UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2022

 

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

 

For the transition period from ____________ to ____________

 

Commission file number:  0-28806

 

Ever-Glory International Group Inc.

(Exact name of registrant as specified in its charter)

 

Florida   65-0420146 

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Ever-Glory Commercial Center,

509 Chengxin Road, Jiangning Development Zone,

Nanjing, Jiangsu Province,

People’s Republic of China

(Address of principal executive offices)

 

86 25-5209-6831

(Registrant’s telephone number, including area code)

 

Indicate by check mark 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 11, 2022, 14,818,006 and 14,655,926 shares of the Company’s common stock, $0.001 par value, were issued and outstanding, respectively.

 

 

 

 

 

 

EVER-GLORY INTERNATIONAL GROUP, INC.

FORM 10-Q

 

INDEX

 

      Page
Number
       
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ii
       
PART I.  FINANCIAL INFORMATION 1
       
Item 1.     Financial Statements (unaudited) 1
       
    Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2022 and December 31, 2021 1
       
    Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) for the Three and Six Months Ended June 30, 2022 and 2021 2
       
    Condensed Consolidated Statements of Equity (unaudited) for the Six Months Ended June 30, 2022 and 2021 3
       
    Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2022 and 2021 4
       
    Notes to the Condensed Consolidated Financial Statements (unaudited) 5
       
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
       
Item 3.     Quantitative and Qualitative Disclosures About Market Risk 30
     
Item 4.     Controls and Procedures 30
       
PART II.  OTHER INFORMATION 31
       
Item 1.     Legal Proceedings 31
       
Item 1A.   Risk Factors 31
       
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds 31
       
Item 3.     Defaults Upon Senior Securities 31
       
Item 4.     Mine Safety Disclosure 31
       
Item 5.     Other Information 31
       
Item 6.     Exhibits 32
       
SIGNATURES 33

 

i

 

 

Cautionary Note Regarding Forward-Looking Statements

 

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

 

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

 

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

 

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

 

ii

 

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

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

 

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

 

See the accompanying notes to the condensed consolidated financial statements.

 

1

 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

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

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

 

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

 

 

See the accompanying notes to the condensed consolidated financial statements.

 

2

 

 

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

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

 

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

 

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

 

See the accompanying notes to the condensed consolidated financial statements.

 

3

 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

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

 

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

  

See the accompanying notes to the condensed consolidated financial statements.

 

4

 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

 

NOTE 1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

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

 

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

  

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

 

Nanjing Rui Lian was closed in April 2022, which is not a strategic shift and does not have major effect on the Company’s operations or financial results and the disposal loss was immaterial to the financial statements.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of operations and comprehensive income (loss), condensed consolidated statements of equity, and condensed consolidated statements of cash flows for the three and six months ended June 30, 2022 and 2021. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Rule 8-03 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they have been condensed and do not include all of the information and footnotes required by GAAP for complete financial statements.

 

Wholesale revenues are generally higher in the third and fourth fiscal quarters, while retail revenues are generally higher in the first and fourth fiscal quarters. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. 

 

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

 

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

  

5

 

 

Use of Estimates

 

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

 

Recently Issued Accounting Pronouncements

 

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

 

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

 

NOTE 3 INVESTMENTS

 

Trading securities

 

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

 

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

 

 

Equity security investment

 

In August 2020, Ever-Glory Apparel invested approximately $3.0 million (RMB 20.0 million) for 2.38% ownership in a partnership (“Partnership”). In December 2020, the Partnership invested in a public company in China. As a limited partner, the Company does not have ability to exercise significant influence due to lack of kick-out rights through voting interests. In the meantime, the Company entered an agreement with the general partner of the Partnership (GP) and an individual that the Company has the privilege to sell the ownership interests in the Partnership to GP or the individual for the consideration of the average net asset value ten trading days prior to the closing date, if the Company is not able to withdraw any part of the original investment from the Partnership in the twelve-month period beginning the third year of the initial investment (“optional withdrawal period”). If the Company opts to withdraw entire investment during the optional withdrawal period, the GP will compensate up to 8% of annual return on investment. If the return on investment is in excess of 8% for any portion of the investment withdrawn during the optional withdrawal period, then 20% of the return in excess of 8% will be shared with the individual. The Company may also continue to invest in the Partnership beyond the optional withdrawal period, but none of above agreement with the GP and the individual is in place.

 

6

 

 

In December 2020, the Partnership invested in a public company in China. Since there is readily determinable fair value of the equity investment, the Company started to measure its equity investment at fair value using the public company’s stock price and the Company’s shares since December 31, 2020. At each reporting period, the Company makes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. There is no significant adverse change in the regulatory, economic, or technological environment of the investee. Therefore, the investment was not impaired at June 30, 2022.

 

Investment advances

 

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

 

NOTE 4 INVENTORIES

 

Inventories at June 30, 2022 and December 31, 2021 consisted of the following:

 

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

 

NOTE 5 RESTRICTED CASH

 

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

 

NOTE 6 BANK LOANS

 

Bank loans represent amounts due to various banks and are generally due on demand or within one year. These loans can be renewed with the banks. Short term bank loans consisted of the following as of June 30, 2022 and December 31, 2021.

 

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

 

7

 

 

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

 

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

 

In 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 $6.0 million (RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of June 30, 2022, Goldenway had borrowed approximately $6.0 million (RMB40.0 million) from Industrial and Commercial Bank of China with an annual interest rate 4.57% and due in August 2022.

 

In August 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $14.9 million (RMB100.0 million) with Industrial and Commercial Bank of China, which is collateralized by assets of Jiangsu LA GO GO, Tianjin LA GO GO and Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer, under a collateral agreement executed among Ever-Glory Apparel, Jiangsu LA GO GO , Tianjin LA GO GO, Jiangsu Ever-Glory and the bank. As of June 30, 2022, Ever-Glory Apparel had borrowed approximately $14.9 million (RMB 100.0 million) under this line of credit with annual interest rates ranging from 3.92% to 4.35% and due between August 2022 to June 2023.

 

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

 

All bank loans are used to fund our daily operations. There were no loans in default as of June 30, 2022.

  

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

  

NOTE 7 INCOME TAX

 

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

 

All PRC subsidiaries are subject to income tax at the 25% statutory rate.

  

8

 

 

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.

  

After the tax liability adjustment resulted from the reevaluation of the Company’s tax position (resulting in the company allocating substantially all of the earnings of the Samoan subsidiary to the PRC and reporting such earnings as taxable in the PRC), pre-tax income (loss) for the three and six months ended June 30, 2022 and 2021 was taxable in the following jurisdictions:

  

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

 

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three and six months ended June 30, 2022 and 2021:

  

   Three months ended   Six months ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
U.S. tax rate   21.0%   21.0%   21.0%   21.0%
Valuation allowance recognized with respect to the loss   (1.6)%   (239.2)%   (315.1)%   (186.2)%
Foreign tax rate differential   4.0%   4.0%   4.0%   4.0%
Others   4.5%   55.8%   (23.0)%   - 
Effective income tax rate   27.9%   (158.4)%   (313.1)%   (161.2)%

  

Income tax expense for the three and six months ended June 30, 2022 and 2021 is as follows:

  

   Three months ended   Six months ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
Current                   
U.S. Federal                    
Foreign  $481   $512   $896   $1,218 
Total Current  $481   $512   $896   $1,218 
Deferred                    
U.S. Federal                    
Foreign  $445   $574   $1,142   $597 
Total Deferred  $445   $574   $1,142   $597 
Income tax expense  $926   $1,086   $2,038   $1,815 

 

9

 

 

 Deferred tax assets net of valuation allowance as of:

 

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

 

The U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, there is no deferred tax expense (income) relating to the Tax Act changes for the three and six months ended June 30, 2022 and 2021.

   

NOTE 8 STOCKHOLDERS’ EQUITY

 

Common stock issued to independent directors

 

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

 

On January 26, 2022, the Company issued 2,042 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 2021. The shares issued in 2022 were valued at $2.47 per share, which was the average market price of the common stock for the five days before the grant date.

 

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

 

In August 2021, the Company’s Board of Directors authorized and the Company repurchased 147,334 shares of its common stock through negotiated transactions.  In January 2022, the Company repurchased additional 14,746 shares. These treasury shares may be resold or cancelled in the future. The treasury stock is carried at cost of $400 as of June 30, 2022.

 

10

 

 

NOTE 9 RELATED PARTY TRANSACTIONS

 

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

 

Other income from Related Parties

 

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

 

Other income from Wubijia for the three and six months ended June 30, 2022 and 2021 are as follows:

 

  

Three months ended

June 30,

  

Six months ended

June 30,

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

  

Included in other income for the years ended June 30, 2022 and 2021 is rental income from EsC’Lav, the entity controlled by Mr. Kang under operating lease agreement with term through 2022. The rental income is $0, $6,391, $6,502 and $12,757 for the three and six months ended June 30, 2022 and 2021, respectively. The rent is exempted for three months ended June 30,2022 due to outbreak of Covid-19 in China.

 

Other expenses due to Related Parties

 

Included in other expenses for the three and six months ended June 30, 2022 and 2021 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,  
    2022     2021     2022     2021  
    (In thousands of U.S. Dollars)  
Chuzhou Huarui          54           55          110          110  
Kunshan Enjin     11       24       23       47  
Total   $ 65     $ 79     $ 133     $ 157  

 

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

  

11

 

 

Purchases from and sub-contracts with Related Parties

 

The Company purchased raw materials from Nanjing Knitting totaling $0.2 million, $0.7 million, $0.4 million and $0.9 million during the three and six months ended June 30, 2022 and 2021, respectively.

 

In addition, the Company sub-contracted certain manufacturing work to related companies totaled $7.6 million, $5.3 million, $12.2 million and $10.1 million for the three and six months ended June 30, 2022 and 2021, respectively. The Company provided raw materials to the sub-contractors and charged a fixed fee for labor provided by the sub-contractors.

 

Sub-contracts with related parties included in cost of sales for the three and six months ended June 30, 2022 and 2021 are as follows:

 

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

  

Accounts Payable – Related Parties

 

The accounts payable to related parties at June 30, 2022 and December 31, 2021 are as follows:

 

   2022   2021 
   (In thousands of
U.S. Dollars)
 
Ever-Glory Vietnam  $
-
    395 
Fengyang Huarui   
-
    161 
Nanjing Ever-Kyowa   279    
-
 
Chuzhou Huarui   842    59 
Nanjing Knitting   603    668 
Jiangsu Ever-Glory   28    49 
Total  $1,752   $1,332 

 

Amounts Due From Related Parties-current assets

 

The amounts due from related parties at June 30, 2022 and December 31, 2021 are as follows:

 

   2022   2021 
   (In thousands of
U.S. Dollars)
 
Jiangsu Ever-Glory  $
-
   $220 
Fengyang Huarui   110    
-
 
Ever-Glory Vietnam   1,277    
-
 
Total  $1,387   $220 

 

12

 

 

Jiangsu Ever-Glory is an entity engaged in importing/exporting, apparel-manufacture, real-estate development, car sales and other activities. Jiangsu Ever-Glory is controlled by Mr. Kang. During three and six months ended June 30, 2022 and 2021, the Company and Jiangsu Ever-Glory purchased raw materials on behalf of each other in order to obtain cheaper purchase prices.  The Company purchased raw materials on Jiangsu Ever-Glory’s behalf and sold to Jiangsu Ever-Glory at a cost of $0 million, $1.0 million, $0.02 million and $2.8 million during the three and six months ended June 30, 2022 and 2021, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at a cost of $0, $0, $0 and $0.5 million during the three and six months ended June 30, 2022 and 2021, respectively.  

  

NOTE 10 COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitment

 

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

  

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

 

In the six months ended June 30, 2022, the costs of the leases recognized in cost of revenues and general administrative expenses are $9.9 million and $0.4 million, respectively. Cash paid for the operating leases including in the operating cash flows was $10.3 million. In the six months ended June 30, 2021, the costs of the leases recognized in cost of revenues and general administrative expenses are $15.9 and $0.2 million, respectively. Cash paid for the operating leases including in the operating cash flows was $16.1 million.

  

The following table summarizes the maturity of operating lease liabilities:

 

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

  

Legal Proceedings

 

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

 

13

 

 

NOTE 11 RISKS AND UNCERTAINTIES

 

Economic and Political Risks

 

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

 

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

 

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

 

Credit risk

 

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

 

Concentration risk 

  

For the three months ended June 30, 2022, the Company had one wholesale customer that represented approximately 33% of the Company’s revenues. For the six months ended June 30, 2022, the Company had one wholesale customer that represented approximately 24% of the Company’s revenues. For the three months ended June 30, 2021, the Company had one wholesale customer that represented approximately 19% of the Company’s revenues. For the six months ended June 30, 2021, the Company had one wholesale customer that represented approximately 11% 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, 2022 and 2021.

 

14

 

 

For the retail business, the Company relied on two raw material suppliers that represented approximately 62% and 14% of raw material purchases during the six months ended June 30, 2022. For the Company’s retail business, the Company relied on four raw material suppliers that represented approximately 33%, 27%, 16% and 11% of raw material purchases during the six months ended June 30, 2021.

  

For the wholesale business, the Company relied on one finished goods supplier which is a related party that represented 31.5% of the total raw material purchases during the six months ended June 30, 2022. For the wholesale business, the Company relied on one finished goods supplier which is a related party that represented 31.1% of the total raw material purchases during the six months ended June 30, 2021.

  

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, 2022 and 2021.

 

The Company’s revenues for the three and six months ended June 30, 2022 and 2021 were earned in the following geographic areas:

 

   Three months ended
June 30,
   Six months ended
June 30,
 
   2022   2021   2022   2021 
   (In thousands of U.S. Dollars) 
The People’s Republic of China  $5,816   $4,356   $14,991   $11,846 
Hong Kong China   3,659    2,914    7,952    6,971 
United Kingdom   4,760    2,485    5,519    3,538 
Europe-Other   7,985    5,913    12,912    10,059 
Japan   1,493    1,550    6,638    4,955 
United States   18,716    9,209    24,294    12,277 
Total wholesale business   42,429    26,427    72,306    49,646 
Retail business   21,383    34,128    56,279    81,723 
Total  $63,812   $60,555   $128,585   $131,369 

 

NOTE 12 SEGMENTS

 

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

 

(a) Wholesale segment

  

(b) Retail segment

   

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

 

15

 

 

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

 

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

 

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

 

NOTE 13 SUBSEQUENT EVENTS

  

The Company has evaluated subsequent events through the date which the consolidated financial statements were available to be issued. All subsequent events requiring recognition as of June 30, 2022 have been incorporated into these consolidated financial statements and there are no other significant subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.” 

 

16

 

 

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, 2022 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), 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”). Nanjing Rui Lian was closed in April 2022.

 

Retail Business

 

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

 

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.

 

17

 

 

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

 

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

 

  Continuing to emphasize product design and technology utilization;
     
  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, 2022, we had 816 stores (including store-in-stores), which includes 11 stores that were opened and 75 stores that were closed in the first half year of 2022. We expect to increase an additional 50 to 100 stores in 2022.

 

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

 

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

 

Equity Investments

 

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

 

18

 

 

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

 

Seasonality of Business

 

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

  

Collection Policy

 

Wholesale business

 

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

 

Retail business

 

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

 

Global Economic Uncertainty

 

Our business is dependent on consumer demand for our products. We believe that the significant uncertainty in the global economy and the slowdown of economies in the United States and Europe have increased our clients’ sensitivity to the cost of our products. We have experienced continued pricing pressure. If the global economic environment continues to be weak, these worsening economic conditions could have a negative impact on our sales growth and operating margins in our wholesale segment in 2021 and 2022.

 

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

 

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

 

19

 

 

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

 

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

 

Summary of Critical Accounting Policies

 

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

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on April 12, 2022 (“2021 Form 10-K.”)  

 

Estimates and Assumptions

 

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

  

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.

 

20

 

 

Results of Operations for the three months ended June 30, 2022 and 2021

 

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021. The table and the discussion below should be read in conjunction with our condensed consolidated financial statements and the notes thereto appearing elsewhere in this report.

 

   Three Months Ended June 30, 
   2022   2021 
   (In thousands of U.S. dollars, except for percentages) 
Sales  $63,812    100.0%  $60,555    100.0%
Gross Profit  $20,409    32.0%  $18,392    30.4%
Operating Expense  $17,196    26.9%  $22,165    36.6%
Income (Loss) From Operations  $3,213    5.0%  $(3,773)   (6.2)%
Other Income  $113    0.2%  $3,088    5.1%
Income tax expense  $926    1.5%  $1,086    1.8%
Net Income (Loss)  $2,400    3.8%  $(1,771)   (2.9)%

  

Revenue

 

The following table sets forth a breakdown of our total sales, by region, for the three months ended June 30, 2022 and 2021.

 

   2022       2021       Growth (Decrease) 
Wholesale business  (In thousands of U.S. dollars)   % of
total sales
   (In thousands of U.S. dollars)   % of
total sales
   in 2022 compared
with 2021
 
Mainland China  $5,816    9.1%  $4,356    7.2%   33.5%
Hong Kong China   3,659    5.7    2,914    4.8    25.6 
United Kingdom   4,760    7.5    2,485    4.1    91.5 
Europe-Other   7,985    12.5    5,913    9.8    35.0 
Japan   1,493    2.3    1,550    2.6    (3.7)
United States   18,716    29.3    9,209    15.2    103.2 
Total Wholesale business   42,429    66.5    26,427    43.6    60.5 
Retail business   21,383    33.5    34,128    56.4    (37.3)
Total sales  $63,812    100.0%  $60,555    100.0%   5.4%

 

Sales for the three months ended June 30, 2022 were $63.8 million, a 5.4% increase compared with the three months ended June 30, 2021. This increase was primarily attributable to a 60.5% ($16.0 million) increase in our wholesale business, offset by a 37.3% ($12.7 million) decrease in our retail business.

 

Sales generated from our wholesale business contributed 66.5% or $42.4 million of our total sales for the three months ended June 30, 2022, a 60.5% increase compared with 43.6% or $26.4 million in the three months ended June 30, 2021. This increase was primarily attributable to an increase in sales in Mainland China, Hong Kong, United Kingdom , Europe-Other and United States, partially offset by a decrease in sales in Japan.

 

Sales generated from our retail business contributed 33.5% or $21.4 million of our total sales for the three months ended June 30, 2022, a 37.3% decrease compared with 56.4% or $34.1 million in the three months ended June 30, 2021. This decrease was primarily due to outbreak of COVID-19 . The outbreak in China resulted in the reduction of customer traffic and temporary closures of shopping malls as mandated by the provincial governments in various provinces of China, which had adversely affected our retail business with a decline in sales.

 

21

 

 

Costs and Expenses

 

Cost of Sales and Gross Margin

 

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

 

The following table sets forth the components of our cost of sales and gross profit both in amounts and as a percentage of total sales for the three months ended June 30, 2022 and 2021.  

 

                   Growth 
                   (Decrease) in 
   Three months ended June 30,   2022 
   2022   2021   Compared 
   (In thousands of U.S. dollars, except for percentages)   with 2021 
Net Sales for Wholesale Sales  $42,429    100.0%  $26,427    100.0%   60.5%
Raw Materials   16,701    39.4    11,407    43.2    46.4 
Labor   475    1.1    386    1.4    23.1 
Outsourced Production Costs   17,117    40.3    10,943    41.4    56.4 
Other and Overhead   149    0.4    95    0.4    56.8 
Total Cost of Sales for Wholesale   34,442    81.2    22,831    86.4    50.9 
Gross Profit for Wholesale   7,987    18.8    3,596    13.6    122.1 
Net Sales for Retail   21,383    100.0    34,128    100.0    (37.3)
Production Costs   6,075    28.4    13,390    39.2    (54.6)
Rent   2,886    13.5    5,942    17.4    (51.4)
Total Cost of Sales for Retail   8,961    41.9    19,332    56.6    (53.6)
Gross Profit for Retail   12,422    58.1    14,796    43.4    (16.0)
Total Cost of Sales   43,403    68.0    42,163    69.6    2.9 
Gross Profit  $20,409    32.0%  $18,392    30.4%   11.0%

 

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

 

Labor costs for our wholesale business were 1.1% (0.5 million) of our total wholesale business sales in the three months ended June 30, 2022, compared with 1.4%(0.4 million) in the three months ended June 30, 2021. There were no significant changes.

 

Outsourced production costs for our wholesale business for the three months ended June 30, 2022 increased by 56.4% to $17.1 million from $10.9 million for the three months ended June 30, 2021. Outsourced production costs accounted for 40.3% of our total wholesale business sales in the three months ended June 30, 2022, compare with 41.4% in the three months ended June 30, 2021. There were no significant changes in percentage of sales.

 

22

 

 

Overhead and other expenses for our wholesale business accounted for 0.4% of our total wholesale business sales for the three months ended June 30, 2022, compared with 0.4% of total wholesale business sales for the three months ended June 30, 2021.

 

Wholesale business gross profit for the three months ended June 30, 2022 was $8.0 million compared with $3.6 million for the three months ended June 30, 2021. Gross profit accounted for 18.8% of our total wholesale sales for the three months ended June 30, 2022, compared with 13.6% for the three months ended June 30, 2021. The increase was mainly due to purchase a large amount raw materials at lower prices.

 

Production costs for our retail business were $6.1 million for the three months ended June 30, 2022 compared with $13.4 million during the three months ended June 30, 2021. Retail production costs accounted for 28.4% of our total retail sales in the three months ended June 30, 2022, compared with 39.2% for the three months ended June 30, 2021. The decrease in amount was due to lower sales in 2022 because of COVID-19. 

 

Rent costs for our retail business for the three months ended June 30, 2022 were $2.9 million compared with $5.9 million for the three months ended June 30, 2021. Rent costs for our retail business accounted for 13.5% of our total retail sales for the three months ended June 30, 2022, compared with 17.4% for the three months ended June 30, 2021. The decrease was primarily attributable to the rent reduction in 2022 for the influence of COVID-19.

  

Gross profit in our retail business for the three months ended June 30, 2022 was $12.4 million and gross margin was 58.1%. Gross profit in our retail business for the three months ended June 30, 2021 was $14.8 million and gross margin was 43.4%.

 

Total cost of sales for the three months ended June 30, 2022 was $43.4 million, a 2.9% increase from $42.2 million for the three months ended June 30, 2021. Total cost of sales as a percentage of total sales for the three months ended June 30, 2022 was 68.0%, compared with 69.6% for the three months ended June 30, 2021. Gross margin for the three months ended June 30, 2022 was 32.0% compared with 30.4% for the three months ended June 30, 2021.  

 

Selling, General and Administrative Expenses

 

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

 

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

 

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

 

   Three Months Ended June 30,   Increase (Decrease) in 2022 
   2022   2021   Compared 
   (In thousands of U.S. dollars, except for percentages)   to 2021 
Gross Profit  $20,409    32.0%  $18,392    30.4%   11.0%
Operating Expenses:                         
Selling Expenses   11,675    18.3    14,503    24.0    (19.5)
General and Administrative Expenses   5,521    8.7    7,662    12.7    (27.9)
Total   17,196    26.9    22,165    36.6    (22.4)
Income (loss) from Operations  $3,213    5.0%  $(3,773)   (6.2)%   185.1%

 

Selling expenses for the three months ended June 30, 2022 decreased by 19.5% to $11.7 million from $14.5 million for the three months ended June 30, 2021. The decrease was attributable to the decreased average salaries and decreased business trips.

 

General and administrative expenses for the three months ended June 30, 2022 decreased by 27.9% to $5.5 million from $7.7 million for the three months ended June 30, 2021. The decrease was attributable to the decreased publicity expense and the depreciation of RMB .

 

23

 

 

Income(Loss) from Operations

 

Income from operations for the three months ended June 30, 2022 was $3.2 million, an increase of 185.1% from $3.8 million of loss for the three months ended June 30, 2021. Income from operations for the three months ended June 30, 2022 accounted for 5.0% of our total sales, while the three months ended June 30, 2021 accounted for 6.2% of our total sales.

 

Interest Expense

 

Interest expense for the three months ended June 30, 2022 was $0.3 million, while interest expense was $0.2 million for the three months ended June 30, 2021. The increase was due to the slightly increased bank loans.

 

Income Tax Expenses

 

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

 

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

 

All PRC subsidiaries are subject to income tax at the 25% statutory rate.

 

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

 

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

 

Ever-Glory Supply Chain Service Co., Limited was incorporated in Hongkong, and under the current laws of Hongkong, are subject to income tax at the 16.5% statutory rate.

 

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

 

Net Income (Loss)

 

Net income for the three months ended June 30, 2022 was $2.4 million, and net loss for the three months ended June 30, 2021 was $1.8 million.

 

Results of Operations for the six months ended June 30, 2022 and 2021

 

The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021. The table and the discussion below should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this report.

 

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

 

24

 

 

Revenue

 

The following table sets forth a breakdown of our total sales, by region, for the six months ended June 30, 2022 and 2021.

 

   2022       2021       Growth (Decrease) 
Wholesale business  (In thousands of U.S. dollars)   % of total sales   (In thousands of U.S. dollars)   % of total sales   in 2022 compared
with 2021
 
Mainland China  $14,991    11.7%  $11,846    9.0%   26.5%
Hong Kong China   7,952    6.2    6,971    5.3    14.1 
United Kingdom   5,519    4.3    3,538    2.7    56.0 
Europe-Other   12,912    10.0    10,059    7.7    28.4 
Japan   6,638    5.2    4,955    3.8    34.0 
United States   24,294    18.8    12,277    9.3    97.9 
Total Wholesale business   72,306    56.2    49,646    37.8    45.6 
Retail business   56,279    43.8    81,723    62.2    (31.1)
Total sales  $128,585    100.0%  $131,369    100.0%   (2.1)%

  

Sales for the six months ended June 30, 2022 were $128.6 million, a decrease of 2.1% from the six months ended June 30, 2021. This decrease was primarily attributable to a 45.6% (22.7million) increase in sales in our wholesale business and a 31.1% (25.4 million) decrease in our retail business.

 

Sales generated from our wholesale business contributed 56.2% or $72.3 million of our total sales for the six months ended June 30, 2022, an increase of 45.6% compared with 37.8% or $49.6 million in the six months ended June 30, 2021. This increase was primarily attributable to increased sales in all countries we have wholesale business with.

 

Sales generated from our retail business contributed 43.8% or $56.3 million of our total sales for the six months ended June 30, 2022, a decrease of 31.1% compared with 62.2% or $81.7 million in the six months ended June 30, 2021. This decrease was primarily due to a decrease in same store sales and outbreak of COVID-19. The outbreak in China resulted in the reduction of customer traffic and temporary closures of shopping malls as mandated by the provincial governments in various provinces of China, which had adversely affected our retail business with a decline in sales.

 

Total retail store square footage and sales per square foot for the six months ended June 30, 2022 and 2021 are as follows:

 

   2022   2021 
Total store square footage   922,423    1,011,506 
Number of stores   816    931 
Average store size, square feet   1,130    1,086 
Total store sales (in thousands of U.S. dollars)  $56,279   $81,723 
Sales per square foot  $61   $81 

   

Same store sales and newly opened store sales for the six months ended June 30, 2022 and 2021 are as follows:

 

   2022   2021 
   (In thousands of U.S. dollars) 
Sales from stores opened for a full year  $45,514   $62,067 
Sales from newly opened store sales  $2,769   $7,566 
Sales from e-commerce platform  $5,838   $6,649 
Other*  $2,158   $5,441 
Total  $56,279   $81,723 

  

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

 

We remodeled or relocated 137 stores in year 2021, and 13 stores during the six months ended June 30, 2022. We plan to relocate or remodel 50 to 100 stores in 2022. Remodels and relocations typically drive incremental same-store sales growth. A relocation typically results in an improved, more visible and accessible location, and usually includes increased square footage. We believe we will continue to have opportunities for additional remodels and relocations beyond 2022.  Same-store sales are calculated based upon stores that were open at least 12 full fiscal months in each reporting period and remain open at the end of each reporting period.

 

25

 

 

Costs and Expenses

 

Cost of Sales and Gross Margin

 

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

 

The following table sets forth the components of our cost of sales and gross profit both in amounts and as a percentage of total sales for the six months ended June 30, 2022 and 2021.

 

                   Growth 
                   (Decrease) in 
   Six months ended June 30,   2022 
   2022   2021   Compared 
   (In thousands of U.S. dollars, except for percentages)   with 2021 
Net Sales for Wholesale Sales  $72,306    100.0%  $49,646    100.0%   45.6%
Raw Materials   30,075    41.6    21,793    43.9    38.0 
Labor   920    1.3    719    1.4    28.0 
Outsourced Production Costs   27,322    37.8    18,776    37.8    45.5 
Other and Overhead   290    0.4    200    0.4    45.0 
Total Cost of Sales for Wholesale   58,608    81.1    41,488    83.6    41.3 
Gross Profit for Wholesale   13,698    18.9    8,158    16.4    67.9 
Net Sales for Retail   56,279    100.0    81,723    100.0    (31.1)
Production Costs   22,125    39.3    33,151    40.6    (33.3)
Rent   10,071    17.9    15,902    19.5    (36.7)
Total Cost of Sales for Retail   32,196    57.2    49,053    60.0    (34.4)
Gross Profit for Retail   24,083    42.8    32,670    40.0    (26.3)
Total Cost of Sales   90,804    70.6    90,541    68.9    0.3 
Gross Profit  $37,781    29.4%  $40,828    31.1%   (7.5)%

 

Raw material costs for our wholesale business were 41.6% of our total wholesale business sales in the six months ended June 30, 2022, compared with 43.9% in the six months ended June 30, 2021. The decrease was mainly due to lower cost of raw materials.

 

Labor costs for our wholesale business were 1.3% of our total wholesale business sales in the six months ended June 30, 2022, compared with 1.4% in the six months ended June 30, 2021. There were no significant changes.

 

Outsourced production costs for our wholesale business were 37.8% of our total sales in the six months ended June 30, 2022, compared with 37.8% in the six months ended June 30, 2021. There were no significant changes.

 

Overhead and other expenses for our wholesale business accounted for 0.4% and 0.4% of our total sales for the six months ended June 30, 2022 and 2021, respectively.

 

Gross profit for our wholesale business for the six months ended June 30, 2022 was $13.7 million, a 67.9% increase compared with the six months ended June 30, 2021. As a percentage of total wholesale business sales, gross profit was 18.9% of our total wholesale business sales for the six months ended June 30, 2022, compared with 16.4% for the six months ended June 30, 2021. The increase was mainly due to lower cost of raw materials. 

 

Production costs for our retail business for the six months ended June 30, 2022 were $22.1 million compared with $33.2 million for the six months ended June 30, 2021. As a percentage of our total retail sales, production costs were 39.3% of our total retail sales for the six months ended June 30, 2022, compared with 40.6% for the six months ended June 30, 2021.There were no significant changes. 

 

Rent costs for our retail business for the six months ended June 30, 2022 were $10.1 million compared with $15.9 million for the six months ended June 30, 2021. As a percentage of total retail sales, rent costs were 17.9% of our total retail sales for the six months ended June 30, 2022 compared with 19.5% for the six months ended June 30, 2021. The decrease in percentage was primarily attributable to the rent reduction in 2022 due to outbreak of COVID-19 in China.

 

26

 

 

Gross profit for our retail business for the six months ended June 30, 2022 was $24.1 million compared with $32.7 million for the six months ended June 30, 2021. Gross margin for our retail business for the six months ended June 30, 2022 was 42.8% compared with 40.0% for the six months ended June 30, 2021.

 

Total cost of sales for the six months ended June 30, 2022 was $90.8 million, a 0.3% increase compared with the six months ended June 30, 2021. As a percentage of total sales, total costs were 70.6% of total sales for the six months ended June 30, 2022, compared with 68.9% for the six months ended June 30, 2021. Total gross margin for the six months ended June 30, 2022 was 29.4% compared with 31.1% for the six months ended June 30, 2021.

 

Selling, General and Administrative Expenses

 

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

 

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

 

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

 

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

 

Selling expenses for the six months ended June 30, 2022 were $25.4 million, a 15.6% decrease compared with $30.1 million in the six months ended June 30, 2021. The decrease was attributable to the decreased average salaries and the marketing expenses associated with the promotion of the retail brand. 

 

General and administrative expenses for the six months ended June 30, 2022 were $12.5 million a 19.3% decrease compared with the six months ended June 30, 2021. As a percentage of total sales, general and administrative expenses accounted for 9.7% of total sales for the six months ended June 30, 2022, compared with 11.8% of total sales for the six months ended June 30, 2021. The decrease was attributable to the decreased publicity expense and the depreciation of RMB .

 

Loss from Operations

 

Loss from operations for the six months ended June 30, 2022 was $0.1 million, a 98.0% decrease from $4.7 million of loss for the six months ended June 30, 2021.

 

Interest Expense

 

Interest expense was $0.9 million and $0.7 million for the six months ended June 30, 2022 and 2021, respectively. The increase was due to the increased bank loans.

 

Income Tax Expense

 

Income tax expense for the six months ended June 30, 2022 was $2.0 million, a 12.3% increase compared to the same period of 2021. The increase was primarily due to the higher PRC income which resulted in a higher income tax expense.

 

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Net Loss

 

Net loss for the six months ended June 30, 2022 was $2.7 million, a decrease of 8.7% compared with $2.9 million of net loss from the same period in 2021. Basic and diluted loss per share was $0.18 and $0.20 for the six months ended June 30, 2022 and 2021, respectively.

 

Summary of Cash Flows

 

Summary cash flows information for the six months ended June 30, 2022 and 2021 is as follows:

 

   2022   2021 
   (In thousands of U.S. dollars) 
Net cash used in operating activities  $(9,706)  $(10,488)
Net cash used in investing activities  $(5,242)  $(5,920)
Net cash used in financing activities  $(37)  $(266)

 

Net cash used in operating activities was $9.7 million for the six months ended June 30, 2022, compared with $10.5 million used during the six months ended June 30, 2021. The decrease was primarily due to a decrease in accounts payable and other payable payments.

 

Net cash used in investing activities was $5.2 million for the six months ended June 30, 2022, compared with $5.9 million used during the six months ended June 30, 2021. This decrease was mainly due to that we purchased less properties and equipment than the same period last year.

 

Net cash used in financing activities was $0.04 million for the six months ended June 30, 2022, compared with $0.3 million net cash used during the six months ended June 30, 2021. This increase was primarily due to repayment of the bank loans. During the six months ended June 30, 2022, we repaid the same amount of bank loans as we received bank loan proceeds. During the same period last year, we repaid more bank loans than we received additional bank loan proceeds.

 

Liquidity and Capital Resources

 

As of June 30, 2022, we had cash and cash equivalents of $32.9 million, other current assets of $185.2 million and current liabilities of $166.7 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

 

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

 

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

 

28

 

 

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 $6.0 million (RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of June 30, 2022, Goldenway had borrowed $6.0 million (RMB40.0 million) from Industrial and Commercial Bank of China with an annual interest rate 4.57% and due in August 2022.

 

In August 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $14.9 million (RMB100.0 million) with Industrial and Commercial Bank of China, which is collateralized by assets of Jiangsu LA GO GO, Tianjin LA GO GO and Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer, under a collateral agreement executed among Ever-Glory Apparel, Jiangsu LA GO GO , Tianjin LA GO GO, Jiangsu Ever-Glory and the bank. As of June 30, 2022, Ever-Glory Apparel had borrowed $14.9 million (RMB 100.0 million) under this line of credit with annual interest rates ranging from 3.92% to 4.35% and due between August 2022 to June 2023.

 

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

 

All bank loans are used to fund our daily operations. There were no loans in default as of June 30, 2022.

 

Capital Commitments

 

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

  

Uses of Liquidity

 

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

 

Sources of Liquidity

 

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

 

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

 

As of June 30, 2022, we had access to approximately $28.2 million in lines of credit, of which approximately $4.3 million was unused and available. These credit facilities do not include any covenants.

 

29

 

 

Foreign Currency Translation Risk

 

Our operations are, for the most part, located in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between the United States dollar and the Chinese RMB. Most of our sales are in dollars. During 2003 and 2004, the exchange rate of RMB to the dollar remained constant at RMB 8.26 to the dollar. On July 21, 2005, the Chinese government adjusted the exchange rate from RMB 8.26 to 8.09 to the dollar. From that time, the RMB continued to appreciate against the U.S. dollar. As of June 30, 2022, the market foreign exchange rate had increased to RMB 6.71 to one U.S. dollar. We are continuously negotiating price adjustments with most of our customers based on the daily market foreign exchange rates, which we believe will reduce our exposure to exchange rate fluctuations in the future and will pass some of the increased cost to our customers.

 

In addition, the financial statements of subsidiaries located in China (whose functional currency is RMB) are translated into US dollars using the closing rate method. The balance sheet items are translated into US dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation (loss) gain for the three and six months ended June 30, 2022 and 2021 was ($7.7) million, $3.4 million, ($8.6) million and $2.1 million, respectively.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

Evaluation of Disclosure Controls and Procedures.  Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures for the period ended June 30, 2022. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were operating effectively. 

 

Changes in Internal Control Over Financial Reporting

 

Other than described above, during the second quarter of 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

30

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

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

 

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 April 12, 2022.

 

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, 2022:

 

   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 

 

31

 

 

ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

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

 

32

 

 

SIGNATURES

 

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

 

August 12, 2022 EVER-GLORY INTERNATIONAL GROUP, INC.
   
  By: /s/ Edward Yihua Kang
    Edward Yihua Kang
    Chief Executive Officer
    (Principal Executive Officer)
     
  By: /s/ Jiansong Wang
    Jiansong Wang
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

33

 

 

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