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-term 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 certain Company’s retail stores since the third quarter of 2014. During the three months ended March 31, 2017 and 2016, the Company received $11,565 and $6,535 from the customers and paid $8,954 and $4,610 to Wubijia through the consignment, respectively. The net profit of $2,611 and $1,925 was recorded as other income during the three months ended March 31, 2017 and 2016, 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 months ended March 31, 2017 and 2016, the Company received $5,381 and $30,383 from the customers and paid $8,959 and $24,956 to Nanjing Knitting through the consignment, respectively. The net loss of ($3,576) and net profit of $5,427 was recorded as other income during the three months ended March 31, 2017 and 2016.

Included in other income for the three months ended March 31, 2016 is rent income from EsC’Lav, the entity controlled by Mr. Kang under operating lease agreement with term through 2016. The rent income is $15,786 for the three months ended March 31, 2016.

Other expenses due to Related Parties

Included in other expenses for the three months ended March 31, 2017 and 2016 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows:

	2017		2016
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	11	$	12
Chuzhou Huarui		52		57
Kunshan Enjin		11		11
Total	$	74	$	80

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 from Nanjing Knitting totaling $0.16 million and $0.20 million during the three months ended March 31, 2017 and 2016, respectively.

In addition, the Company sub-contracted certain manufacturing work to related companies totaling $3.4 million and $6.4 million for the three months ended March 31, 2017 and 2016, respectively. The Company provided raw materials to the sub-contractors and charged a fixed fee for labor provided by the sub-contractors.

Sub-contracts with related parties included in cost of sales for the three months ended March 31, 2017 and 2016 are as follows:

	2017		2016
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	1,422	$	2,039
Chuzhou Huarui		1,010		2,324
Fengyang Huarui		464		203
Ever-Glory Cambodia		36		1,338
Nanjing Ever-Kyowa		445		473
EsC'eLav		4		-
Jiangsu Ever-Glory		3		51
Total	$	3,384	$	6,428

Accounts Payable – Related Parties

The accounts payable to related parties at March 31, 2017 and December 31, 2016 are as follows:

	2017		2016
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	583		1,938
Fengyang Huarui		617		709
Nanjing Ever-Kyowa		714		785
Chuzhou Huarui		582		643
Nanjing Knitting		27		-
Ever-Glory Cambodia		18		262
Total	$	2,541	$	4,337

Amounts Due From Related Parties-current assets

The amounts due from related parties at March 31, 2017 and December 31, 2016 are as follows:

	2017		2016
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	510	$	403
Nanjing Knitting		-		9
EsC'eLav		53		74
Total	$	563	$	486

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 months ended March 31, 2017 and 2016, 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 $0.7 million and $0.8 million during the three month period ended March 31, 2017 and 2016, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at cost for $0 and $26,922 during the three months ended March 31, 2017 and 2016, 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 March 31, 2017 and December 31, 2016, Jiangsu Ever-Glory has provided guarantees for approximately $52.8 million (RMB 364 million) and $52.4 million (RMB 364.0 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. The value of the collateral, as per appraisals obtained by the banks in connection with these lines of credit is approximately $29.8 million (RMB 205.5 million) and $29.6 million (RMB 205.5 million) as of March 31, 2017 and December 31, 2016, respectively. Mr. Kang has also provided a personal guarantee for $30.3 million (RMB 209.0 million) and $30.1 million (RMB 209.0 million) as of March 31, 2017 and December 31, 2016, respectively.

At December 31, 2016, $14.1 million (RMB 98.2 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the three months ended March 31, 2017, an additional $1.7 million (RMB 12.0 million) was provided to Jiangsu Ever-Glory under the counter-guarantee. As of March 31, 2017, the amount of the counter-guarantee was $16.0 million (RMB 110 million) (the difference represents currency exchange adjustment of $0.2 million), which was 30.3% of the aggregate amount of lines of credit. This amount plus accrued interest of $1.9 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At March 31, 2017 and December 31, 2016, the amount classified as a reduction of equity was $17.9 million and $15.9 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 months ended March 31, 2017 and 2016 was approximately $0.1 million and $0.2 million, respectively.