NOTE 12 RELATED PARTY TRANSACTIONS

Mr. Kang is the Company’s Chairman and Chief Executive Officer. Ever-Glory Enterprises (HK) Ltd. (Ever-Glory Enterprises) is the Company’s major shareholder. Mr. Xiaodong Yan was Ever-Glory Enterprises’ sole shareholder and sole director. Mr. Huake Kang, Mr. Kang’s son, acquired 83% interest of Ever-Glory Enterprises and became its sole director in 2014. All transactions associated with the following companies controlled by Mr. Kang or his son 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

JiangsuWubijia Trading Company Limited (“Wubijia”) is an entity engaged in high-grade home goods sales and is controlled by Mr. Kang. Wubijia has sold their home goods on consignment in some Company’s retail stores since the third quarter of 2014. During the year ended December 31, 2014 and 2015, the Company received $54,682 and $32,760 from the customers and paid $49,223 and $31,778 to Wubijia through the consignment, respectively. The net profit of $5,459 and $982 was recorded as other income during the year ended December 31, 2014 and 2015, respectively.

Nanjing Knitting Company Limited (“Nanjing Knitting”) is an entity engaged in knitted fabric products and knitting underwear sales and is controlled by Mr. Kang. Nanjing Knitting has sold their knitting underwear on consignment in some Company’s retail stores since the third quarter of 2015. During the year ended December 31, 2015, the Company received $123,402 from the customers and paid $97,323 to Nanjing Knitting through the consignment, respectively. The net profit of $26,079 was recorded as other income during the year ended December 31, 2015.

Included in other income for the year ended December 31, 2015 is rent revenue from entity controlled by Mr. Kang under operating lease agreement with term though 2016 as follows. There was no such income in 2014:

	2015
EsC'Lav	$	69
Total	$	69

Other expenses due to Related Parties

Included in other expenses for the years ended December 31, 2015 and 2014 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows (See details at Note 13):

	2015		2014
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	50	$	51
Chuzhou Huarui		240		-
Kunshan Enjin		48		46
Total	$	338	$	97

The Company leases Jiangsu Ever-Glory's factory as the factory is in a location where there is a good supply of experienced workers. The Company leases Chuzhou Huarui and Kunshan Enjin's warehouse spaces because the locations are convenient for transportation and distribution.

Purchases from, and Sub-contracts with Related Parties

The Company entered an agreement with Shanghai Weiwen Fashion Company Ltd. (Shanghai Weiwen) in April 2014 to purchase the “Velwin” brand along with existing inventory of Shanghai Weiwen. The Company purchased the inventory and brand for $2.5 million during the year 2014.

The Company entered an agreement with Shanghai Sea to Sky Fashion Company Ltd. (Shanghai Sea to Sky) in April 2014 to purchase the “Sea to Sky” brand along with existing inventory of Shanghai Sea to Sky. The Company purchased the inventory and brand for $0.6 million during the year 2014.

The Company purchased raw materials of $0.89 million and $1.90 million during the years ended 2015 and 2014, respectively, from Nanjing Knitting.

In addition, the Company sub-contracted certain manufacturing work to related companies totaling $21.43 million and $27.81 million for the years ended December 31, 2015 and 2014, 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, 2015 and 2014 are as follows:

	2015		2014
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	11,089	$	12,236
Chuzhou Huarui		4,313		6,679
Ever-Glory Cambodia		2,118		3,843
Fengyang Huarui		2,244		3,483
Nanjing Ever-Kyowa		1,369		1,567
Shanghai Sea to sky		259		-
EsC'Lav		42		-
Total	$	21,434	$	27,808

Accounts Payable – Related Parties

The accounts payable to related parties at December 31, 2015 and 2014 are as follows:

	2015		2014
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	2,003		1,884
Fengyang Huarui		84		622
Nanjing Ever-Kyowa		561		479
Chuzhou Huarui		175		415
Ever-Glory Cambodia		-		291
Nanjing Knitting		-		200
JiangsuWubijia		-		5
Total	$	2,823	$	3,896

Amounts Due From Related Parties – Current Assets

The amounts due from related parties at December 31, 2015 and 2014 are as follows:

	2015		2014
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	2,412	$	1,583
Nanjing Knitting		106		-
Nanjing Eight-One-Five Hi-Tech (M&E) Co. Ltd.		-		20
Sea to sky		-		49
Ever-Glory Cambodia		15		-
EsC'eLav		2		-
Total	$	2,535	$	1,652

The Company prepaid $106,387 and $14,909 to the sub-contractors, Nanjing Knitting and Ever-Glory Cambodia, respectively, for the next period’s subcontracting fees.

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. During 2015 and 2014, 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 $6.2 million and $2.1 million during 2015 and 2014, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at cost for $77,723 and $160,658 during 2015 and 2014, 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 the expiration or termination of the underlying lines of credit and is to pay an annual interest at the rate of 6.0% of the amounts provided. As of December 31, 2015 and 2014, Jiangsu Ever-Glory had provided guarantees for approximately $52.2 million (RMB 339.0 million) (2015) and $40.6 million (RMB 250.0 million) (2014) 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 $22.8 million (RMB 148.0 million) (2015) and $22.1 million (RMB 136.0 million) (2014). Mr. Kang has also provided a personal guarantee for $39.9 million (RMB 259.0 million) (2015) and $35.4 million (RMB 218.0 million) (2014).

As of December 31, 2014, $17.4 million (RMB 107.0 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the year ended December 31, 2015, an additional $4.7 million (RMB 30.4 million) was provided to and repayment of $2.3 million (RMB 15.0 million) was received from Jiangsu Ever-Glory under the counter-guarantee agreement. As of December 31, 2015, the amount of the counter-guarantee had increased to $18.8 million (RMB 122.0 million) (the difference represents currency exchange adjustment of $0.9 million), which was 36.1% of the aggregate amount of lines of credit. This amount plus accrued interest of $3.0 million (2015) and $2.1 million (2014) have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. As of December 31, 2015 and 2014, the amount classified as a reduction of equity was $21.8 million and $19.4 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. From April 1, 2015, interest rate has changed to 0.41% as the bank benchmark interest rate decreased. Interest income for the years ended December 31, 2015 and 2014 was approximately $0.9 million and $1.1 million, respectively.