Related Party Transactions

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 13 RELATED PARTY TRANSACTIONS

Mr. Kang is the Company’s Chairman and Chief Executive Officer.  Ever-Glory Enterprises (H.K.) Ltd. (“Ever-Glory Enterprises”) is the Company’s major shareholder.  Mr. Xiaodong Yan is Ever-Glory Enterprises’ sole shareholder. All transactions associated with the following companies controlled by Mr. Kang or Mr. Yan 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-tem in nature and are expected to be settled in cash.

Other income from Related Parties

Included in other income for the years ended December 31,2012 and 2011 is rent revenue from entities controlled by Mr. Kang under operating lease agreements with various terms though 2015 as follows:

	2012		2011
EsCeLav	$	10,856	$	11,783
Nanjing Eight-One-Five Hi-Tech (M&E) Co.,Ltd.		15,830		15,710
Jiangsu Heng-Rui		-		22,151
Total	$	26,686	$	49,644

Purchases from, and Sub-contracts with Related Parties

In connection with the Company’s tax planning strategies relating to value-added taxes, raw materials are sourced by the Company in the PRC and shipped to related party contract manufacturers in Vietnam and Cambodia. The raw materials were originally purchased by the Company, and, through a series of transactions, were sold at cost to, and repurchased at cost from, Jiangsu Ever-Glory. These transactions amounted to approximately $1.2 million (RMB7.5 million) during the years ended December 31, 2011, and have been netted against each other for financial reporting purposes.  There were no such transactions in 2012.

The Company purchased raw materials of $1,032,261 and $3,206,604 during the years ended 2012 and 2011, respectively, from Jiangsu Ever-Glory.

The Company purchased raw materials of $2,493,691 and $3,549,501 during the years ended 2012 and 2011, respectively, from Nanjing Knitting.

In addition, the Company sub-contracted certain manufacturing work to related companies totaling $10,232,599 and $7,911,034 for the years ended December 31, 2012 and 2011, respectively. The Company provided raw materials to the sub-contractors and was charged a fixed fee for labor provided by the sub-contractors.

Sub-contracts with related parties included in cost of sales for the years ended December 31, 2012 and 2011, are as follows:

	2012		2011
Ever-Glory Vietnam	$	4,144,156	$	4,420,490
Ever-Glory Cambodia		4,225,835		2,517,925
Nanjing Ever-Kyowa		948,917		842,055
Jiangsu Ever-Glory		37,963		12,973
EsC'Lav		15,981		60,675
Nanjing Knitting		859,747		56,916
Total	$	10,232,599	$	7,911,034

Accounts Payable – Related Parties

The Company purchases raw materials from and subcontracts some of its production to related parties. Accounts payable to related parties at December 31, 2012 and 2011 are as follows:

	2012		2011
Nanjing Knitting	$	756,842	$	661,139
Nanjing Ever-Kyowa		128,505		436,030
Ever-Glory Vietnam		2,183,039		1,305,696
Ever-Glory Cambodia		90,428		330,047
Kunshan enjin		-		26,091
Total	$	3,158,814	$	2,759,003

Amounts Due From Related Party

The amounts due from related parties at December 31, 2012 and 2011are as follows:

	2012		2011
EsC'eLav	$	8,680	$	23,565
Jiangsu Ever-Glory		33,573,977		17,600,147
Total	$	33,582,657	$	17,623,712

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. In 2011, because of restrictions on its ability to directly import and export products, the Company utilized Jiangsu Ever-Glory as its agent to assist the Company with its import and export transactions and its international transportation projects. Import transactions primarily consist of purchases of raw materials and accessories designated by the Company’s customers for use in garment manufacture. Export transactions consist of the Company’s sales to foreign markets such as Japan, Europe and the United States. As the Company’s agent, Jiangsu Ever-Glory’s responsibilities included managing customs, inspection, transportation, insurance and collections on behalf of the Company. Jiangsu Ever-Glory also managed transactions denominated in currencies other than the Chinese RMB at rates of exchange agreed between the Company and Jiangsu Ever-Glory and based upon rates of exchange quoted by the People’s Bank of China. In return for these services, Jiangsu Ever-Glory charged the Company a fee of approximately 3% of export sales manufactured in China and 1% of export sales manufactured overseas. For import transactions, the Company may make advance payments, through Jiangsu Ever-Glory, for the raw material purchases, or Jiangsu Ever-Glory may make advance payments on the Company’s behalf. For export transactions, accounts receivable for export sales are remitted by the Company’s customers through Jiangsu Ever-Glory, which forwards the payments to the Company. The Company and Jiangsu Ever-Glory agreed that balances from import and export transactions may be offset. Amounts due to (from) Jiangsu Ever-Glory are typically settled within 60-90 days. Interest of 0.5% is charged on net amounts due at each month end. Interest income for the years ended December 31, 2012 and 2011 was approximately $1.3 million and $0.6 million, respectively.

As of December 31, 2012, Jiangsu Ever-Glory has provided guarantees for approximately US$ 44.48 million (RMB 281 million) of lines of credit obtained by the Company. Jiangsu Ever-Glory, and its 20.31% owned equity investee, Nanjing Knitting, have also provided their assets as collateral for certain of these lines of credit. The value of the collateral, as per appraisals obtained by the banks in connection with these lines of credit is approximately US$20.90 million (RMB 132 million).  Mr. Kang has also provided a personal guarantee for US$22.00 million (RMB 139 million).  In consideration of the guarantees and collateral provided by Jiangsu Ever-Glory and Nanjing Knitting, the Company has 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 expiration or termination of the underlying lines of credit and is to pay annual interest at the rate of 6.0% of amounts provided. During the year ended December 31, 2012, US$32.13 million was provided to Jiangsu Ever-Glory under the counter-guarantee, all of which was outstanding at December 31, 2012.

Following is a summary of transactions for the years ended December 31, 2012 and 2011:

		As of December 31,
Related Party	Type of transaction	2012		2011
Jiangsu Ever-glory	Accounts receivable	$	214,226	$	19,999,373
Jiangsu Ever-glory	Accounts payable		53,680		2,399,226
Jiangsu Ever-glory	Interest income		1,262,701		-
Jiangsu Ever-glory	Counter guarantee deposit	$	32,150,730		-
Total		$	33,573,977	$	17,600,147

Through March 31, 2013, approximately $4.75 million (RMB 30 million) was provided under the counter-guarantee and approximately $15.67 million (RMB 99 million) was returned.

At December 31, 2012, amounts due from Jiangsu Ever-Glory have been classified as a reduction of equity, consistent with the guidance in SEC Staff Accounting Bulletins 4E and 4G.