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Related Party Transactions

9 Months Ended

Sep. 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 nine months ended September 30, 2019 and 2018, the Company received $10,868, $56,523, $17,961 and $69,502 from the customers and paid $10,935, $50,021, $18,077 and $57,395 to Wubijia through the consignment, respectively. The net income (loss) of ($67), $6,503, ($117) and $12,106 was recorded as other income (expenses) during the three and nine months ended September 30, 2019 and 2018, respectively.

Other expenses due to Related Parties

Included in other expenses for the three and nine months ended September 30, 2019 and 2018 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,
	2019		2018		2019		2018
	(In thousands of U.S. Dollars)
Chuzhou Huarui		52		48		140		157
Kunshan Enjin		22		11		66		38
Total	$	74	$	59	$	206	$	195

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(In thousands of U.S. Dollars)
Chuzhou Huarui	$	1,197	$	653	$	4,664	$	2,526
Fengyang Huarui		1,071		911		1,619		1,962
Nanjing Ever-Kyowa		342		392		1,097		1,067
Ever-Glory Vietnam		4,689		6,754		9,737		11,928
Nanjing Knitting		339		-		939		-
EsCeLav		28		10		129		31
Jiangsu Ever-Glory		345		664		815		685
	$	8,011	$	9,384	$	19,000	$	18,199

Accounts Payable – Related Parties

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

	2019		2018
	(In thousands of U.S. Dollars)
Ever-Glory Vietnam	$	1,920		1,863
Fengyang Huarui		388		622
Nanjing Ever-Kyowa		279		580
Chuzhou Huarui		1,142		888
Nanjing Knitting		146		171
Jiangsu Ever-Glory		480		632
Total	$	4,355	$	4,756

Amounts Due From Related Parties-current assets

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

	2019		2018
	(In thousands of U.S. Dollars)
Jiangsu Ever-Glory	$	123	$	122
Esc'elav		-		70
Total	$	123	$	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 nine months ended September 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 $0.8 million, $0.8 million, $0.4 million and $0.7 million during the three and nine months period ended September 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 million, $0.1 million, $0.3 million and $0.4 million during the three and nine months ended September 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 September 30, 2019 and December 31, 2018, Jiangsu Ever-Glory has provided guarantees for approximately $32.5 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 $29.1 million (RMB 205.5 million) and $29.9 million (RMB 205.5 million) as of September 30, 2019 and December 31, 2018, respectively. Mr. Kang has also provided a personal guarantee for $16.4 million (RMB 117.7 million) and $14.5 million (RMB 100.0 million) as of September 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 nine months ended September 30, 2019, an additional $6.8 million (RMB 46.3 million) was provided to and $10.7 million (RMB 73.3 million) was received from Jiangsu Ever-Glory under the counter-guarantee. As of September 30, 2019, the amount of the counter-guarantee was $5.8 million (RMB 41.3 million) (the difference represents currency exchange adjustment of $0.1 million), which was 17.9% 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 September 30, 2019 and December 31, 2018, the amount classified as a reduction of equity was $6.6 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 nine months ended September 30, 2019 and 2018 was approximately $0.05 million, $0.2 million, $0.3 million and $1.0 million, respectively.