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EVER-GLORY INTERNATIONAL GROUP, INC. Files SEC form 8-K, Entry into a Material Definitive Agreement, Financial Statem

Add: 2006   Update: 2009/03/22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Results of Operations

Three Months Ended September 30, 2006 Compared To Three Months Ended September 30, 2005

Revenues, Cost of Revenues and Gross Margin

Revenues for the quarter ended September 30, 2006 were $6,120,264, an increase of 51% from $4,060,499 for same quarter in 2005. Our increase in revenues was primarily attributable to an overall increase in sales to customers in Europe and the U.S. As of September 30, 2006, sales to customers in Europe increased by $2,947,809 or 154%, sales to customers in the U.S. increased by $47,681 or 6% as compared to 2005.

Cost of revenues for the quarter ended September 30, 2006 was $4,896,620, an increase of $1,462,805 from $3,433,815 for the quarter ended September 30, 2005. Cost of revenues primarily consisted of the purchase cost of materials, receiving and inspection costs, inbound freight, direct labor cost and manufacturing overheads. As a percentage of revenues, cost of revenues decreased to approximately 80% for the three months ended September 30, 2006 from approximately 85% for the quarter ended September 30, 2005. Consequently, gross margin as a percentage of revenues increased to approximately 20% for the three months ended September 30, 2006 from approximately 15% for the three months ended September 30, 2005. The decrease in costs of revenues and the increase of gross margin were primarily attributable to a 2.58% decrease in the purchase cost of materials and a1.28% decrease in direct labor cost. The decrease in a percentage of revenues was mainly because of the decrease of the cost of collective purchasing raw materials for some big orders from our major customers. (This sounds repeated from the previous sentence. I am not sure what it means? Thus I have not added to the final draft, please tell me if you want this last sentence here. )

Selling, General and Administrative Expenses

Selling expenses as of September 30, 2006 increased by 404% from $23,470 in 2005 to$118,435 in 2006. The increase in selling expenses was mainly attributable to an increase in transportation and logistic costs as well as the product inspection charges.

Export quota charges as of September 30, 2006 and 2005 were $4,984 and $nil respectively. The increase of the export quota charges was due to the reinstallment of the export quotas on hot categories to EU and United States.

General and Administrative expenses totaled $257,815 for the three months ended September 30, 2006, an increase of $182,230 from $75,585 for the three months ended September 30, 2005. The increase was attributable to the expansion of our business which required additional costs such as administrative and management salaries.

Legal and professional fees associated with our trading activities on the OTCBB market totaled $79,105 for the three months ended September 30, 2006, a decrease of $1,690 from $80,795 for the three months ended September 30, 2005. The decrease was mainly due to the decrease in stock issued for service.

Income before taxes for the three months ended September 30, 2006 was $691,071 , an increase of $148,825 from $542,246 for the three months ended September 30, 2005 which was due largely to the increase of our net sales.

Nine months Ended September 30, 2006 Compared To Nine months Ended September 30, 2005

Revenues, Cost of Revenues and Gross Margin

Revenues for nine months ended September 30, 2006 were $17,529,139 an increase of 155% from $6,880,370 for the same period in 2005. Our increase in revenues was primarily attributable to to an overall increase in sales to our major customers in Europe, U.S. and China As of September 30, 2006, sales to customers in Europe increased by $7,863,744 or 232%, sales to customers in the U.S. increased by $2,697,733 or 222%, sales to customers in China increased by $214,862 or 30% as compared to the same period in 2005.

Cost of revenues for nine months ended September 30, 2006 was $14,399,072, as compared to cost of revenues of $5,703150 for the same period in 2005, an increase of $8,695,922. As a percentage of revenues, cost of revenues decreased slightly to approximately 82% for the nine months ended September 30, 2006 from approximately 83% for the quarter ended September 30, 2005. Consequently, gross margin as a percentage of revenues increased slightly to approximately 18% for the nine months ended September 30, 2006 from approximately 17% for the nine months ended September 30, 2005. The slight decrease in cost of revenues as a percentage of revenues and the increase of gross margin were mainly due to the decrease in the purchase cost of material and direct labor cost.

Selling, General and Administrative Expenses

Selling expenses for the nine months ended September 30, 2006 was $231,278 as compared to selling expenses of $56,935 for the same period in 2005, an increase of $174,343, or 306%. The increase in selling expenses was mainly attributable to an increase in transportation and logistic costs as well as the product inspection charges.

Export quota charges for the nine months ended September 30, 2006 and 2005 were $151,458 and $nil respectively. The increase of the export quota chares was due to the reinstallment of the export quotas on hot categories to EU and United States.

General and Administrative expenses totaled $580,949 for the nine months ended September 30, 2006, an increase of $415,075 from $165,874 for the nine months ended September 30, 2005. The increase was attributable to the expansion of our business which required additional costs such as administrative and management salaries.

Legal and professional fees associated with our trading activities on the OTCBB market totaled $425,625 for the nine months ended September 30, 2006, an increase of $132,330 from $293,295 for the nine months ended September 30, 2005. The increase was mainly associated with the fees paid for investor relations, public relations and legal service for the company.

Income before taxes for the nine months ended September 30, 2006 was $1,610,788, an increase of $866,268 from $744,520 for the nine months ended September 30, 2005. The increase was mainly attributable to the increase of our net sales.