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-term 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 some Company’s retail stores since the third quarter of 2014. During the year ended December 31, 2016 and 2015, the Company received $30,741 and $32,760 from the customers and paid $26,328 and $31,778 to Wubijia through the consignment, respectively. The net profit of $4,413 and $982 was recorded as other income during the year ended December 31, 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 year ended December 31, 2016 and 2015, the Company received $123,679 and $123,402 from the customers and paid $104,226 and $97,323 to Nanjing Knitting through the consignment, respectively. The net profit of $19,453 and $26,079 was recorded as other income during the year ended December 31, 2016 and 2015.

Included in other income for the year ended December 31, 2016 and 2015 is rent income from EsC’Lav, the entity controlled by Mr. Kang under operating lease agreement with term though 2017. The rent income is $59,838 and $69,089 for the year ended December 31, 2016 and 2015, respectively.

Other expenses due to Related Parties

Included in other expenses for the years ended December 31, 2016 and 2015 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows (See details at Note 13):

	2016		2015
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	47	$	50
Chuzhou Huarui		226		240
Kunshan Enjin		45		48
Total	$	318	$	338

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 purchased raw materials of $0.40 million and $0.89 million during the years ended 2016 and 2015, respectively, from Nanjing Knitting.

In addition, the Company sub-contracted certain manufacturing work to related companies totaling $27.63 million and $21.43 million for the years ended December 31, 2016 and 2015, 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, 2016 and 2015 are as follows:

	2016		2015
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	15,366	$	11,089
Chuzhou Huarui		5,867		4,313
Ever-Glory Cambodia		3,344		2,118
Fengyang Huarui		1,245		2,244
Nanjing Ever-Kyowa		1,804		1,369
Shanghai Sea to sky		-		259
EsC'Lav		6		42
Total	$	27,632	$	21,434

Accounts Payable – Related Parties

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

	2016		2015
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	1,938		2,003
Fengyang Huarui		709		84
Nanjing Ever-Kyowa		785		561
Chuzhou Huarui		643		175
Ever-Glory Cambodia		262		-
Total	$	4,337	$	2,823

Amounts Due From Related Parties – Current Assets

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

	2016		2015
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	403	$	2,412
Nanjing Knitting		9		106
Ever-Glory Cambodia		-		15
EsC'eLav		74		2
Total	$	486	$	2,535

The Company prepaid $9,285 to the sub-contractors, Nanjing Knitting 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 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 cost for $2.9 million and $6.2 million during 2016 and 2015, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at cost for $532,123 and $77,723 during 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 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, 2016 and 2015, Jiangsu Ever-Glory had provided guarantees for approximately $52.4 million (RMB 364.0 million) and $52.2 million (RMB 339.0 million) of lines of credit obtained by the Company, respectively. Jiangsu Ever-Glory and Nanjing Knitting have also provided their assets as collateral for certain of these lines of credit. As of December 31, 2016 and 2015, the value of the collateral, as per appraisals obtained by the banks in connection with these lines of credit is approximately $29.6 million (RMB 205.5 million) and $22.8 million (RMB 148.0 million), respectively. Mr. Kang has also provided a personal guarantee for $30.1 million (RMB 209.0 million) and $39.9 million (RMB 259.0 million) at the year ended of December 31, 2016 and 2015, respectively.

As of December 31, 2015, $18.8 million (RMB122 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the year ended December 31, 2016, an additional $1.2 million (RMB 8.0 million) was provided to and repayment of $4.6 million (RMB 32.0 million) was received from Jiangsu Ever-Glory under the counter-guarantee agreement. As of December 31, 2016, the amount of the counter-guarantee had decreased to $14.1 million (RMB 98.2 million) (the difference represents currency exchange adjustment of $1.3 million), which was 27.0% of the aggregate amount of lines of credit. This amount plus accrued interest of $1.8 million (2016) and $3.0 million (2015) have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. As of December 31, 2016 and 2015, the amount classified as a reduction of equity was $15.9 million and $21.8 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, 2016 and 2015 was approximately $0.8 million and $0.9 million, respectively.