Ever-Glory International Group (EVKG) Risk Analysis
Risk Overview Q3, 2022
Source: the company's latest filing for the period ended Sep 30, 2022, filed Nov 15, 2022
Risk Change Over Time
- Share Price & Shareholder Rights - Risk 1The Liquidity of our shares of common stock will likely be adversely affected by our voluntary delisting from the Nasdaq Global Market and our ability to raise capital could be significantly impaired.
On October 31, 2022, 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. If you continue to hold our shares of common stock, the Liquidity of our shares of common stock will likely be adversely affected by our voluntary delisting from the Nasdaq Global Market and our ability to raise capital could be significantly impaired. After our shares are delisted from the Nasdaq Global Market, we expect that our common stock may be quoted on the OTCQX or the Pink Open Market. However, we can provide no assurance that trading in our common stock will continue. Moreover, even if our trading in our common stock continues, our common stock will likely become more illiquid after it is no longer traded on the Nasdaq Global Market, which could negatively impact market prices for our stock and make it more difficult for shareholders to sell their shares. Moreover, once we complete the deregistration of our common stock under the Exchange Act, we will no longer be required to file periodic and other reports with the SEC. As a consequence, there will be less public information available about our business, operations, financial condition, results of operations or other matters. In addition, the trading of our common stock on the OTCQX Best Market or the Pink Open Market may materially adversely affect our access to the capital markets and the limited liquidity and potentially reduced price of our common stock could materially adversely affect our ability to raise capital through alternative financing sources or on terms acceptable to us.
- Share Price & Shareholder Rights - Risk 2We will become a non-reporting company.
After our deregistration and delisting, we will no longer be subject to the provisions of the Sarbanes-Oxley Act or the liability provisions of the Exchange Act. Our executive officers, directors and 10% stockholders are no longer required to file reports relating to their transactions in our common stock with the SEC. In addition, our executive officers, directors and 10% stockholders are no longer subject to the recovery of profits provision of the Exchange Act, and persons acquiring 5% of our common stock are no longer required to report their beneficial ownership under the Exchange Act. Additionally, we do not have the ability to access the public capital markets or to use public securities in attracting and retaining executives and other employees, and we have a decreased ability to use stock to acquire other companies. Furthermore, our public reporting obligations could be reinstated if on the first day of any fiscal year we have more than 300 stockholders of record, in which instance we would be required to resume reporting pursuant to Section 15(d) of the Exchange Act.
Risk Highlights Q3, 2022
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 49
- Share Price & Shareholder Rights - Risk 1AddedThe Liquidity of our shares of common stock will likely be adversely affected by our voluntary delisting from the Nasdaq Global Market and our ability to raise capital could be significantly impaired.
On October 31, 2022, 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. If you continue to hold our shares of common stock, the Liquidity of our shares of common stock will likely be adversely affected by our voluntary delisting from the Nasdaq Global Market and our ability to raise capital could be significantly impaired. After our shares are delisted from the Nasdaq Global Market, we expect that our common stock may be quoted on the OTCQX or the Pink Open Market. However, we can provide no assurance that trading in our common stock will continue. Moreover, even if our trading in our common stock continues, our common stock will likely become more illiquid after it is no longer traded on the Nasdaq Global Market, which could negatively impact market prices for our stock and make it more difficult for shareholders to sell their shares. Moreover, once we complete the deregistration of our common stock under the Exchange Act, we will no longer be required to file periodic and other reports with the SEC. As a consequence, there will be less public information available about our business, operations, financial condition, results of operations or other matters. In addition, the trading of our common stock on the OTCQX Best Market or the Pink Open Market may materially adversely affect our access to the capital markets and the limited liquidity and potentially reduced price of our common stock could materially adversely affect our ability to raise capital through alternative financing sources or on terms acceptable to us.
- Share Price & Shareholder Rights - Risk 2AddedWe will become a non-reporting company.
After our deregistration and delisting, we will no longer be subject to the provisions of the Sarbanes-Oxley Act or the liability provisions of the Exchange Act. Our executive officers, directors and 10% stockholders are no longer required to file reports relating to their transactions in our common stock with the SEC. In addition, our executive officers, directors and 10% stockholders are no longer subject to the recovery of profits provision of the Exchange Act, and persons acquiring 5% of our common stock are no longer required to report their beneficial ownership under the Exchange Act. Additionally, we do not have the ability to access the public capital markets or to use public securities in attracting and retaining executives and other employees, and we have a decreased ability to use stock to acquire other companies. Furthermore, our public reporting obligations could be reinstated if on the first day of any fiscal year we have more than 300 stockholders of record, in which instance we would be required to resume reporting pursuant to Section 15(d) of the Exchange Act.
- Share Price & Shareholder Rights - Risk 3There may be conflicts of interest between Mr. Kang's role as the Chairman of the Board and CEO of our Company and his role as the majority owner of other entities that we do business with.
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. The Company and Jiangsu Ever-Glory sometimes purchase raw materials for each other in order to obtain cheaper prices. The Company purchased raw materials on Jiangsu Ever-Glory's behalf and sold to Jiangsu Ever-Glory at cost for $3.8 million and $0.9 million during 2021 and 2020, respectively. Jiangsu Ever-Glory purchased raw materials on the Company's behalf and sold to the Company at cost for $0.4 million and $1.5 million during 2021 and 2020, respectively. 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 the expiration or termination of the underlying lines of credit and is to pay an annual interest at the rate of 6.0% of the amounts provided. As of December 31, 2021 and 2020, Jiangsu Ever-Glory had provided guarantees for approximately $0.0 million (RMB 0.0 million) and $36.0 million (RMB 235.0 million) of lines of credit obtained by the Company, respectively. Jiangsu Ever-Glory and Nanjing Knitting have also provided their assets as collateral for certain of these lines of credit. As of December 31, 2021and 2020, the value of the collateral, as per appraisals obtained by the banks in connection with these lines of credit is approximately $4.4 million (RMB 28.2 million) which was provided assets as collateral by Jiangsu Ever-Glory, and $31.5million (RMB 205.5 million)which was provided assets as collateral by Jiangsu Ever-Glory and Nanjing Knitting, respectively. Mr. Kang has also provided a personal guarantee for $0.0 million (RMB 0.0 million) and $14.8 million (RMB 96.3 million) at the years ended of December 31, 2021 and 2020, respectively. As of December 31, 2020, $3.1 million (RMB 20.0 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the year ended December 31, 2021, an additional $0.7 million (RMB 4.2million) was provided to and repayment of $3.8 million (RMB 24.2 million) was received from Jiangsu Ever-Glory under the counter-guarantee agreement. As of December 31, 2021 the amount of the counter-guarantee had decreased to $0.0 million (RMB 0.0 million) , which was 0.0% of the aggregate amount of lines of credit. This amount plus accrued interest of ($0.3) million (2021) and $0.04 million (2020) have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. As of December 31, 2021 and 2020, the amount classified as a reduction of equity was $0.0 million and $3.4 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. Since January 1, 2019, the interest rate has changed to 0.3625% as the bank benchmark interest rate decreased. Interest income for the years ended December 31, 2021 and 2020 was approximately ($0.3) million and $0.04 million, respectively. It is possible that the terms of the export and import agency transactions and the counter guarantee may not be the same as those that would result from transactions between unrelated parties. Despite of Mr. Kang's fiduciary duty to us as the CEO and a director, in the event of any conflicts of interests between us and Jiangsu Ever-Glory, he may not act in our best interests and such conflicts of interests may not be resolved in our favor. These conflicts may result in management decisions that could negatively affect our operations. For a further discussion of these related party transactions, see Notes 12 Related party transactions in the footnotes to the consolidated financial statements and Item 13. Certain Relationships and Related Transactions, and Director Independence
- Share Price & Shareholder Rights - Risk 4Because our assets are located overseas, shareholders may not receive distributions that they would otherwise be entitled to if we were declared bankrupt or insolvent.
Our assets are, for the most part, located in the PRC. Because our assets are located overseas, our assets may be outside of the jurisdiction of U.S. courts if we are the subject of an insolvency or bankruptcy proceeding. As a result, if we declared bankruptcy or insolvency, our shareholders may not receive the distributions on liquidation that they would otherwise be entitled to if our assets were to be located within the U.S., under U.S. bankruptcy law.
- Share Price & Shareholder Rights - Risk 5You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because our subsidiaries are incorporated in non-U.S. jurisdictions, we conduct substantially all of our operations in China, and a majority of our officers reside outside the United States.
Although we are incorporated in Florida, we conduct substantially all of our operations in China through our wholly owned subsidiaries in China. The majority of our officers reside outside the United States and some or all of the assets of those persons are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in China in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation doing business entirely within the United States.
- Share Price & Shareholder Rights - Risk 6The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.
We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by China Securities Regulatory Commission, a PRC regulator that is tasked with oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any review of our company, our SEC reports, other filings or any of our other public pronouncements.
- Share Price & Shareholder Rights - Risk 7Our common stock has limited liquidity.
Our common stock has been trading on the NYSE MKT (formerly, the American Stock Exchange and NYSE Alternext US LLC) since July 16, 2008 and then transferred to the NASDAQ Global Market on December 31, 2014, but it is thinly traded compared to larger more widely known companies in the same industry. Thinly traded common stock can be more volatile than stock trading in an active public market. We cannot predict the extent to which an active public market for our common stock will develop or be sustained. The high and low bid price of Ever-Glory's common stock during the past 52-week period ended December 31, 2021 has been US$5.08 and US$1.95 per share respectively. We cannot predict the extent to which an active public market for our common stock will develop or be sustained. Our common shares are currently traded, but currently with low volume, based on quotations on the NASDAQ Global Market, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is still relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence trading volume. And even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous trading without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that trading levels will be sustained.
- Share Price & Shareholder Rights - Risk 8We expect to experience volatility in our stock price, which could negatively affect shareholders' investments.
The market price for shares of our common stock may be volatile and may fluctuate based upon a number of factors, including, without limitation, business performance, news announcements or changes in general market conditions. Other factors, in addition to the risks included in this section, that may have a significant impact on the market price of our common stock include, but are not limited to: - receipt of substantial orders or order cancellations of products; - the effects of COVID-19; - quality deficiencies in services or products; - international developments, such as technology mandates, political developments or changes in economic policies; - changes in recommendations of securities analysts; - shortfalls in our backlog, sales or earnings in any given period relative to the levels expected by securities analysts or projected by us; - government regulations, including stock option accounting and tax regulations; - energy blackouts; - acts of terrorism and war; - widespread illness; - proprietary rights or product or patent litigation; - strategic transactions, such as acquisitions and divestitures; - rumors or allegations regarding our financial disclosures or practices; or - earthquakes or other natural disasters in Nanjing or Shanghai, China where a significant portion of our operations are based. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. Due to changes in the volatility of our common stock price, we may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources.
- Share Price & Shareholder Rights - Risk 9Our corporate actions are substantially controlled by our principal shareholders and affiliated entities.
Our principal shareholders, which include our officers and directors, and their affiliated entities own approximately 73.1% of our outstanding shares of common stock. These shareholders, acting individually or as a group, could exert substantial influence over matters such as electing directors and approving mergers or other business combination transactions. In addition, because of the percentage of ownership and voting concentration in these principal shareholders and their affiliated entities, elections of our Board of Directors will generally be within the control of these shareholders and their affiliated entities. While all of our shareholders are entitled to vote on matters submitted to our shareholders for approval, the concentration of shares and voting control presently lies with these principal shareholders and their affiliated entities. As such, it would be difficult for shareholders to propose and have approved proposals not supported by management. There can be no assurances that matters voted upon by our officers and directors in their capacity as shareholders will be viewed favorably by all of our shareholders.
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