Commitments and Contingencies

12 Months Ended

Dec. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 12 COMMITMENTS AND CONTINGENCIES

Operating Lease Commitment

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

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

In the year ended December 31, 2021, the costs of the leases recognized in cost of revenues and general administrative expenses are $27.7 million and $0.8 million, respectively. Cash paid for the operating leases including in the operating cash flows was $28.5 million. In the year ended December 31, 2020, the costs of the leases recognized in cost of revenues and general administrative expenses are $29.9 and $0.8 million, respectively. Cash paid for the operating leases including in the operating cash flows was $30.7 million.

The following table summarizes the maturity of operating lease liabilities:

Year ending December 31, (In thousands of U.S. Dollars)
2022		764
2023		780
2024		439
2025		439
2026		439
Thereafter		12,661
Total lease payment		15,522
Less: Interest		6,926
Total	$	8,596

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. 

Lawsuits against Client A

In November 2020, the Company’s two subsidiaries, Ever-Glory International Group Apparel Inc. and Goldenway Nanjing Garments Company Limited filed a complaint against Client A (“Client A”) for unpaid goods worth RMB 70.15 million ($11.00 million) in the Tianjin No.1 Intermediate People’s Court based on processing contracts between the parties. The Company has applied for interim measures with the court and has frozen bank accounts of Client A for a total amount of RMB 68.12 million ($10.68 million). The Company has delivered goods worth RMB 62.06 million ($9.73 million) to Client A pursuant to the processing contracts. The Company also seeks Client A for the payment of the loss incurred from the cost of raw materials paid to suppliers in the amount of RMB 8.09 million ($1.27 million) in reliance on the processing contracts. The Company received RMB 71.4 million ($11.20 million) from Client A in April 2021 which settled the complaint amount.

Lawsuits against Client B

In November 2020, Goldenway filed a complaint against Client B (“Client B”)for unpaid goods worth RMB3.89 million ($0.60 million) and accrued default interests RMB332,293 ($50,941) in the Shanghai People’s Court of Pudong New Area based on sales contracts between the parties. Goldenway has applied for interim measures with the court. However, Client B counterclaimed that Goldenway delayed delivered part of the goods worth RMB922,005 ($126,013). The Company received RMB 3.92 million ($0.61million) from Client B in March 2021 which settled the complaint amount.