Related Party Transactions

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 9 RELATED PARTY TRANSACTIONS

Mr. Kang is the Company’s Chairman and Chief Executive Officer. All transactions associated with the following companies controlled by Mr. Kang 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 six months ended June 30, 2013 is rent revenue from entities controlled by Mr. Kang under operating lease agreements as follows.  There were no such income in 2014.

	Three months ended		Six months ended
	June 30,		June 30,
	2013		2013
EsCeLav	$	3,056	$	6,038
Nanjing Eight-One-Five Hi-tech (M&E) Co., Ltd.		4,070		8,050
Total	$	7,126	$	14,088

Other expenses due to Related Parties

Included in other expenses for the three and six months ended June 30, 2014 and 2013 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows:

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Jiangsu Ever-Glory	$	12,733	$	12,788	$	25,560	$	25,277
Kunshan Enjin		10,491		8,517		21,060		16,774
Total	$	23,224	$	21,305	$	46,620	$	42,051

Purchases from, and Sub-contracts with Related Parties

Shanghai Weiwen Fashion Company Ltd. (Shanghai Weiwen) was incorporated in the PRC in 2012. This company designs and sells women’s apparel utilizing the “Velwin” brand. Shanghai Weiwen is owned by Mr. Kang. Shanghai Ya Lan entered an agreement with Shanghai Weiwen in April 2014 to purchase the “Velwin” brand along with existing inventory of Shanghai Weiwen. No customer relationships, production facilities, or other operating assets were acquired. Management of the Company believes that this asset purchase will provide the Company with additional multi-brand advantages. The purchase price of the inventory and brand was approximately $2.44 million. The purchase price was based primarily on the estimated fair market value of the inventory.

Shanghai Sea to Sky Fashion Company Ltd. (Shanghai Sea to Sky) was incorporated in the PRC in 2012. This company designs and sells women’s apparel utilizing the “Sea to Sky” brand. Shanghai Sea to Sky is owned by Mr. Kang. Shanghai LA GO GO entered an agreement with Shanghai Sea to Sky in April 2014 to purchase the “Sea to Sky” brand along with existing inventory of Shanghai Sea to Sky. No customer relationships, production facilities, or other operating assets were acquired. Management of the Company believes that this asset purchase will provide the Company with a multi-brand advantages. The purchase price of the inventory and brand was approximately $0.39 million. The purchase price was based primarily on the estimated fair market value of the inventory. 

For the three and six months ended June 30, 2014 and 2013, the Company purchased raw materials of $450,620, $884,070, $101,370, and $184,608, respectively, from Nanjing Knitting.

In addition, the Company sub-contracted certain manufacturing work to related parties totaling $4,401,992, $10,312,113, $5,102,919, and $9,088,426 for the three and six months ended June 30, 2014 and 2013, 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 six months ended June 30, 2014 and 2013 are as follows:

	Three Months Ended June 30,				Six Months Ended  June 30,
	2014		2013		2014		2013
Nanjing Knitting	$	-	$	211,296	$	-	$	232,602
Nanjing Ever-Kyowa		426,451		255,893		861,970		523,878
Ever-Glory Vietnam		1,776,620		3,175,681		4,964,884		5,094,787
Ever-Glory Cambodia		696,136		1,446,661		2,957,190		3,221,188
EsCeLav		-		1,775		-		4,358
Shanghai Weiwen		1,502,785		-		1,502,785		-
Shanghai Sea to Sky		377,793		-		377,793		-
Jiangsu Ever-Glory		-		11,613		25,284		11,613
	$	4,779,785	$	5,102,919	$	10,689,906	$	9,088,426

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 June 30, 2014 and December 31, 2013 are as follows:

	June 30,  2014		December 31,  2013
Nanjing Knitting	$	-	$	784,777
Nanjing Ever-Kyowa		560,076		261,955
Ever-Glory Vietnam		677,078		2,473,271
Ever-Glory Cambodia		-		582,453
Shanghai Sea to Sky		377,793		-
Shanghai Weiwen		1,405,345		-
Total	$	3,020,292	$	4,102,456

Amounts Due From Related Parties

The amounts due from related parties at June 30, 2014 and December 31, 2013 are as follows:

	June 30,  2014		December 31,  2013
EsCeLav	$	31,439	$	12,291
Nanjing Eight-One-Five Hi-tech (M&E) Co.,Ltd.		20,546		145,206
Nanjing Knitting		324,984		-
Ever-Glory Cambodia		832,160		-
Jiangsu Ever-Glory		293,817		1,738,879
Total	$	1,502,946	$	1,896,376

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. Because of restrictions on its ability to directly import and export products, the Company had utilized Jiangsu Ever-Glory as its agent to assist the Company with its import and export transactions and its international transportation projects from 2005 through 2011. Import transactions primarily consisted of purchases of raw materials and accessories designated by the Company’s customers for use in garment manufacture. Export transactions consisted of the Company’s sales to foreign markets such as Japan, Europe and the United States. These transactions ceased at end of 2011. During six months ended June 30, 2014 and 2013, the Company and Jiangsu Ever-Glory purchased raw materials on behalf of each other in order to obtain cheaper purchase prices. The Company purchased raw materials on Jiangsu Ever-Glory’s behalf and sold to Jiangsu Ever-Glory at cost for $0 and $72,548 during the six month period ended June 30, 2014 and 2013, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at cost for $19,221 and $0 during the six months ended June 30, 2014 and 2013, respectively.

Amounts Due From Related Party under Counter Guarantee Agreement

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 June 30, 2014 and December 31, 2013, Jiangsu Ever-Glory has provided guarantees for approximately $48.72 million (RMB 300 million) and $43.69 million (RMB 269 million) of lines of credit obtained by the Company. Jiangsu Ever-Glory and 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 $16.72 million (RMB 103 million) as of June 30, 2014 and December 31, 2013. Mr. Kang has also provided a personal guarantee for $30.5 million (RMB 188 million).

During the six months ended June 30, 2013, US$4.82 million (RMB30.25 million) was provided to Jiangsu Ever-Glory under the counter-guarantee. US$16.79 million (RMB103 million) was outstanding at December 31, 2013. During six months ended June 30, 2014, an additional $5.03 million (RMB 31 million) was provided and approximately $1.30 million (RMB 8 million) of interest income was received under the counter-guarantee agreement. As of June 30, 2014, the amount of the counter-guarantee was $21.7 million (RMB 134 million) (the difference represents currency exchange adjustment of $0.12 million), which was 44.54% of the aggregate amount of lines of credit. This amount plus accrued interest of $1.50 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At June 30, 2014 and 2013, the amount classified as a reduction of equity was $23.19 million and $19.08 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. Interest income for the three and six months ended June 30, 2014 and 2013 was approximately $0.29 million, $0.5 million, $0.34 million and $0.64 million, respectively.