work-in-progress  9,954   8,025 
Finished goods  39,849   57,862 
Total inventories $51,254  $67,355 

 76 

 

Equity security investment

 

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

In December 2020, the Partnership invested in a public company in China. Since there is readily determinable fair value of the equity investment, the Company started to measure its equity investment at fair value using the public company’s stock price and the Company’s shares since December 31, 2020. At each reporting period, the Company makes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. There is no significant adverse change in the regulatory, economic, or technological environment of the investee. So the investment was not impaired at March 31, 2021.

NOTE 4 INVENTORIES

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

  March 31,
2021		  December 31,
2020		 
  (In thousands of
U.S. Dollars)		 
Raw materials $1,029  $1,297 
Work-in-progress  11,211   8,130 
Finished goods  31,102   44,466 
Total inventories $43,342  $53,893 

NOTE 5 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 June 30, 2020March 31, 2021 and December 31, 2019.2020.

 

 June 30,
2020		  December 31,
2019		  March 31,
2021		  December 31,
2020		 
Bank (In thousands of
U.S. Dollars)		  (In thousands of
U.S. Dollars)		 
Shanghai Pudong Development Bank $47,943  $42,157 
Industrial and Commercial Bank of China $19,782  $18,629   21,308   21,462 
Shanghai Pudong Development Bank  15,543   - 
China Minsheng Bank  2,826   2,866 
Bank of China  2,120   - 
Nanjing Bank  -   6,449   2,283   2,300 
Bank of Communications  -   1,426 
HSBC  -   561 
 $40,271  $29,931  $71,534  $65,919 

 

In AprilAugust 2020, Ever-Glory Apparel entered into a line of credit agreement for approximately $4.2$3.0 million (RMB20.0 million) with the Shanghai Pudong Development Bank and guaranteed by Goldenway. As of March 31, 2021, Ever-Glory Apparel had borrowed $2.3 million (RMB 15.0 million) under this line of credit with annual interest 3.01% and due on September 2021. As of March 31, 2021, approximately $0.7 million was unused and available under this line of credit.

7

From March 2020 to July 2020, Ever-Glory Apparel entered into a certificate of three-year time deposit of $29.0 million (RMB190.0 million) with the Shanghai Pudong Development Bank with annual interest rates ranging from 3.75% to 3.99%. From July to November 2020, Ever-Glory Apparel pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank and Ever-Glory Apparel had borrowed $29.0 million (RMB 190.0 million) under this line of certificate with an annual interest rate from 2.50% to 3.10% and due on between May 2021 and October 2021.

In December 2020, Goldenway entered into a certificate of three-year time deposit of $16.7 million (RMB110.0 million) with the Shanghai Pudong Development Bank with an annual interest rate of 3.85%. From November 2020 to February 2021, Goldenway pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank and Goldenway had borrowed $16.7 million (RMB 110.0 million) under this line of certificate with annual interest rate of 2.90% and 3.4%, due between May 2021 and February 2022.

In April 2020, Goldenway entered into a line of credit agreement with Industrial and Commercial Bank of China, which allows the Company to borrow up to approximately $6.1 million (RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of March 31, 2021, Goldenway had borrowed $6.1 million (RMB40.0 million) from Industrial and Commercial Bank of China with an annual interest rate 4.57% and due in August 2021.

In July 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $15.2 million (RMB100.0 million) with Industrial and Commercial Bank of China, which is collateralized by assets of Nanjing Knitting, an equity investee of Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), under a collateral agreement executed among Ever-Glory Apparel, Nanjing Knitting and the bank. As of March 31, 2021, Ever-Glory Apparel had borrowed $15.2 million (RMB 100.0 million) under this line of credit with annual interest rates ranging from 3.95% to 4.35% and due between May 2021 to March 2022.

In April 2020, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $6.9 million (RMB45.0 million). These loans are guaranteed by Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer. These loans are also collateralized by the Company’s property and equipment. As of March 31, 2021, approximately $6.9 million was unused and available under this line of credit.

In June 2020, LA GO GO entered into a revolving line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $3.0 million (RMB20.0 million). The line of credit is guaranteed by Mr. Kang and Goldenway. As of March 31, 2021, LA GO GO had borrowed $2.3 million (RMB 15.0 million) under this line of credit with annual interest 4.55% and due in September 2021. As of March 31, 2021, approximately $0.7 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 $9.1 million (RMB60.0 million) with Nanjing Bank and guaranteed by Jiangsu Ever-Glory, Mr. Kang and Goldenway. As of March 31, 2021, approximately $9.1 million was unused and available under this line of credit.

In March 2021, Ever-Glory Apparel entered into a line of credit agreement for approximately $4.6 million (RMB30.0 million) with Bank of China and guaranteed by Jiangsu Ever-Glory. These loans are also collateralized by assets of Jiangsu Ever-Glory’s equity investee, Chuzhou Huarui, under a collateral agreement executed by Ever-Glory Apparel, Chuzhou Huarui and Bank of China. As of June 30, 2020, Ever-Glory Apparel had borrowed $2.1 million (RMB 15.0 million) under this line of credit with an annual interest rate of 4.57% and due on September 2020. As of June 30, 2020,March 31, 2021, approximately $2.1 million was unused and available under this line of credit.

In December 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 $5.7 million (RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of June 30, 2020, Goldenway had borrowed $5.7 million (RMB40.0 million) from Industrial and Commercial Bank of China with an annual interest rate 4.57% and due on 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 June 30, 2020, Ever-Glory Apparel had borrowed $14.1 million (RMB 100.0 million) under this line of credit with annual interest rates ranging from 3.92% to 4.35% and due on from September 2020 to May 2021.

In September 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $5.7 million (RMB40.0 million) with the Shanghai Pudong Development Bank and guaranteed by Goldenway. As of June 30, 2020, approximately $5.7 million was unused and available under this line of credit. In March 2020, Ever-Glory Apparel entered into a certificate of three-year time deposit of $15.5 million (RMB110.0 million) with the Shanghai Pudong Development Bank with annual interest rates ranging from 3.85% to 3.99%. In April 2020, Ever-Glory Apparel pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank and Ever-Glory Apparel had borrowed $15.5 million (RMB 110.0 million) under this line of certificate with an annual interest rate of 2.02% and due on July 2020. On July 2020, Ever-Glory Apparel repaid the loan and borrowed $11.3 million (RMB 80.0 million) under this line of certificate with an annual interest rate of 2.50% and due on July 2021.

In October 2019, 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 June 30, 2020, LA GO GO had borrowed $2.8 million (RMB20.0 million) from China Minsheng Bank with an annual interest rate of 5.0% and due in November 2020.  

8

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 June 30, 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 June 30, 2020, approximately $8.5 million was unused and available under this line of credit.

In 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 June 30, 2020, approximately $2.8 million was unused and available under this line of credit.

In September 2019, LA GO GO entered into a line of credit agreement for approximately $2.8 million (RMB20.0 million) with the Bank of Communications and guaranteed by Jiangsu Ever-Glory, Ever-Glory Apparel and Jiangsu LAGOGO. As of June 30, 2020, approximately $2.8 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 June 30, 2020, approximately $2.5$4.6 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 $0.9$0.5 million and $0.8 million for the six months ended June 30, 2020 and 2019, respectively, and $0.6 million and $0.4$0.3 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively.

 

NOTE 56 INCOME TAX

 

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

 

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

 

8

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

 

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

 

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

 

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

 

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

 

9

After the tax liability adjustment resulted from the reevaluation of the Company’s tax position (resulting in the company allocating substantially all of the earnings of the Samoan subsidiary to the PRC and reporting such earnings as taxable in the PRC), pre-tax (loss) incomeloss for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 was taxable in the following jurisdictions:

 

 Three months ended Six months ended 
 June 30,  June 30, 
 2020  2019  2020  2019  2021  2020 
 (In thousands of U.S. Dollars)  (In thousands of
U.S. Dollars)		 
PRC $(3,531) $3,228  $(6,000) $3,605  $(438) $(1,748)
BVI  -   (720)
Others  (3)  -   (5)  (7)  (3)  (3)
 $(3,534) $3,228  $(6,005) $3,598  $(441) $(2,471)

 

The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the three and six months ended June 30, 2020March 31, 2021 and 2019:2020:

 

 Three months ended Six months ended 
 June 30,  June 30, 
 2020  2019  2020  2019  2021  2020 
PRC statutory rate  25.0%  25.0%  25.0%  25.0%  25.0%  25.0%
Temporary difference between US GAAP and PRC tax accounting  (32.5)  20.1   (33.2)  38.4   (190.7)  (34.2)
Effective income tax rate  (7.5)%  45.1%  (8.2)%  63.4%  (165.7)%  (9.2)%

 

Income tax expense for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 is as follows:

 

 Three months ended Six months ended 
 June 30,  June 30,  2021  2020 
 2020  2019  2020  2019  (In thousands of
U.S. Dollars)		 
Current $195  $1,785  $304  $1,990  $706  $345 
Deferred  71   (330)  189   290   23   (118)
Income tax expense $266  $1,455  $493  $2,280  $729  $227 

 

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. 

 

9

The Company has not recorded U.S. deferred income taxes on approximately $99.9$110.2 million of its non-U.S. subsidiaries’ undistributed earnings because such amounts are intended to be reinvested outside the United States indefinitely. OnThe U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. enactedInternal Revenue Code by, among other things, reducing the “Tax Cuts and Jobs Act” (“statutory U.S. Tax Reform”) which made significant changes to corporate income tax law. One significant change was to decrease the generalfederal corporate income tax rate from 34%35% 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 for taxable years beginning after December 31, 2017; limiting and/or eliminating many business income earned by its subsidiaries outside ofdeductions; migrating the U.S. will no longer to taxable to the Company under U.S.a territorial tax law. The Company would be liable for paymentsystem with a one-time transition tax on a mandatory deemed repatriation of income tax, or reduction of the net operating loss carryover, at a reduced rate for any accumulatedpreviously deferred foreign earnings and profits of its non-U.S. subsidiaries at December 31, 2017. U.S. Tax Reform includes provisions for Global Intangible Low-Taxed Income (“GILTI”) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiariessubsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for Base Erosion and Anti-Abuse Tax (“BEAT”) under whichnew taxes are imposed on certain base eroding payments to affiliated foreign 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.earnings. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, there is no deferred tax expense (income) relating to the Tax Act changedchanges for the three and six monthsyear ended June 30, 2020.March 31, 2021.

10

 

NOTE 67 STOCKHOLDERS’ EQUITY

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 $3.80 per share, which was the average market price of the common stock for the five days before the grant date.

 

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

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

 

NOTE 78 RELATED PARTY TRANSACTIONS

 

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

  

Other income from Related Parties

 

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

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

Included in other income for the years ended March 31, 2021 and 2020 is rental income from EsC’Lav, the entity controlled by Mr. Kang under operating lease agreement with term through 2021. The rental income is $6,366 and $5,916 for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, the Company received $5,504, $8,021, $14,176 and $45,655 from the customers and paid $5,504, $8,021, $13,248 and $39,086 to Wubijia through the consignment, respectively. The net income of $0, $0, $928 and $6,570 was recorded as other income (expenses) during the three and six months ended June 30, 2020 and 2019, respectively.  

   

10

Other expenses due to Related Parties

 

Included in other expenses for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows:

  

  Three months ended  Six months ended 
  June 30,  June 30, 
  2020  2019  2020  2019 
  (In thousands of U.S. Dollars) 
Chuzhou Huarui  52   35   102   88 
Kunshan Enjin  21   22   43   44 
Total $73  $57  $145  $132 

11

  2021  2020 
  (In thousands of
U.S. Dollars)		 
Chuzhou Huarui  55   50 
Kunshan Enjin  23   22 
Total $78  $72 

 

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

  

Purchases from and Sub-contracts with Related Parties

 

The Company purchased raw materials from Nanjing Knitting totaling $0 million, $0 million, $0.4totaled $0.2 million and $0.6$0.1 million during the three and six months ended June 30,March 31, 2021 and 2020, and 2019, respectively.

 

In addition, sub-contractsthe Company sub-contracted certain manufacturing work to related companies totaled $4.7 million and $3.1 million for the three months ended March 31, 2021 and 2020, respectively. The Company provided raw materials to the sub-contractors and charged a fixed fee for labor provided by the sub-contractors.

Sub-contracts with related parties included in cost of sales for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 are as follows:

  

 Three Months Ended
June 30,		  Six Months Ended
June 30,		  2021  2020 
 2020  2019  2020  2019  (In thousands of
U.S. Dollars)		 
 (In thousands of U.S. Dollars) 
Ever-Glory Vietnam $3,083  $1,884 
Chuzhou Huarui $477  $1,960  $990  $3,467   491   513 
Fengyang Huarui  242   442   400   548   319   158 
Nanjing Ever-Kyowa  188   408   442   755   391   254 
Ever-Glory Vietnam  3,595   2,469   5,479   5,048 
Nanjing Knitting  487   600   487   600 
EsCeLav  14   13   24   101 
EsC’eLav  6   10 
Jiangsu Ever-Glory  381   45   627   470   457   246 
 $5,384  $5,937  $8,449  $10,989 
Total $4,747  $3,065 

   

Accounts Payable – Related Parties

 

The accounts payable to related parties at June 30, 2020March 31, 2021 and December 31, 20192020 are as follows:

 

 2020  2019  2021  2020 
 (In thousands of
U.S. Dollars)		  (In thousands of
U.S. Dollars)		 
Ever-Glory Vietnam $1,993   2,260  $2,211   1,727 
Fengyang Huarui  140   414   2   150 
Nanjing Ever-Kyowa  317   386   -   384 
Chuzhou Huarui  1,341   1,064   215   1,234 
Nanjing Knitting  254   186   228   257 
Jiangsu Ever-Glory  5   501   173   12 
Total $4,050  $4,811  $2,829  $3,764 

 

11

Amounts Due From Related Parties-current assets

 

The amounts due from related parties at June 30, 2020March 31, 2021 and December 31, 20192020 are as follows:

 

 2020  2019  2021  2020 
 (In thousands of
U.S. Dollars)		  (In thousands of
U.S. Dollars)		 
Jiangsu Ever-Glory  329   123  $660  $567 
Esc’elav  14   - 
Total $329  $123  $674  $567 

 

Jiangsu Ever-Glory is an entity engaged in importing/exporting, apparel-manufacture, real-estate development, car sales and other activities. Jiangsu Ever-Glory is controlled by Mr. Kang. During three and six months ended June 30,March 31, 2021 and 2020, and 2019, 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 $0.4 million, $0.6 million, $0for $1.8 million and $0$0.2 million during the three and six monthsmonth period ended June 30,March 31, 2021 and 2020, and 2019, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at a cost of $0.4 million, $1.1 million, $0.1for $0.5 million and $0.1$0.7 million during the three and six months ended June 30,March 31, 2021 and 2020, and 2019, respectively.

12

   

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 June 30, 2020March 31, 2021 and December 31, 2019,2020, Jiangsu Ever-Glory has provided guarantees for approximately $37.3$35.8 million (RMB 260235 million) and $33.0$36 million (RMB 230235.0 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 $29.2$31.3 million (RMB 205.5 million) and $29.4$31.5 million (RMB 205.5 million) as of June 30, 2020March 31, 2021 and December 31, 2019,2020 respectively. Mr. Kang has also provided a personal guarantee for $14.3$12.2 million (RMB 100.080.0 million) and $14.5$14.8 million (RMB 100.096.3 million) as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.

 

At December 31, 2019, $4.72020, $3.1 million (RMB 32.820.0 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the sixthree months ended June 30, 2020,March 31, 2021, an additional $3.1$0.2 million (RMB 22.01.2 million) was provided to and $4.0repayment of $0.3 million (RMB 28.32.2 million) was received from Jiangsu Ever-Glory under the counter-guarantee. As of June 30, 2020,March 31, 2021, the amount of the counter-guarantee was $3.7$2.9 million (RMB 26.419.1 million) (the difference represents currency exchange adjustment of $0.1$0.02 million), which was 10.2%8.11% of the aggregate amount of lines of credit. Obtaining bank loan requires a higher guarantee deposit in this quarter. This amount plus accrued interest of $0.3$0.07 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At June 30, 2020March 31, 2021 and December 31, 2019,2020, the amount classified as a reduction of equity was $4.0$3.0 million and $5.0$3.4 million, respectively. Interest of 0.5% iswas charged on net amounts due from Jiangsu Ever-Glory at each month end. Since January 1, 2019, interest rate has changed to 0.3625% charged at each month end as the bank benchmark interest rate decreased. Interest income for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 was approximately $0.01 million, $0.03 million, $0.1 million$0.3 thousands and $0.2$0.02 million, respectively.

 

NOTE 89 COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitment

 

The Company recognized operating lease liabilities and operating lease right-of-use (ROU) assets on its balance sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The companyCompany 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.

 

12

The weighted average remaining lease term excluding stores in the shopping malls is 3130 years and the weighted average discount rate is 4.35%. The lease term for shopping mall stores is commonly one year with options to extend or renew, and the rent is predetermined with a percentage of sales. The Company estimates the next 12 months rent for the shopping mall stores by annualizing current period rent calculated with the percentage of sales. Thus, the ROU assets and lease liabilities may vary significantly at different period ends. For stores closed before the lease end, we would incur insignificant amounts in net of loss on impairment of ROU assets and gain on extinguishment of lease liabilities, which are recorded in the current period statement of income (loss) and comprehensive income (loss). 

 

In the sixthree months ended June 30,March 31, 2021, the costs of the leases recognized in cost of revenues and general administrative expenses are $9.9 million and $0.1 million, respectively. Cash paid for the operating leases including in the operating cash flows was $10.0 million. In the three months ended March 31, 2020, the costs of the leases recognized in cost of revenues and general administrative expenses are $4.6$6.0 million and $0.2 million, respectively. Cash paid for the operating leases including in the operating cash flows was $4.8$6.2 million.

 

The following table summarizes the maturity of operating lease liabilities:

Year ending December 31, (In thousands of U.S. Dollars)   
2021 $563 
2022  751 
2023  766 
2024  432 
2025  432 
Thereafter  12,883 
Total lease payment  15,827 
Less: Interest  7,092 
Total $8,735 

Legal Proceedings

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

Lawsuits against Client A

In November 2020, the Company’s two subsidiaries, Ever-Glory International Group Apparel Inc. and Goldenway Nanjing Garments Company Limited filed a complaint against Client A (“Client A”) for unpaid goods worth RMB 70.15 million ($10.75 million) in the Tianjin No.1 Intermediate People’s Court based on processing contracts between the parties. The Company has applied for interim measures with the court and has frozen bank accounts of Client A for a total amount of RMB 68.12 million ($10.44 million). The Company has delivered goods worth RMB 62.06 million ($9.51 million) to Client A pursuant to the processing contracts. The Company also seeks Client A for the payment of the loss incurred from the cost of raw materials paid to suppliers in the amount of RMB 8.09 million ($1.24 million) in reliance on the processing contracts. The Company received RMB 71.4 million ($10.9 million) from Client A in April 2021 which settled the complaint amount.

 13 

 

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

In 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 RMB0.27 million ($0.04 million) per month in the Shanghai People’s Court for Jiading District (the “District Court”). The rent arrears began accumulating from April 2018 to the actual payment date. In July 2019, Shanghai Chijing filed counterclaims against LA GO GO to claim RMB10.19 million ($1.45 million) in damages, alleging that LA GO GO had not fulfilled its corresponding obligations as a landlord. As a result, the District Court froze the bank accounts of both Shanghai Chijing and LA GO GO. As of December 31, 2019, a total balance of RMB15.38 million ($2.2 million) was frozen in the bank accounts of LA GO GO. As of December 31, 2019, the Company had booked this restricted cash in other receivables. On March 10, 2020, the District Court entered a judgment in favor of LA GO GO and dismissed most of Shanghai Chijing’s counterclaims. The District Court ordered Shanghai Chijing to pay to LA GO GO an aggregate sum of RMB4.77 million ($0.68 million), which is the accumulated unpaid rent from April 2018 to January 2020. The District Court also ordered LA GO GO to pay Shanghai Chijing RMB1.49 ($0.21 million) for the expenses incurred from remodeling. Both parties were required to pay the monetary damages within ten days after the District Court’s decision. LA GO GO appealed to the Shanghai Second Appellate Court (the “Appellate Court”) to claim more damages, while Shanghai Chijing appealed to reverse the judgment. LA GO GO later requested to withdraw its appeal, which was granted by the Appellate Court. In June 2020, the Appellate Court entered a final decision to dismiss the appeal of Shanghai Chijing and sustained the District Court’s judgment. LA GO GO has not received RMB4.77 million ($0.68 million) in monetary damages from Shanghai Chijing as of June 30, 2020, and has applied for compulsory enforcement with the District Court. The total balance of RMB15.38 million ($2.2 million) in LA GO GO’s bank accounts were unfrozen after the final decision in July.

In addition to the foregoing, the Company 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 910 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 isin 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.

14

 

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 six monthsthree-month period ended June 30, 2020,March 31, 2021, the Company had twoonly one wholesale customerscustomer that represented approximately 19% and 12%12.6% of the Company’s revenues. For the three monthsthree-month period ended June 30,March 31, 2020, the Company had one wholesale customer that represented approximately 30% of the Company’s revenues. For the six months ended June 30, 2019, the Company had twofour wholesale customers that represented approximately 16%20%, 10%, 10% and 10% of the Company’s revenues. For the three months ended June 30, 2019, the Company had two wholesale customers that represented approximately 8% and 14% 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 six months ended June 30, 2020 and 2019.

For the Company’s retail business, the Company had three suppliers that represented 41%, 24% and 19% of raw materials purchases during the six months ended June 30, 2020. For the retail business, theMarch 31, 2021. The Company relied on threeone raw material supplierssupplier that represented approximately 32%, 31% and 21% of raw material purchases during the six months ended June 30, 2019.

For the wholesale business, the Company relied on two finished goods suppliers that represented approximately 20% and 11% of the total raw material purchases during the sixthree months ended June 30,March 31, 2020.

For the wholesaleretail business, the Company did not relyrelied on any finished goods suppliertwo raw material suppliers that represented more than 10%approximately 46% and 38% of the total raw material purchases during the three and six months ended June 30, 2019.March 31, 2021. 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 wholesale business, during the three months ended March 31, 2021, the Company relied on one manufacturer that represented 14.4% of finished goods purchases and during the three months ended March 31, 2020, the Company relied on one manufacturer that represented 11% of finished goods purchases.

 1514 

 

 

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 six months ended June 30, 2020 and 2019.

The Company’s revenues for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 were earned in the following geographic areas:

 

 Three months ended
June 30,		  Six months ended
June 30,		  2021 2020 
 2020  2019  2020  2019  (In thousands of
U.S. Dollars)		 
 (In thousands of U.S. Dollars) 
The People’s Republic of China $3,111  $6,491  $7,764  $17,246 
Mainland China $7,490 $4,653 
Hong Kong China  2,054   6,463   5,045   7,717  4,056 2,992 
Germany  48   877   243   1,726 
United Kingdom  471   2,038   1,309   2,838  1,053 837 
Europe-Other  3,612   4,224   7,511   9,453  4,146 4,093 
Japan  2,205   1,311   6,589   6,248  3,405 4,385 
United States  10,548   15,847   15,876   20,125   3,069  5,328 
Total wholesale business  22,049   37,251   44,337   65,353  23,219 22,288 
Retail business  28,037   40,065   64,104   99,919   47,595  36,067 
Total $50,086  $77,316  $108,441  $165,272  $70,814 $58,355 

 

NOTE 1011 SEGMENTS

 

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

 

(a)

(a)  Wholesale segment

(b)Retail segment

  Wholesale
segment		  Retail
segment		  Total 
  (In thousands of U.S. Dollars) 
Six months ended June 30, 2020   
Segment profit or loss:         
Net revenue from external customers $44,337   64,104   108,441 
Income (loss) from operations $1,001   (8,378)  (7,377)
Interest income $576   40   616 
Interest expense $719   188   907 
Depreciation and amortization $583   3,014   3,597 
Income tax expense $468   25   493 
Segment assets:            
Additions to property, plant and equipment  185   833   1,018 
Total assets  96,192   156,096   252,288 
             
Six months ended June 30, 2019            
Segment profit or loss:            
Net revenue from external customers $65,353   99,919   165,272 
Income from operations $2,374   397   2,771 
Interest income $466   18   484 
Interest expense $572   199   771 
Depreciation and amortization $473   8,740   9,213 
Income tax expense $1,475   805   2,280 
Segment assets:            
Additions to property, plant and equipment  549   3,533   4,082 
Total assets  77,218   188,541   265,759 

16

  

  Wholesale
segment		  Retail
segment		  Total 
  (In thousands of U.S. Dollars) 
Three months ended June 30, 2020   
Segment profit or loss:         
Net revenue from external customers $22,049   28,037   50,086 
Income (loss) from operations $1,675   (5,827)  (4,152)
Interest income $314   25   339 
Interest expense $501   65   566 
Depreciation and amortization $329   1,681   2,010 
Income tax expense $282   (16)  266 
             
Three months ended June 30, 2019            
Segment profit or loss:            
Net revenue from external customers $37,251   40,065   77,316 
Income from operations $1,605   345   1,950 
Interest income $268   9   277 
Interest expense $310   98   408 
Depreciation and amortization $182   2,084   2,266 
Income tax expense $1,255   200   1,455 

(b)  Retail segment

  Wholesale
segment		  Retail
segment		  Total 
  (In thousands of U.S. Dollars) 
As of and for the period ended March 31, 2021   
Segment profit or loss:         
Net revenue from external customers $23,219   47,595   70,814 
Loss from operations $(705)  (259)  (964)
Interest income $196   28   224 
Interest expense $466   26   492 
Depreciation and amortization $261   1,116   1,377 
Loss before income tax expense  (387)  (54)  (441)
Income tax expense $325   404   729 
Segment assets:            
Additions to property, plant and equipment  734   644   1,378 
Inventory  13,913   29,429   43,342 
Total assets  181,535   148,081   329,616 

  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 
Loss 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 
Loss before income tax expense  64   (2,535)  (2,471)
Income tax expense $186   41   227 
Segment assets:            
Additions to property, plant and equipment  419   (341)  78 
Inventory  13,607   38,545   52,152 
Total assets  82,846   171,517   254,363 

  

NOTE 1112 SUBSEQUENT EVENTS

 

As of August 14, 2020, there is no materialThe Company has evaluated subsequent eventevents through the date which the consolidated financial statements were available to be disclosed.

issued. All subsequent events requiring recognition as of March 31, 2021 have been incorporated into these consolidated financial statements and there are no significant subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.” 

 1715 

 

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 six months ended June 30, 2020March 31, 2021 should be read in conjunction with the Financial Statements and corresponding notes included in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions to identify forward-looking statements.

 

Overview

 

Our Business

 

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

 

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

 

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

 

Wholesale Business

 

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

 

Retail Business

 

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

 

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

 1816 

 

 

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 ourExploring the overseas low-cost manufacturing base (outside of mainland China);base;
   
 ●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 June 30, 2020,March 31, 2021, we had 935921 stores (including store-in-stores), which includes 1911 stores that were opened and 18526 stores that were closed in the first half yearquarter of 2020.2021. We expect to openincrease an additional 50 to 100 stores in 2020.

2021.

 

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

 

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

 

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Partnership Investment

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

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.

 

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Collection Policy

 

Wholesale business

 

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

 

Retail business

 

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

 

Global Economic Uncertainty

 

Our business is dependent on consumer demand for our products. We believe that the significant uncertainty in the global economy and the slowdown of economies in the United States and Europe have increased our clients’ sensitivity to the cost of our products. We have experienced continued pricing pressure. If the global economic environment continues to be weak, these worsening economic conditions could have a negative impact on our sales growth and operating margins in our wholesale segment in 2020.2020 and 2021.

 

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

 

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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 hashad adversely affected our retail business with a decline in sales since February 2020. Our wholesale business iswas also significantly affected as we arewere facing a sharp decline in our order quantities. Some of our wholesale clients havehad 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.

 

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

 

Summary of Critical Accounting Policies

 

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

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company'sCompany’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020, filed with the SEC on March 30, 2021 (“2020 (“2019 Form 10-K.”)

 

Fair Value Accounting

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

Level 1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

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 June 30, 2020 and 2019, the Company’s financial assets (all Level 1) consist of cash placed with financial institutions and trading securities that management considers to be of a high quality.

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.

As of June 30, 2020, the Company’s financial assets (all Level 1) consist of cash placed with financial institutions and trading securities (nil at December 31, 2019) with brokerage accounts that management considers to be high quality.

Foreign Currency Translation and Other Comprehensive Income

The reporting currency of the Company is the U.S. dollar. The functional currency of Ever-Glory, Perfect Dream, 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, 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.

Use of EstimatesAssumptions

 

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

  

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Recently Issued Accounting Pronouncements

 

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

 

19

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

Results of Operations for the three months ended June 30, 2020 and 2019

 

The following table summarizes our results of operations for the three months ended June 30, 2020March 31, 2021 and 2019.2020. The table and the discussion below should be read in conjunction with ourthe condensed consolidated financial statements and the notes thereto appearing elsewhere in this report.

 

  Three Months Ended June 30, 
  2020  2019 
  

(In thousands of U.S. dollars, except for

percentages)

 
Sales $50,086   100.0% $77,316   100.0%
Gross Profit $14,445   28.8% $28,986   37.5%
Operating Expense $18,597   37.1% $27,036   35.0%
(Loss) Income From Operations $(4,152)  (8.3)% $1,950   2.5%
Other Income $618   1.2% $1,278   1.7%
Income tax expense $266   0.5% $1,455   1.9%
Net (Loss) Income $(3,800)  (7.6)% $1,773   2.3%
  Three Months Ended March 31, 
  2021  2020 
  (In thousands of U.S. dollars, except for percentages) 
Sales $70,814   100.0% $58,355   100.0%
Gross Profit  22,435   31.7   16,038   27.5 
Operating Expenses  23,399   33.0   19,263   33.0 
Loss Income From Operations  (964)  (1.4)  (3,225)  (5.5)
Other Income, net  523   0.7   754   1.3 
Income Tax Expense  729   1.0   227   0.4 
Net Loss $(1,170)  (1.7)% $(2,698)  (4.6)%

 

Revenue

 

The following table sets forth a breakdown of our total sales, by region, for the three months ended June 30, 2020March 31, 2021 and 2019.2020.

 

 2020  2019   

Growth (Decrease)

  2021  2020  Growth
(decrease)		 
Wholesale business (In thousands of U.S. dollars)  % of
total sales 		  (In thousands of U.S. dollars)  % of
total sales		 in 2020 compared
with 2019		  (In thousands of U.S. dollars)  % of total sales  (In thousands of U.S. dollars)  % of total sales in 2021
compared
with 2020 		 
Mainland China $3,111   6.2% $6,491   8.4%  (52.1)% $7,490   10.6% $4,653   8.0%  61.0%
Hong Kong China  2,054   4.1   6,463   8.4   (68.2)
Germany  48   0.1   877   1.1   (94.5)
Hong Kong  4,056   5.7   2,992   5.1   35.6 
United Kingdom  471   0.9   2,038   2.6   (76.9)  1,053   1.5   837   1.4   25.8 
Europe-Other  3,612   7.2   4,224   5.5   (14.5)  4,146   5.9   4.093   7.1   1.3 
Japan  2,205   4.4   1,311   1.7   68.2   3,405   4.8   4,385   7.5   (22.3)
United States  10,549   21.1   15,847   20.5   (33.4)  3,069   4.3   5,328   9.1   (42.4)
Total Wholesale business  22,049   44.0   37,251   48.2   (40.8)  23,219   32.8   22,288   38.2   4.2 
Retail business  28,037   56.0   40,065   51.8   (30.0)  47,595   67.2   36,067   61.8   32.0 
Total sales $50,086   100.0% $77,316   100.0%  (35.2)% $70,814   100.0% $58,355   100.0%  21.4%

Total sales for the three months ended March 31, 2021 were $70.8 million, an increase of 21.4% from the three months ended March 31, 2020. This increase was primarily attributable to a 4.2% increase in our wholesale business and a 32.0% increase in our retail business.

 

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Sales for the three months ended June 30, 2020 were $50.1 million, a 35.2% decrease compared with the three months ended June 30, 2019. This decrease was primarily attributable to a 40.8% decrease in sales in our wholesale business and a 30.0% decrease in our retail business.

Sales generated from our wholesale business contributed 44.0%32.8% or $22.0$23.2 million of our total sales for the three months ended June 30, 2020, a 40.8% decreaseMarch 31, 2021, an increase of 4.2% compared with 48.2% or $37.3to $22.3 million in the three months ended June 30, 2019.March 31, 2020. This decreaseincrease was primarily attributable to a decrease inincreased sales in Mainland China, Hong Kong, Germany, Europe-Other, Mainland China,the United Kingdom, and United States,other European markets partially offset by an increase infor decreased sales in Japan.Japan and the United States.

 

Sales generated from our retail business contributed 56.0%67.2% or $28.0$47.6 million of our total sales for the three months ended June 30, 2020, a 30.0% decreaseMarch 31, 2021, an increase of 32.0% compared with 51.8%to 61.8% or $40.1$36.1 million in the three months ended June 30, 2019.March 31, 2020. This decreaseincrease was primarily due to a decreasethe increase in the numbers of stores and same storesame-store sales.

 

Total retail store square footage and sales per square foot for the three months ended March 31, 2021 and 2020 are as follows:

  2021  2020 
Total store square footage  1,001,864   1,088,007 
Number of stores  921   1,038 
Average store size, square feet  1,088   1,048 
Total store sales (in thousands of U.S. dollars) $47,595  $36,067 
Sales per square foot $48  $33 

Same-store sales and newly opened store sales for the three months ended March 31, 2021 and 2020 are as follows:

  2021  2020 
  (In thousands of U.S. dollars) 
Sales from stores opened for a full year $35,885  $24,813 
Sales from newly opened store sales $3,933  $3,900 
Sales from e-commerce platform $3,440  $4,217 
Other* $4,337  $3,137 
Total $47,595  $36,067 

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

We remodeled or relocated 54 stores in year 2020, and 2 stores during the three months ended March 31, 2021. We plan to relocate or remodel 50-100 stores in 2021. Remodels and relocations typically drive incremental same-store sales growth. A relocation typically results in an improved, more visible and accessible location, and usually includes increased square footage. We believe we will continue to have opportunities for additional remodels and relocations beyond 2021.  Same-store sales are calculated based upon stores that were open at least 12 full fiscal months in each reporting period and remain open at the end of each reporting period.

Costs and Expenses

 

Cost of Sales and Gross Margin

 

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

 

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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 June 30, 2020March 31, 2021 and 2019.  2020.

 

          Growth�� Three Months Ended March 31,  Growth
(Decrease)
in 2021		 
          (Decrease) in  2021  2020  compared 
 Three months ended June 30,  2020  (In thousands of U.S. dollars, except for percentages)  with 2020 
 2020  2019  Compared 
 (In thousands of U.S. dollars, except for percentages)  with 2019 
Net Sales for Wholesale Sales $22,049   100.0% $37,251   100.0%  (40.8)%
Wholesale Sales $23,219   100.0% $22,288   100.0%  4.2%
Raw Materials  8,614   39.1   16,376   44.0   (47.4)  10,385   44.7   10,090   45.3   2.9 
Labor  299   1.4   398   1.1   (25.0)  333   1.4   245   1.1   36.0 
Outsourced Production Costs  8,623   39.1   14,409   38.7   (40.2)  7,833   33.7   8,370   37.6   (6.4)
Other and Overhead  152   0.7   55   0.1   178.0   105   0.5   86   0.4   21.8 
Total Cost of Sales for Wholesale  17,688   80.3   31,238   83.9   (43.4)  18,656   80.4   18,791   84.3   (0.7)
Gross Profit for Wholesale  4,361   19.7   6,013   16.1   (27.5)  4,562   19.6   3,497   15.7   30.5 
                    
Net Sales for Retail  28,037   100.0   40,065   100.0   (30.0)  47,595   100.0   36,067   100.0   32.0 
Production Costs  13,865   49.5   10,084   25.2   37.5   19,764   41.5   15,847   43.9   24.7 
Rent  4,088   14.3   7,008   17.5   (41.7)  9,959   20.9   7,679   21.3   29.7 
Total Cost of Sales for Retail  17,953   63.8   17,092   42.7   5.0   29,723   62.4   23,526   65.2   26.3 
Gross Profit for Retail  10,084   36.2   22,973   57.3   (56.1)  17,873   37.6   12,541   34.8   42.5 
                    
Total Cost of Sales  35,641   71.2   48,330   62.5   (26.3)  48,379   68.3   42,317   72.5   14.3 
Gross Profit $14,445   28.8% $28,986   37.5%  (50.2)% $22,435   31.7% $16,038   27.5%  39.9%

 

Raw material costs for our wholesale business were 39.1%44.7% of our total wholesale business sales in the three months ended June 30, 2020,March 31, 2021, an increase of 2.9% compared with 44.0%to 45.3% in the three months ended June 30, 2019.March 31, 2020.  The decreasecost percentage to total sale increase was mainly due to lowerthe higher raw material prices.

 

Labor costs for our wholesale business were 1.4% of our total wholesale business sales in the three months ended June 30, 2020,March 31, 2021, an increase of 36.0% compared withto 1.1% in the three months ended June 30, 2019.March 31, 2020. The marginal increase was mainly due to a higher average employee salaries in 2020.the increased labor fee.  

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Outsourced production costs for our wholesale business fordecreased by 6.4% to $7.8 million in the three months ended June 30,March 31, 2020 decreased 40.2% to $8.6from $8.4 million from $14.4 million forin the three months ended June 30, 2019. OutsourcedMarch 31, 2020. As a percentage of total wholesale sales, outsourced production costs accounted for 39.1%were 33.7% of our total wholesale business sales in the three months ended June 30, 2020,March 31, 20210, a 40.2% decrease of 6.4% from the three months ended June 30, 2019.March 31, 2020. This increase in percentagedecrease was primarily attributable to higher average employee salaries atincreased outsourced orders to our related entities in Vietnam, which have lower labor costs compared to orders outsourced manufacturingto Chinese factories.

 

Overhead and other expenses for our wholesale business accounted for 0.7%0.5% and 0.4% of our total wholesale business sales for the three months ended June 30,March 31, 2021 and 2020, compared with 0.1% of totalrespectively.

Gross profit for our wholesale business sales for the three months ended June 30, 2019.

Wholesale business gross profitMarch 31, 2021 was $4.6 million, an increase of 30.5% compared to the three months ended March 31, 2020. Gross margin was 19.6% for the three months ended June 30, 2020 was $4.4 millionMarch 31, 2021, an increase of 30.5% compared with $6.0 millionto 15.7% for the three months ended June 30, 2019. Gross profit accounted for 19.7% of our total wholesale sales for the three months ended June 30, 2020, compared with 16.1% for the three months ended June 30, 2019.March 31, 2020. The decreaseincrease in gross margin was mainly due to higher average employee salaries.the decreased outsourced production costs.

  

Production costs for our retail business were $13.9 million for the three months ended June 30, 2020 compared with $10.1$19.8 million during the three months ended June 30, 2019. RetailMarch 31, 2021 compared to $15.8 million during the three months ended March 31, 2020. As a percentage of retail sales, retail production costs accounted for 49.5%41.5% of our total retail sales in the three months ended June 30, 2020,March 31, 2021, compared with 25.21% forto 43.9% of total retail sales in the three months ended June 30, 2019.March 31, 2020. The decrease in percentage was due to decrease in overall purchase costs. lower discounts on our products ended March 31, 2021 compared with the same period of the prior year.

 

Rent costs for our retail business for the three months ended June 30, 2020 were $4.1 million compared with $7.0$10.0 million for the three months ended June 30, 2019. RentMarch 31, 2021 compared to $7.7 million for the three months ended March 31, 2020. As a percentage of retail sales, rent costs for our retail business accounted for 14.3%20.9% of our total retail sales for the three months ended June 30, 2020,March 31, 2021, compared with 17.5%to 21.3% of total retail sales for the three months ended June 30, 2019.March 31, 2020. The decrease in percentage was primarily attributable to the decline in number of stores.lower rent at certain locations.

  

Gross profit in our retail business for the three months ended June 30, 2020March 31, 2021 was $10.1$17.9 million and gross margin was 36.2%37.6%. Gross profit in our retail business for the three months ended June 30, 2019March 31, 2020 was $23.0$12.5 million and gross margin was 57.3%34.8%. The increase in gross margin was attributable to decreased rent costs and production costs.

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Total cost of sales for the three months ended June 30, 2020March 31, 2021 was $35.6$48.4 million, a 26.3% decrease from $48.30compared to $42.3 million for the three months ended June 30, 2019. TotalMarch 31, 2020, an increase of 14.3%. As a percentage of total sales, cost of sales as a percentagedecreased to 68.3% of total sales for the three months ended June 30, 2020 was 71.2%,March 31, 2021, compared with 62.5%to 72.5% of total sales for the three months ended June 30, 2019. GrossMarch 31, 2020. Consequently, gross margin increased to 31.7% for the three months ended June 30, 2020 was 28.8% compared with 37.5%March 31, 2021 from 27.5% for the three months ended June 30, 2019.  March 31, 2020.

 

Selling, General and Administrative Expenses

 

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

 

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

   

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

 

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 Three Months Ended June 30,  Increase (Decrease) in 2020  Three Months Ended March 31,    
 2020  2019  Compared  2021  2020   
 (In thousands of U.S. dollars, except for percentages) to 2019  (In thousands of U.S. dollars, except for percentages)  Increase 
Gross Profit $14,445   28.8% $28,986   37.5%  (50.2)% $22,435   31.7% $16,038   27.5%  39.9%
Operating Expenses:      　       　   　 
Operating Expenses      　       　   　 
Selling Expenses  12,626   25.2   19,699   25.5   (35.9)  15,548   22.0   13,478   23.1   15.4 
General and Administrative Expenses  5,971   11.9   7,337   9.5   (18.6)  7,851   11.1   5,785   9.9   35.7 
Total  18,597   37.1   27,036   35.0   (31.2)
(Loss) Income from Operations $(4,152)  (8.3)% $1,950   2.5%  (312.8)%
Total Operating Expenses  23,399   33.0   19,263   33.0   21.5 
Loss from Operations $(964)  (1.4)% $(3,225)  (5.5)%  70.1%

  

Selling expenses for the three months ended June 30, 2020 decreased 35.9%increased 15.4% to $12.6 million from $19.7$15.5 million for the three months ended June 30, 2019.March 31, 2021 from $13.5 million for the three months ended March 31, 2020. The decreaseincrease was attributable to the marketing expenses associated with the promotion of the retail brand. increased sales.

 

General and administrative expenses for the three months ended June 30, 2020 decreased 18.6%increased 35.7% to $6.0 million from $7.3$7.9 million for the three months ended June 30, 2019.March 31, 2020 from $5.8 million for the three months ended March 31, 2020. As a percentage of total sales, general and administrative expenses increased to 11.1% of total sales for the three months ended March 31, 2021, compared to 9.9% of total sales for the three months ended March 31, 2020. The decreaseincrease was mainly attributable to the declinedecreased business trip and the exemption of social benefits by the PRC government in number of stores.2020.

 

(Loss) IncomeLoss from Operations

 

Loss from operations was $1.0 million for the three months ended June 30, 2020 was $4.2March 31, 2021, compared to $3.2 million a decrease of 312.8% from $2.0 million of income for the three months ended June 30, 2019. LossMarch 31, 2020. As a percentage of sales, loss from operations accounted for 1.4% of our total sales for the three months ended June 30, 2020 accounted for 8.3%March 31, 2021, an increase of our total sales, while income from operations70.1% compared to 5.5% for the three months ended June 30, 2019 accounted for 2.5%March 31, 2020 as a result of our total sales.increased gross profit.

 

Interest Expense

 

Interest expense was $0.5 million for the three months ended June 30, 2020 was $0.6 million, a 38.7%March 31, 2021, an increase of 44.3% compared withto the same period in 2019.2020. The increase was due to the increased bank loans.

 

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Income Tax Expenses

 

Income tax expense was $0.3$0.7 million and $1.5$0.2 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, 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, 2020. He Meida was closed in April 2021.

 

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

 

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

 

Ever-Glory Supply Chain Service Co., Limited was incorporated in Hongkong, and under the current laws of Hongkong, are subject toits income tax at therate 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.   

 

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Net (Loss) IncomeLoss

 

Net loss for the three months ended June 30,March 31, 2021 and 2020 was ($3.8 million), a 304.3% decrease compared with the same period in 2019.$1.2 million and $2.7 million, respectively. Our basic and diluted (loss) earningsloss per share were ($0.26)$0.08 and $0.13$0.18 for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively.

 

ResultsSummary of OperationsCash Flows

Summary cash flows information for the sixthree months ended June 30,March 31, 2021 and 2020 and 2019is as follows:

 

  2021  2020 
  (In thousands of U.S. dollars) 
Net cash (used in) provided by operating activities $(302) $24,555 
Net cash (used in) provided by investing activities $(2,361) $275 
Net cash provided by (used in) financing activities $6,316  $(2,672)

The following table summarizes our results of operations

Net cash (used in) provided by operating activities was ($0.3) million and $24.6 million for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019. 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.

  Six Months Ended June 30, 
  2020  2019 
  (In thousands of U.S. Dollars, except for percentages) 
Sales $108,441   100.0% $165,272   100.0%
Gross Profit  30,483   28.1   58,344   35.3 
Operating Expense  37,860   34.9   55,573   33.6 
(Loss) Income From Operations  (7,377)  (6.8)  2,771   1.7 
Other Income  1,372   1.3   827   0.5 
Income tax expense  493   0.5   2,280   1.4 
Net (Loss) Income $(6,498)  (6.0)% $1,318   0.8%

Revenue

The following table sets forth a breakdown of our total sales, by region, for the six months ended June 30, 2020 and 2019.

  2020     2019     

Growth (Decrease)

 
Wholesale business (In thousands of U.S. dollars)  % of total sales  (In thousands of U.S. dollars)  % of total sales  in 2020 compared
with 2019		 
Mainland China $7,764   7.2% $17,246   10.4%  (55.0)%
Hong Kong China  5,045   4.7   7,717   4.7   (34.6)
Germany  243   0.2   1,726   1.0   (85.9)
United Kingdom  1,309   1.2   2,838   1.7   (53.9)
Europe-Other  7,511   6.9   9,453   5.7   (20.5)
Japan  6,589   6.1   6,248   3.8   5.5 
United States  15,876   14.6   20,125   12.2   (21.1)
Total Wholesale business  44,337   40.9   65,353   39.5   (32.2)
Retail business  64,104   59.1   99,919   60.5   (35.8)
Total sales $108,441   100.0% $165,272   100.0%  (34.4)%

Sales for the six months ended June 30, 2020 were $108.4 million, a decrease of 34.4% from the six months ended June 30, 2019.respectively. This decrease was primarily attributablemainly due to a 32.2% decreasedecreased accounts payable and other payables.

Net cash (used in) provided by investing activities was ($2.4) million and $0.3 million for the three months ended March 31, 2021 and 2020. This change was mainly due to that we purchased property and equipment in sales in our wholesale business and a 35.8% decrease in our retail business.the three months ended March 31, 2021 more than the same period of 2020. In addition, we purchased more trading securities.

 

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Sales generated from our wholesale business contributed 40.9% or $44.3 million of our total sales for the six months ended June 30, 2020, a decrease of 32.2% compared with 39.5% or $65.4 million in the six months ended June 30, 2019. This decrease was primarily attributable to decreased sales in Hong Kong China, Germany, Mainland China, United Kingdom, the United States and Europe-Other, partially offset by increased sales in Japan.

Sales generated from our retail business contributed 59.1% or $64.1 million of our total sales for the six months ended June 30, 2020, a decrease of 35.8% compared with 60.5% or $99.9 million in the six months ended June 30, 2019. This decrease was primarily due to a decrease in same store sales.

Total retail store square footage and sales per square foot for the six months ended June 30, 2020 and 2019 are as follows:

  2020  2019 
Total store square footage  989,034   1,274,661 
Number of stores  935   1,235 
Average store size, square feet  1,058   1,032 
Total store sales (in thousands of U.S. dollars) $64,104  $99,919 
Sales per square foot $65  $78 

Same store sales and newly opened store sales for the six months ended June 30, 2020 and 2019 are as follows:

  2020  2019 
  (In thousands of U.S. dollars) 
Sales from stores opened for a full year $43,678  $77,984 
Sales from newly opened store sales $4,636  $7,417 
Sales from e-commerce platform $7,822  $6,197 
Other* $7,968  $8,321 
Total $64,104  $99,919 

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

We remodeled or relocated 117 stores in 2019, and 9 stores during the six months ended June 30, 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.

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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 six months ended June 30, 2020 and 2019.

              Growth 
              (Decrease) in
2020		 
  Six months ended June 30,  2020 
  2020  2019  Compared 
  (In thousands of U.S. dollars, except for percentages)  with 2019 
Net Sales for Wholesale Sales $44,337   100.0% $65,353   100.0%  (32.2)%
Raw Materials  18,704   42.2   27,685   42.3   (32.4)
Labor  544   1.2   705   1.1   (22.9)
Outsourced Production Costs  16,993   38.3   24,279   37.2   (30.0)
Other and Overhead  238   0.5   113   0.2   110.6 
Total Cost of Sales for Wholesale  36,479   82.2   52,782   80.8   (30.9)
Gross Profit for Wholesale  7,858   17.8   12,571   19.2   (37.5)
Net Sales for Retail  64,104   100.0   99,919   100.0   (35.8)
Production Costs  29,712   46.3   34,286   34.3   (13.3)
Rent  11,767   18.4   19,860   19.9   (40.7)
Total Cost of Sales for Retail  41,479   64.7   54,146   54.2   (23.4)
Gross Profit for Retail  22,625   35.3   45,773   45.8   (50.6)
Total Cost of Sales  77,958   71.9   106,928   64.7   (27.1)
Gross Profit $30,483   28.1% $58,344   35.3%  (47.8)%

Raw material costs for our wholesale business were 42.2% of our total wholesale business sales in the six months ended June 30, 2020, compared with 42.3% in the six months ended June 30, 2019. The decrease was mainly due to lower cost of raw materials.

Labor costs for our wholesale business were 1.2% of our total wholesale business sales in the six months ended June 30, 2020, compared with 1.1% in the six months ended June 30, 2019. The marginal increase was mainly due to a higher average employee salaries in 2020.

Outsourced production costs for our wholesale business were 38.3% of our total sales in the six months ended June 30, 2020, compared with 37.2% in the six months ended June 30, 2019. This increase was primarily attributable to higher average employee salaries at our outsourced manufacturing factories.

Overhead and other expenses for our wholesale business accounted for 0.5% and 0.2% of our total sales for the six months ended June 30, 2020 and 2019, respectively.

Gross profit for our wholesale business for the six months ended June 30, 2020 was $7.9 million, a 37.5% decrease compared with the six months ended June 30, 2019. As a percentage of total wholesale business sales, gross profit was 17.8% of our total wholesale business sales for the six months ended June 30, 2020, compared with 19.2% for the six months ended June 30, 2019. The decrease was mainly due to higher average employee salaries.

Production costs for our retail business for the six months ended June 30, 2020 were $29.7 million compared with $34.3 million for the six months ended June 30, 2019. As a percentage of our total retail sales, production costs were 46.3% of our total retail sales for the six months ended June 30, 2020, compared with 34.3% for the six months ended June 30, 2019. The decrease in amounts was due to decrease in overall purchase costs.

Rent costs for our retail business for the six months ended June 30, 2020 were $11.8 million compared with $19.9 million for the six months ended June 30, 2019. As a percentage of total retail sales, rent costs were 18.4% of our total retail sales for the six months ended June 30, 2020 compared with 19.9% for the six months ended June 30, 2019. The decrease in percentage was primarily attributable to decline in number of stores.

Gross profit for our retail business for the six months ended June 30, 2020 was $22.6 million compared with $45.8 million for the six months ended June 30, 2019. Gross margin for our retail business for the six months ended June 30, 2020 was 35.3% compared with 45.8% for the six months ended June 30, 2019.

Total cost of sales for the six months ended June 30, 2020 was $78.0 million, a 27.1% decrease compared with the six months ended June 30, 2019. As a percentage of total sales, total costs were 71.9% of total sales for the six months ended June 30, 2020, compared with 64.7% for the six months ended June 30, 2019. Total gross margin for the six months ended June 30, 2020 was 28.1% compared with 35.3% for the six months ended June 30, 2019.

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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.

  Six months ended June 30,  Increase (Decrease) in 2020 
  2020  2019  Compared 
  (In thousands of U.S. dollars, except for percentages)  to 2019 
Gross Profit $30,483   28.1% $58,344   35.3%  (47.8)%
Operating Expenses:      　       　   　 
Selling Expenses  26,105   24.1   40,706   24.6   (35.9)
General and Administrative Expenses  11,755   10.8   14,867   9.0   (20.9)
Total  37,860   34.9   55,573   33.6   (31.9)
(Loss)Income from Operations $(7,377)  (6.8)% $2,771   1.7%  (366.2)%

Selling expenses for the six months ended June 30, 2020 were $26.1 million, a 35.9% decrease compared with the six months ended June 30, 2019. The decrease was attributable to the marketing expenses associated with the promotion of the retail brand. 

General and administrative expenses for the six months ended June 30, 2020 were $11.8 million a 20.9% decrease compared with the six months ended June 30, 2019. As a percentage of total sales, general and administrative expenses accounted for 10.8% of total sales for the six months ended June 30, 2020, compared with 9.0% of total sales for the six months ended June 30, 2019. The decrease in amounts was attributable to the decline in number of stores.

(Loss)Income from Operations

Loss from operations for the six months ended June 30, 2020 was $7.4 million, a 366.2% decrease from $2.8 million of income for the six months ended June 30, 2019. This decrease was due to decreased sales. 

Interest Expense

Interest expense was $0.9 million and $0.8 million for the six months ended June 30, 2020 and 2019, respectively. The increase was due to the increased bank loans.

Income Tax Expense

Income tax expense for the six months ended June 30, 2020 was $0.5 million, a 78.4% decrease compared to the same period of 2019. The decrease was primarily due to deferred tax asset valuation allowance which resulted in a slightly higher income tax expense.

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Net (Loss) Income

Net loss for the six months ended June 30, 2020 was $6.5 million, a decrease of 593.0% compared with the net income from the same period in 2019. Basic and diluted (loss) earnings per share were ($0.44) and $0.09 for the six months ended June 30, 2020 and 2019, respectively.

Summary of Cash Flows

Summary cash flows information for the six months ended June 30, 2020 and 2019 is as follows:

  2020  2019 
  (In thousands of U.S. dollars) 
Net cash provided by (used in) operating activities $17,041  $(9,785)
Net cash used in investing activities $(1,843) $(4,082)
Net cash provided by (used in) financing activities $11,720  $(889)

Net cash provided by operating(used in) financing activities was $17.0were $6.3 million and ($2.7) million for the sixthree months ended June 30,March 31, 2021 and 2020, compared with $9.8 million net cash used in operating activities duringrespectively. During the sixthree months ended June 30, 2019. The increase was primarily due to increase in collectionMarch 31, 2021, we received new bank loans of accounts receivable.$12.3 million and repaid the bank loans of $6.2 million.

 

Net cash used in investing activities was $1.8 million for the six months ended June 30, 2020, compared with $4.1 million used during the six months ended June 30, 2019. This decrease was mainly due to purchase of less property and equipment and decrease in remodeling expenditure in 2020.

Net cash provided by financing activities was $11.7 million for the six months ended June 30, 2020, compared with $0.9 million net cash used during the six months ended June 30, 2019. During the six months ended June 30, 2020, we repaid $21.2 million of bank loans and received additional bank loan proceeds of $32.0 million. Under the counter-guarantee agreement, we received $4.0 million from and paid $3.1 million to the related party during the six months ended June 30, 2020.

Liquidity and Capital Resources

 

As of June 30, 2020,March 31, 2021, we had cash and cash equivalents of $59.2$78.0 million, other current assets of $127.3other than cash $154.4 million and current liabilities of $132.1$188.7 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 August 2020, Ever-Glory Apparel entered into a line of credit agreement for approximately $3.0 million (RMB20.0 million) with the Shanghai Pudong Development Bank and guaranteed by Goldenway. As of March 31, 2021, Ever-Glory Apparel had borrowed $2.3 million (RMB 15.0 million) under this line of credit with annual interest 3.01% and due on September 2021. As of March 31, 2021, approximately $0.7 million was unused and available under this line of credit.

From March 2020 to July 2020, Ever-Glory Apparel entered into a certificate of three-year time deposit of $29.0 million (RMB190.0 million) with the Shanghai Pudong Development Bank with annual interest rates ranging from 3.75% to 3.99%. From July to November 2020, Ever-Glory Apparel pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank and Ever-Glory Apparel had borrowed $29.0 million (RMB 190.0 million) under this line of certificate with an annual interest rate from 2.50% to 3.10% and due on between May 2021 and October 2021.

 

In December 2019,2020, Goldenway entered into a certificate of three-year time deposit of $16.7 million (RMB110.0 million) with the Shanghai Pudong Development Bank with an annual interest rate of 3.85%. From November 2020 to February 2021, Goldenway pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank and Goldenway had borrowed $16.7 million (RMB 110.0 million) under this line of certificate with annual interest rates of 2.90% and 3.4%, due between May 2021 and February 2022.

In April 2020, Goldenway entered into a line of credit agreement with Industrial and Commercial Bank of China, which allows the Company to borrow up to approximately $5.7$6.1 million (RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of June 30, 2020,March 31, 2021, Goldenway had borrowed $5.7$6.1 million (RMB40.0 million) from Industrial and Commercial Bank of China with an annual interest rate 4.57% and due onin August 2020.2021.

 

In November 2018,July 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $14.1$15.2 million (RMB100.0 million) with Industrial and Commercial Bank of China, andwhich is collateralized by assets of Jiangsu Ever-Glory’sNanjing Knitting, an equity investee Nanjing Knitting,of Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), under a collateral agreement executed among Ever-Glory Apparel, Nanjing Knitting and the bank. As of June 30, 2020,March 31, 2021, Ever-Glory Apparel had borrowed $14.1$15.2 million (RMB 100.0 million) under this line of credit with annual interest rates ranging from 3.92%3.95% to 4.35% and due on from September 2020between May 2021 to May 2021.March 2022.

 

In April 2020, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $6.9 million (RMB45.0 million). These loans are guaranteed by Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer. These loans are also collateralized by the Company’s property and equipment. As of March 31, 2021, approximately $6.9 million was unused and available under this line of credit.

In June 2020, LA GO GO entered into a revolving line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $3.0 million (RMB20.0 million). The line of credit is guaranteed by Mr. Kang and Goldenway. As of March 31, 2021, LA GO GO had borrowed $2.3 million (RMB 15.0 million) under this line of credit with annual interest 4.55% and due in September 2021. As of March 31, 2021, approximately $0.7 million was unused and available under this line of credit.

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In September 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $5.7$9.1 million (RMB40.0(RMB60.0 million) with the Shanghai Pudong DevelopmentNanjing Bank and guaranteed by Jiangsu Ever-Glory, Mr. Kang and Goldenway. As of June 30, 2020,March 31, 2021, approximately $5.7$9.1 million was unused and available under this line of credit. In March 2020, Ever-Glory Apparel entered into a certificate of three-year time deposit of $15.5 million (RMB110.0 million) with the Shanghai Pudong Development Bank with annual interest rates ranging from 3.85% to 3.99%. In April 2020, Ever-Glory Apparel pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank and Ever-Glory Apparel had borrowed $15.5 million (RMB 110.0 million) under this line of certificate with an annual interest rate of 2.02% and due on July 2020. On July 2020, Ever-Glory Apparel repaid the loan and borrowed $11.3 million (RMB 80.0 million) under this line of certificate with an annual interest rate of 2.50% and due on July 2021.

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In October 2019, 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 June 30, 2020, LA GO GO had borrowed $2.8 million (RMB20.0 million) from China Minsheng Bank with an annual interest rate of 5.0% and due in November 2020.  

In April 2020,March 2021, Ever-Glory Apparel entered into a line of credit agreement for approximately $4.2$4.6 million (RMB30.0 million) with Bank of China and guaranteed by Jiangsu Ever-Glory. These loans are also collateralized by assets of Jiangsu Ever-Glory’s equity investee, Chuzhou Huarui, under a collateral agreement executed by Ever-Glory Apparel, Chuzhou Huarui and Bank of China. As of June 30, 2020, Ever-Glory Apparel had borrowed $2.1 million (RMB 15.0 million) under this line of credit with an annual interest rate of 4.57% and due on September 2020. As of June 30, 2020,March 31, 2021, approximately $2.1 million was unused and available under this line of credit.  

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 June 30, 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 June 30, 2020, approximately $8.5 million was unused and available under this line of credit.

In 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 June 30, 2020, approximately $2.8 million was unused and available under this line of credit.

In September 2019, LA GO GO entered into a line of credit agreement for approximately $2.8 million (RMB20.0 million) with the Bank of Communications and guaranteed by Jiangsu Ever-Glory, Ever-Glory Apparel and Jiangsu LAGOGO. As of June 30, 2020, approximately $2.8 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 June 30, 2020, approximately $2.5$4.6 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.

 

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.

  

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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 June 30, 2020,March 31, 2021, we had access to approximately $56.2$47.9 million in lines of credit, of which approximately $31.5$22.0 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 $37.3$35.8 million (RMB 260.0235.0 million) and approximately $3.7$2.9 million (RMB 26.419.10 million) was provided to Jiangsu Ever-Glory as the counter guarantee as of June 30, 2020.March 31, 2021.

 

Foreign Currency Translation Risk

 

Our operations are, for the most part, located in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between the United States dollar and the Chinese RMB. Most of our wholesale sales are in dollars.USD. 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 June 30, 2020,March 31, 2021, the market foreign exchange rate had increaseddecreased to RMB 7.086.57 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.

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In addition, the financial statements of subsidiaries located in China (whose functional currency is RMB) are translated into US dollars using the closing rate method. The balance sheet items are translated into US dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation gain (loss)loss for the three and six3 months ended June 30,March 31, 2021 and 2020 and 2019 was ($0.26) million, ($1.70) million, ($2.49)$1.4 million and $1.49$1.4 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. 

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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 June 30, 2020.March 31, 2021. 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 secondfirst quarter of 2020,2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II.  OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

 

FromITEM 1. LEGAL PROCEEDINGS

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

 

Lawsuits against Client A

In March 2019, Shanghai La Go Go FashionNovember 2020, the Company’s two subsidiaries, Ever-Glory International Group Apparel Inc. and Goldenway Nanjing Garments Company Limited (“LA GO GO”) filed a complaint against Shanghai Chijing Investment Management Co., Ltd.Client A (“Shanghai Chijing”Client A”) for unpaid rent of RMB0.27goods worth RMB 70.15 million ($0.0410.75 million) per month in the ShanghaiTianjin No.1 Intermediate People’s Court based on processing contracts between the parties. The Company has applied for Jiading District (the “District Court”). The rent arrears began accumulating from April 2018 tointerim measures with the actual payment date. In July 2019, Shanghai Chijing filed counterclaims against LA GO GO to claim RMB10.19 million ($1.45 million) in damages, alleging that LA GO GO had not fulfilled its corresponding obligations as a landlord. As a result, the District Court froze thecourt and has frozen bank accounts of both Shanghai Chijing and LA GO GO. As of December 31, 2019,Client A for a total balanceamount of RMB15.38RMB 68.12 million ($2.210.44 million) was frozen. The Company has delivered goods worth RMB 62.06 million ($9.51 million) to Client A pursuant to the processing contracts. The Company also seeks Client A for the payment of the loss incurred from the cost of raw materials paid to suppliers in the bank accountsamount of LA GO GO. As of December 31, 2019, the Company had booked this restricted cash in other receivables. On March 10, 2020, the District Court entered a judgment in favor of LA GO GO and dismissed most of Shanghai Chijing’s counterclaims. The District Court ordered Shanghai Chijing to pay to LA GO GO an aggregate sum of RMB4.77RMB 8.09 million ($0.68 million), which is the accumulated unpaid rent from April 2018 to January 2020. The District Court also ordered LA GO GO to pay Shanghai Chijing RMB1.49 ($0.21 million) for the expenses incurred from remodeling. Both parties were required to pay the monetary damages within ten days after the District Court’s decision. LA GO GO appealed to the Shanghai Second Appellate Court (the “Appellate Court”) to claim more damages, while Shanghai Chijing appealed to reverse the judgment. LA GO GO later requested to withdraw its appeal, which was granted by the Appellate Court. In June 2020, the Appellate Court entered a final decision to dismiss the appeal of Shanghai Chijing and sustained the District Court’s judgment. LA GO GO has not received RMB4.77 million ($0.681.24 million) in monetary damagesreliance on the processing contracts. The Company received RMB 71.4 million ($10.9 million) from Shanghai Chijing as of June 30, 2020, and has applied for compulsory enforcement withClient A in April 2021 which settled the District Court. The total balance of RMB15.38 million ($2.2 million) in LA GO GO’s bank accounts were unfrozen after the final decision in July.complaint amount.

ITEM 1A.RISK FACTORS

ITEM 1A. RISK FACTORS

 

As of the date of this report and except as set forth below, there have been no material changes to the risk factors disclosed in our annual report on Form 10-K filed with the SEC on March 30, 2020.2021.

Unfavorable global economic conditions, including as a result of health and safety concerns, could adversely affect our business, financial condition or results of operations.

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. 

  

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 June 30, 2020:March 31, 2021:

 

  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 

 


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ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

Exhibit No.  Description
   
3.1 Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-KSB, filed March 29, 2006);
   
3.2 Articles of Amendment as filed with the Department of State of Florida, effective November 20, 2007 (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K, filed November 29, 2007);
   
3.3 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of our Current Report Form 8-K filed on April 22, 2008);
   
31.1 Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS 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

 


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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.

 

AugustMay 13, 20202021EVER-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)

 

 

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