UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2019

 

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

 

For the transition period from ____________ to ____________

 

Commission file number:  0-28806

 

Ever-Glory International Group Inc.

(Exact name of registrant as specified in its charter)

 

Florida   65-0420146 
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

Ever-Glory Commercial Center,

509 Chengxin Road, Jiangning Development Zone,

Nanjing, Jiangsu Province,

People’s Republic of China

(Address of principal executive offices)

 

86-25-5209-6831

 (Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐ 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

  

 

 

 

 

 

EVER-GLORY INTERNATIONAL GROUP, INC.

FORM 10-Q

 

INDEX

 

    Page Number
     
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS  ii
     
PART I.  FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
     
  Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (unaudited) 1
     
  Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited) 2
     
  Condensed Consolidated Statements of Equity for The Three and Nine Months Ended September 30, 2019 and 2018 (unaudited) 3
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (unaudited) 4
     
  Notes to the Condensed Consolidated Financial Statements (unaudited) 5
     
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 35
     
Item 4.   Controls and Procedures 35
     
PART II.  OTHER INFORMATION  36
     
Item 1.  Legal Proceedings  36
     
Item 1A. Risk Factors  36
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  36
     
Item 3. Defaults Upon Senior Securities  36
     
Item 4. Mine Safety Disclosure  36
     
Item 5. Other Information  36
     
Item 6.  Exhibits  37
     
SIGNATURES 38

  

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;
     
  Seasonality of our sales;
     
  Success of our investments in new product development
     
  Our plans and ability to open new retail stores;
     
  Success of our acquired businesses;
     
  Our relationships with our major customers;
     
  The popularity of our products;
     
  Relationships with suppliers and cost of supplies;
     
  Financial and economic conditions in Asia, Japan, Europe and the U.S.;
     
  Anticipated effective tax rates in future years;
     
  Regulatory requirements affecting our business;
     
  Currency exchange rate fluctuations;
     
  Our future financing needs; and
     
  Our ability to obtain future financing on acceptable terms.

 

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

 

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

  

ii

 

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

AS OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018 (UNAUDITED)

 

   2019   2018 
ASSETS        
CURRENT ASSETS        
Cash and cash equivalents  $45,837   $47,012 
Accounts receivable, net   83,863    86,527 
Inventories   65,288    65,929 
Advances on inventory purchases   9,358    6,420 
Value added tax receivable   3,799    2,580 
Other receivables and prepaid expenses   7,563    10,204 
Amounts due from related parties   123    192 
Total Current Assets   215,831    218,864 
           
NONCURRENT ASSETS          
Intangible assets, net   4,711    4,962 
Property and equipment, net   27,615    28,445 
Operating lease right-of-use assets   35,226    - 
Deferred tax assets   1,862    - 
Total Non-Current Assets   69,414    33,407 
TOTAL ASSETS  $285,245   $252,271 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES          
Bank loans  $35,492   $29,497 
Accounts payable   77,172    78,412 
Accounts payable and other payables – related parties   4,355    4,756 
Other payables and accrued liabilities   15,230    21,958 
Value added and other taxes payable   530    2,569 
Income tax payable   2,249    1,569 
Current operating lease liabilities   26,757    - 
Total Current Liabilities   161,785    138,761 
           
NONCURRENT LIABILITIES          
Deferred tax liabilities   -    354 
Non-current operating lease liabilities   8,504    - 
TOTAL LIABILITIES   170,289    139,115 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS’ EQUITY          
Stockholders’ equity:          
Preferred stock ($0.001 par value, authorized 5,000,000 shares, no shares issued and outstanding)   -    - 
Common stock ($0.001 par value, authorized 50,000,000 shares, 14,801,770 and 14,798,198 shares issued and outstanding As of September 30, 2019 and December 31, 2018, respectively)   15    15 
Additional paid-in capital   3,640    3,627 
Retained earnings   106,173    105,914 
Statutory reserve   19,083    19,083 
Accumulated other comprehensive income   (5,822)   (3,578)
Amounts due from related party   (6,648)   (10,354)
Total equity attributable to stockholders of the Company   116,441    114,707 
Noncontrolling interest   (1,485)   (1,551)
Total Equity   114,956    113,156 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $285,245   $252,271 

 

See the accompanying notes to the condensed consolidated financial statements.

  

1

 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES CONDENSED

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (UNAUDITED)

 

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
NET SALES  $113,326   $125,480   $278,598   $306,806 
COST OF SALES   88,967    95,419    195,895    210,858 
                     
GROSS PROFIT   24,359    30,061    82,703    95,948 
                     
OPERATING EXPENSES                    
Selling expenses   17,944    17,588    58,651    62,405 
General and administrative expenses   7,584    8,519    22,450    25,015 
Total Operating Expenses   25,528    26,107    81,101    87,420 
                     
(LOSS)INCOME FROM OPERATIONS   (1,169)   3,954    1,602    8,528 
                     
OTHER INCOME (EXPENSES)                    
Interest income   215    307    699    1,003 
Interest expense   (265)   (278)   (1,036)   (1,202)
Other income   502    101    1,616    1,102 
Total Other Income, Net   452    130    1,279    903 
                     
(LOSS) INCOME BEFORE INCOME TAX EXPENSE   (717)   4,084    2,881    9,431 
Income tax expense   (387)   (908)   (2,667)   (2,949)
                     
NET (LOSS) INCOME   (1,104)   3,176    214   6,482 
                     
Net loss attributable to the non-controlling interest   28    140    46    425 
NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY   (1,076)   3,316    260   6,907 
                     
NET (LOSS) INCOME  $(1,104)  $3,176   $214  $6,482 
                     
Foreign currency translation (loss) gain   (3,729)   (3,674)   (2,244)   (5,742)
Unrealized loss of derivative contracts designated as cash flow hedge   -    (614)   -    (1,083)
COMPREHENSIVE (LOSS) INCOME   (4,833)   (1,112)   (2,030)   (343)
                     
Comprehensive (loss) income attributable to the non-controlling interest   15    57    67    366 
COMPREHENSIVE (LOSS) INCOME  ATTRIBUTABLE TO THE COMPANY  $(4,818)  $(1,055)  $(1,963)  $23 
                     
EARNINGS PER SHARE ATTRIBUTABLE TO THE COMPANY’S STOCKHOLDERS                    
Basic and diluted  $(0.07)  $0.22   $0.02  $0.47 
Weighted average number of shares outstanding Basic and diluted   14,801,770    14,798,198    14,801,770    14,796,527 

 

See the accompanying notes to the condensed consolidated financial statements.

 

2

 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands of U.S. Dollars, except share and per share data or otherwise stated)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (UNAUDITED)

 

       Additional   Retained Earnings   Accumulated
other
   Amounts
due from
   Total
equity
attributable
to stockholders
   Non-     
   Common Stock   paid-in       Statutory   Comprehensive   related   of the   controlling   Total 
   Shares   Amount   capital   Unrestricted   reserve   income   party   Company   Interest   equity 
Balance at January 1, 2019   14,798,198   $15   $3,627   $105,914   $19,083   $(3,578)  $(10,354)  $114,707    (1,551)  $113,156 
                                                   
Stock issued for compensation   1,942    0.004    8    -    -    -    -    8         8 
Net income (loss)   -    -    -    (521)   -    -    -    (521)   66    (455)
Net cash received from related party under counter guarantee agreement   -    -    -    -    -    -    1,101    1,101    -    1,101 
Foreign currency translation gain                            3,972    -    3,972    34    4,006 
Balance at March 31, 2019   14,800,140    15    3,635    105,393    19,083    394    (9,253)   119,267    (1,451)   117,816 
Net income (loss)                  1,856                   1,856    (83)   1,773 
Net cash received from related party under counter guarantee agreement                                 1,390    1,390         1,390 
Foreign currency translation loss                            (2,487)        (2,487)   34    (2,453)
Balance at June 30, 2019   14,800,140   $15   $3,635   $107,249   $19,083   $(2,093)  $(7,863)  $120,026    (1,500)  $118,526 
Stock issued for compensation   1,630    0.002    5                        5         5 
                                                   
Net income (loss)                  (1,076)                  (1,076)   (28)   (1,104)
Net cash advanced to related party under counter guarantee agreement                                 1,215    1,215         1,215 
Foreign currency translation loss                            (3,729)        (3,729)   43    (3,686)
Balance at September 30, 2019   14,801,770   $15   $3,640   $106,173   $19,083   $(5,822)  $(6,648)  $116,441    (1,485)  $114,956 

 

       Additional   Retained Earnings   Accumulated
other
   Amounts
due from
   Total
equity
attributable
to stockholders
   Non-     
   Common Stock   paid-in       Statutory   Comprehensive   related   of the   controlling   Total 
   Shares   Amount   capital   Unrestricted   reserve   income   party   Company   Interest   equity 
Balance at January 1, 2018   14,795,992   $15   $3,620   $95,195   $17,794   $2,585   $(15,449)  $103,760    (1,062)  $102,698 
                                                   
Net income (loss)   -    -    -    815    -    -    -    815    (228)   587 
Net cash paid to related party under counter guarantee agreement   -    -    -    -    -    -    (8,479)   (8,479)   -    (8,479)
Foreign currency translation gain(loss)                            4,023    -    4,023    (42)   3,981 
Balance at March 31, 2018   14,795,992    15    3,620    96,010    17,794    6,608    (23,928)   100,119    (1,332)   98,787 
Net income (loss)                  2,776                   2,776    (57)   2,719 
Net cash advanced to related party under counter guarantee agreement                                 2,339    2,339         2,339 
Foreign currency translation loss                            (6,656)        (6,656)   70    (6,586)
Balance at June 30, 2018   14,795,992   $15   $3,620   $98,786   $17,794   $(48)  $(21,589)  $98,578    (1,319)  $97,259 
Stock issued for compensation   2,206         7                        7         7 
Net income (loss)                  3,316                   3,316    (140)   3,176 
Net cash advanced to related party under counter guarantee agreement                                 1,337    1,337         1,337 
reign currency translation loss                            (4,192)        (4,192)   31    (4,161)
Balance at September 30, 2018   14,798,198   $15   $3,627   $102,102   $17,794   $(4,240)  $(20,252)  $99,046    (1,428)  $97,618 

 

See the accompanying notes to the condensed consolidated financial statements.

 

3

 

 

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (UNAUDITED)

 

   2019   2018 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income  $214  $6,482 
Adjustments to reconcile net income to cash provided by operating activities:          
Depreciation and amortization   6,824    6,523 
Loss from sale of property and equipment   16    102 
Provision of bad debt allowance   820    - 
Provision for obsolete inventories   3,846    2,697 
Deferred income tax   (2,388)   (1,706)
Stock-based compensation   12    7 
Changes in operating assets and liabilities          
Accounts receivable   312    (15,012)
Inventories   (4,979)   (32,831)
Value added tax receivable   (281)   430 
Other receivables and prepaid expenses   3,738    (19,792)
Advances on inventory purchases   (3,214)   (8,199)
Amounts due from related parties   16    4 
Accounts payable   6,253    29,547 
Accounts payable and other payables- related parties   (692)   153 
Other payables and accrued liabilities   (10,594)   14,054 
Value added and other taxes payable   (4,120)   (3,892)
Income tax payable   746    311 
Net cash used in operating activities   (3,471)   (21,122)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of property and equipment   (6,555)   (9,144)
Net cash used in investing activities   (6,555)   (9,144)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from bank loans   42,570    39,872 
Repayment of bank loans   (35,620)   (40,225)
Repayment of loans from related party   10,692    3,232 
Advances to related party   (6,755)   (8,183)
Net cash used in financing activities   10,887    (5,304)
           
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (650)   (2,827)
           
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH   211   (38,397)
           
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD   47,012    62,876 
           
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD  $47,223   $24,479 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
           
Cash paid during the period for:          
Interest  $1,036   $1,202 
Income taxes  $4,196   $4,427 

 

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 NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED)

 

NOTE 1 BASIS OF PRESENTATION

 

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

 

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

 

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

 

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

  

5

 

 

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

 

Revenue Recognition 

 

We recognize wholesale revenue from product sales, net of value-added taxes, upon delivery for local sales and upon shipment of the products for export sales, at such time title passes to the customer. We recognize wholesale revenue from manufacturing fees charged to buyers for the assembly of garments from materials provided by the buyers upon completion of the manufacturing process and shipment of the products for export sales. Retail sales are recorded net of promotional discounts, rebates, and return allowances. Retail store sales are recognized at the time of the register receipt. Retail online sales are recognized when products are shipped and customers receive the products because we retain a portion of the risk of loss on these sales during transit.

 

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

 

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

 

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

  

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

 

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

 

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

 

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

 

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

 

Derivatives financial instruments 

 

From time to time, the Company uses derivative financial instruments to manage its exposure to foreign currency risks arising from operational activities or on certain existing assets and liabilities. The Company does not hold or issue derivative instruments for trading purposes. The Company may enter into forward foreign exchange contracts, foreign exchange options, or foreign exchange currency swap contracts to manage exposure to certain foreign currency operating transactions. These instruments may offset a portion of the foreign currency re-measurement gains or losses, or changes in fair value.

 

The Company may also enter into above similar derivative instruments to hedge the exposure to variability in the expected cash flows of forecasted transactions such as international sales or purchases that the Company expects to receive or commit to remit foreign currencies. In these cases, the Company designates these instruments as the cash flow hedges.

 

6

 

 

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

   

Accounts Receivable, net

 

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

 

Fair Value Accounting

 

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

 

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

 

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

 

As of September 30, 2019 and 2018, the Company’s financial assets (all Level 1) consist of cash placed with financial institutions that management considers to be of a high quality.

 

As of September 30, 2019, the Company has one derivative liability subjects to recurring fair value measurement (Level 2) with the change in fair value recognized in earnings (Note 5).

 

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

  

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

 

7

 

 

Foreign Currency Translation and Other Comprehensive Income

 

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

 

For subsidiaries whose functional currency is the RMB, all assets and liabilities were translated at the exchange rate at the balance sheet date; equity was translated at historical rates and items in the statement of comprehensive income were translated at the average rate for the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income. The resulting translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Items in the cash flow statement are translated at the average exchange rate for the period.

 

Income Taxes

 

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

  

Lease

 

The Company determines if an arrangement contains a lease at inception. The Company elected the practical expedient, for all asset classes, to account for each lease component of a contract and its associated non-lease components as a single lease component, rather than allocating a standalone value to each component of a lease. For purposes of calculating operating lease obligations under the standard, the Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company’s leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms. The discount rate used to measure a lease obligation is usually the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.

 

Significant assumptions and judgments made as part of the adoption of this new lease standard include determining (i) whether a contract contains a lease, (ii) whether a contract involves an identified asset, and (iii) which party to the contract directs the use of the asset. The discount rates used to calculate the present value of lease payments were determined based on hypothetical borrowing rates available to the Company over terms similar to the lease terms.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2019. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.

 

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

 

In April 2019, the FASB issued ASU No. 2019-04 “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2019. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.

 

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

   

8

 

 

NOTE 3 INVENTORIES

 

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

 

   September 30,
2019
   December 31,
2018
 
   (In thousands of
U.S. Dollars)
 
Raw materials  $995   $6,805 
Work-in-progress   13,542    3,308 
Finished goods   50,751    55,816 
Total inventories  $65,288   $65,929 

 

NOTE 4 BANK LOANS

 

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

 

   September 30,
2019
   December 31,
2018
 
Bank  (In thousands of
U.S. Dollars)
 
Industrial and Commercial Bank of China  $18,382   $14,540 
Nanjing Bank   9,191    5,089 
China Minsheng Bank   2,828    2,908 
Bank of Communications   2,814    2,893 
Shanghai Pudong Development Bank   -    2,613 
China Everbright Bank   -    1,454 
HSBC   2,277    - 
   $35,492   $29,497 

 

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

 

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

   

9

 

 

In August 2018, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $7.1 million (RMB50.0 million). These loans are guaranteed by Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer. These loans are also collateralized by the Company’s property and equipment. As of September 30, 2019, approximately $7.1 million was unused and available under this line of credit.

 

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

  

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

 

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

 

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

 

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

 

In March 2019, Ever-Glory Apparel and Goldenway collectively entered into a secured banking facility agreement for a combined revolving import facility, letter of credit, invoice financing facilities and a credit line for treasury products of up to $2.5 million with the Nanjing Branch of HSBC (China) Company Limited (“HSBC”). This agreement is guaranteed by the Company and Mr. Kang. As of September 2019, Ever-Glory Apparel had collateralized approximately $2.3 million of accounts receivable from our wholesale customers. These bank loans are to be repaid upon receipt of payments from customers. As of September 30, 2019, approximately $0.2 million was unused and available under this line of credit.

 

All loans have been repaid before or at maturity date.

 

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

 

NOTE 5 Derivative Financial Instruments

 

Foreign currency swap contracts

 

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

 

10

 

 

In September 2019, Ever-Glory Apparel entered into a 15-day foreign currency swap contract with Industrial and Commercial Bank of China. The Company agreed to exchanged $4.9 million for EUR on September 26 and then to re-exchange these currencies on the swap maturity date of October 8, 2019. As of September 30, 2019, the unrealized foreign currency exchange gain of the asset was $2.6 thousands. The final realized gain is $4.1 thousands in October 2019.

 

Forward foreign exchange contracts

 

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

 

As of September 30, 2019, the Company had one outstanding forward foreign exchange contracts (sell USD dollars for RMB), with total notional amount of $8.0 million. The unrealized gain of this contract at September 30, 2019 was $58.6 thousands. 

 

NOTE 6 LEASES

 

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

 

The followings are lists of leases: (i) the terms of Shanghai LAGOGO land use right and buildings are 34 years; (ii) the terms of Kunshan logistics center and Chuzhou logistics center are 5 years; (iii) the terms of flagship stores are 3 years. The lease term for shopping mall stores is commonly one year with options to extend or renew, and the rent is predetermined with a percentage of sales. The Company estimates the next 12 months rent for the shopping mall stores by annualizing current period rent calculated with the percentage of sales. Thus, the ROU assets and lease liabilities may vary significantly at different period ends.

 

In the nine months ended September 30, 2019, the costs of the leases recognized in cost of revenues and general administrative expenses are $5.9 and $0.6 million, respectively. Cash paid for the operating leases including in the operating cash flows was $6.5 million. As of September 30, 2019, the Company has $35.2 million of right-of-use assets, $26.8 million in current operating lease liabilities and $8.4 million in non-current operating lease liabilities as of September 30, 2019.

 

11

 

 

NOTE 7 INCOME TAX

 

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

 

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

 

He Meida incorporated in Xizang (Tibet) Autonomous Region is subject to income tax at 15% statutory rate. The local government has implemented an income tax reduction from 15% to 9% valid through December 31, 2019.

 

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

 

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

 

Ever-Glory Supply Chain Service Co., Limited was incorporated in Hong Kong, and under the current laws of Hong Kong, 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.

  

After the tax assets and liabilities 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 nine months ended September 30, 2019 and 2018 was taxable in the following jurisdictions:

  

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
PRC  $(714)  $4,084   $2,891   $9,445 
Others   (3)   -    (10)   (14)
   $(717)  $4,084   $2,881   $9,431 

 

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

 

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
PRC statutory rate   25.0%   25.0%   25.0%   25.0%
Net operating losses   0.2    18.5    78.0    8.1 
Other   (79.1)   (21.3)   (10.5)   (1.8)
Effective income tax rate   (53.9)%   22.2%   92.5%   31.3%

 

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

  

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
Current  $387   $1,853   $2,377   $4,737 
Deferred   -    (945)   290    (1,788)
Income tax expense  $387   $908   $2,667   $2,949 

 

12

 

 

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

 

The Company has not recorded U.S. deferred income taxes on approximately $104.3 million of its non-U.S. subsidiaries’ undistributed earnings because such amounts are intended to be reinvested outside the United States indefinitely. The U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, no deferred tax expense (income) relating to the Tax Act changed for the three and nine months ended September 30, 2019.

   

NOTE 8 EARNINGS PER SHARE

 

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

  

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

  

NOTE 9 STOCKHOLDERS’ EQUITY

 

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

 

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

 

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

 

13

 

 

NOTE 10 RELATED PARTY TRANSACTIONS

 

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

 

Other income from Related Parties

  

Jiangsu Wubijia Trading Company Limited (“Wubijia”) is an entity engaged in high-grade home goods sales and is controlled by Mr. Kang. Wubijia has sold their home goods on consignment in certain Company’s retail stores since the third quarter of 2014. During the three and nine months ended September 30, 2019 and 2018, the Company received $10,868, $56,523, $17,961 and $69,502 from the customers and paid $10,935, $50,021, $18,077 and $57,395 to Wubijia through the consignment, respectively. The net income (loss) of ($67), $6,503, ($117) and $12,106 was recorded as other income (expenses) during the three and nine months ended September 30, 2019 and 2018, respectively.  

  

Other expenses due to Related Parties

 

Included in other expenses for the three and nine months ended September 30, 2019 and 2018 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows:

  

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
Chuzhou Huarui   52    48    140    157 
Kunshan Enjin   22    11    66    38 
Total  $74   $59   $206   $195 

 

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

  

Purchases from and Sub-contracts with Related Parties

 

In addition, sub-contracts with related parties included in cost of sales for the three and nine months ended September 30, 2019 and 2018 are as follows:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
Chuzhou Huarui  $1,197   $653   $4,664   $2,526 
Fengyang Huarui   1,071    911    1,619    1,962 
Nanjing Ever-Kyowa   342    392    1,097    1,067 
Ever-Glory Vietnam   4,689    6,754    9,737    11,928 
Nanjing Knitting   339    -    939    - 
EsCeLav   28    10    129    31 
Jiangsu Ever-Glory   345    664    815    685 
   $8,011   $9,384   $19,000   $18,199 

  

14

 

 

Accounts Payable – Related Parties

 

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

 

   2019   2018 
   (In thousands of
U.S. Dollars)
 
Ever-Glory Vietnam  $1,920    1,863 
Fengyang Huarui   388    622 
Nanjing Ever-Kyowa   279    580 
Chuzhou Huarui   1,142    888 
Nanjing Knitting   146    171 
Jiangsu Ever-Glory   480    632 
Total  $4,355   $4,756 

 

Amounts Due From Related Parties-current assets

 

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

 

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

 

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

    

Amounts Due From Related Party under Counter Guarantee Agreement

 

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

 

At December 31, 2018, $9.9 million (RMB 68.2 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the nine months ended September 30, 2019, an additional $6.8 million (RMB 46.3 million) was provided to and $10.7 million (RMB 73.3 million) was received from Jiangsu Ever-Glory under the counter-guarantee. As of September 30, 2019, the amount of the counter-guarantee was $5.8 million (RMB 41.3 million) (the difference represents currency exchange adjustment of $0.1 million), which was 17.9% of the aggregate amount of lines of credit. The increase of the percentage in this quarter was mainly due to China’s credit tightening policy. Obtaining bank loan requires a higher guarantee deposit in this quarter. This amount plus accrued interest of $0.6 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At September 30, 2019 and December 31, 2018, the amount classified as a reduction of equity was $6.6 million and $10.4 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. Since January 1, 2019, interest rate has changed to 0.3625% as the bank benchmark interest rate decreased. Interest income for the three and nine months ended September 30, 2019 and 2018 was approximately $0.05 million, $0.2 million, $0.3 million and $1.0 million, respectively.

 

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NOTE 11 CONCENTRATIONS AND RISKS

 

The Company extends unsecured credit to its customers in the normal course of business and generally does not require collateral. As a result, management performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis. Based on management’s assessment of the amount of probable credit losses, if any, in existing accounts receivable, the allowance for doubtful accounts at September 30, 2019 and December 31, 2018 was $4.5 million and $5.9 million, respectively. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of accounts receivable. In the analysis, management primarily considers the age of the customer’s receivable and also considers the credit worthiness of the customer, the economic conditions of the customer’s industry, and general economic conditions and trends, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts.  If judgments regarding the collectability of accounts receivables are incorrect, adjustments to the allowance may be required, which would reduce profitability.  

  

For the nine months ended September 30, 2019, the Company had one wholesale customer that represented approximately 17%of the Company’s revenues. For the three months ended September 30, 2019, the Company had one wholesale customer that represented approximately 10% of the Company’s revenues. For the nine-months ended September 30, 2018, the Company had two wholesale customers that represented more than 11% and 12% of the Company’s revenues. For the three-month period ended September 30, 2018, the Company had two wholesale customers that represented approximately 7% and 7% of the Company’s revenues.

 

For the wholesale business, the Company did not rely on any raw material supplier that represented more than 10% of the total raw material purchases during the three and nine months ended September 30, 2019 and 2018.

 

For the retail business, the Company relied on four raw material suppliers that represented approximately 28%, 27%, 18% and 15% of raw material purchases during the nine months ended September 30, 2019. For the Company’s retail business, the Company had two suppliers that represented approximately 22% and 19% of raw materials purchases during the three months ended September 30, 2018.

  

For the wholesale business, the Company did not rely on any finished goods supplier that represented more than 10% of the total raw material purchases during the three and nine months ended September 30, 2019 and 2018.

 

For the retail business, the Company did not rely on any supplier that represented more than 10% of the total finished goods purchases during the three and nine months ended September 30, 2019 and 2018.

 

The Company’s revenues for the three and nine months ended September 30, 2019 and 2018 were earned in the following geographic areas:

 

   Three months ended
September 30,
   Nine months ended
September 30,
 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
The People’s Republic of China  $23,241   $25,853   $40,486   $39,195 
Hong Kong China   14,574    18,427    22,291    30,982 
Germany   981    2,750    2,708    5,515 
United Kingdom   10,555    8,254    13,393    13,353 
Europe-Other   12,523    19,707    21,977    29,993 
Japan   10,056    2,371    16,304    6,689 
United States   9,807    8,321    29,931    24,026 
Total wholesale business   81,737    85,683    147,090    149,753 
Retail business   31,589    39,797    131,508    157,053 
Total  $113,326   $125,480   $278,598   $306,806 

 

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NOTE 12 SEGMENTS

 

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

 

(a) Wholesale segment

  

(b) Retail segment

 

   Wholesale
segment
   Retail
segment
   Total 
   (In thousands of U.S. Dollars) 
Nine months ended September 30, 2019    
Segment profit or loss:            
Net revenue from external customers  $147,090    131,508    278,598 
Income from operations  $6,925    (5,323)   1,602 
Interest income  $673    26    699 
Interest expense  $775    261    1,036 
Depreciation and amortization  $1,179    5,645    6,824 
Income tax expense  $1,617    1,050    2,667 
Segment assets:               
Additions to property, plant and equipment   1,069    5,486    6,555 
Total assets   114,789    170,456    285,245 
                
Nine months ended September 30, 2018               
Segment profit or loss:               
Net revenue from external customers  $149,753    157,053    306,806 
Income from operations  $6,935    1,593    8,528 
Interest income  $968    35    1,003 
Interest expense  $976    226    1,202 
Depreciation and amortization  $834    5,689    6,523 
Income tax expense  $1,800    1,149    2,949 
Segment assets:               
Additions to property, plant and equipment   1,322    7,822    9,144 
Total assets   121,951    150,334    272,285 

 

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   Wholesale
segment
   Retail
segment
   Total 
   (In thousands of U.S. Dollars) 
Three months ended September 30, 2019    
Segment profit or loss:            
Net revenue from external customers  $81,737    31,589    113,326 
Income from operations  $4,551    (5,720)   (1,169)
Interest income  $206    9    215 
Interest expense  $203    62    265 
Depreciation and amortization  $706    1,628    2,334 
Income tax expense  $143    244    388 
                
Three months ended September 30, 2018               
Segment profit or loss:               
Net revenue from external customers  $85,683    39,797    125,480 
Income from operations  $4,302    (348)   3,954 
Interest income  $304    3    307 
Interest expense  $194    84    278 
Depreciation and amortization  $233    1,387    1,620 
Income tax expense  $1,085    (177)   908 

 

NOTE 13 COMMITMENT AND CONTINGENCIES

 

On March 2019, Shanghai La Go Go Fashion Company Limited (“LA GO GO”) filed a complaint against Shanghai Chijing Investment Management Co., Ltd. (“Shanghai Chijing”) for unpaid rent of RMB2.45 million ($0.36 million) in the Shanghai People’s Court (the “Court”). On July 2019, Shanghai Chijing filed a counterclaim against LA GO GO for RMB15.38 million ($2.17 million), alleging that LA GO GO had not fulfilled its corresponding obligations as a landlord. As a result, the Court has frozen the bank accounts of both Shanghai Chijing and LA GO GO. As of September 30, 2019, a total balance of RMB9.79 million ($1.4 million) was frozen in the bank accounts of LA GO GO. LA GO GO believes that Shanghai Chijing’s counterclaim is frivolous and without merit, and intends to rigorously defend against the counterclaim. As of September 30, 2019, the company had booked this restricted cash in other receivables.

 

NOTE 14 SUBSEQUENT EVENTS

 

The Company has performed an evaluation of subsequent events through the time of filing this quarterly report on Form 10-Q with the SEC. During this period the Company did not have any additional material recognizable subsequent events.

 

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

 

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

 

Overview

 

Our Business

 

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

 

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

 

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

 

Wholesale Business

 

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

 

Retail Business

 

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

 

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Business Objectives

 

Wholesale Business

 

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

 

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

 

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

 

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

  

Retail Business

 

The business objectives for our retail segment are to establish leading brands of women’s apparel and to build a nationwide retail network in China. As of September 30, 2019, we had 1,157 stores (including store-in-stores), including 77 stores were opened and 301 stores were closed during the nine months ended September 30, 2019.

 

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

 

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

 

Seasonality of Business

 

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

 

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Collection Policy

 

Wholesale business

 

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

 

Retail business

 

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

 

Global Economic Uncertainty

 

Our business is dependent on consumer demand for our products. We believe that the significant uncertainty in the global economy and the slowdown of economies in the United States and Europe have increased our clients’ sensitivity to the cost of our products. We have experienced continued pricing pressure. If the global economic environment continues to be weak, these worsening economic conditions could have a negative impact on our sales growth and operating margins in our wholesale segment in 2019.

 

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.

 

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

 

Summary of Critical Accounting Policies

 

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

  

Revenue Recognition

 

We recognize wholesale revenue from product sales, net of value-added taxes, upon delivery for local sales and upon shipment of the products for export sales, at such time title passes to the customer. We recognize wholesale revenue from manufacturing fees charged to buyers for the assembly of garments from materials provided by the buyers upon completion of the manufacturing process and shipment of the products for export sales. Retail sales are recorded net of promotional discounts, rebates, and return allowances. Retail store sales are recognized at the time of the register receipt. Retail online sales are recognized when products are shipped and customers receive the products because we retain a portion of the risk of loss on these sales during transit.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Estimates and Assumptions

 

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

 

Lease

 

The Company determines if an arrangement contains a lease at inception. The Company elected the practical expedient, for all asset classes, to account for each lease component of a contract and its associated non-lease components as a single lease component, rather than allocating a standalone value to each component of a lease. For purposes of calculating operating lease obligations under the standard, the Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company’s leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms. The discount rate used to measure a lease obligation is usually the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.

 

Significant assumptions and judgments made as part of the adoption of this new lease standard include determining (i) whether a contract contains a lease, (ii) whether a contract involves an identified asset, and (iii) which party to the contract directs the use of the asset. The discount rates used to calculate the present value of lease payments were determined based on hypothetical borrowing rates available to the Company over terms similar to the lease terms.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2019. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.

 

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

 

In April 2019, the FASB issued ASU No. 2019-04 “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2019. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.

  

Results of Operations for the three months ended September 30, 2019 and 2018

 

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

 

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

 

Revenue

 

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

 

   2019   % of
total sales
   2018   % of
total sales
  

Growth (Decrease)

in 2019 compared
with 2018

 
Wholesale business  (In thousands of U.S. dollars)       (In thousands of U.S. dollars)         
Mainland China  $23,241    20.4%  $25,853    20.6%   (10.1)%
Hong Kong China   14,574    12.8    18,427    14.7    (20.9)
Germany   981    0.9    2,750    2.2    (64.3)
United Kingdom   10,555    9.3    8,254    6.6    27.9 
Europe-Other   12,523    11.1    19,707    15.7    (36.5)
Japan   10,056    8.9    2,371    1.9    324.1 
United States   9,807    8.7    8,321    6.6    17.9 
Total Wholesale business   81,737    72.1    85,683    68.3    (4.6)
Retail business   31,589    27.9    39,797    31.7    (20.6)
Total sales  $113,326    100.0%  $125,480    100.0%   (9.7)%

 

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Sales for the three months ended September 30, 2019 were $113.3 million, a 9.7% decrease compared with the three months ended September 30, 2018. This decrease was primarily attributable to a 4.6% decrease in sales in our wholesale business and a 20.6% decrease in our retail business.

 

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

 

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

 

Costs and Expenses

 

Cost of Sales and Gross Margin

 

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

 

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

 

                   Growth 
                   (Decrease) in
2019
 
   Three months ended September 30,   Compared 
   2019   2018   with 2018 
   (In thousands of U.S. dollars, except for percentages)     
Net Sales for Wholesale Sales  $81,737    100.0%  $85,683    100.0%   (4.6)%
Raw Materials   39,488    48.3    40,745    47.4    (3.1)
Labor   635    0.8    1,159    1.4    (45.2)
Outsourced Production Costs   31,176    38.1    33,401    39.0    (6.7)
Other and Overhead   181    0.2    138    0.2    31.4 
Total Cost of Sales for Wholesale   71,480    87.4    75,443    88.0    (5.3)
Gross Profit for Wholesale   10,257    12.6    10,240    12.0    0.2 
Net Sales for Retail   31,589    100.0    39,797    100.0    (20.6)
Production Costs   12,765    40.4    11,677    29.3    9.3 
Rent   4,722    14.9    8,300    20.9    (43.1)
Total Cost of Sales for Retail   17,487    55.3    19,976    50.2    (12.5)
Gross Profit for Retail   14,102    44.7    19,821    49.8    (28.9)
Total Cost of Sales   88,967    78.5    95,420    76.0    (6.8)
Gross Profit  $24,359    21.5%  $30,061    24.0%   (19.0)%

 

Raw material costs for our wholesale business were 48.3% of our total wholesale business sales in the three months ended September 30, 2019, compared with 47.4% in the three months ended September 30, 2018. The increase was mainly due to higher raw materials prices.

 

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Labor costs for our wholesale business were 0.8% of our total wholesale business sales in the three months ended September 30, 2019, compared with 1.4% in the three months ended September 30, 2018. The marginal decrease was mainly due to higher number of outsourced orders in 2019.

 

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

 

Overhead and other expenses for our wholesale business accounted for 0.2% of our total wholesale business sales for the three months ended September 30, 2019, compared with 0.2% of total wholesale business sales for the three months ended September 30, 2018.

 

Wholesale business gross profit for the three months ended September 30, 2019 was $10.3 million compared with $10.2 million for the three months ended September 30, 2018. Gross profit accounted for 12.6% of our total wholesale sales for the three months ended September 30, 2019, compared with 12.0% for the three months ended September 30, 2018. The increase was mainly due to a decrease in raw material costs.

 

Production costs for our retail business were $12.8 million for the three months ended September 30, 2019 compared with $11.7 million during the three months ended September 30, 2018. Retail production costs accounted for 40.4% of our total retail sales in the three months ended September 30, 2019, compared with 29.3% for the three months ended September 30, 2018. The increase was due to increase in overall purchase costs. 

 

Rent costs for our retail business for the three months ended September 30, 2019 were $4.7 million compared with $8.3 million for the three months ended September 30, 2018. Rent costs for our retail business accounted for 14.9% of our total retail sales for the three months ended September 30, 2019, compared with 20.9% for the three months ended September 30, 2018. The decrease was primarily attributable to the decline in number of stores and the decreased of sales.

  

Gross profit in our retail business for the three months ended September 30, 2019 was $14.1 million and gross margin was 44.7%. Gross profit in our retail business for the three months ended September 30, 2018 was $19.8 million and gross margin was 49.8%.

 

Total cost of sales for the three months ended September 30, 2019 was $89.0 million, a 6.8% decrease from $95.4 million for the three months ended September 30, 2018. Total cost of sales as a percentage of total sales for the three months ended September 30, 2019 was 78.5%, compared with 76.0% for the three months ended September 30, 2018. Gross margin for the three months ended September 30, 2019 was 21.5% compared with 24.0% for the three months ended September 30, 2018.  

 

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.

 

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

 

   Three Months Ended September 30,   Increase (Decrease) in 2019 Compared 
   2019   2018   to 2018 
   (In thousands of U.S. dollars, except for percentages)     
Gross Profit  $24,359    21.5%  $30,061    25.0%   (19.0)%
Operating Expenses:                         
Selling Expenses   17,944    15.8    17,588    14.6    2.0 
General and Administrative Expenses   7,584    6.7    8,519    7.1    (11.0)
Total   25,528    22.5    26,107    21.7    (2.2)
Income from Operations  $(1,169)   (1.0)%  $3,954    3.3%   (129.6)%

 

Selling expenses for the three months ended September 30, 2019 increased 2.0% to $17.9 million from $17.6 million for the three months ended September 30, 2018. The increase was attributable to the marketing expenses associated with the promotion of the retail brand. 

 

General and administrative expenses for the three months ended September 30, 2019 decreased 11.0% to $7.6 million from $8.5 million for the three months ended September 30, 2018. The decrease was attributable to the decline in number of stores.

 

Income (Loss) from Operations

 

Income (loss) from operations for the three months ended September 30, 2019 decreased 129.6% to ($1.2) million from $4.0 million for the three months ended September 30, 2018. Income from operations for the three months ended September 30, 2019 accounted for (1.0%) of our total sales, a 129.6% decrease compared with the three months ended September 30, 2018.

 

Interest Expense

 

Interest expense for the three months ended September 30, 2019 was $0.3 million, a 4.7% decrease compared with the same period in 2018. The decrease was due to the decreased bank loans.

 

Income Tax Expenses

 

Income tax expense was $0.4 million and $0.9 million for the three months end September 30, 2019 and 2018, respectively.

 

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

 

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

 

He Meida incorporated in Xizang (Tibet) Autonomous Region is subject to income tax at 15% statutory rate. The local government has implemented an income tax reduction from 15% to 9% valid through December 31, 2019.

 

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.

 

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

 

Net Income (Loss)

 

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

 

Results of Operations for the nine months ended September 30, 2019 and 2018

 

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

 

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

 

Revenue

 

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

 

   2019   % of total sales   2018   % of total sales  

Growth (Decrease)

in 2019 compared
with 2018

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

  

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Sales for the nine months ended September 30, 2019 were $278.6 million, a decrease of 9.2% from the nine months ended September 30, 2018. This decrease was primarily attributable to a 1.8% decrease in sales in our wholesale business and a 16.3% decrease in our retail business.

 

Sales generated from our wholesale business contributed 52.8% or $147.1 million of our total sales for the nine months ended September 30, 2019, a decrease of 1.8% compared with 48.8% or $149.8 million in the nine months ended September 30, 2018. This decrease was primarily attributable to decreased sales in Hong Kong China, Germany and Europe-Other partially offset by increased sales in Mainland China, United Kingdom, Japan and the United States.

 

Sales generated from our retail business contributed 47.2% or $131.5 million of our total sales for the nine months ended September 30, 2019, a decrease of 16.3% compared with 51.2% or $157.1 million in the nine months ended September 30, 2018. This decrease was primarily due to a decrease in same store sales.

 

Total retail store square footage and sales per square foot for the nine months ended September 30, 2019 and 2018 are as follows:

 

   2019   2018 
Total store square footage   1,219,459    1,405,399 
Number of stores   1,157    1,396 
Average store size, square feet   1,054    1,007 
Total store sales (in thousands of U.S. dollars)  $131,508   $157,053 
Sales per square foot  $108   $112 

   

Same store sales and newly opened store sales for the nine months ended September 30, 2019 and 2018 are as follows:

 

   2019   2018 
   (In thousands of U.S. dollars) 
Sales from stores opened for a full year  $111,739   $128,588 
Sales from newly opened store sales  $6,027   $12,212 
Sales from e-commerce platform  $9,000   $11,491 
Other*  $4,742   $4,762 
Total  $131,508   $157,053 

  

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

 

We remodeled or relocated 250 stores in 2018, and 89 stores during the nine months ended September 30, 2019. Remodels and relocations typically drive incremental same-store sales growth. A relocation typically results in an improved, more visible and accessible location, and usually includes increased square footage. We believe we will continue to have opportunities for additional remodels and relocations beyond 2018.  Same-store sales are calculated based upon stores that were open at least 12 full fiscal months in each reporting period and remain open at the end of each reporting period.

 

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Costs and Expenses

 

Cost of Sales and Gross Margin

 

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

 

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

 

                   Growth 
                   (Decrease) in
2019
 
   Nine months ended September 30,   Compared 
   2019   2018   with 2018 
   (In thousands of U.S. dollars, except for percentages)     
Net Sales for Wholesale Sales  $147,090    100.0%  $149,753    100.0%   (1.8)%
Raw Materials   67,172    45.7    67,469    45.0    (0.4)
Labor   1,340    0.9    1,940    1.3    (30.9)
Outsourced Production Costs   55,455    37.7    56,848    38.0    (2.4)
Other and Overhead   295    0.2    294    0.2    0.1 
Total Cost of Sales for Wholesale   124,262    84.5    126,551    84.5    (1.8)
Gross Profit for Wholesale   22,828    15.5    23,202    15.5    (1.6)
Net Sales for Retail   131,508    100.0    157,053    100.0    (16.3)
Production Costs   47,051    35.8    51,731    32.9    (9.0)
Rent   24,582    18.7    32,576    20.8    (24.5)
Total Cost of Sales for Retail   71,633    54.5    84,307    53.7    (15.0)
Gross Profit for Retail   59,875    45.5    72,746    46.3    (17.7)
Total Cost of Sales   195,895    70.3    210,858    68.7    (7.1)
Gross Profit  $82,703    29.7%  $95,948    31.3%   (13.8)%

 

Raw material costs for our wholesale business were 45.7% of our total wholesale business sales in the nine months ended September 30, 2019, compared with 45.0% in the nine months ended September 30, 2018. The increase was mainly due to higher raw materials prices.

 

Labor costs for our wholesale business were 0.9% of our total wholesale business sales in the nine months ended September 30, 2019, compared with 1.3% in the nine months ended September 30, 2018. The marginal decrease was mainly due to higher number of outsourced orders in 2019.

 

Outsourced manufacturing costs for our wholesale business were 37.7% of our total wholesale sales in the nine months ended September 30, 2019, compared with 38.0% in the nine months ended September 30, 2018. This decrease in percentage was primarily attributable to increased outsourced orders to our related entities in Vietnam, which have lower labor costs compared to orders outsourced to Chinese factories.

 

Overhead and other expenses for our wholesale business accounted for 0.2% and 0.2% of our total wholesale sales for the nine months ended September 30, 2019 and 2018, respectively.

 

Gross profit for our wholesale business for the nine months ended September 30, 2019 was $22.8 million, a 1.6% decrease compared with the nine months ended September 30, 2018. As a percentage of total wholesale business sales, gross profit was 15.5% of our total wholesale business sales for the nine months ended September 30, 2019, compared with 15.5% for the nine months ended September 30, 2018. The decrease in gross profits was mainly due to increased raw material costs and outsourced production costs.

 

Production costs for our retail business for the nine months ended September 30, 2019 were $47.1 million compared with $51.7 million for the nine months ended September 30, 2018. As a percentage of our total retail sales, production costs were 35.8% of our total retail sales for the nine months ended September 30, 2019, compared with 32.9% for the nine months ended September 30, 2018. The increase was due to higher discounts on our out-of-season products in the nine months ended September 30, 2019 compared with the same period of the prior year in percentage of sales.

 

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Rent costs for our retail business for the nine months ended September 30, 2019 were $24.6 million compared with $32.6 million for the nine months ended September 30, 2018. As a percentage of total retail sales, rent costs were 18.7% of our total retail sales for the nine months ended September 30, 2019 compared with 20.8% for the nine months ended September 30, 2018. The decrease was primarily attributable to lower rent at certain locations.

 

Gross profit for our retail business for the nine months ended September 30, 2019 was $59.9 million compared with $72.7 million for the nine months ended September 30, 2018. Gross margin for our retail business for the nine months ended September 30, 2019 was 45.5% compared with 46.3% for the nine months ended September 30, 2018.

 

Total cost of sales for the nine months ended September 30, 2019 was $195.9 million, a 7.1% decrease compared with the nine months ended September 30, 2018. As a percentage of total sales, total costs were 70.3% of total sales for the nine months ended September 30, 2019, compared with 68.7% for the nine months ended September 30, 2018. Total gross margin for the nine months ended September 30, 2019 was 29.7% compared with 31.3% for the nine months ended September 30, 2018.

 

We purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. For our wholesale business, purchases from our two largest suppliers represented approximately 7.6% and 16.8% of raw material purchases for the nine months ended September 30, 2019 and 2018, respectively. No one supplier provided more than 10.0% of our raw material purchases for the nine months ended September 30, 2019 and 2018. For our retail business, purchases from our two largest suppliers represented approximately 55.3% and 82.7% of raw material purchases for the nine months ended September 30, 2019 and 2018, respectively. Four suppliers provided approximately 28.0%, 27.3%, 18.0% and 14.8% of our total purchases for the nine months ended September 30, 2019. Five suppliers provided approximately 22.1%, 19.6%, 15.3%, 13.9 and 11.8% of our raw material purchases for the nine months ended September 30, 2018. We have not experienced difficulty in obtaining raw materials essential to our business, and we believe we maintain good relationships with our suppliers.

 

We also purchase finished goods from contract manufacturers. For our wholesale business, purchases from our five largest contract manufacturers represented approximately 32.5% and 26.8% of finished goods purchases for the nine months ended September 30, 2019 and 2018, respectively. No manufacturer provided more than 10% of our finished goods purchases for the nine months ended September 30, 2019 and 2018. For our retail business, our five largest contract manufacturers represented approximately 20.2% and 17.3% of finished goods purchases for the nine months ended September 30, 2019 and 2018, respectively. No manufacturer provided more than 10% of our finished goods purchases for the nine months ended September 30, 2019 and 2018. We have not experienced difficulty in obtaining finished products from our contract manufacturers and we believe we maintain good relationships with our contract manufacturers.

 

Selling, General and Administrative Expenses

 

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

 

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

 

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

 

   Nine months ended September 30,   Increase (Decrease) in 2019 Compared 
   2019   2018   to 2018 
   (In thousands of U.S. dollars, except for percentages)     
Gross Profit  $82,703    29.7%  $95,948    33.6%   (13.8)%
Operating Expenses:                         
Selling Expenses   58,651    21.1    62,405    21.9    (6.0)
General and Administrative Expenses   22,450    8.1    25,015    8.8    (10.3)
Total   81,101    29.2    87,420    30.7    (7.2)
Income from Operations  $1,602    0.5%  $8,528    3.0%   (81.2)%

   

Selling expenses for the nine months ended September 30, 2019 were $58.7 million, a 6.0% decrease compared with the nine months ended September 30, 2018. The decrease was attributable to lower retail sales.

 

General and administrative expenses for the nine months ended September 30, 2019 were $22.3 million a 10.3% decrease compared with the nine months ended September 30, 2018. As a percentage of total sales, general and administrative expenses accounted for 8.1% of total sales for the nine months ended September 30, 2019, compared with 8.8% of total sales for the nine months ended September 30, 2018. The decrease was mainly attributable to the decline in number of stores.

 

Income from Operations

 

Income from operations for the nine months ended September 30, 2018 was $1.6 million, an 81.2% decrease from $8.5 million for the nine months ended September 30, 2018. This decrease was due to decreased gross profit.

 

Interest Expense

 

Interest expense was $1.0 million and $1.2 million for the nine months ended September 30, 2019 and 2018, respectively.

 

Income Tax Expense

 

Income tax expense for the nine months ended September 30, 2019 was $2.7 million, a 9.6% decrease compared to the same period of 2018. The decrease was primarily due to deferred tax asset valuation allowance which resulted in a slightly higher income tax expense.

 

Net Income

 

Net income for the nine months ended September 30, 2019 was $0.2 million, a decrease of 96.7% compared with the same period in 2018. Basic and diluted earnings per share were $0.02 and $0.47 for the nine months ended September 30, 2019 and 2018, respectively.

 

Summary of Cash Flows

 

Summary cash flows information for the nine months ended September 30, 2019 and 2018 is as follows:

 

   2019   2018 
   (In thousands of U.S. dollars) 
Net cash used in operating activities  $(3,471)  $(21,122)
Net cash used in investing activities  $(6,555)  $(9,144)
Net cash provided by (used in) financing activities  $10,887   $(5,304)

 

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Net cash used in operating activities was $3.5 million for the nine months ended September 30, 2019 compared with net cash provided by $21.1 million during the nine months ended September 30, 2018. The decrease was primarily due to decrease in inventories.

  

Net cash used in investing activities was $6.6 million for the nine months ended September 30, 2019, compared with $9.1 million during the nine months ended September 30, 2018. This decrease was mainly due to the decreased in purchase of property and equipment and remodeling expenditure in 2018.

 

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

 

Liquidity and Capital Resources

 

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

 

Bank Loans

 

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

 

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

   

In August 2018, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $7.1 million (RMB50.0 million). These loans are guaranteed by Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer. These loans are also collateralized by the Company’s property and equipment. As of September 30, 2019, approximately $7.1 million was unused and available under this line of credit.

 

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

  

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

 

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

 

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

 

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

 

In March 2019, Ever-Glory Apparel and Goldenway collectively entered into a secured banking facility agreement for a combined revolving import facility, letter of credit, invoice financing facilities and a credit line for treasury products of up to $2.5 million with the Nanjing Branch of HSBC (China) Company Limited (“HSBC”). This agreement is guaranteed by the Company and Mr. Kang. As of September 2019, Ever-Glory Apparel had collateralized approximately $2.3 million of accounts receivable from our wholesale customers. These bank loans are to be repaid upon receipt of payments from customers. As of September 30, 2019, approximately $0.2 million was unused and available under this line of credit.

 

All loans have been repaid before or at maturity date.

 

Derivative Financial Instruments

 

Foreign currency swap contracts

 

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

 

In September 2019, Ever-Glory Apparel entered into a 15-day foreign currency swap contract with Industrial and Commercial Bank of China. The Company agreed to exchanged $4.9 million for EUR on September 26 and then to re-exchange these currencies on the swap maturity date of October 8, 2019. As of September 30, 2019, the unrealized foreign currency exchange gain of the asset was not significant. The final realized gain is $4,102.88 in October 2019.

 

33

 

 

Forward foreign exchange contracts

 

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

 

As of September 30, 2019, the Company had one outstanding forward foreign exchange contracts (sell USD dollars for RMB), with total notional amount of $8.0 million. The unrealized income of this contract at September 30, 2019 was not significant. 

 

Capital Commitments

 

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

  

Uses of Liquidity

 

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

  

Sources of Liquidity

 

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

 

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

 

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

 

Foreign Currency Translation Risk

 

Our operations are, for the most part, located in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between the United States dollar and the Chinese RMB. Most of our sales are in dollars. During 2003 and 2004, the exchange rate of RMB to the dollar remained constant at RMB 8.26 to the dollar. On July 21, 2005, the Chinese government adjusted the exchange rate from RMB 8.26 to 8.09 to the dollar. From that time, the RMB continued to appreciate against the U.S. dollar. As of September 30, 2019, the market foreign exchange rate had increased to RMB 6.87 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.

 

34

 

 

In addition, the financial statements of Goldenway, New-Tailun, Catch-Luck, Haian Taixin, Ever-Glory Apparel, Taixin, He Meida, Huirui, Shanghai LA GO GO, Yalan, Shanghai Yiduo, Tianjin LA GO GO and Jiangsu LA GO GO (whose functional currency is RMB) are translated into US dollars using the closing rate method. The balance sheet items are translated into US dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation gain (loss) for the three and nine months ended September 30, 2019 and 2018 was ($3.7) million, ($2.2) million, ($3.6) million and ($5.7) 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 September 30, 2019. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were operating effectively. 

 

Changes in Internal Control Over Financial Reporting

 

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

 

35

 

 

PART II.  OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

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

 

On March 2019, Shanghai La Go Go Fashion Company Limited (“LA GO GO”) filed a complaint against Shanghai Chijing Investment Management Co., Ltd. (“Shanghai Chijing”) for unpaid rent of RMB2.45 million ($0.36 million) in the Shanghai People’s Court (the “Court”). On July 2019, Shanghai Chijing filed a counterclaim against LA GO GO for RMB15.38 million ($2.17 million), alleging that LA GO GO had not fulfilled its corresponding obligations as a landlord. As a result, the Court has frozen the bank accounts of both Shanghai Chijing and LA GO GO. As of September 30, 2019, a total balance of RMB9.79 million ($1.4 million) was frozen in the bank accounts of LA GO GO. LA GO GO believes that Shanghai Chijing’s counterclaim is frivolous and without merit, and intends to rigorously defend against the counterclaim. As of September 30, 2019, the company had booked this restricted cash in other receivables.

 

ITEM 1A. RISK FACTORS

 

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

 

Changes to United States tax, tariff and import/export regulations may have a negative effect on global economic conditions, financial markets and our business. 

 

The current political climate has introduced greater uncertainty with respect to trade policies, tariffs and government regulations affecting trade between the U.S. and other countries, especially to trade between U.S. and China. Our products are sold to many countries including the U.S.  Major developments in tax policy or trade relations, such as the disallowance of tax deductions for imported products or the imposition of unilateral tariffs on imported products, could have a material adverse effect on our business, results of operations and liquidity. 

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

  

Securities Authorized for Issuance under Equity Incentive Plans

 

The following table presents information regarding equity instruments outstanding under our 2014 Equity Incentive Plan as of September 30, 2019:

 

   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 

 

36 

 

 

ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

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

 

37 

 

 

SIGNATURES

 

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

 

November 13, 2019 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)

 

 

 38

 

EXHIBIT 31.1

 

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Edward Yihua Kang, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2019 of Ever-Glory International Group, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 13, 2019 By: /s/ Edward Yihua Kang
    Edward Yihua Kang
   

Chief Executive Officer

(Principal Executive Officer)

  

EXHIBIT 31.2

 

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Jiansong Wang, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2019 of Ever-Glory International Group, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

  

Date: November 13, 2019  By: /s/ Jiansong Wang
    Jiansong Wang
   

Chief Finance Officer

(Principal Financial Officer)

 

EXHIBIT 32.1

 

Certification Pursuant To

Section 906 of Sarbanes-Oxley Act of 2002

 

I, Edward Yihua Kang, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

  1. The Quarterly report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or 78o(d)); and
     
  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 13, 2019 By: /s/ Edward Yihua Kang
    Edward Yihua Kang
   

Chief Executive Officer

(Principal Executive Officer)

 

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.

 

 

EXHIBIT 32.2

 

Certification Pursuant To

Section 906 of Sarbanes-Oxley Act of 2002

 

I, Jiansong Wang, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

  1. The Quarterly report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or 78o(d)); and
     
  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 13, 2019 By: /s/ Jiansong Wang
    Jiansong Wang
   

Chief Finance Officer

(Principal Financial Officer)

 

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.

 

 

v3.19.3
Inventories (Details) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Schedule of inventories    
Raw materials $ 995 $ 6,805
Work-in-progress 13,542 3,308
Finished goods 50,751 55,816
Total inventories $ 65,288 $ 65,929
v3.19.3
Earnings Per Share (Tables)
9 Months Ended
Sep. 30, 2019
Earnings Per Share [Abstract]  
Schedule of earnings per share

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
Weighted average number of common shares – Basic and diluted   14,801,770    14,798,198    14,801,770    14,796,527 
Earnings per share – Basic and diluted  $(0.07)  $0.22   $0.02  $0.47 
v3.19.3
Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Revenue Recognition

Revenue Recognition 

 

We recognize wholesale revenue from product sales, net of value-added taxes, upon delivery for local sales and upon shipment of the products for export sales, at such time title passes to the customer. We recognize wholesale revenue from manufacturing fees charged to buyers for the assembly of garments from materials provided by the buyers upon completion of the manufacturing process and shipment of the products for export sales. Retail sales are recorded net of promotional discounts, rebates, and return allowances. Retail store sales are recognized at the time of the register receipt. Retail online sales are recognized when products are shipped and customers receive the products because we retain a portion of the risk of loss on these sales during transit.

 

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

 

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

 

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

  

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

 

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

 

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

 

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

 

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

Derivatives financial instruments

Derivatives financial instruments 

 

From time to time, the Company uses derivative financial instruments to manage its exposure to foreign currency risks arising from operational activities or on certain existing assets and liabilities. The Company does not hold or issue derivative instruments for trading purposes. The Company may enter into forward foreign exchange contracts, foreign exchange options, or foreign exchange currency swap contracts to manage exposure to certain foreign currency operating transactions. These instruments may offset a portion of the foreign currency re-measurement gains or losses, or changes in fair value.

 

The Company may also enter into above similar derivative instruments to hedge the exposure to variability in the expected cash flows of forecasted transactions such as international sales or purchases that the Company expects to receive or commit to remit foreign currencies. In these cases, the Company designates these instruments as the cash flow hedges.

 

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

Accounts Receivable, net

Accounts Receivable, net

 

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts.  An allowance for doubtful accounts is established and recorded based on management's assessment of the credit history of its customers and current relationships with them. The Company writes off accounts receivable when amounts are deemed uncollectible.

Fair Value Accounting

Fair Value Accounting

 

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

 

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

 

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

 

As of September 30, 2019 and 2018, the Company's financial assets (all Level 1) consist of cash placed with financial institutions that management considers to be of a high quality.

 

As of September 30, 2019, the Company has one derivative liability subjects to recurring fair value measurement (Level 2) with the change in fair value recognized in earnings (Note 5).

 

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

  

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

Foreign Currency Translation and Other Comprehensive Income

Foreign Currency Translation and Other Comprehensive Income

 

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

 

For subsidiaries whose functional currency is the RMB, all assets and liabilities were translated at the exchange rate at the balance sheet date; equity was translated at historical rates and items in the statement of comprehensive income were translated at the average rate for the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income. The resulting translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Items in the cash flow statement are translated at the average exchange rate for the period.

Income Tax

Income Taxes

 

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

Lease

Lease

 

The Company determines if an arrangement contains a lease at inception. The Company elected the practical expedient, for all asset classes, to account for each lease component of a contract and its associated non-lease components as a single lease component, rather than allocating a standalone value to each component of a lease. For purposes of calculating operating lease obligations under the standard, the Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company's leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms. The discount rate used to measure a lease obligation is usually the rate implicit in the lease; however, the Company's operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.

 

Significant assumptions and judgments made as part of the adoption of this new lease standard include determining (i) whether a contract contains a lease, (ii) whether a contract involves an identified asset, and (iii) which party to the contract directs the use of the asset. The discount rates used to calculate the present value of lease payments were determined based on hypothetical borrowing rates available to the Company over terms similar to the lease terms.

Recently Issued Accounting Pronouncements

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" which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2019. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.

 

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

 

In April 2019, the FASB issued ASU No. 2019-04 "Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments" which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2019. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.

 

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

v3.19.3
Related Party Transactions (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Summary of other expenses due to related parties        
Total $ 74 $ 59 $ 206 $ 195
Chuzhou Huarui [Member]        
Summary of other expenses due to related parties        
Total 52 48 140 157
Kunshan Enjin [Member]        
Summary of other expenses due to related parties        
Total $ 22 $ 11 $ 66 $ 38
v3.19.3
Related Party Transactions (Details Textual)
¥ in Thousands, $ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2019
USD ($)
Sep. 30, 2018
USD ($)
Sep. 30, 2019
USD ($)
Sep. 30, 2019
CNY (¥)
Sep. 30, 2018
USD ($)
Dec. 31, 2018
USD ($)
Dec. 31, 2018
CNY (¥)
Sep. 30, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Related Party Transactions (Textual)                  
Net income (loss) $ (1,076) $ 3,316 $ 260   $ 6,907        
Sub-contracts with related parties 8,011 9,384 19,000   18,199        
Outstanding due from Jiangsu Ever-Glory 6,648   6,648     $ 10,354      
Interest income 50 200 $ 300   100        
Amounts due from related party under counter guarantee agreement, description     The amount of the counter-guarantee was $5.8 million (RMB 41.3 million) (the difference represents currency exchange adjustment of $0.1 million), which was 17.9% of the aggregate amount of lines of credit. The increase of the percentage in this quarter was mainly due to China's credit tightening policy. Obtaining bank loan requires a higher guarantee deposit in this quarter. This amount plus accrued interest of $0.6 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At September 30, 2019 and December 31, 2018, the amount classified as a reduction of equity was $6.6 million and $10.4 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. Since January 1, 2019, interest rate has changed to 0.3625% as the bank benchmark interest rate decreased. Interest income for the three and nine months ended September 30, 2019 and 2018 was approximately $0.05 million, $0.2 million, $0.3 million and $1.0 million, respectively. The amount of the counter-guarantee was $5.8 million (RMB 41.3 million) (the difference represents currency exchange adjustment of $0.1 million), which was 17.9% of the aggregate amount of lines of credit. The increase of the percentage in this quarter was mainly due to China's credit tightening policy. Obtaining bank loan requires a higher guarantee deposit in this quarter. This amount plus accrued interest of $0.6 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At September 30, 2019 and December 31, 2018, the amount classified as a reduction of equity was $6.6 million and $10.4 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. Since January 1, 2019, interest rate has changed to 0.3625% as the bank benchmark interest rate decreased. Interest income for the three and nine months ended September 30, 2019 and 2018 was approximately $0.05 million, $0.2 million, $0.3 million and $1.0 million, respectively.          
CNY [Member]                  
Related Party Transactions (Textual)                  
Outstanding due from Jiangsu Ever-Glory | ¥                 ¥ 68,200
JiangsuWubijia Trading Company Limited [Member]                  
Related Party Transactions (Textual)                  
Company received amount from related party 10,868 56,523 $ 17,961   69,502        
Amount paid through the consignment 10,935 50,021 18,077   57,395        
Net income (loss) (67) 6,503 (117)   12,106        
Mr. Kang [Member]                  
Related Party Transactions (Textual)                  
Guarantee on lines of credit     $ 16,400     14,500      
Shareholding pattern, description     Mr. Huake Kang, Mr. Kang's son, acquired 83% interest of Ever-Glory Enterprises and became its sole director in 2014. Mr. Huake Kang, Mr. Kang's son, acquired 83% interest of Ever-Glory Enterprises and became its sole director in 2014.          
Mr. Kang [Member] | CNY [Member]                  
Related Party Transactions (Textual)                  
Guarantee on lines of credit | ¥       ¥ 117,700     ¥ 100,000    
Jiangsu Ever Glory [Member]                  
Related Party Transactions (Textual)                  
Purchase of raw material 800 800 $ 400   700        
Sub-contracts with related parties 345 664 815   685        
Company sold raw materials 0 $ 100 300   $ 400        
Lines of credit     32,500     33,400      
Guarantee on lines of credit     29,100     29,900      
Outstanding due from Jiangsu Ever-Glory $ 6,800   6,800     $ 9,900      
Repayment received under counter guarantee     $ 10,700            
Shareholding pattern, description     Jiangsu Ever-Glory is obligated to return the full amount of the counter-guarantee funds provided upon expiration or termination of the underlying lines of credit and is to pay annual interest at the rate of 6.0% of amounts provided. Jiangsu Ever-Glory is obligated to return the full amount of the counter-guarantee funds provided upon expiration or termination of the underlying lines of credit and is to pay annual interest at the rate of 6.0% of amounts provided.          
Jiangsu Ever Glory [Member] | CNY [Member]                  
Related Party Transactions (Textual)                  
Lines of credit | ¥       ¥ 230,000     230,000    
Guarantee on lines of credit | ¥       205,500     ¥ 205,500    
Outstanding due from Jiangsu Ever-Glory | ¥               ¥ 46,300 ¥ 68,200
Repayment received under counter guarantee | ¥       ¥ 73,300          
v3.19.3
Segments (Details Textual)
9 Months Ended
Sep. 30, 2019
Segment
Segments (Textual)  
Number of segments 2
v3.19.3
Bank Loans (Details) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Schedule of short term bank loans    
Bank loans $ 35,492 $ 29,497
Industrial and Commercial Bank Of China [Member]    
Schedule of short term bank loans    
Bank loans 18,382 14,540
Nanjing Bank [Member]    
Schedule of short term bank loans    
Bank loans 9,191 5,089
China Minsheng Bank [Member]    
Schedule of short term bank loans    
Bank loans 2,828 2,908
Bank of Communications [Member]    
Schedule of short term bank loans    
Bank loans 2,814 2,893
Shanghai Pudong Development Bank [Member]    
Schedule of short term bank loans    
Bank loans 2,613
China Everbright Bank [Member]    
Schedule of short term bank loans    
Bank loans 1,454
HSBC [Member]    
Schedule of short term bank loans    
Bank loans $ 2,277
v3.19.3
Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Statement [Abstract]        
NET SALES $ 113,326 $ 125,480 $ 278,598 $ 306,806
COST OF SALES 88,967 95,419 195,895 210,858
GROSS PROFIT 24,359 30,061 82,703 95,948
OPERATING EXPENSES        
Selling expenses 17,944 17,588 58,651 62,405
General and administrative expenses 7,584 8,519 22,450 25,015
Total Operating Expenses 25,528 26,107 81,101 87,420
(LOSS) INCOME FROM OPERATIONS (1,169) 3,954 1,602 8,528
OTHER INCOME (EXPENSES)        
Interest income 215 307 699 1,003
Interest expense (265) (278) (1,036) (1,202)
Other income 502 101 1,616 1,102
Total Other Income, Net 452 130 1,279 903
(LOSS) INCOME BEFORE INCOME TAX EXPENSE (717) 4,084 2,881 9,431
Income tax expense (387) (908) (2,667) (2,949)
NET (LOSS) INCOME (1,104) 3,176 214 6,482
Net loss attributable to the non-controlling interest 28 140 46 425
NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY (1,076) 3,316 260 6,907
NET (LOSS) INCOME (1,104) 3,176 214 6,482
Foreign currency translation (loss) gain (3,729) (3,674) (2,244) (5,742)
Unrealized loss of derivative contracts designated as cash flow hedge (614) (1,083)
COMPREHENSIVE (LOSS) INCOME (4,833) (1,112) (2,030) (343)
Comprehensive (loss) income attributable to the non-controlling interest 15 57 67 366
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY $ (4,818) $ (1,055) $ (1,963) $ 23
EARNINGS PER SHARE ATTRIBUTABLE TO THE COMPANY’S STOCKHOLDERS        
Basic and diluted $ (0.07) $ 0.22 $ 0.02 $ 0.47
Weighted average number of shares outstanding Basic and diluted 14,801,770 14,798,198 14,801,770 14,796,527
v3.19.3
Income Tax (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Summary of Pre-tax income in jurisdictions        
Pre-tax income $ (717) $ 4,084 $ 2,881 $ 9,431
PRC [Member]        
Summary of Pre-tax income in jurisdictions        
Pre-tax income (714) 4,084 2,891 9,445
Others [Member]        
Summary of Pre-tax income in jurisdictions        
Pre-tax income $ (3) $ (10) $ (14)
v3.19.3
Significant Accounting Policies
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

 

Revenue Recognition 

 

We recognize wholesale revenue from product sales, net of value-added taxes, upon delivery for local sales and upon shipment of the products for export sales, at such time title passes to the customer. We recognize wholesale revenue from manufacturing fees charged to buyers for the assembly of garments from materials provided by the buyers upon completion of the manufacturing process and shipment of the products for export sales. Retail sales are recorded net of promotional discounts, rebates, and return allowances. Retail store sales are recognized at the time of the register receipt. Retail online sales are recognized when products are shipped and customers receive the products because we retain a portion of the risk of loss on these sales during transit.

 

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

 

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

 

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

  

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

 

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

 

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

 

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

 

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

 

Derivatives financial instruments 

 

From time to time, the Company uses derivative financial instruments to manage its exposure to foreign currency risks arising from operational activities or on certain existing assets and liabilities. The Company does not hold or issue derivative instruments for trading purposes. The Company may enter into forward foreign exchange contracts, foreign exchange options, or foreign exchange currency swap contracts to manage exposure to certain foreign currency operating transactions. These instruments may offset a portion of the foreign currency re-measurement gains or losses, or changes in fair value.

 

The Company may also enter into above similar derivative instruments to hedge the exposure to variability in the expected cash flows of forecasted transactions such as international sales or purchases that the Company expects to receive or commit to remit foreign currencies. In these cases, the Company designates these instruments as the cash flow hedges.

 

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

   

Accounts Receivable, net

 

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

 

Fair Value Accounting

 

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

 

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

 

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

 

As of September 30, 2019 and 2018, the Company’s financial assets (all Level 1) consist of cash placed with financial institutions that management considers to be of a high quality.

 

As of September 30, 2019, the Company has one derivative liability subjects to recurring fair value measurement (Level 2) with the change in fair value recognized in earnings (Note 5).

 

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

  

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

 

Foreign Currency Translation and Other Comprehensive Income

 

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

 

For subsidiaries whose functional currency is the RMB, all assets and liabilities were translated at the exchange rate at the balance sheet date; equity was translated at historical rates and items in the statement of comprehensive income were translated at the average rate for the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income. The resulting translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Items in the cash flow statement are translated at the average exchange rate for the period.

 

Income Taxes

 

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

  

Lease

 

The Company determines if an arrangement contains a lease at inception. The Company elected the practical expedient, for all asset classes, to account for each lease component of a contract and its associated non-lease components as a single lease component, rather than allocating a standalone value to each component of a lease. For purposes of calculating operating lease obligations under the standard, the Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company’s leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms. The discount rate used to measure a lease obligation is usually the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.

 

Significant assumptions and judgments made as part of the adoption of this new lease standard include determining (i) whether a contract contains a lease, (ii) whether a contract involves an identified asset, and (iii) which party to the contract directs the use of the asset. The discount rates used to calculate the present value of lease payments were determined based on hypothetical borrowing rates available to the Company over terms similar to the lease terms.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2019. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.

 

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

 

In April 2019, the FASB issued ASU No. 2019-04 “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2019. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.

 

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

v3.19.3
Earnings Per Share (Details) - $ / shares
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Basic and diluted earnings per share        
Weighted average number of common shares - Basic and diluted 14,801,770 14,798,198 14,801,770 14,796,527
Earnings per share - Basic and diluted $ (0.07) $ 0.22 $ 0.02 $ 0.47
v3.19.3
Concentrations and Risks
9 Months Ended
Sep. 30, 2019
Risks and Uncertainties [Abstract]  
CONCENTRATIONS AND RISKS

NOTE 11 CONCENTRATIONS AND RISKS

 

The Company extends unsecured credit to its customers in the normal course of business and generally does not require collateral. As a result, management performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis. Based on management's assessment of the amount of probable credit losses, if any, in existing accounts receivable, the allowance for doubtful accounts at September 30, 2019 and December 31, 2018 was $4.5 million and $5.9 million, respectively. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of accounts receivable. In the analysis, management primarily considers the age of the customer's receivable and also considers the credit worthiness of the customer, the economic conditions of the customer's industry, and general economic conditions and trends, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company's future allowance for doubtful accounts.  If judgments regarding the collectability of accounts receivables are incorrect, adjustments to the allowance may be required, which would reduce profitability.  

  

For the nine months ended September 30, 2019, the Company had one wholesale customer that represented approximately 17%of the Company's revenues. For the three months ended September 30, 2019, the Company had one wholesale customer that represented approximately 10% of the Company's revenues. For the nine-months ended September 30, 2018, the Company had two wholesale customers that represented more than 11% and 12% of the Company's revenues. For the three-month period ended September 30, 2018, the Company had two wholesale customers that represented approximately 7% and 7% of the Company's revenues.

 

For the wholesale business, the Company did not rely on any raw material supplier that represented more than 10% of the total raw material purchases during the three and nine months ended September 30, 2019 and 2018.

 

For the retail business, the Company relied on four raw material suppliers that represented approximately 28%, 27%, 18% and 15% of raw material purchases during the nine months ended September 30, 2019. For the Company's retail business, the Company had two suppliers that represented approximately 22% and 19% of raw materials purchases during the three months ended September 30, 2018.

  

For the wholesale business, the Company did not rely on any finished goods supplier that represented more than 10% of the total raw material purchases during the three and nine months ended September 30, 2019 and 2018.

 

For the retail business, the Company did not rely on any supplier that represented more than 10% of the total finished goods purchases during the three and nine months ended September 30, 2019 and 2018.

 

The Company's revenues for the three and nine months ended September 30, 2019 and 2018 were earned in the following geographic areas:

 

   Three months ended
September 30,
   Nine months ended
September 30,
 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
The People's Republic of China  $23,241   $25,853   $40,486   $39,195 
Hong Kong China   14,574    18,427    22,291    30,982 
Germany   981    2,750    2,708    5,515 
United Kingdom   10,555    8,254    13,393    13,353 
Europe-Other   12,523    19,707    21,977    29,993 
Japan   10,056    2,371    16,304    6,689 
United States   9,807    8,321    29,931    24,026 
Total wholesale business   81,737    85,683    147,090    149,753 
Retail business   31,589    39,797    131,508    157,053 
Total  $113,326   $125,480   $278,598   $306,806 
v3.19.3
Income Tax
9 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
INCOME TAX

NOTE 7 INCOME TAX

 

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

 

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

 

He Meida incorporated in Xizang (Tibet) Autonomous Region is subject to income tax at 15% statutory rate. The local government has implemented an income tax reduction from 15% to 9% valid through December 31, 2019.

 

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

 

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

 

Ever-Glory Supply Chain Service Co., Limited was incorporated in Hong Kong, and under the current laws of Hong Kong, 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.

  

After the tax assets and liabilities 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 nine months ended September 30, 2019 and 2018 was taxable in the following jurisdictions:

  

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
PRC  $(714)  $4,084   $2,891   $9,445 
Others   (3)   -    (10)   (14)
   $(717)  $4,084   $2,881   $9,431 

 

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

 

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
PRC statutory rate   25.0%   25.0%   25.0%   25.0%
Net operating losses for which no deferred tax assets was recognized   0.2    18.5    78.0    8.1 
Other   (79.1)   (21.3)   (10.5)   (1.8)
Effective income tax rate   (53.9)%   22.2%   92.5%   31.3%

 

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

  

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
Current  $387   $1,853   $2,377   $4,737 
Deferred   -    (945)   290    (1,788)
Income tax expense  $387   $908   $2,667   $2,949 

 

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

 

The Company has not recorded U.S. deferred income taxes on approximately $104.3 million of its non-U.S. subsidiaries' undistributed earnings because such amounts are intended to be reinvested outside the United States indefinitely. The U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company's measurement, no deferred tax expense (income) relating to the Tax Act changed for the three and nine months ended September 30, 2019.

v3.19.3
Inventories
9 Months Ended
Sep. 30, 2019
Inventory Disclosure [Abstract]  
INVENTORIES

NOTE 3 INVENTORIES

 

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

 

   September 30,
2019
   December 31,
2018
 
   (In thousands of
U.S. Dollars)
 
Raw materials  $995   $6,805 
Work-in-progress   13,542    3,308 
Finished goods   50,751    55,816 
Total inventories  $65,288   $65,929 
v3.19.3
Stockholders' Equity (Details) - Two Independent Directors [Member]
1 Months Ended
Jul. 26, 2019
Directors
$ / shares
shares
Jan. 31, 2019
Directors
$ / shares
shares
Jul. 26, 2018
Directors
$ / shares
shares
Stockholders' Equity (Textual)      
Common stock shares issued to independent directors | shares 1,630 1,942 2,206
Average market price of the common stock for the five days before the grant date | $ / shares $ 3.04 $ 3.8 $ 3.39
Number of days used to calculation average market price of common stock, description Five days before the grant date.  Five days before the grant date. Five days before the grant date.
Number of directors | Directors 2 2 2
v3.19.3
Bank Loans (Details Textual)
¥ in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
USD ($)
Sep. 30, 2018
USD ($)
Sep. 30, 2019
USD ($)
Sep. 30, 2018
USD ($)
Sep. 30, 2019
CNY (¥)
Jun. 30, 2019
CNY (¥)
Mar. 31, 2019
USD ($)
Nov. 30, 2018
USD ($)
Nov. 30, 2018
CNY (¥)
Sep. 30, 2018
CNY (¥)
Aug. 31, 2018
USD ($)
Aug. 31, 2018
CNY (¥)
Jul. 31, 2018
USD ($)
Jul. 31, 2018
CNY (¥)
Jun. 30, 2018
USD ($)
Jun. 30, 2018
CNY (¥)
May 31, 2018
USD ($)
May 31, 2018
CNY (¥)
Dec. 31, 2016
USD ($)
Dec. 31, 2016
CNY (¥)
Bank Loans (Textual)                                        
Interest expense on bank loans $ 200 $ 200 $ 1,000 $ 1,200                                
HSBC [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount             $ 2,500                          
Unused line of credit 200   200                                  
Accounts receivable from our wholesale customers 2,300   $ 2,300                                  
Nanjing Bank [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount                                 $ 2,800      
Line of credit extended maturity date     Jun. 30, 2020                                  
Line of credit annual interest rates     5.20%                                  
Borrowed loans from related party 2,100   $ 2,100                                  
Nanjing Bank [Member] | CNY [Member]                                        
Bank Loans (Textual)                                        
Borrowed loans from related party | ¥         ¥ 15,000                              
Nanjing Bank [Member] | Ever Glory Apparel [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount                     $ 8,500                  
Unused line of credit 7,100   $ 7,100                                  
Line of credit extended maturity date     Jun. 30, 2020                                  
Line of credit annual interest rates     5.00%                                  
Borrowed loans from related party 12,700   $ 12,700                                  
Line of credit extended maturity date, description     Due on various dates from December 2019 to June 2020.                                  
Nanjing Bank [Member] | Ever Glory Apparel [Member] | CNY [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount | ¥                       ¥ 60,000                
Borrowed loans from related party | ¥         90,000                              
Nanjing Bank [Member] | Mr. Kang and Goldenway [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount 2,100   $ 2,100                           $ 2,800      
Nanjing Bank [Member] | Mr. Kang and Goldenway [Member] | CNY [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount | ¥         15,000                         ¥ 20,000    
Industrial and Commercial Bank Of China [Member] | Ever Glory Apparel [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount               $ 14,100                        
Unused line of credit 1,400   1,400                                  
Borrowed loans from related party 7,100   $ 7,100                                  
Line of credit extended maturity date, description     Due on various dates from October 2019 to May 2020.                                  
Industrial and Commercial Bank Of China [Member] | Ever Glory Apparel [Member] | CNY [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount               100,000                        
Borrowed loans from related party | ¥         50,000                              
Industrial and Commercial Bank Of China [Member] | Ever Glory Apparel [Member] | Minimum [Member]                                        
Bank Loans (Textual)                                        
Line of credit annual interest rates     4.57%                                  
Industrial and Commercial Bank Of China [Member] | Ever Glory Apparel [Member] | Maximum [Member]                                        
Bank Loans (Textual)                                        
Line of credit annual interest rates     4.70%                                  
Industrial and Commercial Bank Of China [Member] | Goldenway [Member]                                        
Bank Loans (Textual)                                        
Borrowed loans from related party 5,700   $ 5,700                                  
Industrial and Commercial Bank Of China [Member] | Goldenway [Member] | CNY [Member]                                        
Bank Loans (Textual)                                        
Borrowed loans from related party | ¥         40,000                              
Goldenway [Member] | Ever Glory Apparel [Member]                                        
Bank Loans (Textual)                                        
Line of credit extended maturity date     Nov. 30, 2019                                  
Line of credit annual interest rates     3.92%                                  
Goldenway [Member] | Nanjing Bank [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount                     $ 7,100                  
Goldenway [Member] | Nanjing Bank [Member] | CNY [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount | ¥                       ¥ 50,000                
China Minsheng Banking [Member] | Ever Glory Apparel [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount                             $ 2,800          
Line of credit extended maturity date     Oct. 31, 2019                                  
Line of credit annual interest rates     4.79%                                  
Borrowed loans from related party 2,800   $ 2,800                                  
China Minsheng Banking [Member] | Ever Glory Apparel [Member] | CNY [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount | ¥           ¥ 20,000                   ¥ 20,000        
Borrowed loans from related party | ¥         20,000                              
Shanghai Pudong Development Bank [Member] | Ever Glory Apparel [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount                         $ 2,800              
Unused line of credit 2,800   $ 2,800                                  
Shanghai Pudong Development Bank [Member] | Ever Glory Apparel [Member] | CNY [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount | ¥                           ¥ 20,000            
Bank Of Communications [Member] | Nanjing Bank [Member]                                        
Bank Loans (Textual)                                        
Due date of revolving line of credit agreement     November 2019 to January 2020                                  
Line of credit annual interest rates     4.57%                                  
La Go Go [Member] | Ever Glory Apparel [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount   $ 2,800   $ 2,800       $ 2,800                        
Unused line of credit 700   $ 700                                  
Borrowed loans from related party 2,900   2,900                                  
La Go Go [Member] | Ever Glory Apparel [Member] | CNY [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount | ¥                 ¥ 19,900 ¥ 20,000                    
Borrowed loans from related party | ¥         ¥ 19,900                              
Bank of China [Member] | Ever Glory Apparel [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount                                     $ 8,500  
Unused line of credit $ 1,400   $ 1,400                                  
Bank of China [Member] | Ever Glory Apparel [Member] | CNY [Member]                                        
Bank Loans (Textual)                                        
Line of credit agreement amount | ¥                                       ¥ 60,000
v3.19.3
Condensed Consolidated Statements of Equity (Unaudited) - USD ($)
$ in Thousands
Common Stock
Additional paid-in capital
Retained Earnings Unrestricted
Retained Earnings Statutory reserve
Accumulated other Comprehensive income
Amounts due from related party
Total equity attributable to stockholders of the Company
Non-controlling Interest
Total
Balance at Dec. 31, 2017 $ 15 $ 3,620 $ 95,195 $ 17,794 $ 2,585 $ (15,449) $ 103,760 $ (1,062) $ 102,698
Balance, shares at Dec. 31, 2017 14,795,992                
Net income (loss) 815 815 (228) 587
Net cash paid to related party under counter guarantee agreement (8,479) (8,479) (8,479)
Foreign currency translation gain (loss)         4,023 4,023 (42) 3,981
Balance at Mar. 31, 2018 $ 15 3,620 96,010 17,794 6,608 (23,928) 100,119 (1,332) 98,787
Balance, shares at Mar. 31, 2018 14,795,992                
Balance at Dec. 31, 2017 $ 15 3,620 95,195 17,794 2,585 (15,449) 103,760 (1,062) 102,698
Balance, shares at Dec. 31, 2017 14,795,992                
Net income (loss)                 6,482
Balance at Sep. 30, 2018 $ 15 3,627 102,102 17,794 (4,240) (20,252) 99,046 (1,428) 97,618
Balance, shares at Sep. 30, 2018 14,798,198                
Balance at Mar. 31, 2018 $ 15 3,620 96,010 17,794 6,608 (23,928) 100,119 (1,332) 98,787
Balance, shares at Mar. 31, 2018 14,795,992                
Net income (loss)     2,776       2,776 (57) 2,719
Net cash advanced to related party under counter guarantee agreement           2,339 2,339   2,339
Foreign currency translation gain (loss)         (6,656)   (6,656) 70 (6,586)
Balance at Jun. 30, 2018 $ 15 3,620 98,786 17,794 (48) (21,589) 98,578 (1,319) 97,259
Balance, shares at Jun. 30, 2018 14,795,992                
Stock issued for compensation   7         7   7
Stock issued for compensation, shares 2,206                
Net income (loss)     3,316       3,316 (140) 3,176
Net cash advanced to related party under counter guarantee agreement           1,337 1,337   1,337
Foreign currency translation gain (loss)         (4,192)   (4,192) 31 (4,161)
Balance at Sep. 30, 2018 $ 15 3,627 102,102 17,794 (4,240) (20,252) 99,046 (1,428) 97,618
Balance, shares at Sep. 30, 2018 14,798,198                
Balance at Dec. 31, 2018 $ 15 3,627 105,914 19,083 (3,578) (10,354) 114,707 (1,551) 113,156
Balance, shares at Dec. 31, 2018 14,798,198                
Stock issued for compensation $ 4 8 8   8
Stock issued for compensation, shares 1,942                
Net income (loss) (521) (521) 66 (455)
Net cash received from related party under counter guarantee agreement 1,101 1,101 1,101
Foreign currency translation gain (loss)         3,972 3,972 34 4,006
Balance at Mar. 31, 2019 $ 15 3,635 105,393 19,083 394 (9,253) 119,267 (1,451) 117,816
Balance, shares at Mar. 31, 2019 14,800,140                
Balance at Dec. 31, 2018 $ 15 3,627 105,914 19,083 (3,578) (10,354) 114,707 (1,551) 113,156
Balance, shares at Dec. 31, 2018 14,798,198                
Net income (loss)                 214
Balance at Sep. 30, 2019 $ 15 3,640 106,173 19,083 (5,822) (6,648) 116,441 (1,485) 114,956
Balance, shares at Sep. 30, 2019 14,801,770                
Balance at Mar. 31, 2019 $ 15 3,635 105,393 19,083 394 (9,253) 119,267 (1,451) 117,816
Balance, shares at Mar. 31, 2019 14,800,140                
Net income (loss)     1,856       1,856 (83) 1,773
Net cash received from related party under counter guarantee agreement           1,390 1,390   1,390
Foreign currency translation gain (loss)         (2,487)   (2,487) 34 (2,453)
Balance at Jun. 30, 2019 $ 15 3,635 107,249 19,083 (2,093) (7,863) 120,026 (1,500) 118,526
Balance, shares at Jun. 30, 2019 14,800,140                
Stock issued for compensation $ 2 5         5   5
Stock issued for compensation, shares 1,630                
Net income (loss)     (1,076)       (1,076) (28) (1,104)
Net cash advanced to related party under counter guarantee agreement           1,215 1,215   1,215
Foreign currency translation gain (loss)         (3,729)   (3,729) 43 (3,686)
Balance at Sep. 30, 2019 $ 15 $ 3,640 $ 106,173 $ 19,083 $ (5,822) $ (6,648) $ 116,441 $ (1,485) $ 114,956
Balance, shares at Sep. 30, 2019 14,801,770                
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2019
Nov. 13, 2019
Document and Entity Information [Abstract]    
Entity Registrant Name Ever-Glory International Group, Inc.  
Entity Central Index Key 0000943184  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Type 10-Q  
Document Period End Date Sep. 30, 2019  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2019  
Entity Filer Category Non-accelerated Filer  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Incorporation State Country Code FL  
Entity File Number 0-28806  
Entity Shell Company false  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Ex Transition Period false  
Entity Common Stock, Shares Outstanding   14,801,770
v3.19.3
Income Tax (Details 1) - PRC [Member]
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Summary of reconciliation of PRC statutory rates to the company's effective tax rate        
PRC statutory rate 25.00% 25.00% 25.00% 25.00%
Net operating losses for which no deferred tax assets was recognized 0.20% 18.50% 78.00% 8.10%
Other (79.10%) (21.30%) 10.50% 1.80%
Effective income tax rate (53.90%) 22.20% 92.50% 31.30%
v3.19.3
Related Party Transactions
9 Months Ended
Sep. 30, 2019
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS

NOTE 10 RELATED PARTY TRANSACTIONS

 

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

 

Other income from Related Parties

  

Jiangsu Wubijia Trading Company Limited ("Wubijia") is an entity engaged in high-grade home goods sales and is controlled by Mr. Kang. Wubijia has sold their home goods on consignment in certain Company's retail stores since the third quarter of 2014. During the three and nine months ended September 30, 2019 and 2018, the Company received $10,868, $56,523, $17,961 and $69,502 from the customers and paid $10,935, $50,021, $18,077 and $57,395 to Wubijia through the consignment, respectively. The net income (loss) of ($67), $6,503, ($117) and $12,106 was recorded as other income (expenses) during the three and nine months ended September 30, 2019 and 2018, respectively.  

  

Other expenses due to Related Parties

 

Included in other expenses for the three and nine months ended September 30, 2019 and 2018 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows:

  

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
Chuzhou Huarui   52    48    140    157 
Kunshan Enjin   22    11    66    38 
Total  $74   $59   $206   $195 

 

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

  

Purchases from and Sub-contracts with Related Parties

 

In addition, sub-contracts with related parties included in cost of sales for the three and nine months ended September 30, 2019 and 2018 are as follows:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
Chuzhou Huarui  $1,197   $653   $4,664   $2,526 
Fengyang Huarui   1,071    911    1,619    1,962 
Nanjing Ever-Kyowa   342    392    1,097    1,067 
Ever-Glory Vietnam   4,689    6,754    9,737    11,928 
Nanjing Knitting   339    -    939    - 
EsCeLav   28    10    129    31 
Jiangsu Ever-Glory   345    664    815    685 
   $8,011   $9,384   $19,000   $18,199 

  

Accounts Payable – Related Parties

 

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

 

   2019   2018 
   (In thousands of
U.S. Dollars)
 
Ever-Glory Vietnam  $1,920    1,863 
Fengyang Huarui   388    622 
Nanjing Ever-Kyowa   279    580 
Chuzhou Huarui   1,142    888 
Nanjing Knitting   146    171 
Jiangsu Ever-Glory   480    632 
Total  $4,355   $4,756 

 

Amounts Due From Related Parties-current assets

 

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

 

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

 

Jiangsu Ever-Glory is an entity engaged in importing/exporting, apparel-manufacture, real-estate development, car sales and other activities. Jiangsu Ever-Glory is controlled by Mr. Kang. During three and nine months ended September 30, 2019 and 2018, the Company and Jiangsu Ever-Glory purchased raw materials on behalf of each other in order to obtain cheaper purchase prices.  The Company purchased raw materials on Jiangsu Ever-Glory's behalf and sold to Jiangsu Ever-Glory at a cost of $0.8 million, $0.8 million, $0.4 million and $0.7 million during the three and nine months period ended September 30, 2019 and 2018, respectively. Jiangsu Ever-Glory purchased raw materials on the Company's behalf and sold to the Company at a cost of $0 million, $0.1 million, $0.3 million and $0.4 million during the three and nine months ended September 30, 2019 and 2018, respectively.

    

Amounts Due From Related Party under Counter Guarantee Agreement

 

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

 

At December 31, 2018, $9.9 million (RMB 68.2 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the nine months ended September 30, 2019, an additional $6.8 million (RMB 46.3 million) was provided to and $10.7 million (RMB 73.3 million) was received from Jiangsu Ever-Glory under the counter-guarantee. As of September 30, 2019, the amount of the counter-guarantee was $5.8 million (RMB 41.3 million) (the difference represents currency exchange adjustment of $0.1 million), which was 17.9% of the aggregate amount of lines of credit. The increase of the percentage in this quarter was mainly due to China's credit tightening policy. Obtaining bank loan requires a higher guarantee deposit in this quarter. This amount plus accrued interest of $0.6 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At September 30, 2019 and December 31, 2018, the amount classified as a reduction of equity was $6.6 million and $10.4 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. Since January 1, 2019, interest rate has changed to 0.3625% as the bank benchmark interest rate decreased. Interest income for the three and nine months ended September 30, 2019 and 2018 was approximately $0.05 million, $0.2 million, $0.3 million and $1.0 million, respectively.

v3.19.3
Leases
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
LEASES

NOTE 6 LEASES

 

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

 

The followings are lists of leases: (i) the terms of Shanghai LAGOGO land use right and buildings are 34 years; (ii) the terms of Kunshan logistics center and Chuzhou logistics center are 5 years; (iii) the terms of flagship stores are 3 years. The lease term for shopping mall stores is commonly one year with options to extend or renew, and the rent is predetermined with a percentage of sales. The Company estimates the next 12 months rent for the shopping mall stores by annualizing current period rent calculated with the percentage of sales. Thus, the ROU assets and lease liabilities may vary significantly at different period ends.

 

In the nine months ended September 30, 2019, the costs of the leases recognized in cost of revenues and general administrative expenses are $5.9 and $0.6 million, respectively. Cash paid for the operating leases including in the operating cash flows was $6.5 million. As of September 30, 2019, the Company has $35.2 million of right-of-use assets, $26.8 million in current operating lease liabilities and $8.4 million in non-current operating lease liabilities as of September 30, 2019.

v3.19.3
Income Tax (Tables)
9 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
Summary of pre-tax income in jurisdictions
   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
PRC  $(714)  $4,084   $2,891   $9,445 
Others   (3)   -    (10)   (14)
   $(717)  $4,084   $2,881   $9,431 
Summary of reconciliation of PRC statutory rates to the Company's effective tax rate

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
PRC statutory rate   25.0%   25.0%   25.0%   25.0%
Net operating losses for which no deferred tax assets was recognized   0.2    18.5    78.0    8.1 
Other   (79.1)   (21.3)   (10.5)   (1.8)
Effective income tax rate   (53.9)%   22.2%   92.5%   31.3%
Schedule of income tax expense

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
Current  $387   $1,853   $2,377   $4,737 
Deferred   -    (945)   290    (1,788)
Income tax expense  $387   $908   $2,667   $2,949 
v3.19.3
Subsequent Events
9 Months Ended
Sep. 30, 2019
Subsequent Events [Abstract]  
Subsequent Events

NOTE 14 SUBSEQUENT EVENTS

 

The Company has performed an evaluation of subsequent events through the time of filing this quarterly report on Form 10-Q with the SEC. During this period the Company did not have any additional material recognizable subsequent events.

v3.19.3
Segments (Tables)
9 Months Ended
Sep. 30, 2019
Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]  
Summary of financial and operating information

   Wholesale
segment
   Retail
segment
   Total 
   (In thousands of U.S. Dollars) 
Nine months ended September 30, 2019    
Segment profit or loss:            
Net revenue from external customers  $147,090    131,508    278,598 
Income from operations  $6,925    (5,323)   1,602 
Interest income  $673    26    699 
Interest expense  $775    261    1,036 
Depreciation and amortization  $1,179    5,645    6,824 
Income tax expense  $1,617    1,050    2,667 
Segment assets:               
Additions to property, plant and equipment   1,069    5,486    6,555 
Total assets   114,789    170,456    285,245 
                
Nine months ended September 30, 2018               
Segment profit or loss:               
Net revenue from external customers  $149,753    157,053    306,806 
Income from operations  $6,935    1,593    8,528 
Interest income  $968    35    1,003 
Interest expense  $976    226    1,202 
Depreciation and amortization  $834    5,689    6,523 
Income tax expense  $1,800    1,149    2,949 
Segment assets:               
Additions to property, plant and equipment   1,322    7,822    9,144 
Total assets   121,951    150,334    272,285 

 

   Wholesale
segment
   Retail
segment
   Total 
   (In thousands of U.S. Dollars) 
Three months ended September 30, 2019    
Segment profit or loss:            
Net revenue from external customers  $81,737    31,589    113,326 
Income from operations  $4,551    (5,720)   (1,169)
Interest income  $206    9    215 
Interest expense  $203    62    265 
Depreciation and amortization  $706    1,628    2,334 
Income tax expense  $143    244    388 
                
Three months ended September 30, 2018               
Segment profit or loss:               
Net revenue from external customers  $85,683    39,797    125,480 
Income from operations  $4,302    (348)   3,954 
Interest income  $304    3    307 
Interest expense  $194    84    278 
Depreciation and amortization  $233    1,387    1,620 
Income tax expense  $1,085    (177)   908 
v3.19.3
Commitment and Contingencies (Details)
¥ in Thousands, $ in Thousands
9 Months Ended
Sep. 30, 2019
Jul. 31, 2019
USD ($)
Jul. 31, 2019
CNY (¥)
Mar. 31, 2019
USD ($)
Mar. 31, 2019
CNY (¥)
Commitment and Contingencies (Textual)          
Commitment and contingencies, description A total balance of RMB9.79 million ($1.4 million) was frozen in the bank accounts of LA GO GO. LA GO GO believes that Shanghai Chijing's counterclaim is frivolous and without merit, and intends to rigorously defend against the counterclaim. As of September 30, 2019, the company had booked this restricted cash in other receivables.        
LA GO GO [Membr]          
Commitment and Contingencies (Textual)          
Unpaid rent | $       $ 360  
LA GO GO [Membr] | RMB [Member]          
Commitment and Contingencies (Textual)          
Unpaid rent | ¥         ¥ 2,450
Shanghai Chijing [Member]          
Commitment and Contingencies (Textual)          
Counter claim | $   $ 2,170      
Shanghai Chijing [Member] | RMB [Member]          
Commitment and Contingencies (Textual)          
Counter claim | ¥     ¥ 15,380    
v3.19.3
Related Party Transactions (Details 1) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Sub-contracts with related parties        
Total $ 8,011 $ 9,384 $ 19,000 $ 18,199
Chuzhou Huarui [Member]        
Sub-contracts with related parties        
Total 1,197 653 4,664 2,526
Fengyang Huarui [Member]        
Sub-contracts with related parties        
Total 1,071 911 1,619 1,962
Nanjing Ever-Kyowa [Member]        
Sub-contracts with related parties        
Total 342 392 1,097 1,067
Ever-Glory Vietnam [Member]        
Sub-contracts with related parties        
Total 4,689 6,754 9,737 11,928
Nanjing Knitting [Member]        
Sub-contracts with related parties        
Total 339 939
EsCeLav [Member]        
Sub-contracts with related parties        
Total 28 10 129 31
Jiangsu Ever-Glory [Member]        
Sub-contracts with related parties        
Total $ 345 $ 664 $ 815 $ 685
v3.19.3
Concentrations and Risks (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Revenues earned in geographic areas        
Revenues $ 113,326 $ 125,480 $ 278,598 $ 306,806
Wholesale Business [Member]        
Revenues earned in geographic areas        
Revenues 81,737 85,683 147,090 149,753
Retail Business [Member]        
Revenues earned in geographic areas        
Revenues 31,589 39,797 131,508 157,053
The People’s Republic of China [Member]        
Revenues earned in geographic areas        
Revenues 23,241 25,853 40,486 39,195
Hong Kong China [Member]        
Revenues earned in geographic areas        
Revenues 14,574 18,427 22,291 30,982
Germany [Member]        
Revenues earned in geographic areas        
Revenues 981 2,750 2,708 5,515
United Kingdom        
Revenues earned in geographic areas        
Revenues 10,555 8,254 13,393 13,353
Europe-Other [Member]        
Revenues earned in geographic areas        
Revenues 12,523 19,707 21,977 29,993
Japan [Member]        
Revenues earned in geographic areas        
Revenues 10,056 2,371 16,304 6,689
United States [Member]        
Revenues earned in geographic areas        
Revenues $ 9,807 $ 8,321 $ 29,931 $ 24,026
v3.19.3
Segments
9 Months Ended
Sep. 30, 2019
Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]  
SEGMENTS

NOTE 12 SEGMENTS

 

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

 

(a) Wholesale segment

  

(b) Retail segment

 

   Wholesale
segment
   Retail
segment
   Total 
   (In thousands of U.S. Dollars) 
Nine months ended September 30, 2019    
Segment profit or loss:            
Net revenue from external customers  $147,090    131,508    278,598 
Income from operations  $6,925    (5,323)   1,602 
Interest income  $673    26    699 
Interest expense  $775    261    1,036 
Depreciation and amortization  $1,179    5,645    6,824 
Income tax expense  $1,617    1,050    2,667 
Segment assets:               
Additions to property, plant and equipment   1,069    5,486    6,555 
Total assets   114,789    170,456    285,245 
                
Nine months ended September 30, 2018               
Segment profit or loss:               
Net revenue from external customers  $149,753    157,053    306,806 
Income from operations  $6,935    1,593    8,528 
Interest income  $968    35    1,003 
Interest expense  $976    226    1,202 
Depreciation and amortization  $834    5,689    6,523 
Income tax expense  $1,800    1,149    2,949 
Segment assets:               
Additions to property, plant and equipment   1,322    7,822    9,144 
Total assets   121,951    150,334    272,285 

 

   Wholesale
segment
   Retail
segment
   Total 
   (In thousands of U.S. Dollars) 
Three months ended September 30, 2019    
Segment profit or loss:            
Net revenue from external customers  $81,737    31,589    113,326 
Income from operations  $4,551    (5,720)   (1,169)
Interest income  $206    9    215 
Interest expense  $203    62    265 
Depreciation and amortization  $706    1,628    2,334 
Income tax expense  $143    244    388 
                
Three months ended September 30, 2018               
Segment profit or loss:               
Net revenue from external customers  $85,683    39,797    125,480 
Income from operations  $4,302    (348)   3,954 
Interest income  $304    3    307 
Interest expense  $194    84    278 
Depreciation and amortization  $233    1,387    1,620 
Income tax expense  $1,085    (177)   908 
v3.19.3
Earnings Per Share
9 Months Ended
Sep. 30, 2019
Earnings Per Share [Abstract]  
EARNINGS PER SHARE

NOTE 8 EARNINGS PER SHARE

 

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

  

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
Weighted average number of common shares – Basic and diluted   14,801,770    14,798,198    14,801,770    14,796,527 
Earnings per share – Basic and diluted  $(0.07)  $0.22   $0.02  $0.47 
v3.19.3
Bank Loans
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
BANK LOANS

NOTE 4 BANK LOANS

 

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

 

   September 30,
2019
   December 31,
2018
 
Bank  (In thousands of
U.S. Dollars)
 
Industrial and Commercial Bank of China  $18,382   $14,540 
Nanjing Bank   9,191    5,089 
China Minsheng Bank   2,828    2,908 
Bank of Communications   2,814    2,893 
Shanghai Pudong Development Bank   -    2,613 
China Everbright Bank   -    1,454 
HSBC   2,277    - 
   $35,492   $29,497 

 

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

 

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

   

In August 2018, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $7.1 million (RMB50.0 million). These loans are guaranteed by Jiangsu Ever-Glory International Group Corp. ("Jiangsu Ever-Glory"), an entity controlled by Mr. Kang, the Company's Chairman and Chief Executive Officer. These loans are also collateralized by the Company's property and equipment. As of September 30, 2019, approximately $7.1 million was unused and available under this line of credit.

 

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

  

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

 

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

 

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

 

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

 

In March 2019, Ever-Glory Apparel and Goldenway collectively entered into a secured banking facility agreement for a combined revolving import facility, letter of credit, invoice financing facilities and a credit line for treasury products of up to $2.5 million with the Nanjing Branch of HSBC (China) Company Limited ("HSBC"). This agreement is guaranteed by the Company and Mr. Kang. As of September 2019, Ever-Glory Apparel had collateralized approximately $2.3 million of accounts receivable from our wholesale customers. These bank loans are to be repaid upon receipt of payments from customers. As of September 30, 2019, approximately $0.2 million was unused and available under this line of credit.

 

All loans have been repaid before or at maturity date.

 

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

v3.19.3
Leases (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2019
Dec. 31, 2018
Leases (Textual)    
Right-of-use assets $ 35,226
Current operating lease liabilities 26,757
Non-current operating lease liabilities 8,504
Operating lease payment 6,500  
Leases recognized cost of revenues 5,900  
General administrative expenses $ 600  
Lease, description (i) the terms of Shanghai LAGOGO land use right and buildings are 34 years; (ii) the terms of Kunshan logistics center and Chuzhou logistics center are 5 years; (iii) the terms of flagship stores are 3 years. The lease term of 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 by the percentage of sales. Thus, the ROU assets and lease liabilities may vary significantly at different period ends.  
v3.19.3
Basis of Presentation
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BASIS OF PRESENTATION

NOTE 1 BASIS OF PRESENTATION

 

Ever-Glory International Group, Inc. (the "Company"), together with its subsidiaries, is an apparel manufacturer, supplier and retailer in The People's Republic of China ("China" 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"), Ever-Glory International Group Apparel Inc. ("Ever-Glory Apparel"), Chuzhou Huirui Garments Co. Ltd. ("Huirui"), Nanjing Tai Xin Garments Trading Company Limited ("Tai Xin") and Haian Tai Xin Garments Trading Company Limited ("Haian Taixin"), and the Company's wholly-owned Samoa subsidiary, Ever-Glory International Group (HK) Ltd. ("Ever-Glory HK") and Ever-Glory Supply Chain Service Co., Limited ("Ever-Glory Supply Chain").  The Company's retail operations are provided through its wholly- owned subsidiaries, Shanghai LA GO Fashion Company Limited ("Shanghai LA GO GO"), Jiangsu LA GO Fashion Company Limited ("Jiangsu LA GO GO"), Tianjin LA GO Fashion Company Limited ("Tianjin LA GO GO"), Shanghai Ya Lan Fashion Company Limited ("Ya Lan"), Shanghai Yiduo Fashion Company Limited ("Shanghai Yiduo") and Xizang He Meida Trading Company Limited ("He Meida").

 

In March 2019, the Company incorporated Haian Tai Xin Garments Trading Company Limited ("Haian Tai Xin") and it is the Company's wholly-owned PRC subsidiary. Haian Tai Xin is engaged in the business of garments manufacturing.

 

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

 

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

v3.19.3
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares
Sep. 30, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 14,801,770 14,798,198
Common stock, shares outstanding 14,801,770 14,798,198
v3.19.3
Income Tax (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
PRC [Member]        
Income Tax (Textual)        
PRC statutory rate 25.00% 25.00% 25.00% 25.00%
Income tax rate for dividends distribution     10.00%  
HONG KONG        
Income Tax (Textual)        
PRC statutory rate     16.50%  
Maximum [Member]        
Income Tax (Textual)        
Effective income tax reduction, percent     15.00%  
Minimum [Member]        
Income Tax (Textual)        
Effective income tax reduction, percent     9.00%  
Xizang (Tibet) [Member]        
Income Tax (Textual)        
PRC statutory rate     15.00%  
Non-U.S. subsidiaries [Member]        
Income Tax (Textual)        
U.S. deferred income taxes     $ 104,300  
Income tax, description     The statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017  
v3.19.3
Related Party Transactions (Tables)
9 Months Ended
Sep. 30, 2019
Related Party Transactions [Abstract]  
Summary of other expenses due to related parties
   Three months ended   Nine months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
Chuzhou Huarui   52    48    140    157 
Kunshan Enjin   22    11    66    38 
Total  $74   $59   $206   $195 
Summary of sub-contracts with related parties
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
Chuzhou Huarui  $1,197   $653   $4,664   $2,526 
Fengyang Huarui   1,071    911    1,619    1,962 
Nanjing Ever-Kyowa   342    392    1,097    1,067 
Ever-Glory Vietnam   4,689    6,754    9,737    11,928 
Nanjing Knitting   339    -    939    - 
EsCeLav   28    10    129    31 
Jiangsu Ever-Glory   345    664    815    685 
   $8,011   $9,384   $19,000   $18,199 
Summary of accounts payable to related parties
   2019   2018 
   (In thousands of
U.S. Dollars)
 
Ever-Glory Vietnam  $1,920    1,863 
Fengyang Huarui   388    622 
Nanjing Ever-Kyowa   279    580 
Chuzhou Huarui   1,142    888 
Nanjing Knitting   146    171 
Jiangsu Ever-Glory   480    632 
Total  $4,355   $4,756 
Summary of amounts due from related party current assets
   2019   2018 
   (In thousands of
U.S. Dollars)
 
Jiangsu Ever-Glory  $123   $122 
Esc'elav   -    70 
Total  $123   $192 
v3.19.3
Inventories (Tables)
9 Months Ended
Sep. 30, 2019
Inventory Disclosure [Abstract]  
Schedule of inventories
   September 30,
2019
   December 31,
2018
 
   (In thousands of
U.S. Dollars)
 
Raw materials  $995   $6,805 
Work-in-progress   13,542    3,308 
Finished goods   50,751    55,816 
Total inventories  $65,288   $65,929 
v3.19.3
Related Party Transactions (Details 3) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Summary of amounts due from related parties    
Total $ 123 $ 192
Jiangsu Ever-Glory [Member]    
Summary of amounts due from related parties    
Total 123 122
Esc'elav [Member]    
Summary of amounts due from related parties    
Total $ 70
v3.19.3
Segments (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Segment profit or loss:          
Net revenue from external customers $ 113,326 $ 125,480 $ 278,598 $ 306,806  
Income from operations (1,169) 3,954 1,602 8,528  
Interest income 215 307 699 1,003  
Interest expense 265 278 1,036 1,202  
Depreciation and amortization 2,334 1,620 6,824 6,523  
Income tax expense 387 908 2,667 2,949  
Segment assets:          
Additions to property, plant and equipment     6,555 9,144  
Total assets 285,245 272,285 285,245 272,285 $ 252,271
Wholesale Segment [Member]          
Segment profit or loss:          
Net revenue from external customers 81,737 85,683 147,090 149,753  
Income from operations 4,551 4,302 6,925 6,935  
Interest income 206 304 673 968  
Interest expense 203 194 775 976  
Depreciation and amortization 706 233 1,179 834  
Income tax expense 143 1,085 1,617 1,800  
Segment assets:          
Additions to property, plant and equipment     1,069 1,322  
Total assets 114,789 121,951 114,789 121,951  
Retail Segment [Member]          
Segment profit or loss:          
Net revenue from external customers 31,589 39,797 131,508 157,053  
Income from operations (5,720) (348) (5,323) 1,593  
Interest income 9 3 26 35  
Interest expense 62 84 261 226  
Depreciation and amortization 1,628 1,387 5,645 5,689  
Income tax expense 244 (177) 1,050 1,149  
Segment assets:          
Additions to property, plant and equipment     5,486 7,822  
Total assets $ 170,456 $ 150,334 $ 170,456 $ 150,334  
v3.19.3
Concentrations and Risks (Tables)
9 Months Ended
Sep. 30, 2019
Risks and Uncertainties [Abstract]  
Schedule of Company's revenues as per geographic areas

   Three months ended
September 30,
   Nine months ended
September 30,
 
   2019   2018   2019   2018 
   (In thousands of U.S. Dollars) 
The People's Republic of China  $23,241   $25,853   $40,486   $39,195 
Hong Kong China   14,574    18,427    22,291    30,982 
Germany   981    2,750    2,708    5,515 
United Kingdom   10,555    8,254    13,393    13,353 
Europe-Other   12,523    19,707    21,977    29,993 
Japan   10,056    2,371    16,304    6,689 
United States   9,807    8,321    29,931    24,026 
Total wholesale business   81,737    85,683    147,090    149,753 
Retail business   31,589    39,797    131,508    157,053 
Total  $113,326   $125,480   $278,598   $306,806 

v3.19.3
Bank Loans (Tables)
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Schedule of short-term bank loans

   September 30,
2019
   December 31,
2018
 
Bank  (In thousands of
U.S. Dollars)
 
Industrial and Commercial Bank of China  $18,382   $14,540 
Nanjing Bank   9,191    5,089 
China Minsheng Bank   2,828    2,908 
Bank of Communications   2,814    2,893 
Shanghai Pudong Development Bank   -    2,613 
China Everbright Bank   -    1,454 
HSBC   2,277    - 
   $35,492   $29,497 

v3.19.3
Related Party Transactions (Details 2) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Summary of accounts payable - related parties    
Total $ 4,355 $ 4,756
Ever-Glory Vietnam [Member]    
Summary of accounts payable - related parties    
Total 1,920 1,863
Fengyang Huarui [Member]    
Summary of accounts payable - related parties    
Total 388 622
Nanjing Ever-Kyowa [Member]    
Summary of accounts payable - related parties    
Total 279 580
Chuzhou Huarui [Member]    
Summary of accounts payable - related parties    
Total 1,142 888
Nanjing Knitting [Member]    
Summary of accounts payable - related parties    
Total 146 171
Jiangsu Ever-Glory [Member]    
Summary of accounts payable - related parties    
Total $ 480 $ 632
v3.19.3
Concentrations and Risks (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Concentrations and Risks (Textual)          
Allowance for doubtful accounts $ 4,500   $ 4,500   $ 5,900
Concentration risk, description     For the wholesale business, the Company did not rely on any finished goods supplier that represented more than 10% of the total raw material purchases    
Raw Material Suppliers One [Member]          
Concentrations and Risks (Textual)          
Concentration risk, percentage 19.00% 22.00% 28.00%    
Raw Material Supplier Two [Member]          
Concentrations and Risks (Textual)          
Concentration risk, percentage     27.00%    
Raw Material Supplier Three [Member]          
Concentrations and Risks (Textual)          
Concentration risk, percentage     18.00%    
Raw Material Supplier Four [Member]          
Concentrations and Risks (Textual)          
Concentration risk, percentage     15.00%    
Raw Material Suppliers [Member]          
Concentrations and Risks (Textual)          
Concentration risk, percentage     10.00% 10.00%  
Revenues [Membe] | Wholesale Business One [Member]          
Concentrations and Risks (Textual)          
Concentration risk, percentage 10.00% 7.00% 17.00% 11.00%  
Revenues [Membe] | Wholesale Business Two [Member]          
Concentrations and Risks (Textual)          
Concentration risk, percentage   7.00%   12.00%  
Finished Goods [Member] | Retail Business [Member]          
Concentrations and Risks (Textual)          
Concentration risk, percentage     10.00% 10.00%  
v3.19.3
Stockholders' Equity
9 Months Ended
Sep. 30, 2019
Equity [Abstract]  
STOCKHOLDERS' EQUITY

NOTE 9 STOCKHOLDERS' EQUITY

 

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

 

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

 

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

v3.19.3
Derivative Financial Instruments
9 Months Ended
Sep. 30, 2019
Derivative Financial Instruments  
Derivative Financial Instruments

NOTE 5 Derivative Financial Instruments

 

Foreign currency swap contracts

 

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

 

In September 2019, Ever-Glory Apparel entered into a 15-day foreign currency swap contract with Industrial and Commercial Bank of China. The Company agreed to exchanged $4.9 million for EUR on September 26 and then to re-exchange these currencies on the swap maturity date of October 8, 2019. As of September 30, 2019, the unrealized foreign currency exchange gain of the asset was $2.6 thousands. The final realized gain is $4.1 thousands in October 2019.

 

Forward foreign exchange contracts

 

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

 

As of September 30, 2019, the Company had one outstanding forward foreign exchange contracts (sell USD dollars for RMB), with total notional amount of $8.0 million. The unrealized income of this contract at September 30, 2019 was $58.6 thousands.

v3.19.3
Commitment and Contingencies
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENT AND CONTINGENCIES

NOTE 13 COMMITMENT AND CONTINGENCIES

 

On March 2019, Shanghai La Go Go Fashion Company Limited ("LA GO GO") filed a complaint against Shanghai Chijing Investment Management Co., Ltd. ("Shanghai Chijing") for unpaid rent of RMB2.45 million ($0.36 million) in the Shanghai People's Court (the "Court"). On July 2019, Shanghai Chijing filed a counterclaim against LA GO GO for RMB15.38 million ($2.17 million), alleging that LA GO GO had not fulfilled its corresponding obligations as a landlord. As a result, the Court has frozen the bank accounts of both Shanghai Chijing and LA GO GO. As of September 30, 2019, a total balance of RMB9.79 million ($1.4 million) was frozen in the bank accounts of LA GO GO. LA GO GO believes that Shanghai Chijing's counterclaim is frivolous and without merit, and intends to rigorously defend against the counterclaim. As of September 30, 2019, the company had booked this restricted cash in other receivables.

v3.19.3
Derivative Financial Instruments (Details)
€ in Thousands, $ in Thousands
1 Months Ended 9 Months Ended
Oct. 31, 2019
Sep. 30, 2019
USD ($)
Sep. 26, 2019
EUR (€)
Derivative Liability (Textual)      
Foreign currency swap contracts, description The final realized gain is $4.1 thousands in October 2019. Ever-Glory Apparel had entered into different foreign currency swap contracts to exchange $6.0 million for equivalent RMB with Bank of China in May, entered into a foreign currency swap contract to exchange $3.0 million for equivalent RMB with Industrial and Commercial Bank of China in June and entered into a foreign currency swap contract to exchange $6.0 million and $4.0 million for equivalent RMB with Shanghai Pudong Development Bank in July. The terms of three foreign currency contracts are both six months and the contract of $4.0 million with Shanghai Pudong Development Bank is three months. Ever-Glory Apparel and the banks swapped two currencies by same pre-determined exchange rate at the beginning and end of the contracts. During the period, the Company pays annual interest of 1.43% for the RMB received and receives 0 interest for the USD exchanged with the Bank of China and Industrial and Commercial Bank of China. The company pays annual interest of 0.98% for the RMB received and receives 0.0001% interest for the USD exchanged with Shanghai Pudong Development Bank. If the Company failed to execute the exchange at the expiration of contracts, the banks would sell the USD at the market rate then the difference in RMB will be converted into bank loan for the Company. As of December 31, 2018, the fair value of principal amounts are included in other receivable ($4.0 million plus unrealized gain) and other payables (equivalent RMB payables) in the consolidated balance sheets, and unrealized gain of $0.2 million for the year ended December 31, 2018 is recognized in the income from operations.  
Forward foreign exchange contract, description   The Company had one outstanding forward foreign exchange contracts (sell USD dollars for RMB), with total notional amount of $8.0 million. The unrealized income of this contract at September 30, 2019 was $58.6 thousands.  
Swap maturity date   Oct. 08, 2019  
Fair value of principal amounts | €     € 4,900
Unrealized foreign currency exchange gain | $   $ 2,600  
v3.19.3
Condensed Consolidated Statements of Cash Flows (Unaudited)
$ in Thousands
9 Months Ended
Sep. 30, 2019
USD ($)
Sep. 30, 2018
USD ($)
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income $ 214 $ 6,482
Adjustments to reconcile net income to cash provided by operating activities:    
Depreciation and amortization 6,824 6,523
Loss from sale of property and equipment 16 102
Provision of bad debt allowance 820
Provision for obsolete inventories 3,846 2,697
Deferred income tax (2,388) (1,706)
Stock-based compensation 12 7
Changes in operating assets and liabilities    
Accounts receivable 312 (15,012)
Inventories (4,979) (32,831)
Value added tax receivable (281) 430
Other receivables and prepaid expenses 3,738 (19,792)
Advances on inventory purchases (3,214) (8,199)
Amounts due from related parties 16 4
Accounts payable 6,253 29,547
Accounts payable and other payables- related parties (692) 153
Other payables and accrued liabilities (10,594) 14,054
Value added and other taxes payable (4,120) (3,892)
Income tax payable 746 311
Net cash used in operating activities (3,471) (21,122)
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchases of property and equipment (6,555) (9,144)
Net cash used in investing activities (6,555) (9,144)
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from bank loans 42,570 39,872
Repayment of bank loans (35,620) (40,225)
Repayment of loans from related party 10,692 3,232
Advances to related party (6,755) (8,183)
Net cash used in financing activities 10,887 (5,304)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (650) (2,827)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 211 (38,397)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 47,012 62,876
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD 45,837 24,479
RESTRICTED CASH 1,386  
Cash paid during the period for:    
Interest 1,036 1,202
Income taxes $ 4,196 $ 4,427
v3.19.3
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
CURRENT ASSETS    
Cash and cash equivalents $ 45,837 $ 47,012
Accounts receivable, net 83,863 86,527
Inventories 65,288 65,929
Advances on inventory purchases 9,358 6,420
Value added tax receivable 3,799 2,580
Other receivables and prepaid expenses 7,563 10,204
Amounts due from related parties 123 192
Total Current Assets 215,831 218,864
NONCURRENT ASSETS    
Intangible assets, net 4,711 4,962
Property and equipment, net 27,615 28,445
Operating lease right-of-use assets 35,226
Deferred tax assets 1,862
Total Non-Current Assets 69,414 33,407
TOTAL ASSETS 285,245 252,271
CURRENT LIABILITIES    
Bank loans 35,492 29,497
Accounts payable 77,172 78,412
Accounts payable and other payables - related parties 4,355 4,756
Other payables and accrued liabilities 15,230 21,958
Value added and other taxes payable 530 2,569
Income tax payable 2,249 1,569
Current operating lease liabilities 26,757
Total Current Liabilities 161,785 138,761
NONCURRENT LIABILITIES    
Deferred tax liabilities 354
Non-current operating lease liabilities 8,504
TOTAL LIABILITIES 170,289 139,115
COMMITMENTS AND CONTINGENCIES  
Stockholders' equity:    
Preferred stock ($0.001 par value, authorized 5,000,000 shares, no shares issued and outstanding)
Common stock ($0.001 par value, authorized 50,000,000 shares, 14,801,770 and 14,798,198 shares issued and outstanding As of September 30, 2019 and December 31, 2018, respectively) 15 15
Additional paid-in capital 3,640 3,627
Retained earnings 106,173 105,914
Statutory reserve 19,083 19,083
Accumulated other comprehensive income (5,822) (3,578)
Amounts due from related party (6,648) (10,354)
Total equity attributable to stockholders of the Company 116,441 114,707
Noncontrolling interest (1,485) (1,551)
Total Equity 114,956 113,156
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 285,245 $ 252,271
v3.19.3
Income Tax (Details 2) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Summary of income tax expense        
Current $ 387 $ 1,853 $ 2,377 $ 4,737
Deferred (945) (2,388) (1,706)
Income tax expense $ 387 $ 908 $ 2,667 $ 2,949