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Related Party Transactions

6 Months Ended

Jun. 30, 2019

NOTE 10 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 certain Company's retail stores since the third quarter of 2014. During the three and six months ended June 30, 2019 and 2018, the Company received $14,176, $45,655, $17,919 and $51,541 from the customers and paid $13,248, $39,086, $20,130 and $39,318 to Wubijia through the consignment, respectively. The net income (loss) of $928, $6,570, ($2,212) and $12,223 was recorded as other income (expenses) during the three and six months ended June 30, 2019 and 2018, respectively.

Other expenses due to Related Parties

Included in other expenses for the three and six months ended June 30, 2019 and 2018 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows:

	Three months ended				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In thousands of U.S. Dollars)
Chuzhou Huarui		35		51		88		109
Kunshan Enjin		22		14		44		27
Total	$	57	$	65	$	132	$	136

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 $0.4 million, $0.6 million, $1.52 million and $1.85 million during the three and six months ended June 30, 2019 and 2018, respectively.

In addition, sub-contracts with related parties included in cost of sales for the three and six months ended June 30, 2019 and 2018 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(In thousands of U.S. Dollars)
Chuzhou Huarui	$	1,960	$	1,006	$	3,467	$	1,873
Fengyang Huarui		442		567		548		1,051
Nanjing Ever-Kyowa		408		326		755		675
Ever-Glory Vietnam		2,469		3,260		5,048		5,174
Nanjing Knitting		600		-		600		-
EsCeLav		13		21		101		21
Jiangsu Ever-Glory		45		17		470		21
	$	5,937	$	5,197	$	10,989	$	8,815

Accounts Payable – Related Parties

The accounts payable to related parties at June 30, 2019 and December 31, 2018 are as follows:

	2019		2018
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	1,769		1,863
Fengyang Huarui		34		622
Nanjing Ever-Kyowa		707		580
Chuzhou Huarui		1,062		888
Nanjing Knitting		283		171
Jiangsu Ever-Glory		941		632
Total	$	4,796	$	4,756

Amounts Due From Related Parties-current assets

The amounts due from related parties at June 30, 2019 and December 31, 2018 are as follows:

	2019		2018
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	144	$	122
Esc'elav		-		70
Total	$	144	$	192

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 six months ended June 30, 2019 and 2018, 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 $0 million, $0 million, $0 million and $0.3 million during the three and six months period ended June 30, 2019 and 2018, respectively. Jiangsu Ever-Glory purchased raw materials on the Company's behalf and sold to the Company at a cost of $0.1 million, $0.1 million, $0.1 million and $0.1 million during the three and six months ended June 30, 2019 and 2018, 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 June 30, 2019 and December 31, 2018, Jiangsu Ever-Glory has provided guarantees for approximately $33.5 million (RMB 230 million) and $33.4 million (RMB 230 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 $29.9 million (RMB 205.5 million) and $29.9 million (RMB 205.5 million) as of June 30, 2019 and December 31, 2018, respectively. Mr. Kang has also provided a personal guarantee for $17.0 million (RMB 116.8 million) and $14.5 million (RMB 100.0 million) as of June 30, 2019 and December 31, 2018, respectively.

At December 31, 2018, $9.9 million (RMB 68.2 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the six months ended June 30, 2019, an additional $5.5 million (RMB 37.0 million) was provided to and $8.1 million (RMB 55.3 million) was received from Jiangsu Ever-Glory under the counter-guarantee. As of June 30, 2019, the amount of the counter-guarantee was $7.3 million (RMB 50.0 million) (the difference represents currency exchange adjustment of $0.1 million), which was 21.7% of the aggregate amount of lines of credit. The increase of the percentage in this quarter was mainly due to China's credit tightening policy. Obtaining bank loan requires a higher guarantee deposit in this quarter. This amount plus accrued interest of $0.6 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At June 30, 2019 and December 31, 2018, the amount classified as a reduction of equity was $7.9 million and $10.4 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. Since January 1, 2019, interest rate has changed to 0.3625% as the bank benchmark interest rate decreased. Interest income for the three and six months ended June 30, 2019 and 2018 was approximately $0.1 million, $0.2 million, $0.2 million and $0.4 million, respectively.