Related Party Transactions | 9 Months Ended |
Sep. 30, 2014 |
Related Party Transactions [Abstract] | ' |
RELATED PARTY TRANSACTIONS | ' |
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NOTE 10 RELATED PARTY TRANSACTIONS |
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Mr. Kang is the Company’s Chairman and Chief Executive Officer. All transactions associated with the following companies controlled by Mr. Kang 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-tem in nature and are expected to be settled in cash. |
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Other income from Related Parties |
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Included in other income for the three and nine months ended September 30, 2013 is rent revenue from entities controlled by Mr. Kang under operating lease agreements as follows. There was no such income in 2014. |
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| | Three months ended | | | Nine months ended | | | | | | | | | |
| | 30-Sep-13 | | | 30-Sep-13 | | | | | | | | | |
EsCeLav | | $ | 3,001 | | | $ | 9,039 | | | | | | | | | |
Nanjing Eight-One-Five Hi-tech (M&E) Co., Ltd. | | | 4,003 | | | | 12,053 | | | | | | | | | |
Total | | $ | 7,004 | | | $ | 21,092 | | | | | | | | | |
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Jiangsu Wubijia trading company limited (“Jiangsu Wubijia”) is an entity engaged in high-grade home goods sales and controlled by Mr. Kang. Jiangsu Wubijia sells their home goods on consignment in the Company’s retail stores. During three months ended September 30, 2014, the Company collected $11,175 when Jiangsu Wubijia’s goods were sold and retained $2,219 as a sales commission which is recorded as an other income. At September 30, 2014, $6,531 was payable to Jiangsu Wubijia. |
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Other expenses due to Related Parties |
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Included in other expenses for the three and nine months ended September 30, 2014 and 2013 are rent costs due to entities controlled by Mr. Kang under operating lease agreements as follows: |
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| | Three months ended | | | Nine months ended | |
| | September 30, | | | September 30, | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Jiangsu Ever-Glory | | $ | 12,717 | | | $ | 12,568 | | | $ | 38,277 | | | $ | 37,845 | |
Kunshan Enjin | | | 10,465 | | | | 8,247 | | | | 31,525 | | | | 25,021 | |
Total | | $ | 23,182 | | | $ | 20,815 | | | $ | 69,802 | | | $ | 62,866 | |
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Purchases from, and Sub-contracts with Related Parties |
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Shanghai Weiwen Fashion Company Ltd. (Shanghai Weiwen) was incorporated in the PRC in 2012. This company designs and sells women’s apparel utilizing the “Velwin” brand. Shanghai Weiwen is owned by Mr. Kang. Shanghai Ya Lan entered an agreement with Shanghai Weiwen in April 2014 to purchase the “Velwin” brand along with existing inventory of Shanghai Weiwen. No customer relationships, production facilities, or other operating assets were acquired. Management of the Company believes that this asset purchase will provide the Company with additional multi-brand advantages. The purchase price of the inventory and brand was approximately $2.44 million. The purchase price was based primarily on the estimated fair market value of the inventory. |
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Shanghai Sea to Sky Fashion Company Ltd. (Shanghai Sea to Sky) was incorporated in the PRC in 2012. This company designs and sells women’s apparel utilizing the “Sea to Sky” brand. Shanghai Sea to Sky is owned by Mr. Kang. Shanghai LA GO GO entered an agreement with Shanghai Sea to Sky in April 2014 to purchase the “Sea to Sky” brand along with existing inventory of Shanghai Sea to Sky. No customer relationships, production facilities, or other operating assets were acquired. Management of the Company believes that this asset purchase will provide the Company with additional multi-brand advantages. The purchase price of the inventory and brand was approximately $0.39 million. The purchase price was based primarily on the estimated fair market value of the inventory. |
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For the three and nine months ended September 30, 2014 and 2013, the Company purchased raw materials of $730,413, $1,614,483, $911,977, and $1,096,585, respectively, from Nanjing Knitting. |
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The Company purchased raw materials of $34,509 during the three and nine months ended September 30, 2013, from Jiangsu Ever-Glory. |
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In addition, the Company sub-contracted certain manufacturing work to related parties totaling $4,692,268 and $6,242,241 for the three months ended September 30, 2014 and 2013, respectively; and $15,382,174 and $15,330,667 for the nine months ended September 30, 2014 and 2013, respectively. The Company provided raw materials to the sub-contractors and was charged a fixed fee for labor provided by the sub-contractors. |
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Sub-contracts with related parties included in cost of sales for the three and nine months ended September 30, 2014 and 2013 are as follows: |
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| | Three Months Ended | | | Nine Months Ended | |
September 30, | September 30, |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Ever-Glory Vietnam | | $ | 2,370,471 | | | $ | 2,268,642 | | | $ | 7,335,355 | | | $ | 7,363,429 | |
Ever-Glory Cambodia | | | 1,628,047 | | | | 3,730,538 | | | | 4,585,237 | | | | 6,951,726 | |
Nanjing Ever-Kyowa | | | 405,957 | | | | 211,501 | | | | 1,267,927 | | | | 735,379 | |
Jiangsu Ever-Glory | | | 23,962 | | | | 29,929 | | | | 49,246 | | | | 41,542 | |
Shanghai Weiwen | | | 102,462 | | | | - | | | | 1,605,247 | | | | - | |
Shanghai Sea to Sky | | | 161,369 | | | | - | | | | 539,162 | | | | - | |
EsC’eLav | | | - | | | | 1,631 | | | | - | | | | 5,989 | |
Nanjing Knitting | | | - | | | | - | | | | - | | | | 232,602 | |
Total | | $ | 4,692,268 | | | $ | 6,242,241 | | | $ | 15,382,174 | | | $ | 15,330,667 | |
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Accounts Payable – Related Parties |
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The Company purchases raw materials from and subcontracts some of its production to related parties. Accounts payable to related parties at September 30, 2014 and December 31, 2013 are as follows: |
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| | September 30, | | | December 31, | | | | | | | | | |
2014 | 2013 | | | | | | | | |
Nanjing Knitting | | $ | - | | | $ | 784,777 | | | | | | | | | |
Nanjing Ever-Kyowa | | | 381,470 | | | | 261,955 | | | | | | | | | |
Jiangsu Wubijia | | | 6,531 | | | | - | | | | | | | | | |
Kunshan enjin | | | 31,512 | | | | - | | | | | | | | | |
Ever-Glory Vietnam | | | 3,622,820 | | | | 2,473,271 | | | | | | | | | |
Ever-Glory Cambodia | | | 148,329 | | | | 582,453 | | | | | | | | | |
Shanghai Sea to Sky | | | 539,162 | | | | - | | | | | | | | | |
Shanghai Weiwen | | | 1,507,807 | | | | - | | | | | | | | | |
Total | | $ | 6,237,631 | | | $ | 4,102,456 | | | | | | | | | |
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Amounts Due From Related Parties |
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The amounts due from related parties as of September 30, 2014 and December 31, 2013 are as follows: |
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| | September 30, | | | December 31, | | | | | | | | | |
2014 | 2013 | | | | | | | | |
EsC’eLav | | $ | 27,690 | | | $ | 12,291 | | | | | | | | | |
Nanjing Knitting | | | 268,275 | | | | - | | | | | | | | | |
Nanjing Eight-One-Five Hi-tech (M&E) Co.,Ltd. | | | 20,546 | | | | 145,206 | | | | | | | | | |
Jiangsu Ever-Glory | | | 1,748,380 | | | | 1,738,879 | | | | | | | | | |
Total | | $ | 2,064,891 | | | $ | 1,896,376 | | | | | | | | | |
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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. Because of restrictions on its ability to directly import and export products, the Company had utilized Jiangsu Ever-Glory as its agent to assist the Company with its import and export transactions and its international transportation projects from 2005 through 2011. Import transactions primarily consisted of purchases of raw materials and accessories designated by the Company’s customers for use in garment manufacture. Export transactions consisted of the Company’s sales to foreign markets such as Japan, Europe and the United States. These transactions ceased at end of 2011. During nine months ended September 30, 2014 and 2013, 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 $1.1 million and $72,548 during the nine month period ended September 30, 2014 and 2013, respectively. Jiangsu Ever-Glory purchased raw materials on the Company’s behalf and sold to the Company at cost for $19,221 and $0 during the nine months ended September 30, 2014 and 2013, respectively. |
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Amounts Due From Related Party under Counter Guarantee Agreement |
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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, 2014 and December 31, 2013, Jiangsu Ever-Glory has provided guarantees for approximately $48.72 million (RMB 300 million) and $43.69 million (RMB 269 million) of lines of credit obtained by the Company. 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 $16.72 million (RMB 103 million) as of September 30, 2014 and December 31, 2013. Mr. Kang has also provided a personal guarantee for $40.3 million (RMB 248 million) and 20.62 million (RMB 127 million) as of September 30, 2014 and December 31, 2013, respectively. |
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During the nine months ended September 30, 2013, US$4.82 million (RMB30.25 million) was provided to Jiangsu Ever-Glory under the counter-guarantee. US$16.79 million (RMB103 million) was outstanding at December 31, 2013. During nine months ended September 30, 2014, an additional $5.03 million (RMB 31 million) was provided and approximately $3.54 million (RMB21 million) was returned and $1.30 million (RMB 8 million) of interest income was received under the counter-guarantee agreement. As of September 30, 2014, the amount of the counter-guarantee was $18.2 million (RMB 112 million) (the difference represents currency exchange adjustment of $0.12 million), which was 37.3% of the aggregate amount of lines of credit. This amount plus accrued interest of $1.76 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At September 30, 2014 and 2013, the amount classified as a reduction of equity was $19.92 million and $19.08 million, respectively. Interest of 0.5% is charged on net amounts due from Jiangsu Ever-Glory at each month end. Interest income for the three and nine months ended September 30, 2014 and 2013 was approximately $0.33 million, $0.9 million, $0.27 million and $0.91 million, respectively. |