RELATED PARTY TRANSACTIONS | 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 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, 2018 and 2017, the Company received $17,919, $51,541, $5,918 and $17,483 from the customers and paid $20,130, $39,318, $4,602 and $13,556 to Wubijia through the consignment, respectively. The net income (loss) of ($2,212), $12,223, $1,316 and $3,928 was recorded as other income (expenses) during the three and six months ended June 30, 2018 and 2017, 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 and six months ended June 30, 2018 and 2017, the Company received $0, $0, $984 and $6,365 from the customers and paid $0, $0, $1,575 and $10,534 to Nanjing Knitting through the consignment, respectively. The net income (loss) of $0, $0, ($591) and ($4,170) was recorded as other income during the three and six months ended June 30, 2018 and 2017, respectively. Other expenses due to Related Parties Included in other expenses for the three and six months ended June 30, 2018 and 2017 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, 2018 2017 2018 2017 In thousands of U.S. Dollars) Jiangsu Ever-Glory $ - $ 12 $ - $ 23 Chuzhou Huarui 51 52 109 104 Kunshan Enjin 14 11 27 22 Total $ 65 $ 75 $ 136 $ 149 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 $1.52 million, $1.85 million, $0.44 million and $0.60 million during the three and six months ended June 30, 2018 and 2017, respectively. In addition, sub-contracts with related parties included in cost of sales for the three and six months ended June 30, 2018 and 2017 are as follows: Three Months Ended Six Months Ended 2018 2017 2018 2017 (In thousands of U.S. Dollars) Chuzhou huarui $ 1,006 $ 990 $ 1,873 $ 2,000 Fengyang huarui 567 387 1,051 851 Nanjing Ever-Kyowa 326 77 675 820 Ever-Glory Vietnam 3,260 4,309 5,174 5,731 Ever-Glory Cambodia - 188 - 224 EsCeLav 21 - 21 4 Jiangsu Ever-Glory 17 - 21 3 $ 5,197 $ 5,951 $ 8,815 $ 9,633 Accounts Payable – Related Parties The accounts payable to related parties at June 30, 2018 and December 31, 2017 are as follows: June 30, December 31, (In thousands of Ever-Glory Vietnam $ 1,423 1,934 Fengyang Huarui 196 459 Nanjing Ever-Kyowa 1,017 900 Chuzhou Huarui 847 1,152 Esc’elav - 6 Jiangsu Ever-Glory 28 110 Nanjing Knitting 937 114 Total $ 4,448 $ 4,675 Amounts Due From Related Parties-current assets The amounts due from related parties as of June 30, 2018 and December 31, 2017 are as follows: June 30, December 31, (In thousands of Jiangsu Ever-Glory $ - $ 265 Total $ - $ 265 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, 2018 and 2017, 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, $0.3 million, $0.02 million and $0.1 million during the three and six months period ended June 30, 2018 and 2017, 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, $0.05 million and $0.05 million during the three and six months ended June 30, 2018 and 2017, 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, 2018 and December 31, 2017, Jiangsu Ever-Glory has provided guarantees for approximately $48.6 million (RMB 322 million) and $49.5 million (RMB 322.0 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 $31.0 million (RMB 205.5 million) and $31.6 million (RMB 205.5 million) as of June 30, 2018 and December 31, 2017, respectively. Mr. Kang has also provided a personal guarantee for $42.3 million (RMB 280.0 million) and $21.5 million (RMB 140.0 million) as of June 30, 2018 and December 31, 2017, respectively. At December 31, 2017, $12.8 million (RMB 83.6 million) was outstanding due from Jiangsu Ever-Glory under the counter guarantee agreement. During the six months ended June 30, 2018, an additional $8.4 million (RMB 55.7 million) was provided to and $2.5 million (RMB 16.3 million) was received from Jiangsu Ever-Glory under the counter-guarantee. As of June 30, 2018, the amount of the counter-guarantee was $18.6 million (RMB 123.0 million) (the difference represents currency exchange adjustment of $0.1 million), which was 38.2% 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 $3.0 million have been classified as a reduction of equity, consistent with the guidance of SEC Staff Accounting Bulletins 4E and 4G. At June 30, 2018 and December 31, 2017, the amount classified as a reduction of equity was $21.6 million and $15.4 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 and six months ended June 30, 2018 and 2017 was approximately $0.2 million, $0.4 million, $0.2 million and $0.4 million, respectively. |