Related Party Transactions

3 Months Ended

Mar. 31, 2012

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 9 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 three months ended March 31, 2012 and 2011 is rent revenue from entities controlled by Mr. Kang under operating lease agreements with various terms though 2015 as follows:

	March 31, 2012		March 31, 2011
EsCeLav	$	2,964	$	2,854
Jiangsu Heng-rui				5,365
Nanjing Eight-One-Five Hi-tech (M&E) Co.,Ltd.		3,953		3,805
Total	$	6,917	$	12,024

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 $1.1 million (RMB7.5 million) during the three months ended March 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 from Nanjing Knitting totaling $634,609 and $110,945 during the three months ended March 31, 2012 and 2011, respectively.

In addition, the Company sub-contracted certain manufacturing work to related companies totaling $2,815,808 and $1,530,418 for the three months ended March 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 three months ended March 31, 2012 and 2011 are as follows:

	March 31, 2012		March 31, 2011
Nanjing High-Tech	$	634,609	$	23,710
Nanjing Ever-Kyowa		165,217		227,640
Ever-Glory Vietnam		829,469		898,253
Ever-Glory Cambodia		1,186,513		369,819
EsC'eLav		5,948		10,996
Jiangsu Ever-Glory		3,814		-
Total	$	2,825,570	$	1,530,418

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 March 31, 2012 and December 31, 2011 are as follows:

	March 31, 2012		December 31, 2011
Nanjing Knitting	$	1,290,477	$	661,139
Nanjing Ever-Kyowa		271,111		436,030
Ever-Glory Vietnam		262,953		1,305,696
Ever-Glory Cambodia		173,167		330,047
Kunshan Enjin		-		26,091
Total	$	1,997,708	$	2,759,003

Amounts Due From Related Party

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

	March 31, 2012		December 31, 2011
EsC'eLav	$	16,190	$	23,565
Jiangsu Ever-Glory		18,428,023		17,600,147
Total	$	18,444,213	$	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.

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 expiration or termination of the underlying lines of credit and is to pay annual interest at the rate of 6.0% of amounts provided. As of March 31, 2012, Jiangsu Ever-Glory has provided guarantees for approximately US$ 5.06 million (RMB 32 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$11.93 million (RMB 75 million).  Mr. Kang has also provided a personal guarantee for US$21.95 million (RMB 139 million).  During the three months ended March 31, 2012, US$3.98 million (RMB 25 million) was provided to Jiangsu Ever-Glory under the counter-guarantee, all of which was outstanding at March 31, 2012.

Interest of 0.5% is charged on net amounts due at each month end. Interest income for the three months ended March 31, 2012 and 2011 was $272,736 and $19,116, respectively.

Following is a summary of the balances as of March 31, 2012:

Related Party	Type of transaction	March 31, 2012 (As restated, Note 1)			December 31, 2011
Jiangsu Ever-glory	Accounts receivable	$	16,598,050		$	19,999,373
Jiangsu Ever-glory	Accounts payable		(2,426,712	)		(2,399,226	)
Jiangsu Ever-glory	Interest income		272,565			-
Jiangsu Ever-glory	Counter guarantee deposit	$	3,984,120			-
Total		$	18,428,023		$	17,600,147

At March 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 because the receivables arose as a result of financing transactions.

Loan from Related Party

As of January 1, 2010 the Company owed $1.0 million to Blue Power Holdings Limited, a company controlled by the Company’s Chief Executive Officer. Interest was charged at 6% per annum on the amounts due. The loans were paid in full in April 2011.