NOTE 9 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

Jiangsu Wubijia 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 certain Company’s retail stores since the third quarter of 2014. During the three and nine months ended September 30, 2016 and 2015, the Company received $9,747, $21,002, $14,065 and $23,851 from the customers and paid $6,483, $16,768, $11,283 and $20,383 to Wubijia through the consignment, respectively. The net (loss) profit of $3,264, $4,234, $2,782 and $3,468 was recorded as other income (expenses) during the three and nine months ended September 30, 2016 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 three and nine months ended September 30, 2016, the Company received $21,944 and $122,783 from the customers and paid $16,085 and $101,531 to Nanjing Knitting through the consignment, respectively. The net profit of $5,859 and $21,252 was recorded as other income during the three and nine months ended September 30, 2016. During the nine months ended September 30, 2015, the Company received other income $52,945 from customers and paid $42,770 to Nanjing Knitting through the Consignment, respectively. The net profit of $10,175 was recorded as other income during nine months ended September 30, 2015.

Included in other income for the three and nine months ended September 30, 2016 and 2015 is rent income from EsC’Lav, the entity controlled by Mr. Kang under operating lease agreement with term though 2016. The rent income is $16,022, $48,455, $15,613 and $50,718 for the three and nine months ended September 30, 2016 and 2015, respectively.

Other expenses due to Related Parties

Included in other expenses for the three and nine months ended September30, 2016 and 2015 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows:

	Three months ended				Nine months ended
	September 30,				September 30,
	2016		2015		2016		2015
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	12	$	13	$	36	$	38
ChuzhouHuarui		57		182		171		182
KunshanEnjin		12		12		34		36
Total	$	81	$	207	$	241	$	256

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 ChuzhouHuarui and KunshanEnjin's warehouse spaces because the locations are convenient for transportation and distribution.

Purchases from and Sub-contracts with Related Parties

The Company purchased raw materials from Nanjing Knitting totaling $0.11 million, $0.45 million, $0.07 million and $0.76 million during the three and nine months ended September 30, 2016 and 2015, respectively.

In addition, Sub-contracts with related parties included in cost of sales for the three and nine months ended September 30, 2016 and 2015 are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(In thousands of U.S. Dollars)
Chuzhouhuarui	$	1,228	$	786	$	4,922	$	3,279
Fengyanghuarui		344		514		846		1,250
Nanjing Ever-Kyowa		490		227		1,485		814
Ever-Glory Vietnam		6,196		2,367		11,253		7,255
Ever-Glory Cambodia		996		1,190		3,091		1,562
EsCeLav		-		20		5		22
Shanghai Sea to Sky		-		-		-		259
Jiangsu Ever-Glory		22		35		73		60
	$	9,276	$	5,139	$	21,675	$	14,501

Accounts Payable – Related Parties

The accounts payable to related parties at September 30, 2016 and December 31, 2015 are as follows:

	September 30, 2016		December 31, 2015
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	1,990		2,003
FengyangHuarui		327		84
Nanjing Ever-Kyowa		828		561
ChuzhouHuarui		829		175
Ever-Glory Cambodia		7
Wubijia		1		-
Total	$	3,982	$	2,823

Amounts Due From Related Parties-current assets

The amounts due from related parties as of September 30, 2016 and December 31, 2015 are as follows:

	September 30, 2016		December 31, 2015
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	408	$	2,412
Nanjing Knitting		29		106
EsCeLav		110		2
Ever-Glory Cambodia		-		15
Total	$	547	$	2,535

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 three and nine months ended September 30, 2016 and 2015, 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 a cost of $2.1 million and $3.9 million during the nine-month period ended September 30, 2016 and 2015, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at a cost of $0.5 million and $0.1 million during the nine months ended September 30, 2016 and 2015, 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 more 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, 2016 and December 31, 2015, Jiangsu Ever-Glory has provided guarantees for approximately $54.6 million (RMB364 million) (2016) and $52.2 million (RMB339 million) (2015) of lines of credit obtained by the Company. Jiangsu Ever-Glory, ChuzhouHuarui 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 $31.0 million (RMB206 million) (2016) and $22.8 million (RMB148 million) (2015) as of September 30, 2016 and December 31, 2015, respectively. Mr. Kang has also provided a personal guarantee for $31.3 million (RMB209 million).

As of December 31, 2015, $18.8 million (RMB122 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the nine months ended September 30, 2016, repayment of $1.8 million (RMB12 million) was received from and $1.2 million (RMB8 million) paid to Jiangsu Ever-Glory under the counter-guarantee. As of September 30, 2016, the amount of the counter-guarantee was $17.7 million (RMB118 million) (the difference represents currency exchange adjustment of $0.5 million), which was 32.5% of the aggregate amount of lines of credit. This amount plus accrued interest of $3.6 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At September 30, 2016 and 2015, the amount classified as a reduction of equity was $21.3 million and $21.8 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. Since April 1, 2015, interest rate has changed to 0.41% as the bank benchmark interest rate decreased. Interest income for the three and nine months ended September 30, 2016 and 2015 was approximately $0.2 million, $0.6 million, $0.2 million and $0.7 million, respectively.