Related Party Transactions

9 Months Ended

Sep. 30, 2012

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 8RELATED 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 and nine months ended September 30, 2012 and 2011 is rent revenue from entities controlled by Mr. Kang under operating lease agreements with various terms though 2015 as follows:

	Three months ended				Nine months ended
	September 30,				September 30,
	2012		2011		2012		2011
EsCeLav	$	2,949	$	2,882	$	8,882	$	8,608
Nanjing Eight-One-Five Hi-Tech (M&E) Co.,Ltd.		3,938		3,843		11,843		11,478
Jiangsu Heng-Rui		-		5,418		-		16,183
Total	$	6,887	$	12,143	$	20,725	$	36,269

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 $1.0 million (RMB 6.3 million) and $1.2 million (RMB7.5 million) during the nine months ended September 30, 2012 and 2011, and have been netted against each other for financial reporting purposes. 

The Company purchased raw materials of $309,070 and $1,297,375 during the three months ended September 30, 2012 and 2011, respectively; and $1,023,092 and $2,356,466 during the nine months ended September 30, 2012 and 2011, respectively, from Nanjing Knitting.

In addition, the Company sub-contracted certain manufacturing work to related parties totaling $1,587,404 and $2,553,005 for the three months ended September 30, 2012 and 2011, respectively; and $7,010,767 and $6,551,750 for the nine months ended September 30, 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 and nine months ended September 30, 2012 and 2011 are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Ever-Glory Vietnam	$	887,853	$	1,504,916	$	2,342,989	$	3,897,349
Ever-Glory Cambodia		483,225		915,419		3,264,516		1,938,674
Nanjing Ever-Kyowa		195,992		127,328		607,626		662,941
Jiangsu Ever-Glory		16,958		5,342		25,928		5,342
EsC'Lav		3,376		-		15,940		11,879
Nanjing Knitting		-		-		753,768		35,565
Total	$	1,587,404	$	2,553,005	$	7,010,767	$	6,551,750

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 September 30, 2012 and December 31, 2011 are as follows:

	September 30, 2012			December 31, 2011
Nanjing Knitting	$	1,126,572		$	661,139
Nanjing Ever-Kyowa		229,963			436,030
Ever-Glory Vietnam		83,553			1,305,696
Ever-Glory Cambodia		(361,943	)		330,047
Kunshan Enjin		-			26,091
Total	$	1,078,145		$	2,759,003

Amounts Due From Related Parties

The amounts due from related parties as of September 30, 2012 and December 31, 2011 are as follows:

	September 30, 2012		December 31, 2011
EsC'eLav	$	53,530	$	23,565
Nanjing Eight-One-Five Hi-tech (M&E) Co.,Ltd.		11,843		-
Jiangsu Ever-Glory		22,251,123		17,600,147
Total	$	22,316,496	$	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 September 30, 2012, Jiangsu Ever-Glory has provided guarantees for approximately US$ 40.26 million (RMB 255 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$16.32 million (RMB 103 million).  Mr. Kang has also provided a personal guarantee for US$ 21.95 million (RMB 139 million).  During the nine months ended September 30, 2012, US$ 21.49 million (RMB 136 million) was provided to Jiangsu Ever-Glory under the counter-guarantee, all of which was outstanding at September 30, 2012.

Interest of 0.5% is charged on net amounts due at each month end. Interest income amounted to $355,211 and $208,199 for the three months ended September 30, 2012 and 2011, respectively; and $918,506 and $347,694 for the nine months ended September 30, 2012 and 2011, respectively.

Following is a summary of the balances as of September 30, 2012:

Related Party	Type of transaction	September 30 2012 (As restated, Note 1)			December 31 2011
Jiangsu Ever-glory	Accounts receivable	$	1,132,287		$	19,999,373
Jiangsu Ever-glory	Accounts payable		(1,289,859	)		(2,399,226	)
Jiangsu Ever-glory	Interest income		918,505			-
Jiangsu Ever-glory	Counter guarantee deposit	$	21,490,190			-
Total		$	22,251,123		$	17,600,147

At September 30, 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.