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, 2022

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

For the transition period from ____________ to ____________

Commission file number: 0-28806

Ever-Glory International Group Inc.

(Exact name of registrant as specified in its charter)

Florida

65-0420146

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Ever-Glory Commercial Center,

509 Chengxin Road, Jiangning Development Zone,

Nanjing, Jiangsu Province,

People’s Republic of China

(Address of principal executive offices)

86 25-5209-6831

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

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

As of November 11, 2022, 14,818,006 shares of the Company’s common stock, $0.001 par value, the (“Common Stock”) were issued and 14,655,926 shares of Common Stock, were outstanding, respectively.

EVER-GLORY INTERNATIONAL GROUP, INC.

FORM 10-Q

INDEX

		Page Number

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		ii

PART I. FINANCIAL INFORMATION		1

Item 1.	Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2022 and December 31, 2021	1

	Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021	2

	Condensed Consolidated Statements of Equity (unaudited) for the Nine Months Ended September 30, 2022 and 2021	3

	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2022 and 2021	4

	Notes to the Condensed Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	30

PART II. OTHER INFORMATION		31

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosure	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

SIGNATURES		34

Cautionary Note Regarding Forward-Looking Statements

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

	●	Competition within our industry;

	●	The impact (including travel and entry restrictions and quarantine) of public health epidemics, including the COVID-19 pandemic in China and the rest of the world, on the market we operate in and our business, results of operations and financial condition;

	●	Seasonality of our sales;

	●	Success of our investments in new product development

	●	Our plans and ability to open new retail stores;

	●	Success of our acquired businesses;

	●	Our relationships with our major customers;

	●	The popularity of our products;

	●	Relationships with suppliers and cost of supplies;

	●	Financial and economic conditions in Asia, Japan, Europe and the U.S.;

	●	Anticipated effective tax rates in future years;

	●	Regulatory requirements affecting our business;

	●	Currency exchange rate fluctuations;

	●	Our management of business through a U.S. publicly-traded and reporting company and the general reputation and potential scrutiny of U.S. publicly-traded companies with their principal operations in China;

	●	Impact of COVID-19 pandemic on our business, results of operations, financial condition, and cash flows;

	●	Our future financing needs; and

	●	Our ability to obtain future financing on acceptable terms.

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

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

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

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

	September 30, 2022			December 31, 2021
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	32,177		$	56,573
Restricted cash		39,706			40,768
Trading securities		2,189			3,251
Accounts receivable, net		79,875			69,859
Inventories		49,038			63,841
Advances on inventory purchases		4,260			8,179
Value added tax receivable		2,144			1,693
Other receivables and prepaid expenses		6,049			6,345
Amounts due from related parties		-			220
Total Current Assets		215,438			250,729

NON-CURRENT ASSETS
Equity security investment		4,566			5,682
Intangible assets, net		4,211			4,794
Property and equipment, net		31,148			36,340
Operating lease right-of-use assets		38,905			50,077
Deferred tax assets		768			899
Other non-current assets		3,520			784
Total Non-Current Assets		83,118			98,576
TOTAL ASSETS	$	298,556		$	349,305

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Bank loans	$	63,360		$	68,992
Accounts payable		59,894			67,930
Accounts payable and other payables – related parties		2,907			1,332
Other payables and accrued liabilities		14,166			18,531
Value added and other taxes payable		842			999
Income tax payable		1,107			334
Current operating lease liabilities		31,538			41,633
Total Current Liabilities		173,814			199,751

Non-current operating lease liabilities		7,538			8,596
TOTAL LIABILITIES		181,352			208,347

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS’ EQUITY
Common stock ($0.001 par value, authorized 50,000,000 shares, 14,818,006 and 14,655,926 issued and outstanding as of September 30, 2022, respectively, 14,812,312 and 14,664,978 issued and outstanding as of December 31, 2021, respectively)		15			15
Additional paid-in capital		3,670			3,660
Retained earnings		99,398			108,210
Statutory reserve		21,245			21,245
Treasury stock (at cost,162,080 and 147,334 shares at September 30, 2022 and December 31, 2021, respectively)		(400	)		(363	)
Accumulated other comprehensive (loss) income		(6,724	)		8,191

Total Equity		117,204			140,958
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	298,556		$	349,305

See the accompanying notes to the condensed consolidated financial statements.

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2022			2021			2022			2021
NET SALES	$	106,437		$	94,406		$	235,022		$	225,776
COST OF SALES		90,390			71,196			181,194			161,738

GROSS PROFIT		16,047			23,210			53,828			64,038

OPERATING EXPENSES
Selling expenses		12,792			14,443			38,153			44,495
General and administrative expenses		9,306			9,467			21,821			24,980
Total Operating Expenses		22,098			23,910			59,974			69,475

LOSS FROM OPERATIONS		(6,051	)		(700	)		(6,146	)		(5,437	)

OTHER (EXPENSES) INCOME
Interest income		22			176			299			928
Interest expense		(524	)		(1,218	)		(1,458	)		(1,909	)
Government subsidy		193			340			397			842
(Loss) gain from changes in fair values of investments		(915	)		(123	)		(1,587	)		2,151
Other income		317			253			885			1,027
Total Other (Expenses) Income, Net		(907	)		(572	)		(1,464	)		3,039

LOSS BEFORE INCOME TAX EXPENSE		(6,958	)		(1,272	)		(7,610	)		(2,398	)

Income tax benefit (expense)		835			(1,945	)		(1,202	)		(3,760	)

NET LOSS	$	(6,123	)	$	(3,217	)	$	(8,812	)	$	(6,158	)

Foreign currency translation (loss) gain		(6,336	)		(1,062	)		(14,915	)		1,020

COMPREHENSIVE LOSS	$	(12,459	)		(4,279	)	$	(23,727	)	$	(5,138	)

LOSS PER SHARE
Basic and diluted	$	(0.41	)	$	(0.22	)	$	(0.59	)	$	(0.42	)
Weighted average number of shares outstanding, basic and diluted		14,817,053			14,811,073			14,815,077			14,810,585

See the accompanying notes to the condensed consolidated financial statements.

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

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

	Common Stock				Additional					Retained Earnings					Accumulated other			Amounts due from
	Shares		Amount		paid-in capital		Treasury stock			Unrestricted			Statutory reserve		comprehensive income (loss)			related party		Total equity
Balance at January 1, 2022		14,812,312	$	15	$	3,660	$	(363	)	$	108,210		$	21,245	$	8,191		$	-	$	140,958
Stock issued for compensation		2,042		-		5		-			-			-		-			-		5
Net loss		-		-		-		-			(5,089	)		-		-			-		(5,089	)
Repurchase of 14,746 shares of common stock		-		-		-		(37	)					-		-			-		(37	)
Foreign currency translation loss																(836	)				(836	)
Balance at March 31, 2022		14,814,354	$	15	$	3,665	$	(400	)	$	103,121		$	21,245	$	7,355		$	-	$	135,001
Net income		-		-		-		-			2,400			-		-			-		2,400
Foreign currency translation loss																(7,743	)				(7,743	)
Balance at June 30, 2022		14,814,354	$	15	$	3,665	$	(400	)	$	105,521		$	21,245	$	(388	)		-	$	129,658
Stock issued for compensation		3,652		-		5		-			-			-		-			-		5
Net loss		-		-		-		-			(6,123	)		-		-			-		(6,123	)
Foreign currency translation loss																(6,336	)				(6,336	)
Balance at September 30, 2022		14,818,006	$	15	$	3,670	$	(400	)	$	99,398		$	21,245	$	(6,724	)	$	-	$	117,204

	Common Stock				Additional				Retained Earnings					Accumulated other			Amounts due from
	Shares		Amount		paid-in capital		Treasury stock		Unrestricted			Statutory reserve		comprehensive income			related party			Total equity
Balance at January 1, 2021		14,809,160	$	15	$	3,650	$	-	$	109,171		$	20,376	$	4,590		$	(3,353	)	$	134,449
Stock issued for compensation		1,500		-		5		-		-			-		-			-			5
Net loss		-		-		-		-		(1,170	)		-		-			-			(1,170	)
Net cash received from related party under counter guarantee agreement		-		-		-		-		-			-		-			379			379
Foreign currency translation adjustment															(1,352	)					(1,352	)
Balance at March 31, 2021		14,810,660	$	15	$	3,655	$	-	$	108,001		$	20,376	$	3,238		$	(2,974	)	$	132,311
Net loss		-		-		-		-		(1,771	)		-		-			-			(1,771	)
Transfer to reserve		-		-		-		-		-			-		-			-			-
Net cash received from related party under counter guarantee agreement		-		-		-		-		-			-		-			386			386
Foreign currency translation adjustment															3,434						3,434
Balance at June 30, 2021		14,810,660	$	15	$	3,655	$	-	$	106,230		$	20,376	$	6,672		$	(2,588	)	$	134,360
Stock issued for compensation		1,652		-		5		-		-			-		-			-			5
Net loss		-		-		-		-		(3,217	)		-		-			-			(3,217	)
Net cash received from related party under counter guarantee agreement		-		-		-		-		-			-		-			313			313
Foreign currency translation adjustment															(1,062	)					(1,062	)
Balance at September 30, 2021		14,812,312	$	15	$	3,660	$	-	$	103,013		$	20,376	$	5,610		$	(2,275	)	$	130,399

See the accompanying notes to the condensed consolidated financial statements.

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

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

	Nine Months Ended
	September 30, 2022			September 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(8,812	)		(6,158	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		5,256			4,384
Loss from sale of property and equipment		141			590
Provision of bad debt allowance		3,943			676
Provision for obsolete inventories		5,296			842
Changes in fair value of trading securities		1,010			(200	)
Changes in fair value of investments		577			(1,951	)
Deferred income tax		42			644
Stock-based compensation		10			10
Changes in operating assets and liabilities
Accounts receivable		(20,335	)		(8,613	)
Inventories		4,353			(13,949	)
Value added tax receivable		(671	)		(1,235	)
Other receivables and prepaid expenses		(434	)		(1,096	)
Advances on inventory purchases		3,317			586
Amounts due from related parties		211			(1,514	)
Accounts payable		229			5,930
Accounts payable and other payables- related parties		1,779			(3,204	)
Other payables and accrued liabilities		(5,124	)		(3,332	)
Value added and other taxes payable		891			(360	)
Income tax payable		(81	)		831
Net cash used in operating activities		(8,402	)		(27,119	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment and intangible asset		(3,645	)		(5,109	)
Net proceeds from sale (purchase) of trading securities		52			(1,077	)
Investment payment of other non-current assets		(3,028	)		(773	)
Net cash used in investing activities		(6,621	)		(6,959	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans		56,018			56,110
Repayment of bank loans		(54,504	)		(54,565	)
Repurchase of common stock		(37	)		-
Net collection of amounts due from related party (equity)		-			1,630
Net cash provided by financing activities		1,477			3,175

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(11,912	)		692

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(25,458	)		(30,211	)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD		97,341			121,723

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	71,883		$	91,512

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

Cash and Cash Equivalents		32,177			48,336
Restricted cash		39,706			43,176
	$	71,883		$	91,512
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	1,458		$	1,909
Income taxes	$	1,175		$	2,272
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Common stock issued for compensation	$	10		$	10

See the accompanying notes to the condensed consolidated financial statements.

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(UNAUDITED)

NOTE 1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION

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

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

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

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

In August 2022, Shanghai Huarui Fashion Supply Chain Management Group Co. Ltd. (“Shanghai Supply Chain”) was incorporated, which is a Company’s wholly-owned PRC subsidiary. Shanghai Supply Chain is engaged in the business of garments trading.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of equity, and condensed consolidated statements of cash flows for the three and nine months ended September 30, 2022 and 2021. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Rule 8-03 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they have been condensed and do not include all 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, 2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

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

Use of Estimates

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

Recently Issued Accounting Pronouncements

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

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

NOTE 3 INVESTMENTS

Trading securities

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2022			2021			2022			2021
	(In thousands of U.S. Dollars)
Net (loss) gain recognized during the period on equity securities		(321	)		(121	)		(1,010	)		200
Less: Net (loss) gain recognized during the period on equity securities sold during the period		(96	)		-			(84	)		54
Unrealized (loss) gain recognized during the reporting period on equity securities still held at the reporting date	$	(225	)	$	(121	)	$	(926	)	$	146

Equity security investment

In August 2020, Ever-Glory Apparel invested approximately $2.8 million (RMB 20.0 million) for 2.38% ownership in a partnership (“Partnership”). In December 2020, the Partnership invested in a public company in China. As a limited partner, the Company does not have ability to exercise significant influence due to lack of kick-out rights through voting interests. In the meantime, the Company entered an agreement with the general partner of the Partnership (GP) and an individual that the Company has the privilege to sell the ownership interests in the Partnership to GP or the individual for the consideration of the average net asset value ten trading days prior to the closing date, if the Company is not able to withdraw any part of the original investment from the Partnership in the twelve-month period beginning the third year of the initial investment (“optional withdrawal period”). If the Company opts to withdraw entire investment during the optional withdrawal period, the GP will compensate up to 8% of annual return on investment. If the return on investment is in excess of 8% for any portion of the investment withdrawn during the optional withdrawal period, then 20% of the return in excess of 8% will be shared with the individual. The Company may also continue to invest in the Partnership beyond the optional withdrawal period, but none of above agreement with the GP and the individual is in place.

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

Investment advances

In September 2021, Goldenway signed an agreement and promised to invest approximately $7.0 million (RMB 50.0 million) cash for 20% interest of a Chinese private company. Under the agreement, Goldenway has the liquidation privilege to receive its share of the investee’s residual of its liquidated assets. If Goldenway’s share is less than its original investment amount plus 8% of annual return on investment, all other shareholders who signed this agreement shall use their shares of the liquidated assets to compensate Goldenway. The investee also shall compensate Goldenway if the investee cannot make agreed upon profits and maintain the number of customers. As of September 30, 2022, Goldenway advanced approximately $3.5 million (RMB 25.0 million) to the investee. The investment advances were recorded as other non-current assets.

NOTE 4 INVENTORIES

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

	September 30, 2022		December 31, 2021
	(In thousands of U.S. Dollars)
Raw materials	$	1,222	$	1,375
Work-in-progress		12,416		14,375
Finished goods		35,400		48,091
Total inventories	$	49,038	$	63,841

NOTE 5 RESTRICTED CASH

As of September 30, 2022 and December 31, 2021, restricted cash of approximately $39.4 million (RMB280.0 million) and approximately $39.2 million (RMB250.0 million) were cash on demand and time deposits pledged to Shanghai Pudong Development Bank for loans. As of September 30, 2022 and December 31, 2021, restricted cash of approximately $0.3 million (RMB2.0 million) and approximately $1.6 million (RMB10.0 million) were cash on demand and time deposits pledged to Nanjing Bank (Note 6).

NOTE 6 BANK LOANS

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

	September 30, 2022		December 31, 2021
Bank	(In thousands of U.S. Dollars)
Shanghai Pudong Development Bank	$	39,424	$	39,200
Industrial and Commercial Bank of China		19,712		21,952
Bank of China		2,816		-
Nanjing Bank		1,408		7,840
	$	63,360	$	68,992

From March 2020 to July 2020, Ever-Glory Apparel entered into a certificate of three-year time deposit of approximately $26.8 million (RMB190.0 million) with the Shanghai Pudong Development Bank with annual interest rates ranging from 3.75% to 3.99%. As of September 30, 2022, Ever-Glory Apparel pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank, and Ever-Glory Apparel had borrowed approximately $23.9 million (RMB 170.0 million) under this line of certificate with an annual interest rate from 1.50% to 2.65% and due between October 2022 to July 2023.

In December 2020, Goldenway entered into a certificate of three-year time deposit of approximately $15.5 million (RMB110.0 million) with the Shanghai Pudong Development Bank with an annual interest rate of 3.85%. As of September 30,2022, Goldenway pledged the certificate of three-year time deposit to the Shanghai Pudong Development Bank, and Goldenway had borrowed approximately $15.5 million (RMB110.0 million) under this line of certificate with annual interest rate from 1.85% to 2.60%, due between February to April 2023.

In April 2020, Goldenway entered into a line of credit agreement with Industrial and Commercial Bank of China, which allows the Company to borrow up to approximately $5.6 million (RMB40.0 million). These loans are collateralized by the Company’s property and equipment. As of September 30, 2022, Goldenway had borrowed approximately $5.6 million (RMB40.0 million) from Industrial and Commercial Bank of China with an annual interest rate 4.57% and due in August 2022.

In August 2019, Ever-Glory Apparel entered into a line of credit agreement for approximately $14.1 million (RMB100.0 million) with Industrial and Commercial Bank of China, which is collateralized by assets of Jiangsu LA GO GO, Tianjin LA GO GO and Jiangsu Ever-Glory International Group Corp. (“Jiangsu Ever-Glory”), an entity controlled by Mr. Kang, the Company’s Chairman and Chief Executive Officer, under a collateral agreement executed among Ever-Glory Apparel, Jiangsu LA GO GO , Tianjin LA GO GO, Jiangsu Ever-Glory and the bank. As of September 30, 2022, Ever-Glory Apparel had borrowed approximately $14.1 million (RMB 100.0 million) under this line of credit with annual interest rates ranging from 4.15% to 4.35% and due between October 2022 to June 2023.

In April 2020, Goldenway entered into a line of credit agreement with Nanjing Bank, which allows the Company to borrow up to approximately $6.3 million (RMB45.0 million). In September 2022, Goldenway pledged $0.3 million (RMB2.0 million) to Nanjing Bank. These loans are collateralized by the Company’s property and equipment and guaranteed by Jiangsu Ever-Glory. In September 2022, Goldenway borrowed approximately $1.4 million (RMB 10.0 million) with an annual interest rate 1.79% and due in August 2023. As of September 30, 2022, approximately $5.2 million (RMB 37.0 million) was unused and available under this line of credit.

In July 2022, Catch-Luck entered into a line of credit agreement with Bank of China, which allows the Company to borrow up to approximately $1.4 million (RMB10.0 million). These loans are guaranteed by the Company’s credit. In July 2022, Goldenway borrowed approximately $1.4 million (RMB 10.0 million) with an annual interest rate 3.65% and due in July 2023.

In August 2022, Goldenway entered into a line of credit agreement with Bank of China, which allows the Company to borrow up to approximately $1.4 million (RMB10.0 million). These loans are guaranteed by the Company’s credit. In August 2022, Goldenway borrowed approximately $1.4 million (RMB 10.0 million) with an annual interest rate 3.65% and due in August 2023.

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

Total interest expense on bank loans amounted to approximately $1.5 million and $1.9 million for the nine months ended September 30, 2022 and 2021, respectively, and approximately $0.6 million and $1.2 million for the three months ended September 30, 2022 and 2021, respectively.

NOTE 7 INCOME TAX

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

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

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

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

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

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

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2022			2021			2022			2021
	(In thousands of U.S. Dollars)
PRC		(6,671	)		(1,270	)		(7,316	)		(2,390	)
Others		(287	)		(2	)		(294	)		(8	)
	$	(6,958	)	$	(1,272	)	$	(7,610	)	$	(2,398	)

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2022			2021			2022			2021
U.S. tax rate		21.0	%		21.0	%		21.0	%		21.0	%
Valuation allowance recognized with respect to the loss		(14.7	)%		(27.8	)%		(40.4	)%		(102.2	)%
Foreign tax rate differential		4.0	%		4.0	%		4.0	%		4.0	%
Others		(22.3	)%		155.6	%		31.2	%		234.0	%
Effective income tax rate		(12.0	)%		152.8	%		15.8	%		156.8	%

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

	Three months ended					Nine months ended
	September 30,					September 30,
	2022			2021		2022		2021
Current
U.S. Federal		-			-		-		-
Foreign	$	176		$	1,903	$	1,072	$	3,121
Total Current	$	176		$	1,903	$	1,072	$	3,121
Deferred
U.S. Federal		-			-		-		-
Foreign	$	(1,011	)	$	42	$	131	$	638
Total Deferred	$	(1,011	)	$	42	$	131	$	638
Income tax expense	$	(835	)	$	1,945	$	1,202	$	3,760

Deferred tax assets net of valuation allowance as of:

	September 30, 2022			December 31, 2021
	(In thousands of U.S. Dollars)
Inventories, net	$	3,008		$	1,684
Accounts receivable, net		1,634			624
Deferred income		1,022			2,387
Accrued expenses		1,814			2,464
Depreciation		185			108
Net operating loss carryforward		4,906			3,782
Deferred tax assets		12,569			11,049
Valuation allowance		(11,801	)		(10,150	)
Deferred tax assets, net	$	768		$	899

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

NOTE 8 STOCKHOLDERS’ EQUITY

Common stock issued to independent directors

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

On September 8, 2021, the Company issued 1,652 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 2021. The shares issued in 2021were valued at $3 per share, which was the average market price of the common stock for the five days before the grant date.

On January 26, 2022, the Company issued 2,042 shares of the Company’s common stock to two of the Company’s independent directors as compensation for their services rendered during the third and fourth quarter of 2021. The shares issued in 2022 were valued at $2.47 per share, which was the average market price of the common stock for the five days before the grant date.

On July 25, 2022, the Company issued 3,652 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 2022. The shares issued in 2021 were valued at $1.36 per share, which was the average market price of the common stock for the five days before the grant date.

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

In December 2021, the Company’s Board of Directors authorized the Company to repurchase its outstanding common stock pursuant to a Rule 10b-18 plan. In December 2021, the Company repurchased 147,334 shares of its common stock through negotiated transactions. In January 2022, the Company repurchased additional 14,746 shares from public market. These 162,080 shares of Common Stock became treasury shares of the Company, which may be resold or canceled in the future. The treasury stock is carried at cost of $0.4 million as of September 30, 2022.

NOTE 9 RELATED PARTY TRANSACTIONS

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

Other income from Related Parties

Jiangsu Wubijia Trading Company Limited (“Wubijia”) is an entity engaged in high-grade home goods sales and is controlled by Mr. Kang. Wubijia has sold their home goods on consignment in some Company’s retail stores since the third quarter of 2014. During nine months ended September 30, 2021, The Company received approximately $3,000 from the customers and paid the same amount to Wubija. During nine months ended September 30, 2022,there was no such transactions.

Included in other income for the nine months ended September 30, 2022 and 2021 is rental income from EsC’Lav, the entity controlled by Mr. Kang under operating lease agreement with term through 2022. The rental income is $0, $6,378, $6,502 and $19,135 for the three and nine months ended September 30, 2022 and 2021, respectively. The rent is exempted for three months ended September 30, 2022 due to outbreak of Covid-19 in China.

Other expenses due to Related Parties

Included in other expenses for the three and nine months ended September 30, 2022 and 2021 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,
	2022		2021		2022		2021
	(In thousands of U.S. Dollars)
Chuzhou Huarui		52		56		162		166
Kunshan Enjin		-		23		23		70
Total	$	52	$	79	$	185	$	236

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

Purchases from and sub-contracts with Related Parties

The Company purchased raw materials from Nanjing Knitting totaling approximately $0.5 million, $0.3 million, $0.9 million and $1.2 million during the three and nine months ended September 30, 2022 and 2021, respectively.

In addition, the Company sub-contracted certain manufacturing work to related companies totaled approximately $11.4 million, $6.9 million, $23.6 million and $17.0 million for the three and nine months ended September 30, 2022 and 2021, respectively. The Company provided raw materials to the sub-contractors and charged a fixed fee for labor provided by the sub-contractors.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In thousands of U.S. Dollars)
Chuzhou Huarui	$	249	$	449	$	1,188	$	1,310
Fengyang Huarui		1,009		665		1,618		1,316
Nanjing Ever-Kyowa		324		392		1,105		1,102
Ever-Glory Vietnam		9,380		5,154		18,867		11,597
Nanjing Knitting		500		300		866		1,217
EsCeLav		-		-		-		37
Jiangsu Ever-Glory		-		-		-		464
	$	11,462	$	6,960	$	23,644	$	17,043

Accounts Payable – Related Parties

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

	2022		2021
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	534		395
Fengyang Huarui		369		161
Nanjing Ever-Kyowa		326		-
Chuzhou Huarui		701		59
Nanjing Knitting		946		668
Jiangsu Ever-Glory		31		49
Total	$	2,907	$	1,332

Amounts Due From Related Parties-current assets

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

	2022		2021
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	-	$	220
Total	$	-	$	220

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, 2022 and 2021, the Company and Jiangsu Ever-Glory purchased raw materials on behalf of each other in order to obtain cheaper purchase prices. The Company purchased raw materials on Jiangsu Ever-Glory’s behalf and sold to Jiangsu Ever-Glory at a cost of $0, $0.1 million, $0.02 million and $2.9 million during the three and nine months ended September 30, 2022 and 2021, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at a cost of $0, $0, $0 and $0.5 million during the three and nine months ended September 30, 2022 and 2021, respectively.

NOTE 10 COMMITMENTS AND CONTINGENCIES

Operating Lease Commitment

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

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

In the nine months ended September 30, 2022, the costs of the leases recognized in cost of revenues and general administrative expenses are $15.7 million and $0.6 million, respectively. Cash paid for the operating leases including in the operating cash flows was $15.9 million. In the nine months ended September 30, 2021, the costs of the leases recognized in cost of revenues and general administrative expenses are $22.5 and $0.6 million, respectively. Cash paid for the operating leases including in the operating cash flows was $23.1 million.

The following table summarizes the maturity of operating lease liabilities:

Years ending , (In thousands of U.S. Dollars)
2022	$	171
2023		789
2024		394
2025		394
2026		394
Thereafter		11,370
Total lease payment		13,512
Less: Interest		5,974
Total	$	7,538

Legal Proceedings

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

NOTE 11 RISKS AND UNCERTAINTIES

Economic and Political Risks

The Company’s results of operations could be adversely affected by general conditions in the global economy, including conditions that are outside of its control, such as the impact of health and safety concerns from the outbreak of COVID-19. We are subject to risks and uncertainties because of the COVID-19 pandemic. We continue to evaluate the global risks and the slowdown in business activity related to COVID-19, including the potential impacts on our employees, customers, suppliers and financial results.. Since January 1, 2022 to the date of this report, there have been outbreaks of the Omicron and other new variants of the COVID-19 in China, and the local governments have placed lockdown and mass testing policies in several cities in China, including Shanghai, where our customers and suppliers operate. The travel restrictions, mandatory COVID-19 tests, quarantine requirements and/or temporary closure of office buildings and facilities have been imposed by local governments. The Company’s supply chain and business operations of its suppliers may be affected. Disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of the Company’s or its suppliers’ or customers’ products, could have adverse ripple effects on the Company’s manufacturing output and delivery schedule. The Company could also face difficulties in collecting its accounts receivables due to the effects of COVID-19 on its customers and risk gaining a large amount of bad debt. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which the Company, its suppliers and customers operate.

While the potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect the Company’s business and the value of its common stock. If the Company’s future sales continue to decline significantly, it may risk facing financial difficulties due to its recurring fixed expenses. As the situation surrounding COVID-19 remains fluid, it is difficult to predict the duration of the pandemic and the impact on our business, operations, financial condition and cash flows. The severity of the impact on our business in the fiscal year ended December 31, 2022 will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic (including the advent of variants and the impact of vaccination on infection and hospitalization rates), the extent and severity of the impact on our customers and suppliers, the continued disruption to the manufacturing of and demand for our businesses’ products and services, the development of China’s policy of effecting closures to avoid infections; the effect of local regulations regarding safety measures to address the spread of COVID-19, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted. Due to the evolving and uncertain nature of this event, we cannot predict at this time the full extent to which the COVID-19 pandemic will adversely impact our business, results and financial condition, which will depend on many factors that are not known at this time. We are staying in close communication with our employees, customers and suppliers, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee we will be able to do so.

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

Credit risk

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

Concentration risk

For the three months ended September 30, 2022, the Company had two wholesale customer that represented approximately 17% and 11% of the Company’s revenues. For the nine months ended September 30, 2022, the Company had two wholesale customer that represented approximately 17% and 12% of the Company’s revenues.

For the three months ended September 30, 2021, the Company had one wholesale customer that represented approximately 17% of the Company’s revenues. For the nine months ended September 30, 2021, the Company had one wholesale customer that represented approximately 15% 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, 2022 and 2021.

For the retail business, the Company relied on three raw material suppliers that represented approximately 53%,17% and 16% of raw material purchases during the nine months ended September 30, 2022. For the Company’s retail business, the Company relied on five raw material suppliers that represented approximately 30%, 24%, 19%,11% and 10% of raw material purchases during the nine months ended September 30, 2021.

For the wholesale business, the Company relied on one finished goods supplier which is a related party that represented 35.1% of the total raw material purchases during the nine months ended September 30, 2022. For the wholesale business, the Company relied on one finished goods supplier which is a related-party that represented 29.7% of the total finished goods purchases during the nine months ended September 30, 2021.

For the retail business, the Company did not rely on any supplier that represented more than 10% of the total finished goods purchases during the nine months ended September 30, 2022 and 2021.

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

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
	(In thousands of U.S. Dollars)
The People’s Republic of China	$	30,492	$	16,376	$	45,483	$	28,222
Hong Kong China		14,950		9,153		22,902		16,124
United Kingdom		4,950		2,020		10,469		5,558
Europe-Other		11,616		8,846		24,528		18,905
Japan		5,198		8,435		11,836		13,390
United States		15,526		17,373		39,820		29,650
Total wholesale business		82,732		62,202		155,038		111,849
Retail business		23,705		32,204		79,984		113,927
Total	$	106,437	$	94,406	$	235,022	$	225,776

NOTE 12 SEGMENTS

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

	Wholesale segment		Retail segment			Total
	(In thousands of U.S. Dollars)
Nine months ended September 30, 2022
Segment profit or loss:
Net revenue from external customers	$	155,038		79,984			235,022
Income (loss) from operations	$	6,412		(12,558	)		(6,146	)
Interest income	$	278		21			299
Interest expense	$	1,458		-			1,458
Depreciation and amortization	$	1,090		4,166			5,256
Loss before income tax expense		4,334		(11,944	)		(7,610	)
Income tax expense	$	1,192		10			1,202
Segment assets:
Additions to property, plant and equipment		2,305		1,340			3,645
Inventory		15,013		34,025			49,038
Total assets		180,755		117,801			298,556

	Wholesale segment		Retail segment			Total
	(In thousands of U.S. Dollars)
Nine months ended September 30, 2021
Segment profit or loss:
Net revenue from external customers	$	111,849		113,927			225,776
Income (loss) from operations	$	199		(5,635	)		(5,437	)
Interest income	$	849		79			928
Interest expense	$	1,828		82			1,909
Depreciation and amortization	$	657		3,727			4,384
Income (loss) before income tax expense		2,135		(4,533	)		(2,398	)
Income tax expense	$	2,736		1,024			3,760
Segment assets:
Additions to property, plant and equipment		1,406		3,703			5,109
Inventory		24,972		42,303			67,275
Total assets		186,276		151,458			337,734

	Wholesale segment		Retail segment			Total
	(In thousands of U.S. Dollars)
Three months ended September 30, 2022
Segment profit or loss:
Net revenue from external customers	$	82,732		23,705			106,437
Income (loss) from operations	$	2,443		(8,494	)		(6,051	)
Interest income	$	18		4			22
Interest expense	$	524		-			524
Depreciation and amortization	$	296		1,104			1,400
Income (loss) before income tax expense		1,269		(8,227	)		(6,958	)
Income tax expense	$	274		(1,109	)		(835	)

	Wholesale segment		Retail segment			Total
	(In thousands of U.S. Dollars)
Three months ended September 30, 2021
Segment profit or loss:
Net revenue from external customers	$	62,203		32,203			94,406
Income (loss) from operations	$	3,570		(4,270	)		(700	)
Interest income	$	150		26			176
Interest expense	$	1,189		29			1,218
Depreciation and amortization	$	347		825			1,172
Income (Loss)before income tax expense		2,575		(3,847	)		(1,272	)
Income tax expense	$	1,932		13			1,945

NOTE 13 SUBSEQUENT EVENTS

On October 31, 2022, we filed a preliminary proxy statement to solicit votes for, among other proposals, the proposed termination of the registration of our common stock under Section 12(g) of the Exchange Act the suspension of our duty to file periodic reports and other information with the SEC under Section 15(d) of the Exchange Act. On the same date, we announced that our Board of Directors has approved for us to repurchase up to $3.5 million of our outstanding common stock, which should end on the earlier of (i) the date that the aggregate value of the repurchased shares of common stock reaches $3.5 million; (ii) the date when the registration of our common stock is terminated under Section 12(g) of the Exchange Act; or (iii) the date when our duty to file periodic reports and other information with the SEC is suspended under Section 15(d) thereunder. For more information and detailed discussion about the background and effects of the deregistration and delisting of our common stock, please refer to Form PRE 14A filed on October 31, 2022. From October 1,2022 to the date of this report ,we have not repurchased any shares of common stock.

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

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, 2022 should be read in conjunction with the Financial Statements and corresponding notes included in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions to identify forward-looking statements.

Overview

Our Business

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

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

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

Wholesale Business

We conduct our original design manufacturing (“ODM”) operations through seven wholly owned subsidiaries which are located in the Nanjing Jiangning Economic and Technological Development Zone and Shang Fang Town in the Jiangning District in Nanjing, Jiangsu province, China, Chuzhou, Anhui province, China and Samoa: Ever-Glory International Group Apparel Inc. (“Ever-Glory Apparel”), Goldenway Nanjing Garments Company Limited (“Goldenway”), Nanjing New-Tailun Garments Company Limited (“New Tailun”), Nanjing Catch-Luck Garments Co., Ltd. (“Catch-Luck”), Chuzhou Huirui Garments Co., Ltd. (“Huirui), Haian Tai Xin Garments Trading Company Limited (“Haian Tai Xin”), Nanjing Rui Lian Technology Company Limited (“Nanjing Rui Lian”), Shanghai Huarui Fashion Supply Chain Management Group Co. Ltd. (“Shanghai Supply Chain”), Ever-Glory Supply Chain Service Co., Limited (“Ever-Glory Supply Chain”) and Ever-Glory International Group (HK) Ltd. (“Ever-Glory HK”). Nanjing Rui Lian was closed in April 2022.

Retail Business

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

Business Objectives

Wholesale Business

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

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, 2022, we had 774 stores (including store-in-stores), which includes 19 stores that were opened and 125 stores that were closed during the nine months ended September 30, 2022.

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

	●	Building our retail brand to be recognized as a major player in the mid-to-high end women’s apparel market in China;

	●	Expanding our retail network throughout China;

	●	Improving our retail stores’ efficiency and increasing same-store sales;

	●	Continuing to launch retail flagship stores in Tier-1 cities and increasing our penetration and coverage in Tier-2 and Tier-3 cities; and

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

SEC Form 10-Q filed by Ever-Glory International Group Inc.