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Ever-Glory Reports Third Quarter 2007 Financial Results

Add: 2007   Update: 2009/05/20

NANJING, China, Nov. 14 /Xinhua-PRNewswire-FirstCall/ -- International Group, Inc. (OTC Bulletin Board: EGLY) (',' 'the Company'), a leading apparel manufacturer in the People's Republic of China ('PRC'), announced its financial results for the third quarter ended September 30, 2007.

Third Quarter 2007 Highlights

-- Net sales increased 27.9% year-over-year to $19.5 million

-- Gross profit increased 22.2% year-over-year to $3.1 million

-- Net income totaled $1.3 million

-- Non-GAAP net income was $1.9 million, or $0.02 per fully diluted share,

up 19.0% year-over-year

-- Acquired Nanjing Catch-Luck Garments Co. for $10.0 million in cash and

stock

-- Private placement of convertible notes generated $1.8 million in net

proceeds

-- Received $4.0 million production order from U.K. retailer NEXT PLC

Third Quarter 2007 Results

In the third quarter ended September 30, 2007, net sales increased 27.9% to $19.5 million from $15.2 million in the same quarter of 2006. The increase was primarily the result of an overall increase to Europe, Japan and the U.S., where sales rose 38%, 21% and 16%, respectively, from the same period a year ago.

'We made major progress in the European market and continued to make inroads into the U.S. We received a new $4 million production order from U.K.-based NEXT PLC and began filling additional orders with Walls Industries and QVC,' said Mr. Yihua Kang, Chairman and Chief Executive Officer of Ever- Glory. 'With the elimination of Europe's export quota limit by year end, we look forward to additional sales growth in the coming year.'

Gross profit during the quarter was $3.1 million, or 15.8% of sales, up 22.2% from gross profit of $2.5 million, or 16.5% of sales, a year ago. The slight decline in gross margin was caused by an increase in the purchase price of raw materials related to appreciation of the Chinese RMB against the dollar, which could not be completely passed on to customers.

During the third quarter, operating expenses were $1.0 million, compared to $0.8 million in the same quarter the prior year. The increase was primarily caused by a $0.2 million increase in general and administrative expenses related to higher management salaries and the purchase of new office equipment as the business expanded, as well as increased depreciation and amortization expenses related to the completion of new manufacturing facilities. Operating expenses totaled 5.2% of revenues during the third quarter of 2007, compared to 5.0% of sales a year ago.

Operating income in the third quarter was $2.1 million, or 10.5% of sales, up 16.9% from operating income of $1.8 million, or 11.5% of sales, during the same quarter a year ago.

Interest expenses for the third quarter of 2007 were $0.7 million, compared to $0.1 million in the year-ago period. The increase was primarily due to non-cash expenses related to the private placement of secured convertible notes and warrants in August 2007.

Net income for the third quarter of 2007 was $1.3 million, or $0.02 per diluted share, compared with net income of $1.6 million, or $0.01 per diluted share, in the same quarter of 2006.

Adjusting net income to exclude non-cash expenses related to the convertible notes and warrants, non-GAAP net income was $1.9 million, or $0.02 per fully diluted share, in the third quarter of 2007, up 19.0% from the third quarter the prior year.

Including the acquisitions of New-Tailun and Catch-Luck and outsourced production, total annual production capacity is approximately 8 million garment pieces, up from 2.85 million garment pieces at the end of 2006. The increase was related to the Company's new factory and corporate headquarters in the Nanjing Jiangning Economic and Technological Development Zone in Nanjing, higher levels of outsourced production and the acquisitions of New- Tailun and Nanjing Catch-Luck.

Nine Month Results

Net sales for the first nine months of 2007 increased 35.5% to $50.0 million from revenues of $36.9 million a year ago. Gross profit was $7.7 million, or 15.4% of sales, up 24.2% from gross profit of $6.2 million, or 16.8% of sales, in the same period the prior year. Operating income was $4.7 million, or 9.3% of sales, up 10.3% from operating income of $4.2 million, or 11.4% of sales, in the first nine months of 2006. Net income was $3.6 million, or $0.04 per diluted share, compared to $3.9 million, or $0.03 per diluted share, a year ago. Adjusting net income to exclude non-cash expenses related to the convertible notes and warrants, non-GAAP net income was $4.2 million, or $0.04 per fully diluted share, in the first nine months of 2007, up 7.8% from the same period of the prior year.

Financial Condition

As of September 30, 2007, had cash and cash equivalents of $2.1 million and working capital of $6.1 million. The Company had $2.7 million outstanding under its credit facility and shareholders' equity of $16.3 million. During the first nine months of 2007, the Company generated $3.6 million in cash from operations, compared to $0.4 million in the same period of 2006. On August 2, 2007, completed a private placement of $2.0 million of its secured convertible notes. The net proceeds of approximately $1.8 million will be used to satisfy the Company's working capital needs and for other administrative expenses.

Business Outlook

For the 2007 fiscal year, the Company expects to generate revenues of $68 million to $70 million and net income of $5.8 million to $6.0 million. Full- year guidance includes the consolidated financial results of the Company's Goldenway, New-Tailun and Catch-Luck subsidiaries and excludes the impact of non-cash charges related to the company's convertible notes and warrants.

'We continued to make great strides in our strategy of strong, profitable growth, and we look forward to further progress during the final quarter of 2007,' Mr. Kang said. 'We have increased our capacity through the Catch-Luck transaction, which should help in our mission to become a leader in the Chinese apparel and design industry. We also improved our working capital position through the private placement of our convertible notes, which enables us to meet the ongoing cash needs of our day-to-day operations.'

'In 2008, we hope to achieve success in the development of our Company- owned brand, which will include clothing and accessories,' said Mr. Kang. 'We will begin marketing in developed cities in China, where customers have demonstrated greater discretionary spending on fashion items.'

Recent Events

In August, received an additional production order valued at approximately $4 million from NEXT PLC. NEXT is a U.K.-based retailer with 460 stores offering collections for women, men and children. The single large production order mainly consists of men's casual trousers, which will help to supply NEXT's increased sales volume in upcoming seasons.

In September, completed the acquisition of Nanjing Catch-Luck Garments Co., Ltd. ('Catch-Luck'). Founded in 1995, Catch-Luck has 500 employees with annual production capacity of 800,000 garment pieces. Catch- Luck currently operates one factory covering 6,000 square meters in the Nanjing Jiangning Economic and Technological Development Zone. During the 2006 fiscal year, approximately 52% of the Company's revenues came from customers in Europe, 18% from customers in Japan, 18% from customers in the U.S. and 11% from customers in China. In the first half of 2007, Catch-Luck generated revenues of $9.7 million and net income of $1.2 million. The transaction was valued at $10.0 million, with a cash payment of $0.6 million and $9.4 million in stock.

In October, the Company received a $2.0 million production order from retail apparel marketer Kellwood Company. The new production order mainly consists of women's skirts, in advance of sales for the summer fashion season in 2008.

In October, the Company completed the conversion of all of its outstanding preferred stock into shares of its common stock. On November 9, 's Board of Directors approved a 1-for-10 reverse stock split of its common stock. The common stock will begin trading on a reverse-split basis on November 20, 2007. After the preferred stock conversion and reverse stock split, the total common shares outstanding should be approximately 11.4 million.

Use of Non-GAAP Financial Information

GAAP results for the third quarter and nine months ended September 30, 2007 include certain non-cash charges and expenses related to the Company's convertible notes and warrants. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of adjustments to GAAP results appears in the tables accompanying this press release. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.

Restatement of Financial Results

The financial statements for the three and nine month periods ended September 30, 2006, have been restated to reflect the acquisitions of Nanjing New-Tailun Garments Co., Ltd ('New-Tailun'), on December 11, 2006, and Nanjing Catch-Luck Garments Co., Ltd.('Catch-Luck'), on August 27, 2007, to record the assets and liabilities of New-Tailun and Catch-Luck at their carrying values rather than their fair-market values at the time of the acquisitions.

About International Group, Inc.

International Group is a U.S. publicly traded company engaged in international garment manufacturing for well-known middle- to high-grade casual, outer, and sportswear brands. The company's U.S. headquarters is based in Los Angeles, CA, although also owns three full subsidiary companies, Goldenway Nanjing Garments Co. Ltd., Nanjing New-Tailun Garments Co, Ltd and Nanjing Catch-Luck Garments Co., Ltd., has strategic business partners in countries including China, Europe and the U.S. The Company cooperates with well-respected garment retailer chains such as Itochu, Shinko, Debenhams, Next, C&A, Itoyokado and others in handling high- and middle-grade casual wear and sportswear. The company entered into production and sales cooperation agreements with a number of internationally famous brands such as Matalan, Eddie Bauer, Best-Seller, BB Dakota and others. Ever- Glory employs more than 1,800 people. At present, the market distribution is segmented as 15 % in Japan, 54% in Europe, 27 % in United States and 3% in China. For more information about International Group, please visit: http://www.everglorygroup.com .

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This press release contains certain 'forward-looking statements,' as defined in the United States Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate and the actual results and future events could differ materially from management's current expectations. Such factors include, but are not limited to the company's ability to accurately complete product orders, coordinate product design with its customers, ability to expand and grow its distribution channels, political and economic factors in the People's Republic of China, the company's ability to find attractive acquisition candidates, dependence on a limited number of larger customers and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 -- FINANCIAL TABLES FOLLOW --



EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET

                            ASSETS
                                                                           As of                   As of
                                                                  September 30,     December 31,
                                                                            2007                  2006
    CURRENT ASSETS                              (unaudited)
    Cash and cash equivalents                   $2,149,831           660,096
    Accounts receivable, net                           8,718,326         6,225,936
    Accounts receivable - related
     companies                                                      582,574         2,516,767
    Inventories, net                                            1,179,249           746,817
    Other receivables and prepaid
     expenses                                                          234,307            83,923
             Total Current Assets                          12,864,287        10,233,539

    PROPERTY AND EQUIPMENT, NET         11,722,638        12,158,912
    LAND USE RIGHTS, NET                              2,578,987         2,521,109
    DEFFERED FINANCING COSTS, NET          222,310                --
    TOTAL ASSETS                                            $27,388,222        24,913,560


    LIABILITIES AND STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES
    Accounts payable                                                $1,625,292           897,609
    Accounts payable - related companies                  59,673         1,408,504
    Other payables and accrued
     liabilities                                                                    678,079         3,305,778
    Due to a related company                                       600,000         2,621,130
    Notes payable                                                        2,660,424         4,482,180
    Convertible notes payable
       (net of unamortized
        discount of $1,251,290)                                    748,710
    Value added tax payable                                       228,783           202,243
    Other tax payables                                                  118,408            61,536
             Total Current Liabilities                              6,719,369        12,978,980

    LONG-TERM LIABILITIES
    Due to a related company                                   4,415,870         4,238,526
    TOTAL LIABILITIES                                           $11,135,239        17,217,506

    COMMITMENTS AND CONTINGENCIES                 --

    STOCKHOLDERS' EQUITY
    Preferred stock ($.0001 par value,
     authorized 5,000,000 shares,
     Nil shares issued and outstanding)                         --
    Series A Convertible Preferred Stock
     ($.0001 par value, authorized 10,000
     shares, 7,883 shares issued and
     outstanding)                                                                      1                 1
    Common stock ($.0001 par value,
     authorized 500,000,000 shares,
     issued and outstanding 53,882,014 shares)       5,388             1,997
    Additional paid-in capital                                     1,979,947           161,666
    Retained earnings
             Unappropriated                                          10,195,076         4,495,408
             Appropriated                                                 2,659,360         2,425,711
    Accumulated other comprehensive
     income                                                                    1,413,211           609,188
             Total Stockholders' Equity                        16,252,983         7,696,054

    TOTAL LIABILITIES AND STOCKHOLDERS'
     EQUITY                                                               $27,388,222        24,913,560



EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(UNAUDITED)

                        For the three For the three For the nine  For the nine
                         months ended  months ended months ended  months ended
                        September 30, September 30, September 30, September 30,
                                             2007          2006         2007          2006
                                                            (Restated)                  (Restated)
    NET SALES
      To related parties    $486,318     $209,927      $940,334     $383,198
      To third parties    18,991,475   15,022,966    49,060,893   36,527,202
        Total net sales   19,477,793   15,232,893    50,001,227   36,910,400

    COST OF SALES
      From related
       parties                    (1,689,855)  (1,322,468)   (2,550,181)  (3,699,244)
      From third
       parties                (14,714,840) (11,395,982)  (39,746,807) (27,007,051)
        Total cost of
         sales                (16,404,695) (12,718,450)  (42,296,988) (30,706,295)

    GROSS PROFIT           3,073,098    2,514,443     7,704,239    6,204,105

    OPERATING EXPENSES
      Selling expenses           167,976      147,841       493,686      432,028
      Professional fees          162,889      170,548       508,499      543,276
      General and
       administrative
       expenses                       617,529      407,335     1,826,456      945,717
      Depreciation and
       amortization                       72,006       32,816       223,632       65,990
        Total Operating
         Expenses                 1,020,400      758,540     3,052,273    1,987,011

    INCOME FROM OPERATIONS 2,052,698    1,755,903     4,651,966    4,217,094

    OTHER INCOME
     (EXPENSES)
      Interest income                        2,280        3,057         6,499        4,616
      Interest expenses            (680,644)     (59,544)     (942,534)    (117,674)
      Other income                         19,611        1,579        25,179        4,426
      Other expenses                           --                                    (123)          --
        Total Other
         Expenses, net                  (658,753)     (54,908)     (910,979)    (108,632)

    INCOME BEFORE INCOME
     TAX EXPENSE                     1,393,945    1,700,995     3,740,987    4,108,462

    INCOME TAX EXPENSE       (72,880)    (113,352)     (155,203)    (255,883)

    NET INCOME                         1,321,065    1,587,643     3,585,784    3,852,579

    OTHER COMPREHENSIVE
     INCOME
      Foreign currency
       translation gain                      293,836          247       744,542      255,734
    COMPREHENSIVE INCOME  $1,614,901   $1,587,890    $4,330,326   $4,108,313

    Net income per share-
     basic                                                 $0.02        $0.03         $0.07        $0.07

    Net income per share-
     diluted                                              $0.02        $0.01         $0.04        $0.03

    Weighted average
     number of shares
     outstanding during
     the period-basic                 53,882,014   53,882,014    53,882,014   53,882,014

    Weighted average
     number of shares
     outstanding during
     the period-diluted            119,622,853  113,792,814   115,757,516  113,792,814



EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (UNAUDITED)

                                                      For the nine months For the nine months
                                                      ended September 30, ended September 30,
                                                                               2007                2006
                                                                                                   (Restated)
    CASH FLOWS FROM OPERATING
     ACTIVITIES
      Net income                                               $3,585,784         $3,852,579
      Adjusted to reconcile net income
       to cash (used in) provided
       by operating activities:
        Stock issued for services                                      --                 --
        Depreciation and amortization -
         cost of sales                                                 445,087            266,933
        Depreciation and amortization                  223,632               65,990
        Loss on disposal of fixed
         assets                                                                         --             11,612
        Beneficial conversion feature                      454,545
        Amortization of deferred
         financing costs                                               20,210
        Amortization of discount on
         convertible notes payable                           113,754
      Changes in operating assets and
       liabilities
      (Increase)decrease in:
        Accounts receivable                                          89,336           (702,918)
        Accounts receivable - related
         companies                                                    1,476,411         (1,637,405)
        Other receivable and prepaid
         expenses                                                         (75,327)          (740,280)
        Inventories                                                           82,364           (478,990)
      Increase (decrease) in:
        Accounts payable                                             305,706          1,258,908
        Accounts payable - related
         companies                                                  (1,522,087)          (916,547)
        Other payables and accrued
         liabilities                                                      (1,638,729)          (642,360)
        Value added tax payables                              (19,821)           (81,902)
        Income tax and other tax
         payables                                                             52,964            192,995
        Net cash provided by operating
         activities                                                        3,593,829            448,615

    CASH FLOWS FROM INVESTING
     ACTIVITIES
      Investment in subsidiary - New -
       Tailun                                                             (2,000,000)                --
      Purchase of property and
       equipment                                                        (527,254)        (4,939,125)
      Proceed from sale of equipment                    714,213
        Net cash used in investing
         activities                                                       (1,813,041)        (4,939,125)

    CASH FLOWS FROM FINANCING
     ACTIVITIES
      Proceed from sales of convertible
       notes, net                                                        1,757,480                 --
      Due to a related company, net                        239,560          3,574,891
      Proceed from note payable                          5,211,183                 --
      Repayment of note payable                       (7,165,377)          (611,247)
        Net cash (used in) provided by
         financing activities                                           42,846          2,963,644

    EFFECT OF EXCHANGE RATE ON CASH     (570,896)            73,642

    NET DECREASE IN CASH AND CASH
     EQUIVALENTS                                                  1,252,738         (1,453,224)

    CASH AND CASH EQUIVALENTS AT
     BEGINNING OF PERIOD                                   897,093          1,473,669

    CASH AND CASH EQUIVALENTS AT END OF
     PERIOD                                                             $2,149,831         $1,552,390

    SUPPLEMENTAL DISCLOSURE OF CASH
     FLOW INFORMATION

    Cash paid during the period for:
      Interest expenses                                               198,890             26,491

    Cash paid during the period for:
      Income taxes                                                         102,955            227,487





EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL DATA


    Non-GAAP Net income                                    Q3 2007            Q3 2006
                                                                              Net    Diluted     Net     Diluted
    Net Income (Loss) and Diluted EPS    Income     EPS     Income      EPS
    Adjusted Amount                                  $1,889,364  $0.02   $1,587,643  $0.01
    Adjustments
      Non-cash debt financing
       costs (1)                                                  $568,299  $0.01           --     --
    Amount per consolidated statement
     of operations                                        $1,321,065  $0.01   $1,587,643  $0.01

    (1) Non-cash debt financing costs includes $113,754 of the amortization of
        the future conversion of warrants attributed to investors on all the
        secured convertible notes and $454,545 from the amortization of the
        imbedded conversion option related to those same notes.


                                                               First Nine Months  First Nine Months
    Non-GAAP Net income                                  2007                2006
                                                                        Net     Diluted     Net     Diluted
    Net Income (Loss) Diluted EPS       Income     EPS      Income     EPS
    Adjusted Amount                            $4,154,083  $0.04   $3,852,579  $0.03
    Adjustments
      Non-cash debt financing
       costs (1)                                             $568,299  $0.01           --     --
    Amount per consolidated statement
     of operations                                   $3,585,784  $0.03   $3,852,579  $0.03

    (1) Non-cash debt financing costs includes $113,754 of the amortization of
        the future conversion of warrants attributed to investors on all the
        secured convertible notes and $454,545 from the amortization of the
        imbedded conversion option related to those same notes.
 

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