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, 2017 and 2016, the Company received $54,081 and $30,741 from the customers and paid $42,241 and $26,328 to Wubijia through the consignment, respectively. The net profit of $11,840 and $4,413 was recorded as other income during the years ended December 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 years ended December 31, 2017 and 2016, the Company received $6,443 and $123,679 from the customers and paid $11,661 and $104,226 to Nanjing Knitting through the consignment, respectively. The net profit (loss) of ($5,218) and $19,453 was recorded as other income during the years ended December 31, 2017 and 2016.

Included in other income for the years ended December 31, 2017 and 2016 is rent income from EsC’Lav, the entity controlled by Mr. Kang under operating lease agreement with term though 2017. The rent income is $14,638 and $59,838 for the years ended December 31, 2017 and 2016, respectively.

Other expenses due to Related Parties

Included in other expenses for the years ended December 31, 2017 and 2016 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows (See details at Note 13):

	2017		2016
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	47	$	47
Chuzhou Huarui		222		226
Kunshan Enjin		44		45
Total	$	313	$	318

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 $1.39 million and $0.40 million during the years ended 2017 and 2016, respectively, from Nanjing Knitting.

In addition, the Company sub-contracted certain manufacturing work to related companies totaling $23.79 million and $27.63 million for the years ended December 31, 2017 and 2016, 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, 2017 and 2016 are as follows:

	2017		2016
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	15,998	$	15,366
Chuzhou Huarui		4,155		5,867
Ever-Glory Cambodia		179		3,344
Fengyang Huarui		1,860		1,245
Nanjing Ever-Kyowa		1,577		1,804
EsC’Lav		20		6
Total	$	23,789	$	27,632

Accounts Payable – Related Parties

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

	2017		2016
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	1,934		1,938
Fengyang Huarui		459		709
Nanjing Ever-Kyowa		900		785
Chuzhou Huarui		1,152		643
Ever-Glory Cambodia		-		262
Nanjing Knitting		114		-
Esc’elav		6		-
Jiangsu Ever-Glory		110		-
Total	$	4,675	$	4,337

Amounts Due From Related Parties – Current Assets

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

	2017		2016
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	265	$	403
Nanjing Knitting		-		9
EsC'eLav		-		74
Total	$	265	$	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 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 $0.3 million and $2.9 million during 2017 and 2016, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at cost for $49,967 and $532,123 during 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 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, 2017 and 2016, Jiangsu Ever-Glory had provided guarantees for approximately $49.5 million (RMB 322.0 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. As of December 31, 2017 and 2016, the value of the collateral, as per appraisals obtained by the banks in connection with these lines of credit is approximately $31.6 million (RMB 205.5 million) and $29.6 million (RMB 205.5 million), respectively. Mr. Kang has also provided a personal guarantee for $21.5 million (RMB 140.0 million) and $30.1 million (RMB 209.0 million) at the years ended of December 31, 2017 and 2016, respectively.

As of December 31, 2016, $14.1 million (RMB98.2 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the year ended December 31, 2017, an additional $7.4 million (RMB 48.1 million) was provided to and repayment of $9.6 million (RMB 62.7 million) was received from Jiangsu Ever-Glory under the counter-guarantee agreement. As of December 31, 2017, the amount of the counter-guarantee had decreased to $12.8 million (RMB 83.6 million) (the difference represents currency exchange adjustment of $0.94 million), which was 26.0% of the aggregate amount of lines of credit. This amount plus accrued interest of $2.6 million (2017) and $1.8 million (2016) have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. As of December 31, 2017 and 2016, the amount classified as a reduction of equity was $15.4 million and $15.9 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, 2017 and 2016 was approximately $0.8 million and $0.8 million, respectively.