UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549 FORM 10-KSB/A
 Amendment No. 1 x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) 
OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2006Commission File Number 0-28806 EVER-GLORY INTERNATIONAL GROUP, INC.  (Name of small business issuer in its charter)  Florida
    
    65-0420146(State of Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)  17870 Castleton Street, #335
City of Industry, California 91748
Tel: (626) 839-9116  (Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:Title of Each Class
Common Stock, $.0001 Par Value Check whether the issuer (1) filed all reports to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES
xNO
o Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act.) YES
oNO
x Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
o The issuer's revenues for the fiscal year ended December 31, 2006 were
$22,332,368. The aggregate market value of the voting common stock held by non-affiliates of the registrant on March
8, 2007 was approximately $19,357,420, based on the closing price of such stock of $0.34 on such date. The
number of shares outstanding of the registrant's Common Stock, $.0001 par value, as of March
8, 2007 was 19,971,758. Transitional Small Business Disclosure format (Check
one): YESoNO
x 
 1   EXPLANATORY NOTEThis Amendment No. 1 on Form 10-KSB/A
(theAmendment)
amends the Registrants Annual Report on Form 10-K for the fiscal year ended
December 31, 2006, originally filed on March 16, 2007 (theOriginal Filing). The
Registrant is filing the Amendment to do the following:
(i)
remove the reference to reliance on
the Private Securities Litigation Reform Act of 1995from
the Forward-Looking Statements section on page 3;(ii)
clarify that no financial ratios or
tests are included in the Companys credit facilityreferenced
in Sources of Liquidity on page 28;(iii)
include additional information
regarding the compensation of executive officers and directors at Item 10 on
pages 28 and 29;(iv)
provide additional information about
related parties in Certain Relationships and Related Transactions at pages
30-32;(v)
update Note 14 to the Registrants
Consolidated Financial Statements included in Part II Item 7 Financial
Statements which is included beginning on page F-1; and(vi)
include the English translation of the
Loan Agreement by and between the Company and Nanjing City Commercial Bank dated
August 15, 2006 as Exhibit 10.3 under Item 13 Exhibit Index of Part III.The CEO
and CFO of the Company have also reissued their certifications required by
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. All other information is
unchanged and this Amendment continues to speak as of the date of the Original
Filing and the Company has not updated the disclosure in this Amendment to speak
to any later date. All information contained in the Amendment and the Original
Filing is subject to updating and supplementing as provided in the Registrants
subsequent periodic reports filed with the Securities and Exchange Commission.




TABLE OF CONTENTS
PageForward Looking StatementsPART IItem 1. Description of
Business
3Item 1. Description Property
15Item 3.  Legal Proceedings
15Item 4.  Submission of Matters to
a Vote of Security Holders
16PART IIItem 5.
Market Price for Common Equity and Related
Stockholder
17Item 6.
Management's Discussion and Analysis
or Plan of Operation
18Item 7.
Financial Statements
24Item 8.
Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
24Item 8A.
Controls and Procedures
25Item 8B.
Other Information
25PART IIIItem 9.
Directors,Executive Officers, Promoters, Control Persons and
Corporate Governance; Compliance With Section 16(a) of the Exchange Act
25Item 10.
Executive Compensation
28Item 11.
Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters
29Item 12.
Certain Relationships and Related
Transactions
30Item 13.
Exhibits
32Item 14.
Principal Accountant Fees and Services Audit Fees
33SIGNATURES
34

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Forward-Looking Statements
This document contains certain statements of a forward-looking nature. Such
forward-looking statements, including but not limited to growth and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to
change based on factors beyond the control of the Company. Forward-looking statements typically are identified by the use of terms such as look, may, will, should, might,
believe, plan, expect, anticipate, estimate and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a
number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to:
the ability to timely and accurately complete product orders;
the ability to coordinate product design with its customers;
its dependence on a limited number of larger customers;
political and economic factors in the Peoples Republic of China;
the ability of the Companys internal production operations to increase production volumes on finished goods in a timely fashion in response to increasing demand and enable the Company
to
achieve timely delivery of finished goods to its customers;
the Companys ability to expand and grow its distribution channels;
unanticipated changes in general market conditions or other factors, which may result in cancellations of advance orders or a reduction in the rate of reorders;
a weakening of economic conditions which would reduce demand for products sold by the Company and could adversely affect profitability;
the effect of terrorist acts, or the threat thereof, on consumer confidence and spending, or the production and distribution of product and raw materials which could, as a result, adversely
affect
the Companys operations and financial performance;
the acceptance in the marketplace of the Companys new products and changes in consumer preferences;
reductions in sales of products, either as the result of economic or other conditions, or reduced consumer acceptance of a product, could result in a buildup of inventory;
the ability to source raw materials and finished products at favorable prices to the Company;
the potential impact of power crises on the Companys operations including temporary blackouts at the Companys facilities;
foreign currency exchange rate fluctuations;
earthquakes or other natural disasters;
the Companys ability to identify and successfully execute cost control initiatives;
the impact of quotas, tariffs, or safeguards on the importation or exportation of the Companys products;
other risks outlined above and in the Companys other filings made periodically by the Company.Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update this forward-looking information. Nonetheless,
the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to indicate that
other statements not addressed by such update remain correct or create an obligation to provide any other updates.
PART IITEM 1.         DESCRIPTION OF BUSINESS
Organization, Charter Amendments And General History
Ever-Glory International Group, Inc. (the "Company") through its subsidiary, Goldenway Nanjing Garments Co., Ltd. (Goldenway), manufactures apparel for men, women and children for primarily middle to high-grade
well-known branded casual wear,
sportswear and
outwear for a variety of companies. A
majority of its products are exported to Japan, EU countries and the United States. The Companys customers include large retailers and well-known brands.

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Ever-Glory is the result of the merger of Andean Development Corporation, a Florida corporation (Andean), and Perfect Dream Limited, a corporation organized under the laws of the British Virgin Islands
(Perfect 
Dream). Andean was incorporated on October 19, 1994 in Delaware and was originally engaged in the business of providing engineering and project management services for energy and private works projects and selling, as agent,
major electrical and mechanical equipment. Effective March 31, 2003, Andean sold all of its operating assets and substantially all of the liabilities of Andeans business to a related party. Thereafter, Andean had no operations. As of June 30,
2005, Andean had zero assets and liabilities of $57,000.
Perfect Dream was incorporated on July 1, 2004 in the British Virgin Islands. In December 2004, Perfect Dream acquired 100% of Goldenway for a purchase price consisted of cash in the amount of $1,338,404. Goldenway is a
limited liability company, which was established under the laws of the People's Republic of China (the "PRC") on December 31, 1993. Until December 1, 2004, Goldenway was a subsidiary of Jiangsu Ever-Glory International Group Corporation ("Jiangsu
Ever-Glory").  On April 20, 2005, Perfect Dream changed Goldenways status to that of a wholly foreign owned enterprise and increased its registered capital from $2,512,106 to $20,000,000.
On July 29, 2005, Andean, Perfect Dream and each of the stockholders of Perfect Dream entered into an Agreement and Plan of Reorganization pursuant to which the Perfect Dream shareholders received, in exchange for their
shares of Perfect Dream, 7,673,325 shares of Andean (after giving effect to a one-for-thirty reverse split of the issued and outstanding shares of Andean). On November 17, 2005, Andean changed its name to "Ever-Glory International Group, Inc."
On December 30, 2006, the Company through its wholly owned subsidiary, Perfect Dream Ltd, a British Virgin Islands corporation, consummated the acquisition of 100% of the capital stock of Nanjing New-Tailun Garments Co,
Ltd, a Chinese limited liability company (New-Tailun) from Ever-Glory Enterprises (HK) Ltd, a British Virgin Islands corporation (Seller).  The purchase price consisted of a combination of 20,833,333 shares of EGLYs
common stock having a value of $10,000,000 and $2,000,000 in cash.  New Tailun is a 100% foreign-owned enterprise incorporated in Peoples Republic of China and is engaged in the manufacturing and sale of garments.  New Tailuns
financial statements are included in the Company's consolidated financial statements. Management believes that the acquisition of New Tailun will enable the Company to facilitate its increased production, strengthen the Companys outsourcing
bases and supplement the Companys product lines.
Business Operations
The Company, through its subsidiary Goldenway, is engaged in the manufacture and sale of apparel to well-known casual wear, sportswear and outerwear brands and retailers. The Company manufactures some of its products from
one 10,000 square meter factory located in the Nanjing Jiangning Economic and Technological Development Zone in Nanjing, China.
A portion of the Companys products are also outsourced to its strategic manufacturing partners. Our sourcing strategy is to contract for the manufacture of our products.  Outsourcing allows us to maximize production
flexibility while avoiding significant capital expenditure and the costs for managing a large production workforce.  We inspect products manufactured by our strategic partners to determine whether they meet our standards.  See Production and
Quality Control.
Products
The Company manufactures a broad array of categories for the womens, mens and children markets. Within those categories, various product classifications include high and middle grade casual-wear, sportswear and
outwear, including the following product lines:
WOMEN'S CLOTHING. This product line includes coats, jackets, slacks, skirts, shirts, trousers, and
jeans

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MEN'S CLOTHING. This product line includes men's vests, jackets, pants, trousers, skiwear, shirts, coats and jeans.
CHILDRENS CLOTHING. This product line includes childrens coats, vests, down jackets, trousers, knitwear, pants and jeans.
Customers
Ever-Glory manufactures garments for a number of well-known retail chains and internationally famous brands, including C&A, Next, Debenhams, Kellwood, Etam China, Eddie Bauer, QVC, Levis, B.B. Dakota, Itoyokado,Teijin,
Best-Seller, Shinko, Matalan and ITOCHU .    The Company also has its own design capabilities and can provide its customers with a selection of unique and original designs that the customer may have manufactured for them.
In the fiscal year ended December 31, 2006, approximately 69% of the Companys revenues came from customers in European countries, 5.8% from customers in Japan, 18% from customers in the United States, and 5% from
customers in China.  In the fiscal year ended December 31, 2006, four customers represented approximately 27%, 17%, 17% and 11% of the Companys net sales, respectively. In the fiscal year ended December 31, 2005, three customers each
represented approximately 54% of the Companys net sales.  The Company has no long-term contracts with any of its customers. There can be no assurance that our customers will continue to place orders with us of the same magnitude as they have
in the past, or at all. In addition, the apparel industry historically has been subject to substantial cyclical variation, with consumer spending for purchases of apparel and related goods tending to decline during recessionary periods. To the
extent that these financial difficulties occur, there can be no assurance that our financial condition and results of operations would not be adversely affected.
Suppliers
The Company purchases raw materials directly from local fabric and accessory suppliers. The Company may also import specialty fabrics to meet specific customer requirements. The Company also purchases finished goods from
other contract manufacturers. One supplier represented approximately 15% of the Companys raw materials purchases in the fiscal year ended December 31, 2006.  Two suppliers represented approximately 12% and 10% of the Companys raw
materials purchases in the fiscal year ended December 31, 2005.  The Company has not experienced difficulty in obtaining finished goods or raw materials essential to its business.
Sales and Marketing
The Company leverages the sales and marketing organization of Jiangsu Ever-Glory, of which Goldenway was a subsidiary prior to its acquisition by the Company. Jiangsu Ever-Glory has sales and marketing offices around the
world, including in the United States, the United Kingdom, and Germany.
In addition, the Company attends and participates in trade shows around the world, including Europe, Japan, the U.S. and Chinas largest tradeshow, the Chinese Export Commodity Fair in Guangdong Province. The
Companys marketing strategy is designed to attract customers with the strongest brands within the strongest markets. The Company markets directly to ultimate brands and retail chains instead of going through import & export agents. The
company seeks to attract customers mainly from Japan, Europe, the US and China  In addition, the company looks for customers with strong brand appeal and product lines that require that Companys high quality manufacturing and can support the
Companys production capacity.  Referrals from existing customers continue to be a strong source of new customers.
Production and Quality Control
The Company manufactures some of its products in its own manufacturing facility.  From time to time, the Company outsources
a portion of its products based upon factory capacity and customer demand.
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In 2005, the Company acquired a land use right for 50 years in Nanjing Jiangning Economic and Technological Development Zone
and started the construction of new headquarters office and new manufacturing plants.  In 2006, the construction was completed.  Currently, the Company is consolidating its operation to the new facility.  The new facility occupies an area of 10,000
square meters and is equipped with state-of-the-art production equipment.  Management believes the new facility will be adequate for its current production needs as well as strengthen the production capacity in 2007.
The Company is committed to designing and manufacturing high quality garments. Because the Company emphasizes fit, performance and quality of its apparel products, the Company places a high priority on quality control. The
Company has implemented strict quality control and craft discipline systems. Prior to manufacturing in large quantities, the Company obtains the approval of its customers either through a direct visit to the factories or by shipping samples of its
apparel products to its customers or through email confirmation for inspection and comment. This ensures that the product meets specifications prior to production. In addition, employees of the Company periodically inspect the manufacturing process
and quality of apparel products.
We will continue to outsource a portion of our products even with the completion of the new production facility. Management believes that outsourcing allows the Company to maximize its production flexibility while avoiding
significant capital expenditure and the costs for managing a large production workforce.  We contract for the production of a portion of our products through a net work of strategic partners. Quality control reviews are done by our employees to
ensure that material and component qualities and fit of the product are in accordance with our specification. We inspect prototype of each product prior to cutting by the contractors and a final inspection of finished products prior to shipment to
ensure that they meet our high standard.
The Companys factory is ISO 9000 certified.
Delivery and Transportation
The Company exports most of its products through Jiangsu Ever-Glory as its primary distributing agent. Jiangsu Ever-glory provides the Company all the distribution and logistics activities including exporting, shipping and
transportation services. Our products are directly shipped to the customers. Jiangsu Ever-Glory has access to a variety of ground and air shipping companies and can typically deliver the finished product to the client within the required timeframe.
The merchandise is shipped from the production facility by truck to a port where it is consolidated and loaded on containerized vessels for ocean transport to the ultimate destination.
Competition
The garment manufacturing industry is highly competitive, particularly in China. The Company's competitors include garment manufacturers of all sizes, both within China and elsewhere in the world, many of which have greater
financial and manufacturing resources than the Company. The Company has been in the garment manufacturing business since 1993 and believes that it has earned a reputation for producing high quality products efficiently and at competitive prices as
well as our ability to provide excellent customer services. The Company believes that it competes favorably with other companies based on the experience and know-how the Company has acquired since 1993 as well as the Companys state-of-the-art
equipment, which enables it to produce high-quality garments at competitive prices.
Governmental Regulations/Quotas
Pursuant to the World Trade Organization (WTO) Agreement, effective January 1, 2005, the United States and other WTO member countries removed quotas from WTO members. However, as the removal of quotas resulted in an import
surge from China, the U.S. took action in May 2005 and imposed safeguard quotas on seven categories of goods, including certain classes of apparel products.
Exports of each specified product
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category  will continue to be admitted into the United States in the ordinary course until the restraint level for that category is reached, after which further exports will be embargoed and
will not be cleared until after January 2006. Additionally, on June 10, 2005, in response to the surge of Chinese imports into the European Union (EU), the EU Commission signed a Memorandum of Understanding (MOU) with China in which ten categories
of textiles and apparel will be subject to restraints and on November 8, 2005, the U.S. and China entered into a Memorandum of Understanding in which 21 categories of textiles and apparel are subject to restraints. Although certain of the
Companys apparel products fall within the categories subject to the safeguards in the U.S. and the EU, which could adversely affect the Companys ability to export and sell these products, the imposition of quotas in 2005 did not have a
material affect on the Companys net sales, although it did impact its gross margin.  See Managements Discussion and Analysis or Plan of Operation  Results of Operations. The Company believes that it will be able to obtain
sufficient quota allocation based on prior years quota allocation.  In addition, the Company can bid for additional export quota allocation from the government for the U.S. and E.U. markets. On a longer term basis, the Company believes that its
customer mix and its ability to adjust the types of apparel it manufactures will mitigate its exposure to such trade restrictions in the future.
Nevertheless, there can be no assurance that additional trade restrictions will not be imposed on the exports of the Companys products in the future. Such actions could result in increases in the cost of its products
generally and may adversely affect the Companys results of operations.
Seasonality
We have typically experienced seasonal fluctuations in sales volume due to the seasonal fluctuations experienced by the majority of our customers. These seasonal fluctuations typically result in sales decreases in the first
and second quarters and sales increases in the third and fourth quarters of each year.
Employees
As of December 31, 2006, the Company had over 600 employees. All of the Companys work force is non-union and the Company considers its relations with its employees to be satisfactory.
Compliance With Environmental Laws (Federal, State And Local)
Due to the nature of the Company's operations, the Company does not believe that compliance with environmental laws will have a material impact on the Company or its operations.
RISK FACTORS
Our business is subject to certain risks, and we want you to review these risks while you are evaluating our business and our historical results. Please keep in mind that any of the following risks discussed below and
elsewhere in this Annual Report could materially and adversely affect us, our operating results, our financial condition and our projections and beliefs as to our future performance. As such, our results could differ materially from those projected
in our forward-looking statements.
Risks Relating to the Industry in Which We Compete.
Our sales are influenced by general economic cycles. A prolonged period of depressed consumer spending would have a material adverse affect our profitability.
Apparel is a cyclical industry that is dependent upon the overall level of consumer spending. Purchase of apparel generally decline during recessionary periods when disposable income is low.  Our customers anticipate and
respond to adverse changes in economic conditions and uncertainty by reducing inventories and canceling orders. As a result, any substantial deterioration in general economic conditions, increases in energy costs or interest rates, acts of war, acts
of nature or terrorist or political events that diminish consumer spending and confidence in any of the regions in which we compete, could reduce our sales and adversely affect our business and financial condition.

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Intense competition in the worldwide apparel industry could reduce our sales and prices.
We face a variety of competitive challenges from other apparel manufacturers both in China and elsewhere. Some of these competitors have greater financial and marketing resources than we do and may be able to adapt to
changes in consumer preferences or retail requirements more quickly, devote greater resources to the marketing and sale of their products or adopt more aggressive pricing policies than we can. As a result, we may not be able to compete successfully
with them if we cannot continue enhancing our marketing and management strategies, quality and value or responding appropriately to consumers needs.
The success of our business depends upon our ability to offer innovative and upgraded products at attractive price points.
The worldwide apparel industry is characterized by constant product innovation due to changing consumer preferences and by the rapid replication of new products by competitors. As a result, our success depends in large part
on our ability to continuously and rapidly respond to customer requirements for innovative and stylish products at a competitive pace, intensity, and price. Failure on our part to regularly and rapidly respond to customer requirements could
adversely affect our ability to retain our existing customers or to acquire new customers which would limit our sales growth.
The worldwide apparel industry is subject to ongoing pricing pressure.
The apparel market is characterized by low barriers to entry for both suppliers and marketers, global sourcing through suppliers located throughout the world, trade liberalization, continuing movement of product sourcing to
lower cost countries, ongoing emergence of new competitors with widely varying strategies and resources, and an increasing focus on apparel in the mass merchant channel of distribution. These factors contribute to ongoing pricing pressure throughout
the supply chain. This pressure has and may continue to:
require us to reduce wholesale prices on existing products;
result in reduced gross margins across our product lines;
increase pressure on us to further reduce our production costs and our operating expenses.Any of these factors could adversely affect our business and financial condition.
Fluctuation in the price, availability and quality of raw materials could increase our cost of goods and decrease our profitability.
We purchase raw materials directly from local fabric and accessory suppliers. The Company may also import specialty fabrics to meet specific customer requirements. The Company also purchases finished goods from other
contract manufacturers. The prices we charge for our products are dependent in part on the market price for raw materials used to produce them. The price, availability and quality of our raw materials may fluctuate substantially, depending on a
variety of factors, including demand, crop yields, weather patterns, supply conditions, transportation costs, government regulation, economic climates and other unpredictable factors. Any raw material price increases could increase our cost of goods
and decrease our profitability unless we are able to pass higher prices on to our customers.
One supplier represented approximately 15% of the Companys raw materials purchases in the fiscal year ended December 31, 2006, two suppliers represented approximately 12% and 10%, respectively of the Companys
raw materials purchases in the fiscal year ended December 31, 2005, and one supplier represented approximately 17% of the Companys raw materials purchases in the fiscal year
ended December 31, 2004. We do not have
8


long-term written agreements with any of these suppliers and do not anticipate entering into any such agreements in the near future. However, we always execute a written agreement
for each order placed with our suppliers.
We do not believe that loss on any of these suppliers would have a material adverse affect on our ability to obtain finished
goods or raw materials essential to its business because we believe we can locate other suppliers in a timely manner.
Risks Relating to Our Business
We depend on a group of key customers for a significant portion of our sales. A significant adverse change in a customer relationship or in a customers performance or financial position could harm our business and
financial condition.
As of December 31, 2006, four customers represented approximately 72% of the Companys sales.
Net sales to our three largest customers totaled
approximately 61% and 54% of total net sales in 2006 and 2005, respectively. Our largest customer accounted for approximately 27% and 22% of net sales in 2006 and 2005.  The garment manufacturing industry has experienced substantial consolidation in
recent years, which has resulted in increased customer leverage over suppliers, greater exposure for suppliers to credit risk and an increased emphasis by customers on inventory management and productivity.
A decision by a major customer, whether motivated by competitive considerations, strategic shifts, financial requirements or difficulties, economic conditions or otherwise, to decrease its purchases from us or to change its
manner of doing business with us, could adversely affect our business and financial condition. In addition, while we have long-standing customer relationships, we do not have long term contracts with any of our customers.
As a result, purchases generally occur on an order-by-order basis, and the relationship, as well as particular orders, can generally be terminated by either party at any time. We do not believe that there is a material risk of loss of any of these customers during the next 12 months.  We also believe that the unexpected loss of these four customers could have material adverse effect on the
Companys earnings or financial condition. While we believe that we could replace these three customers within 12 months, the loss of which will not have material adverse effects on our financial condition in a long run. None of the Company or
its affiliates are officers, directors or material shareholders of any of these three customers.
We will be required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act.
Failure to timely comply with the requirements of Section 404 or any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading
price of our debt securities.
We are not currently an accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. Beginning with our Annual Report for the year ending December 31, 2007, Section 404 of
the Sarbanes-Oxley Act of 2002 will require us to include an internal control report with our Annual Report on Form 10-KSB. That report must include managements assessment of the effectiveness of our internal control over financial reporting
as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Additionally,
for the fiscal year ended December 31, 2008 our independent registered public accounting firm will be
required to issue reports on managements assessment of our internal control over financial reporting and their evaluation of the operating effectiveness of our internal control over financial reporting. Our assessment requires us to make
subjective judgments and our independent registered public accounting firm may not agree with our assessment.
Achieving compliance with Section 404 within the prescribed period may require us to incur significant costs and expend significant time and management resources. If we are not able to complete
the assessment under
9


Section 404 in a timely manner, we and our independent registered public accounting firm would be unable to conclude that our internal control over financial reporting is effective as of December 31,
2007. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our debt securities. In addition, our independent registered public accounting firm may not agree
with our managements assessment or conclude that our internal control over financial reporting is operating effectively.  We will continue to consistently improve our internal control over the financial reporting with our best efforts and
we plan to engage assistance from outside experts in doing so.
As the Company is listed on the over-the-counter bulletin board, the Company is subject to less stringent corporate governance requirements than a company listed on a national exchange. Specifically, the Company is not
required to have a majority of independent directors or a separate audit committee. This provides less protection to our investors.
The Companys board of directors currently does not have a separate audit committee or a member that qualifies as an audit committee financial expert or an independent director. The Companys management and board
of directors are considering the addition of an independent director who qualified as a financial expert but there can be no assurance the Company will be able to attract one or more qualified independent directors or that any such directors can be
added to the Companys board as it may require us to increase the number of director on the Companys board of directors, seek the resignation of directors who are not independent, or some combination thereof.  If the Company is unable to
attract qualified independent directors or nominate or elect such directors, the Companys security holders will not have the protections provided by having independent directors or audit committee members.  Although we believe that all actions
taken by our directors on our behalf will be in our best interests, whether or not they are deemed to be independent, we cannot assure you that this will actually be the case. If actions are taken, or expenses are incurred that are not in our best
interests, it could have a material adverse effect on our business and operations and the price of our stock held by our stockholders.
We must successfully maintain and/or upgrade our information technology systems.
We rely on various information technology systems to manage our operations and we regularly evaluate these systems against our current and expected requirements. Although we have no current plans to implement modifications
or upgrades to our systems, we will eventually be required to make changes to legacy systems and acquiring new systems with new functionality. We do anticipate that the aggregate cost
of updating such systems will be approximately USD 600,000 over the next 36 months. We will also continue to self-develop and update our information systems on a timely basis to meet our business expansion needsAny information technology system disruptions, if not anticipated and appropriately mitigated, could have an adverse effect on our business and operations.
We may engage in future acquisitions and strategic investments that dilute the ownership percentage of our shareholders and require the use of cash, incur debt or assume contingent liabilities.
As part of our business strategy, we expect to continue to review opportunities to buy or invest in other businesses or technologies that we believe would enhance our manufacturing capabilities, or that may otherwise offer
growth opportunities. If we buy or invest in other businesses in the future, we could: require the use of cash, incur debt or assume contingent liabilities.
As part of our business strategy, we expect to continue to review opportunities to buy or invest in other businesses or technologies that we believe would complement our current products, expand the breadth of our markets
or enhance our technical capabilities, or that may otherwise offer growth opportunities. If we buy or invest in other businesses, products or technologies in the future, we could:
incur significant unplanned expenses and personnel costs;
issue stock that would dilute our current shareholders percentage ownership;
use cash, which may result in a reduction of our liquidity;10


incur debt;
assume liabilities; and
spend resources on unconsummated transactions.We may not realize the anticipated benefits of past or future acquisitions and strategic investments, and integration of acquisitions may disrupt our business and management.
We may in the future acquire or make strategic investments in additional companies. We may not realize the anticipated benefits of these or any other acquisitions or strategic investments, which involve numerous risks,
including:
problems integrating the purchased operations, technologies, personnel or products over geographically disparate locations;
unanticipated costs, litigation and other contingent liabilities;
diversion of managements attention from our core business;
adverse effects on existing business relationships with suppliers and customers;
incurrence of acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;
inability to retain key customers, distributors, vendors and other business partners of the acquired business; and
potential loss of our key employees or the key employees of an acquired organization.If we are not be able to successfully integrate businesses, products, technologies or personnel that we acquire, or to realize expected benefits of our acquisitions or strategic investments,
our business and financial results may be adversely affected.
International political instability and concerns about other international crises may increase our cost of doing business and disrupt our business.
International political instability may halt or hinder our ability to do business and may increase our costs. Various events, including the occurrence or threat of terrorist attacks, increased
national security measures in the United States and other countries, and military action and armed conflicts, can suddenly increase international tensions. Increases in energy prices will also impact our costs and could harm our operating results.
In addition, concerns about other international crises, such as the spread of severe acute respiratory syndrome (SARS), avian influenza, or bird flu, and West Nile viruses, may have an adverse effect on the world economy and could
adversely affect our business operations or the operations of our OEM partners, contract manufacturer and suppliers. This political instability and concerns about other international crises may, for example:
11


negatively affect the reliability and cost of transportation;
negatively affect the desire and ability of our employees and customers to travel;
adversely affect our ability to obtain adequate insurance at reasonable rates; and
require us to take extra security precautions for our operations.Furthermore, to the extent that air or sea transportation is delayed or disrupted, our operations may be disrupted, particularly if shipments of our products are delayed.
Business interruptions could adversely affect our business.
Our operations and the operations of our suppliers and customers are vulnerable to interruption by fire, earthquake, hurricanes, power loss, telecommunications failure and other events beyond our control. In the event of a
major natural disaster, we could experience business interruptions, destruction of facilities and loss of life. In the event that a material business interruption occurs that affects us or our suppliers or customers, shipments could be delayed and
our business and financial results could be harmed.
The market for the Companys common stock is illiquid.
The Companys common stock is traded on the Over-the-Counter Bulletin Board. It is thinly traded compared to larger more widely known companies in its industry. Thinly traded common stock can be more volatile than
stock trading in an active public market. The Company cannot predict the extent to which an active public market for its common stock will develop or be sustained. The high and low bid price of Ever-Glorys common stock during the past 52 week
period is $1.87 and $0.27 respectively.
12


Our stock is a penny stock. Trading of our stock may be restricted by the SECs penny stock regulations which may limit a stockholders ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has a market price (as
defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers
who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customers account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customers confirmation. In addition, the penny
stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these
penny stock rules may affect the ability of broker-dealers to trade our securities.We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
NASD sales practice requirements may also limit a stockholders ability to buy and sell our stock.
In addition to the penny stock rules described above, the NASD has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customers financial status, tax
status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD
requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Because our assets are located overseas, stockholders may not receive distributions that they would otherwise be entitled to if we were declared bankrupt or insolvent.
Our assets are, for the most part, located in the PRC. Because the Companys assets are located overseas, the assets of the Company may be outside of the jurisdiction of U.S. courts to administer if the Company was the
subject of an insolvency or bankruptcy proceeding. As a result, if the Company was declared bankrupt or insolvent, the Companys stockholders may not receive the distributions on liquidation that they are otherwise entitled to under U.S.
bankruptcy law.
Export quotas imposed by the WTO could negatively affect our business and operations, particularly if the Chinese government changes its allocation of such quotas to the Company.
Pursuant to the World Trade Organization (WTO) Agreement, effective January 1, 2005, the United States and other WTO member countries removed quotas from WTO members. In certain instances, the elimination of quotas affords
the Company greater access to foreign markets; however, as the removal of quotas resulted in an import surge from China, the U.S. took action in May 2005 and imposed safeguard quotas on seven categories of goods, including certain classes of apparel
products.
13


Exports of each specified product category will continue to be admitted into the United States in the ordinary course until the restraint level for that category is reached, after which further exports will be embargoed and
will not be cleared until after January 2006. Additionally, on September 10, 2005, in response to the surge of Chinese imports into the European Union (EU), the EU Commission signed a Memorandum of Understanding (MOU) with China in which ten
categories of textiles and apparel will be subject to restraints.
Although certain of the Companys apparel products fall within the categories subject to the quotas with respect to exports to the United States and Europe, the Chinese government allocated a portion of the aggregate
export quota to the Company based upon the amount of product that the Company exported in the prior year.  The imposition of such quotas did not have a material affect on the Companys net sales.  See Results of Operations above. As
a result of the Companys prior export performance, it was awarded a sufficient portion of the export quotas to enable it to increase its sales to customers in Europe and the U.S. despite the reinstitution of export quotas. In order to increase
the Companys allocation of future export quotas, however, the Company will continue accepting orders from its customers. The Company believes that its customer mix and its ability to adjust the types of apparel it manufactures will mitigate
its exposure to such trade restrictions in the future. However, there can be no assurance that additional trade restrictions will not be imposed on the exports of the Companys products in the future. Such actions could result in increases in
the cost of its products generally and may adversely affect the Companys results of operations. The Company continues to monitor the developments described above.
We expect to experience volatility in our stock price, which could negatively affect shareholders investments.
The market price for shares of the Companys common stock may be volatile and may fluctuate based upon a number of factors, including, without limitation, business performance, news
announcements or changes in general market conditions.
Other factors, in addition to the those risks included in this section, that may have a significant impact on the market price of the Companys common stock include, but are not limited
to:
receipt of substantial orders or order cancellations of products;
quality deficiencies in services or products;
international developments, such as technology mandates, political developments or changes in economic policies;
changes in recommendations of securities analysts;
shortfalls in the Companys backlog, revenues or earnings in any given period relative to the levels expected by securities analysts or projected by the Company;
government regulations, including stock option accounting and tax regulations;
energy blackouts;
acts of terrorism and war;
widespread illness;
proprietary rights or product or patent litigation;
strategic transactions, such as acquisitions and divestitures;
rumors or allegations regarding the Companys financial disclosures or practices; or14


earthquakes or other natural disasters concentrated in Nanjing, China where a significant portion of the Companys operations are based.In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. Due to changes in the volatility of the Companys common
stock price, the Company may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert managements attention and resources.
ITEM 2.         DESCRIPTION OF PROPERTYIn 2006, the Company operated a factory in the Nanjing Jiangning Economic and Technological Development Zone in Nanjing, China. The Company's factory sits on land owned by Jiangsu Ever-Glory International Group Corporation.
 The Company owns the building and improvements and leases the land from Jiangsu Ever-Glory pursuant to a 20 year lease.  The Company has prepaid 100% of the rental payments under the lease.  There are no material encumbrances on the building and
improvements.
The Company made a deposit to purchase a fifty-year land use right on 112,442 square meters of land in Nanjing Jiangning Economic and Technological Development Zone. The land contains an existing facility, which includes manufacturing and office space. On April 7, 2006, the Company closed the transaction with the local government of Nanjing City.  On June 24, 2006, the Company
obtained the title to the land for the land use rights for 50 years. By the end of 2006, the Company completed the construction of new headquarters buildings and new factory.
The Company's new production facilities occupies approximately 36,629 square
meters, in which 26,629 square meters are leased to Nanjing Catch-Luck Garments
Co. Ltd. The Company has been consolidating its operation into its new
headquarters and manufacturing facility since January 2007. The new manufacturing facility
is equipped with state-of-the art equipment. The Company's headquarters are
currently located at 509 Chengxin Road, Jiangning Economic and Technological Development Zone in Nanjing, Peoples Republic of China.
The new manufacturing facility will replace the old facility in the Nanjing Jiangning Economic and Technological Development Zone.  The Company plans to lease its old
facility to the third parties upon consolidation of all its operation into the new location. The Company believes that its new facilities will be adequate to its operation for the foreseeable future.
The Company has purchased insurance coverage for its new facilities and fixed assets.
The Company's U.S. mailing address is 17870, Castleton St. #335, City of Industry, CA, 91748.
ITEM 3.        
LEGAL PROCEEDINGS
The Company is a named defendant in an action pending in the U.S. District Court for the Northern District of Ohio.  The action was filed on February 22, 2006 by Plaintiff Douglas G. Furth. The
other principal parties are named defendants John Zanic, Wilson-Davis & Co., and Godwin, Pappas, Longley & Ronquillo, LLP.  The action alleges that Company breached an agreement with the
plaintiff under which it had promised to
15


provide plaintiff 1,000,000 shares of its common stock in exchange for certain assistance in marketing and financial public relations services. The action seeks an award of damages
in excess of $75,000.  The Company denies that it was a party to such an agreement, that it breached the agreement or that it is otherwise liable.  The Company intends to vigorously defend its legal position.  After vigorously defending itself,
the Company was voluntarily dismissed by the Plaintiff without prejudice from an action pending in the U.S. District Court for the Northern District of Ohio. No payment was made to plaintiff and no settlement agreement was entered into between the
Company and plaintiff.
The Company is also a named defendant in a civil action pending in the U.S. court of common pleas of Allegheny County, Pennsylvania. The civil action was filed on April 17, 2006 by Plaintiff
Mark B. Aronson. The action alleges that the Company violated the Pennsylvania Unsolicited Telecommunication Advertisement Act by issuing spam emails soliciting purchasers for its common stock.  The action seeks an award of damages in
excess of $12,100.  The Company denies that it was a party to the alleged conduct. The Company intends to vigorously defend its legal position, with the case now in the initial phase of discovery.
On January 4, 2007, the case was dismissed without prejudice by the Plaintiff.
To date, no settlement agreement has been discussed between the
Company and the Plaintiff.
The Company is aware that spam emails soliciting purchasers for its common stock had originated from unknown sources; the company had never participated nor would it ever
participate or authorize in the distribution of spam email to solicit purchasers for its common stock.
The Company has solemnly declared an anti-spamming policy on its website.
ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 26, 2006, Registrant, through its wholly owned subsidiary, Perfect Dream Ltd, a British Virgin Islands corporation (Perfect Dream) entered into an Agreement for the Purchase and Sale of Stock (the
"Agreement") with Ever-Glory Enterprises (HK) Ltd, a British Virgin Islands corporation (Seller) pursuant to which Registrant has agreed to acquire and Seller has agreed to sell all of the Sellers interest in Nanjing Catch-Luck
Garments Co, Ltd, a Chinese limited liability company (Catch-Luck). The Seller owns 100% of the total capital of Catch-Luck. A copy of the Purchase Agreement is included as Appendix A to the Companys Preliminary Information
Statement on Schedule 14C filed with the Securities and Exchange Commission on June 29, 2006.
On August 31, 2006, the Registrant, Perfect Dream, Seller and Catch-Luck entered into Amendment No. 1 to the Agreement (the Amendment). The Amendment changed the terms of payment on
the purchase consideration in the transactions contemplated by the Agreement (the Transaction). A copy of the Amendment No. 1 to the Purchase Agreement is included as Appendix B to the Companys
Preliminary Information Statement on Schedule 14C filed with the Securities and Exchange Commission on September 22, 2006
A majority of the members of the Board of Directors of the Company (the Board) and certain of its shareholders, including Mr. Kang Yihua, a majority owner, director, CEO and
President of the Company, are either shareholders, officers or directors of EGLY HK, Catch-Luck or its affiliates. Mr. Kang is the 100% shareholder and a director and officer of EGLY HK at the record date of transaction.
The Board was fully informed of the interests of the other directors in EGLY HK, Catch-Luck or their affiliates and on June 1, 2006 and August 31, 2006 unanimously approved the Purchase Agreement, the Purchase
Agreement Amendment and the Transaction. The Board conditioned consummation of the transactions contemplated by the Purchase Agreement and the Purchase Agreement Amendment on approval thereof by the shareholders of the Company in accordance with
Florida law.
16


Florida law requires that the Transaction be
approved by majority of the shareholders of the Company that do not have a financial interest in EGLY HK or Catch-Luck or their affiliates. The Purchase Agreement, the Purchase Agreement Amendment and the Transaction were approved by shareholders (the Consenting
Shareholders) of the Company that do not have any financial interest in EGLY HK, Catch-Luck or their affiliates.
In addition, on, on, on, Mr.Kang, who owns an aggregate of 614,338 shares of Common Stock and 6,238 shares of Series A preferred stock, which constitutes approximately 79% of the voting power, based on an aggregate of 19,971,758
shares of our common stock issued and outstanding and 7,883 shares of our Series A preferred stock issued and outstanding as of August 31, 2006, approved the Purchase Agreement, the Purchase Agreement Amendment and the Transaction on June 2, 2006
and August 31, 2006
The transaction is expected to close in the first quarter of 2007.  The Information Statement has not yet been delivered to the shareholders of the Company.
PART II
ITEM 5.         MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
Market InformationEGLY common stock is quoted on the Over-the-Counter Electronic Bulletin Board under the symbol "EGLY.OB". Presented below is the high and low bid information of EGLY's common stock for the periods indicated. The source of
the following information is from Merrill Lynch. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
EGLYCOMMONSTOCKHIGH

LOWFISCAL YEAR ENDING DECEMBER 31, 2006:First Quarter

$
3.0

$
0.9Second Quarter

$
1.87

$
.90Third Quarter

$
1.22

$
.35Fourth Quarter

$
0.73

$
.28FISCAL YEAR ENDING DECEMBER 31, 2005:First Quarter

$
.55

$
.35Second Quarter

$
.82

$
.27Third Quarter

$
.60

$
.15Fourth Quarter

$
1.01

$
.15Outstanding Shares and Shareholders of Record
Our common shares are issued in registered form.  Our transfer agent is Holladay Stock Transfer, Inc, 2939 N. 67th Place Scottsdale, AZ  85251, telephone: (480) 481-3940; fax number: (480) 481-3941. On March 8, 2007, the
shareholders list of our common shares showed 26 registered shareholders and 19,971,758 common shares outstanding.
17


DividendsWe have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Although there are no restrictions that limit the ability to pay dividends on our common shares, our
intention is to retain future earnings for use in our operations and the expansion of our business.
Securities Authorized For Issuance Under Equity Compensation Plan
As of the date of this annual report on Form 10-KSB, we have not adopted a stock option plan.
ITEM 6.         MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OverviewEver-Glory and its subsidiaries (the "Company") manufacture apparel for men, women and children for primarily middle to high-grade well-known casual wear, sportswear and outerwear brands and for a variety of companies. All
of its products are exported to Japan, Europe and the United States. The Companys customers include large retailers and well-known brands. The Company is the result of a merger of Andean Development Corporation, a corporation organized under
the laws of the State of Florida ("Andean"); and Perfect Dream Limited, a corporation organized under the laws of British Virgin Islands "Perfect Dream"). Andean was formed on October 19, 1994 and engaged in the business of providing engineering and
project management services and electrical and mechanical equipment for energy and private works projects. As of June 30, 2005, Andean had zero assets and liabilities of $57,000. Perfect Dream was incorporated on July 1, 2004 in the British
Virgin Islands. In January of 2005, Perfect Dream acquired 100% of Goldenway Nanjing Garments Co., Ltd ("Goldenway").
Goldenway is a limited liability company, which was incorporated in the People's Republic of China (the "PRC") on December 31, 1993. Until December 2004, Goldenway was a subsidiary of Jiangsu Ever-Glory International Group
Corporation (Jiangsu Ever-Glory). After its acquisition by Perfect Dream, Goldenway changed its status to that of a wholly foreign owned enterprise and increased its registered capital from $2,512,106 to $20,000,000. The
increased registered capital will be paid-in in installments within three years of the issuance of Goldenway's updated business license. As of December 31, 2006, the Company has paid $2.63 million of its registered capital requirements. The
remaining $14.86 million is due on February 1, 2008.
On December 30, 2006, the Company through its wholly owned subsidiary, Perfect Dream Ltd, a British Virgin Islands corporation, consummated the acquisition of 100% of the capital stock of Nanjing New-Tailun Garments Co,
Ltd, a Chinese limited liability company (New-Tailun) from Ever-Glory Enterprises (HK) Ltd, a British Virgin Islands corporation.  The purchase price consisted of a combination of 20,833,333 shares of EGLYs
common stock and $2,000,000 in cash. New Tailun is a 100% foreign-owned enterprise incorporated in Peoples Republic of China and is engaged in the manufacturing and sale of garments. New-Tailun has a staff of over 800 people with the
annual production capacity of about 2.5million pieces.  New Tailuns financial statements are included in the Company's consolidated financial statements.  Management believes that the acquisition of New Tailun will enables Company to
facilitate its increased production, strengthen the Companys outsourcing bases and supplement the Companys product lines.
In the fiscal year ended December 31, 2006, approximately 68.83 % of the Companys revenues came from customers in the Europe, 5.79 % from customers in Japan, 17.89 % from customers in the United States and 5.31 % from
customers in China.  In the fiscal year ended December 31, 2006, four customers represented approximately 72 % of the Companys sales. Management believes that the relationship with these customers is good.
18


The Company purchases the majority of its raw materials directly from numerous local fabric and accessories suppliers.  The Company may also purchase finished goods from other contract manufacturers.  One supplier
represented approximately 15 % of the Companys raw materials purchases in the fiscal year ended December 31, 2006.  The Company has not experienced difficulty in obtaining raw materials essential to its business and management believes that
the relationship with its suppliers is good.
In 2006, the Company operated a factory in the Nanjing Jiangning Economic and Technological Development Zone in Nanjing, China.
The Company made a deposit to purchase a fifty-year land use right on 112,442 square meters of land in Nanjing Jiangning Economic and Technological Development Zone. The land contains an existing facility of 26,629 square
meters, which includes manufacturing and office space. On April 7, 2006, the Company closed the transaction with the local government of Nanjing City.  On June 24, 2006, the Company
obtained the title to the land for the land use rights for 50 years. By the end of 2006, the Company completed the construction of the new office buildings and the new factory.  The Company has been consolidating its operation into its new
headquarters and manufacturing facility since January 2007. The new manufacturing facility occupies an area of 10,000 square meters and is equipped with state-of-the art equipment.
The factory employs a staff of over 600 people with an annual production capacity of over 700,000 pieces. All of the Companys work force is non-union, and the Company considers its relations with its employees to be
satisfactory.
In 2006, all Chinese manufacturers of certain garments were subject to aggregate export quotas, or limitations, to the United States and Europe.  Although certain of the Companys apparel products fall within the
categories subject to the quotas with respect to exports to the United States and Europe, the Chinese government allocated a portion of the aggregate export quota to the Company based upon the amount of product that the Company exported in the prior
year.  The imposition of such quotas did not have a material affect on the Companys net sales and its net margin.  See Results of Operations below. As a result of the Companys prior export performance, it was awarded a sufficient portion
of the export quotas to enable it to increase its sales to customers in Europe and the U.S. despite the reinstitution of export quotas.  The Company believes that its customer mix and its ability to adjust the types of apparel it manufactures will
mitigate its exposure to such trade restrictions in the future.
Under the laws of the PRC, as a wholly foreign owned enterprise, in the fiscal year ended December 31, 2004, Goldenway was entitled to a 50% reduction in its income tax rate, from 24% to 12%. In the fiscal year ended
December 31, 2005, Goldenway as a wholly foreign owned enterprise that exported over 70% of its products outside the PRC, is eligible for a 50% reduction in its tax rate from 24% to 12%. From 2006, Goldenway has an income tax rate of 12%.
The Company markets and sells its products through a combination of international distributors and direct sales to brands and retail chain stores primarily in Europe, the United States and in Japan.
Our cost of net revenues consists of the appropriate materials purchasing, receiving and inspection costs, inbound freight where applicable, garment finishing fees, direct labor, and manufacturing overhead, including the Companys contributions to a government mandated multi-employer defined contribution plan, packing materials and others. In addition, from time to
time we subcontract manufacturing, which costs are included in our cost of net revenues.
Selling expenses consist primarily of transportation and unloading charges and product inspection charges.
General and administrative expenses consist primarily of related expenses for executive, finance, accounting, facilities and human resources personnel, office expenses and professional fees.

19


Results of Operations
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
The following table summarizes the Companys results of operations.  The table and the discussion below should be read in conjunction with the audited financial statements and the notes thereto appearing elsewhere in
this report.
Results of OperationsYear Ended December 31,

2006

2005$



%

$

%Sales

22,332,386



100.00
%

10,813,961

100.00
%Gross Profit

4,088,991



18.31
%

2,101,396

19.43
%Operating Expense

2,027,831



9.08
%

969,663

8.97
%Income From Operations

2,061,160



9.23
%

1,131,733

10.47
%Other Income (Expenses)

(255,725)



(1.15
)%

73,487

0.68
%Net Income

1,493,425



6.69
%

1,043,540

9.65
%Revenues, Cost of Revenues and Gross MarginRevenuesRevenues for the year ended December 31, 2006 were $22,332,368, an increase of 106.51% from $10,813,961 for 2005. Our increase in revenues was primarily attributable to an increase in sales to customers in Europe,
the US and in PRC.  In 2006, sales to customers in Europe increased by $9,980,946 or 185.14 %, sales to customers in the U.S. increased by approximately $2,627,360  or 192.2 % and sales to customers in PRC increased by approximately
$484,535 or 69% as compared to 2005.
Cost of Sales and Gross MarginCost of sales for the year ended December 31, 2006 was $18,243,377, an increase of 109.39% from $8,712,565 in 2005. As a percentage of revenues, cost of sales increased to approximately 81.69% for 2006 from
approximately 80.57 % for 2005. Consequently, gross margin as a percentage of revenues decreased to approximately 18.31% for 2006 from approximately 19.43 % for 2005. Of the 1.12% decrease in gross margins, approximately 0.83% is attributable to an
increase in the material purchasing price and approximately 0.26 % was attributable to increases in labor costs, which could not entirely be passed on to the Companys customers.
Export Quota ChargesExport quota charges in 2006 was $153,997 compared with Nil in 2005. The charges were mainly attributable to the bidding expenses for export quotas of certain categories of apparel products paid to the Chinese
government.
Selling, and General and Administrative Expenses
Selling expenses in 2006 increased by 429.72% from $85,108 in 2005 to $450,832 in 2006.  The increase in selling expenses was mainly attributable to an increase in transportation and logistic costs.
General and Administrative expenses in 2006 increased by 48.64 % to $888,447 from $597,727 in 2005. The increase of general and administrative expenses was mainly attributable to the increase of the expenses related
to the investor relations activities.

20


Salaries and Allowances



Salaries and Allowances of the management in 2006 increased by 122.65% from $213,825 in 2005 to $476,071. The increase was mainly due to the increase in salaries for our management.  We believe that such increase
was necessary for us to support our business expansion and to implement our strategic plan of future growth.
Interest Expenses
Interest expense was $285,876 in 2006 compared to $74,284 in 2005.  The primary reasons for the increase in interest expense were increase in our short term bank loans associated with our construction.
In August, 2006, we entered into credit agreements with Nanjing City Commercial Bank  to borrow an aggregate principal amount of up to $6.41 million that mature within twenty-four (24) months.As 
of December 31, 2006, our loan balance was $4,482,180 compared to $611,247 in 2005. Thisloan bears interest at monthly rates at 0.4875%
In addition, as of December 31, 2006, the Company has borrowed $4,859,656 from a related party primarily to fund the increase registered capital of Goldenway.  Interest paid to this related party totaled $235,859 as
of December 31, 2006.  The Company did not enter any written agreement with this related party.
Income Tax ExpensesIncome tax expenses in 2006 were $312,010, an increase of $150,330 from $ 161,680 in 2005. The increase was primarily due to the increase of our operating income.
Net IncomeNet Income in 2006 was $1,493,425, an increase of $ 449,885 or 43.11% from $1,043,540. The increase was mainly attributable to the increase of our net sales.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2006, the Company had cash and cash equivalents of $660,096, other current assets of $9,573,443 and current liabilities of $12,978,980. To date, the Company has financed its operations
primarily from operations and cash flow from operations is expected to continue to be the Company's primary source of funds to finance its short-term cash needs.
Net cash used in operating activities for 2006 was $1,333,799, compared with net cash provided by operating activities of $3,209,669 in 2005. The Companys primary source of operating cash flow was net income
of $1,493,425. The decrease in our net cash was attributable to the increase of our accounts receivable of $3,284,045 as the result of the increase of net sales, as compared to the year of 2005.
Net cash used in investing activities was approximately $8,448,971 in 2006, compared with $2,519,904 in 2005. The increase was primarily attributable to construction costs of approximately $5,953,033 associated
with our new office building and factory, and the purchase of new manufacturing equipment of approximately $2,535,218.
Net cash provided by financing activities was $8,730,589 in 2006, compared with $611,247 in 2005. On August 23, 2005, we entered into a short-term loan agreement with a bank pursuant to which we borrowed
approximately $610,000 at an interest rate of 6.138% per annum for the purchase of raw materials. The loan matured and was paid off on August 23, 2006.  The funds were used for the purchase of raw materials. The borrowings were guaranteed by
Jiangsu Ever-Glory International Group Corporation, a related company.
On August 15, 2006, the Company, through Goldenway entered into a credit agreement with Nanjing City Commercial Bank to borrow an aggregate principal amount of up to $6.41 million that matures
within 24
21


months. The loan is secured by our new facilities and is used to fund the construction costs as well as our daily operation. As of December 31, 2006, we have borrowed $4,482,180 with the interest rate of
0.4875% per month. The borrowings can be extended upon maturities on demands within the 24 months. We plan to repay the loans with the cash flows from our operation. In the event we do not have available cash flows from our operation to repay these
loans, we will consolidate and refinance the loans upon maturities.
In addition, as of December 31, 2006, the Company has borrowed $4,859,656 from a related party primarily to   fund the increased registered capital of Goldenway. Interest paid to this
related party totaled $235,859 as of December 31, 2006.
Capital CommitmentsThe Company has a continuing program for the purpose of improving its manufacturing facilities.
The Company anticipates that cash flows from
operations and borrowings from banks will be used to pay for these capital commitments. Pursuant to the Articles of Association of Goldenway, registered capital of approximately $17.5 million must be paid into Goldenway by February 1, 2008. The
increased registered capital will be paid-in in installments within three years of the issuance of Goldenway's updated business license. As of December 31, 2006, the Company has paid $2.6 million of its registered capital requirements.  The
remaining $14.9 million is due on February 1, 2008.
Upon closing of "Catch-Luck" transaction, the
company will pay Ever-Glory Hong Kong an amount of $600,000 representing cash
consideration.
Uses of LiquidityThe Company's cash requirements through the end of fiscal 2006 are primarily to fund operations and to complete the new manufacturing facility in Nanjing. The Company plans to acquire additional manufacturing capacity in
the future to strengthen and stabilize its manufacturing base. The Company is also looking to establish its own distribution and logistics channels in overseas markets and to launch its own brand directly to the Chinese market. In addition, the
Company will need to make the required capital contributions to its subsidiary, Goldenway.
Sources of LiquidityThe Companys primary source of liquidity for its short-term cash needs is expected to be cash flow generated from operations, and cash and cash equivalents currently on hand. The Company believes that will be able to
borrow additional funds if needed.
The Company believes its cash flow from operations together with its cash and cash equivalents currently on hand will be sufficient to meet its working capital, capital expenditure and other commitments through December
2006. For its long-term cash needs, the Company is currently considering a number of different financing opportunities including debt and equity financing. Adequate funds may not be available on terms acceptable to it. If additional funds are raised
through the issuance of equity securities, dilution to existing stockholders may result. If funding is insufficient at any time in the future, the Company will develop or enhance its products or services and expand its business funded by its own
operation cash flows.
As of December 31, 2006 the Company had outstanding borrowings under a credit facility with a bank of approximately $ 4,482,180.
The credit facility does not require that the Company meet or maintain any
financial ratios or tests. As of December 31, 2006, the Company did not have any standby letters of credit or standby
repurchase obligations.
Foreign Currency Translation Risk.The Company's major operations are in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the United States
dollar and the
22


Chinese Renminbi.  Sales of the Company's products are in dollars.  During 2003 and 2004 the exchange rate of RMB to the dollar remained constant at 8.26 RMB to the dollar.  On July 21, 2005, the Chinese
government adjusted the exchange rate from 8.26 to 8.09 RMB to the dollar. In 2006, the RMB kept on appreciating to the dollar. By the end of 2006, the market foreign exchanges rate was increased to 7.8087 RMB to one dollar.  As a result, the
ongoing appreciation of RMB to dollar negatively impacted our gross margins for the year ended December 31, 2006.  We are always negotiating order price adjustments with most of our customers based on the daily market foreign exchange rates, which
we believe will reduce our exposure to exchange rate fluctuations in the future and pass some increase of the cost to our customers.
In addition, the financial statements of Goldenway (whose functional currency is the RMB) are translated into US dollars using the closing rate method.  The balance sheet items are translated into US dollars using the
exchange rates at the respective balance sheet dates.  The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange
rate for the year.  All exchange differences are recorded within equity.  The foreign currency translation gain for the years ended December 31, 2006 and 2005 were $ 532,746 and $5,621, respectively.
CRITICAL ACCOUNTING POLICIESWe have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operation involved could result in material changes to
our financial position or results of operations under different conditions or using different assumptions. The most critical accounting policies and estimates are:
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates in 2006 and 2005 include the allowance for the useful life of property and equipment.
Inventories, consisting of raw materials and finished goods related to the Company's products are stated at the lower of cost or market utilizing the specific identification method.
Fair value of financial instruments, our financial instruments consist of accounts receivable, accounts payable and accrued liabilities are reflected in the financial instruments. The fair value of financial instruments
approximate their recorded values.
We recognize revenue upon delivery to our customers for local sales and upon shipment of the products for export sales, at which time title passes to the customer.
Details regarding our use of these policies and the related estimates are described in the accompanying financial statements as of December 31, 2006 and for the years ended December 31, 2006 and 2005. During the year ended
December 31, 2006, there have been no material changes to our critical accounting policies that impacted our consolidated financial condition or results of operations.
OFF-BALANCE SHEET ARRANGEMENTSWe do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are material to our investors.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155), which amends SFAS
No. 133, Accounting for Derivatives Instruments and
23


Hedging Activities" (SFAS 133) and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (SFAS 140). SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the
contractual interest or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative instruments.
The Company is currently evaluating the impact this new Standard, but believes that it will not have a material impact on the Companys financial position.
In March 2006, the FASB issued SFAS No. 156,Accounting for Servicing of Financial Assetsan amendment to FASB Statement No. 140(SFAS
156). SFAS 156 requires that all separately recognized servicing rights be initially measured at fair value, if practicable. In addition, this statement permits an entity to choose between two measurement methods (amortization method or fair
value measurement method) for each class of separately recognized servicing assets and liabilities. This new accounting standard is effective January 1, 2007. We do not expect the adoption of SFAS 156 to have a material impact on our results of
operations or financial condition.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement 109 (FIN 48), which clarifies the accounting for uncertainty in tax
positions. This Interpretation provides that the tax effects from an uncertain tax position can be recognized in the Companys financial statements, only if the position is more likely than not of being sustained on audit, based on the
technical merits of the position. The provisions of FIN 48 are effective as of the beginning of fiscal 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is
currently evaluating the impact this new Standard, but believes that it will not have a material impact on the Companys financial position.
In September 2006, FASB issued Statement 157, Fair Value Measurements. This statement defines fair value and establishes a framework for measuring fair value in generally accepted accounting principles (GAAP). More
precisely, this statement sets forth a standard definition of fair value as it applies to assets or liabilities, the principal market (or most advantageous market) for determining fair value (price), the market participants, inputs and the
application of the derived fair value to those assets and liabilities. The effective date of this pronouncement is for all full fiscal and interim periods beginning after November 15, 2007. The Company is currently evaluating the impact this new
Standard, but believes that it will not have a material impact on the Companys financial position.
In September 2006, FASB issued Statement 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, which amend FASB Statements No. 87, 88, 106 and 132(R). This statement requires employers
to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its financial statements and to recognize changes in that funded status in the year in which the changes occur. The effective date
for the Company would be for any full fiscal years ending after December 15, 2006. The Company is currently evaluating the impact this new Standard, but believes that it will not have a material impact on the Companys financial position.
ITEM 7.        FINANCIAL STATEMENTS.The information required pursuant to this item is incorporated herein by reference to the financial statements beginning on page F-1.
ITEM 8.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There has been no change of accountants nor any disagreement with accountants on any matter of accounting principles or practices or financial statement disclosure or auditing scope or procedure required to be reported
under this Item.
24


ITEM 8A.     CONTROLS AND PROCEDURES.Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this annual report, being December 31, 2006, we have carried out an evaluation of the effectiveness of the design and operation of
our company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company's management, including our company's Chief Executive Officer along with our company's Chief Financial
Officer. Based upon that evaluation, our company's Chief Executive Officer along with our company's Chief Financial Officer concluded that our company's disclosure controls and procedures are effective as at the end of the period covered by this
report. There have been no significant changes in our company's internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal
controls over financial reporting.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time period specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fiscal year ended December 31, 2006 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 8B.     OTHER INFORMATIONOn August 15, 2006, the Company, through Goldenway entered into a credit agreement with Nanjing City Commercial Bank to borrow an aggregate principal amount of up to $6.41 million that matures within 24 months. The loan
was secured by our new facilities and was used to fund the construction costs as well as our daily operation. As of December 31, 2006, we have borrowed $4,482,180 with the interest rate of 0.4875% per month. The borrowings can be extended upon
maturities on demands within the 24 months. We plan to repay the loans with the cash flows from our operation. In the event we do not have available cash flows from our operation to repay these loans, we will consolidate and refinance the loans upon
maturities.
PART III
ITEM 9.         DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table includes the names, positions held, and ages of our current executive officers and directors:
Name

Age

Position
Held Position SinceKang Yi Hua
44
Chief Executive Officer,President, and
1993DirectorSun Jia Jun
34
Chief Operating Officer

2000and DirectorGuo Yan
30

Chief Financial Officer
2005Yan Xiao Dong

44

Director
1994Wei Ru Qin
53
Director
2000Li Ning
44
Director
2000Jin Qiu
33
Secretary
200525


Each Director will hold office until the next annual meeting of stockholders and until his successor has been elected and qualified.
KANG YI HUA. Since the effective date of the merger, Mr. Kang has served as the Companys President and Chief Executive Officer and as the
Chairman of the Companys Board of Directors. From December 1993 to the present, Mr. Kang has served as the President and Chairman of the Board of Directors of Goldenway. From January 2005 to the present, Mr. Kang has served as the Chairman of
the Board of Directors of Perfect Dream. Mr. Kang has extensive worldwide managerial and operational experience focusing upon business development and strategic planning. Mr. Kang formerly was the party Branch Secretary of the Management Department,
Nanjing Aeronautics and Astronautics University, and the Vice General Manager of the Import and Export Department of Nanjing Shenda Company. Mr. Kang earned a Bachelors degree in Management from Beijing Aeronautics and Astronautics University
and a Bachelors degree in Engineering from Nanjing Aeronautics and Astronautics University.
SUN JIA JUN. Since the effective date of the merger, Mr. Sun has served as the Companys Chief Operating Officer and a member of the Companys Board of Directors. Mr. Sun
has been a member of the Board of Directors of Goldenway since 2000. From July 1996 to November 2002, Mr. Sun was the General Manager of International Trade Department at Goldenway. Mr. Sun has more than 8 years experience in import and export in
the textile industry. Mr. Sun earned a Bachelors degree from the Wuhan Textile Industry Institute.
GUO YAN. Since the effective date of the merger, Ms. Guo has served as the Companys Chief Financial Officer. From July 1999 to 2004, Ms. Guo was the section chief of the
financial and accounting department of Goldenway. Ms. Guo earned a Bachelors degree in Accounting from the Nanjing Audit Institute.
YAN XIAO DONG. Since the effective date of the merger, Mr. Yan has been a member of the Companys Board of Directors. Mr. Yan has been a member of Goldenways Board of
Directors since 1994. Mr. Yan has more than 10 years experience in import and export and garment production management. Mr. Yan earned a Bachelors degree in Mechanical Engineering from Nanjing Aeronautics and Astronautics University.
WEI RU QIN. Since the effective date of the merger, Mr. Wei has been a member of the Companys Board of Directors Mr. Wei has been the head of the Auditing Department of
Goldenway since 2000. Mr. Wei has more than 20 years experience in accounting and finance management in the construction and textile industries. Mr. Wei formerly served as a Vice Manager at Lishui Textile Garment Industry Company and Manager at
Lishui Second Light Textile Products Material Supply & Marketing Office.
LI NING. Since the effective date of the merger, Mr. Li has been a member of the Companys Board of Directors. Mr. Li has been a member of Goldenways Board of Directors
since 2000. Mr. Li has more than 10 years experience in finance and investment management. Mr. Li earned a Bachelors degree in Computer Science from Nanjing Aeronautics and Astronautics University.
JIN QIU. Mr. Jin has served as the Corporate Secretary since 2005. From 2003 to 2005, Mr. Jin served as the secretary to the president Mr. Kang Yi Hua in the aspects of corporation
development planning and investment management. Mr. Jin earned a Bachelors degree in English culture from Beijing Institute of International Relations and a Masters degree in Economics from Nanjing University.
There are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other person pursuant to which such person was selected to serve as a director or
officer.
26


Involvement in Certain Legal ProceedingsOur directors, executive officers and control persons have not been involved in any of the following events during the past five years:
1.     any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to
that time;
2.     any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.     being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4.     being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law,
and the judgment has not been reversed, suspended, or vacated.
Audit Committee Financial ExpertOur Board of Directors does not have a separate audit committee.  The Board has determined that it does not have a member of its Board that qualifies as an audit committee financial expert as defined in Item
401(e) of Regulation S-B, and is independent as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.
We believe that the members of our Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.  However, the
Company is considering appointing an independent qualified financial expert to its Board of Directors in order to strengthen and improve its internal disclosure controls and procedures.
Section 16(a) Of The Exchange ActSection 16(a) of the Securities Exchange Act of 1934, as amended, requires directors and certain officers of the Company, as well as persons who own more than 10% of a registered class of the Companys equity
securities (Reporting Persons), to file reports with the Securities and Exchange Commission.  On September 15, 2006, Messers Kang, Yan, Wei, Sun and Li each  has  filed a Form 5 to report the exchange of their shares of common stock for
shares of preferred stock, which exchange was effected on October 27, 2005.  To the Companys knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were
required, during the fiscal year ended December 31, 2006 all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent shareholders were complied with.
Code Of Business Conduct And EthicsWe have adopted a code of business conduct and ethics that applies to our officers, directors and employees, including our Chief Executive Officer, senior executive officers, principal accounting officer, controller and
other senior financial officers.  Our code of business conduct and ethics is available on our website at www.everglorygroup.com. A copy of our code of business conduct will be provided to any person without charge, upon written request sent to the
Company at its offices located at 17870 Castleton Street, #335, City of Industry, California 91748, attention stockholder relations.
27


The Board of Directors and management are currently reviewing the Companys code of business conduct in connection with an overall review of the Companys corporate governance and other policies in light of
Section 406 of the Sarbanes-Oxley Act.  The Company will timely disclose any amendments to or waivers of certain provisions of our code of business conduct and ethics as required by the Securities Exchange Act and the rules and regulations of the
SEC.
ITEM 10.      EXECUTIVE COMPENSATION. The table below sets forth information concerning compensation paid to our chief executive officer, Kang Yi Hua, during fiscal 2006. None of the Company's executive officers had annual
compensation exceeded $100,000 (U.S.) in the last fiscal year. No stock, options, non-equity incentive plan compensation or deferred compensation were issued or granted to the Companys management during 2006.
SUMMARY COMPENSATION TABLEName and Principal Position
Year
Salary ($) (1)
Total($) (1)Kang Yi Hua,
Chairman of the Board, Chief Executive 
Officer and President
2006
$
12,675
$
12,675(1) All compensation is paid in RMB. The
amounts in the foregoing table have been converted to U.S. dollars at the
conversion rate of 7.8078 RMB to the dollar.

28


Employment Contracts and Termination of Employment and Change-In-Control Arrangements
There are no employment contracts, compensatory plans or arrangements, including payments to be received from the Company, with respect to any director or executive officer of the Company which would in any way result in
payments to any such person because of his resignation, retirement or other termination of employment with the Company, any change in control of the Company, or a change in the person's responsibilities following a change in control of the Company. The table below sets forth information concerning compensation paid to our directors during fiscal 2006.
DIRECTOR COMPENSATIONName and Principal Position
Year
Salary ($) (1)
Total($) 91)Kang yi Hua
2006
$
-0-
(2
)
$
-0-
(2
)Sung Jiajun
2006
$
-0-
(3
)
$
-0-
(3
)Yang Xiao Dong
2006
$
5,262


$
5,262Li Ning
2006
$
4,862


$
4,862Wei Ruquin
2006
$
4,275


$
4,275 (1)

All compensation was paid in RMB. The amounts in the foregoing table have been converted into U.S. dollars at the conversion rate of 7.8078 RMB to the dollar.(2)

Mr. Kang was not paid additional compensation as a director; however, he received salary during 2006 of $12,675 and total compensation of $12,675 in consideration of his services as the Chief Executive Officer of the Company.(3)

Mr. Sung was not paid additional compensation as a director; however, he received salary during 2006 of $8,631 and total compensation of $8,631 in consideration of his services as the Chief Operating Officer of the Company.OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
None of our executive officers were granted or otherwise received any option, stock or equity incentive plan awards during 2006 and there were no outstanding unexercised options previously
awarded to the Companys officers and directors, at the fiscal year end, December 31, 2006.

ITEM 11.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Companys Common Stock as of December 31, 2006 by each person known to the Company to own more than five percent (5%) of the Companys Common Stock
and by each of the Companys current directors, and by all directors and officers of the Company as a group. The table has been prepared based on information provided to the Company by each shareholder.
Amountand NatureofAmount and



BeneficialNature



Ownershipof Beneficial

Percent

of Series

PercentOwnership of

of Class

A Preferred

of ClassName and Address of Beneficial Owner

Common Stock(1)



Stock(1)Executive Officers and Directors(2)Kang, Yi Hua

614,338

3.1%

6,238

79.1%Yan, Xiao Dong

-



499

6.3%Wei, Ru Qin

-



115

1.5%Sun, Jia Jun

-



230

2.9%Li, Ning

-



384

4.9%Guo, Yan

-



-

-All Executive Officers and Directors asa Group (six persons)

614,338

3.1%

7,466

94.7%(1) The percentage of shares beneficially owned is based on 19,971,758 shares of common stock outstanding and 7,883.551 shares of series A preferred outstanding. Except as otherwise noted, shares are owned beneficially and
of record, and such record shareholder has sole voting, investment and dispositive power of the shares. On or about October 27, 2005, each of the shareholders listed in this table, as well as other shareholders holding an aggregate of 336,573 shares
(total 7,883,551 shares) exchanged their shares of common stock for 7,883.551 shares of preferred stock, in order to increase
the availability of common stock for public
29


shareholders.  In addition, on November 1, 2005, the Company effected a 7.6 -for-1 forward stock split of its common stock in the form of a stock dividend, which increased the
number of outstanding shares of common stock to 19,971,758 shares. As a result, each share of preferred stock has the same voting, dividend and liquidation rights as 7,600 shares of common stock and will convert back into common stock at such time
as the Company is able to increase the number of authorized shares of common stock to no less than 500,000,000 shares.
(2) The address for each of Ever-Glory's directors and executive officers is Ever-Glory's principal offices, Ever-Glory International Group, Inc., 17870 Castleton Street, #335 City of Industry, California.
Equity Compensation Plan InformationThe company has not adopted any equity
compensation plan as of December 31, 2006.
ITEM 12.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During 2006, the Company sub-contracted approximately $2.7 million of manufacturing to
six companies related to the Company: (1) Nanjing Jiangning Shangfang Garments Co., Ltd.; (2) Nanjing New-Tailun Garment Co., Ltd.; (3) Kunshan Entin Fashion Co., Ltd.; (4) Nanjing Catch-Luck Garments Co., Ltd.; (5)
Ever-Glory Enterprise (Chuzhou) Co., Ltd.; and (6) Nanjing Ever-Kyowa Garment Washing Co., Ltd.The Company provided raw materials to the sub-contractors who charged the Company a fixed labor charge for the
sub-contracting work.  As of December 31, 2006, the Company owed $1,408,504
to seven companies related to the Company: (1) Ever-glory Enterprise (Chuzhou) Co., Ltd.; (2) Nanjing Hi-Tech Knitting & Weaving Technology Development Co., Ltd.; (3) Nanjing Marukuwa Interior Co., Ltd.; (4) Nanjing
Ever-Kyowa Garment Washing Co., Ltd.; (5) Jiangsu Ever-Glory International Group Corporation; (6) Kunshan Entin Fashion Co., Ltd.; and (7) Nanjing Goldenway Garments Co., Ltd.
pursuant to these sub-contracting arrangements.
The companies referred to in this paragraph are related to the Company as follows:
-
Jiangsu Ever-Glory International Group Corporation
currently owns a controlling interest inNanjing Jiangning Shangfang Garments Co., Ltd.,
Nanjing Ever-Kyowa Garment Washing Co., Ltd. and Kunshan Entin Fashion Co., Ltd.
and a minority equity interest in Nanjing Marukuwa Interior Co., Ltd.. Mr. Kang, the Companys Chief Executive Officer and the Chairman of the Board of Directors, is also the chief executive officer and majority shareholder of Jiangsu Ever-Glory International Group Corporation.-
Nanjing New-Tailun Garment Co., Ltd., was acquired by the Company on December 30, 2006.
	Its balance has been eliminated in consolidation-
Nanjing Goldenway Garments Co., Ltd., is a subsidiary
of the Company. Its balance has been eliminated in consolidation.-
The
Company entered into agreements in 2006 to acquire all of the equity
interests of Nanjing Catch-Luck Garments Co., Ltd., although the transaction has not yet been consummated.-
Mr. Yan
Xiao Dong, a director of the Company, owns a controlling interest in
Ever-Glory Enterprise (Chuzhou) Co., Ltd. and Nanjing Hi-Tech Knitting & Weaving Technology Development Co., Ltd. Mr. Li Ning and Mr. Kang, directors of the Company, are also directors of Nanjing Hi-Tech Knitting & Weaving Technology Development Co., Ltd.

In addition, during 2006, these related companies purchased finished goods and sub-contract manufacturing services from the Company totaling $86,672  As of December 31, 2006, accounts receivable from these related
companies for finished goods and sub-contracting services was $48,812.
During 2006, the Company borrowed $4,238,526 from
Bluepower Holding Ltd., the sole shareholder of which is Ms. Guo Yan, the Chief Financial Officer of the Company. Interest charged for these borrowings was 6% per annum on the amounts due. Total interest charged for the fiscal year ended December 31, 2006 was
$235,859.
During 2006, the Company received rental income of $18,811 for the lease of factory space to a related company.
30


During 2006, Jiangsu Ever-Glory
International Group Corporation provided treasury services to the Company by
negotiating all of the Companys letters of credit and receiving proceeds
thereon and paying creditors for inventory purchases made by the Company. As of
December 31, 2006, Company is owed $2,467,955 from this related company.
On June 26, 2006, the Company entered into
an Agreement for the purchase and sale of stock (the Agreement) with
Ever-Glory Enterprise (H.K.) Ltd. ("Ever-Glory Hong Kong")  and Nanjing
Catch-Luck Garments Co, Limited (Catch-Luck) for the sale of all of Ever-Glory
Hong Kongs ownership interest in Catch-Luck to the Company (the Catch-Luck
transaction). Pursuant to the terms of the Agreement, the Company will pay to
Ever-Glory Hong Kong an amount of $600,000 in cash and common stock of the
Company equivalent to $9,400,000 on the date of the transfer within 90 days of
the closing of the Catch-Luck transaction. As of June 26, 2006, Ever-Glory Hong
Kong was 100% owned by Mr. Kang, the Company's Chief Executive Officer and
Chairman of the Board of Directors. On August 17, 2006, Mr. Kang sold all of his
interests in Ever-Glory Hong Kong to Yan Xiao Dong, a director of the Company.
31


On August 31, 2006, the Company entered into an amendment to the Agreement (the Amendment) whereupon the terms of payment on the purchase consideration was amended as follows:
1.
The Company will pay to Ever-Glory Hong Kong an amount of $600,000 in cash and common stock of EGLY equivalent to $3,400,000 on the date of the transfer within 90 days of the closing of the Catch-Luck transaction.
The number of shares of common stock to be issued to the Ever-Glory Hong Kong in satisfaction of the Stock Purchase Price shall be calculated based on the preceding 30-average high and low price for the Companys common stock as quoted on the
Over-the-Counter Bulletin Board as of the date of the closing;2.
At the end of the first full fiscal year ending December 31, 2006 in which Catch-Luck generates gross revenues of at least $19,000,000 and net profit of at least $1,500,000, the Company will issue to Ever-Glory Hong
Kong that number of shares of EGLYs common stock having an aggregate fair market value of $3,000,000; and3.
At the end of the second full fiscal year ending December 31, 2007 in which Catch-Luck generates gross revenues of at least $19,000,000 and net profit of at least $1,500,000, the Company will issue to Ever-Glory
Hong Kong that number of shares of EGLYs common stock having an aggregate fair market value of $3,000,000.As of December 31, 2006, the Catch-Luck transaction has not closed.
On November 9, 2006, the Company entered into a purchase agreement with
Ever-Glory Hong Kong which is owned 100% by Yan Xiao Dong, a director the
Company whereby this related company sold all of its shares in New-Tailun to the Company.  Pursuant to the terms of the
purchases agreement, the Company will pay to a related company an amount of $2,000,000 in cash and common stock of EGLY equivalent to $10,000,000 on the date of the transfer within 90 days of the closing of the New-Tailun transaction.  As of
December 31, 2006, the Company owed $2,000,000 and 20,833,333 shares of the EGLYs restricted common stock to a related company for consideration of the New-Tailun transaction.
ITEM 13.      EXHIBITS.Exhibit No.
Description2.1
Agreement and Plan of Reorganization as amended, dated as of July 29, 2005, by and among Andean, Perfect Dream and Perfect Dream Stockholders (incorporated by reference to Exhibit 2.1 of the Companys Report on Form
8-K, filed August 24, 2005).2.2
Agreement for the Purcahse and Sale of Stock
of Nanjing Catch-Luck Garments Co. Ltd. dated (incorporated by reference to
Exhibit 2.1 of the Company's Report on Form 8-K, filed June 29, 2006).2.3
Amendment No. 1 To Agreement for the Purchase and Sale of Stock of Nanjing Catch-Luck Garments Co. Ltd. dated (incorporated by reference to Exhibit 2.2 of the Companys Report on Form 8-K, filed September 1,
2006).2.4
Agreement for the Purchase and Sale of Stock of Nanjing New Tailun Garments Co., Ltd. dated November 9, 2006 (incorporated by reference to Exhibit 2.1 of the Companys Report on Form 8-K filed November 13,
2006)3.1
Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Companys 2005 annual report on Form 10-KSB dated March 29, 2006)3.2
Amended and Restated Bylaws (incorporated by reference to Exhibit 2.1 of the Companys Report on Form 8-K dated March 26, 2001).32


4.1
Articles of Association of Perfect Dream (incorporated by reference to Exhibit 4.1 of the Companys Report on Form 8-K, filed August 24, 2005).4.2
Articles of Association of Goldenway (incorporated by reference to Exhibit 4.2 to the Companys Report on Form 8-K, filed August 24, 2005).10.1
Equity Interest Transfer Agreement between Perfect Dream and Ever-Glory Enterprises (H.K.) Ltd. (incorporated by reference to Exhibit 10.1 of the Companys Report on Form 8-K, filed August 24, 2005).10.2
Equity Interest Transfer Agreement between Perfect Dream and Jiangsu Ever-Glory International Group Corporation (incorporated by reference to Exhibit 2.1 of the Companys Report on Form 8-K, filed August 24,
2005).10.3
Loan Agreement between Goldenway Nanjing Garments Co. Ltd and Nanjing
City Commercial Bank dated August 15, 2006.21.1
Subsidiaries of Registrant (incorporated by reference to Exhibit 21.1 of the Companys Report on Form 8-K/A, filed January 20, 2006).23.1
Consent of Jimmy C.H. Cheung & Co. Certified Public Accountants dated February 12, 2007.31.1
Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer.31.2
Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer.32.1
Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.ITEM 14.       PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Jimmy C.H. Cheung & Co, Certified Public Accountants, is Ever-Glory's independent auditors.  In November 2005, Jimmy C.H. Cheung & Co., Certified Public Accountants was appointed as the Companys auditors to audit the Companys financial statements for the years ended December 31, 2006 and 2005 and to review
the Companys financial statements for the three, six or nine months ended March 31, 2006, June 30, 2006, September  30, 2006 and September 30, 2005. Jimmy C.H. Cheung &
Co., Certified Public Accountants has performed the following services and has been paid the following fees:
Audit Fees 
Jimmy C.H. Cheung & Co., Certified Public Accountants was paid aggregate fees of approximately $117,000 for professional services rendered for the audit of Ever-Glory's annual financial statements for the year ended
December 31, 2006 and for the review of Ever-Glorys report on Form 10-QSB for the three, six or nine months ended March 31, 2006, June 30,  2006 and September 30, 2006 and
approximately $120,000 for professional  services rendered for the audit of Ever-Glory's annual financial statements for the years ended December 31, 2005 and 2004 and for the review of Ever-Glorys report on Form 10-QSB for the three and nine months ended September 30, 2005.
Audit-Related Fees 
Jimmy C.H. Cheung & Co., Certified Public Accountants was not paid any additional fees
for the fiscal years ended December 31, 2006 and December 31, 2005 for assurance and related services reasonably related to the performance of the audit or review of Ever-Glory's financial statements.
Tax Fees 
Jimmy C.H. Cheung & Co., Certified Public Accountants was not paid any aggregate fees for the fiscal years ended December 31, 2006 and December 31, 2005 for professional services rendered for tax compliance, tax advice
and tax planning.
Other Fees
Jimmy C.H. Cheung & Co., Certified Public Accountants was paid no other fees for professional services during the fiscal years ended December 31, 2006 and December 31, 2005. The Company does not have an audit
committee.  Prior to engaging Jimmy C.H. Cheung & Co., Certified Public Accountants for the purpose of rendering audit services, the engagement was approved by the Companys Board of Directors.
33


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ever-Glory International Group, Inc. has duly caused this annual report on Form 10-KSB/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
EVER-GLORY INTERNATIONAL GROUP, INC.May 9, 2007
By:
/s/
Kang Yi HuaKang Yi HuaChief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME
TITLE

DATE/s/ Kang Yi Hua
Chief Executive Officer and Director

May 9, 2007Kang Yi Hua
(Principal Executive Officer)/s/ Sun Jia Jun
Chief Operating Officer and Director

May 9, 2007Sun Jia Jun/s/ Guo Yan
Chief Financial Officer and Treasurer

May 9, 2007Guo Yan
(Principal Accounting and Financial Officer)/s/ Yan Xiao Dong
Director

May 9, 2007Yan Xiao Dong/s/ Li Ning
Director

May 9, 2007Li Ning/s/ Wei Ru Qin
Director

May 9, 2007Wei Ru Qin 34


Financial Statements  
Index To Consolidated Financial States
Pages F
Report of Independent Registered Public Accounting Firm
1Consolidated Balance Sheets as of December 31, 2006 and 2005
2Consolidated Statements of Operations and Comprehensive Income for the years ended                     December 31, 2006 and 2005
3Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2006 and 2005
4Consolidated Statements of Cash Flows for the years ended December 31,
2006 and 2005
5Notes to the Consolidated
Financial Statements as of December 31, 2006 and 2005
6 - 17


Jimmy C.H. Cheung & Co
Registered with the Public CompanyAccounting Oversight BoardCertified Public Accountants(A member of Kreston International)REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of:Ever-Glory International Group, Inc.We have audited the accompanying consolidated balance sheets of Ever-Glory International Group, Inc. and subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of operations,
stockholders equity and cash flows for the years ended December 31, 2006 and 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits of the financial statements provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ever-Glory International Group, Inc. and subsidiaries as of December 31, 2006 and 2005 and
the results of its operations and its cash flows for the years ended December 31, 2006 and 2005, in conformity with accounting principles generally accepted in the United States of America.

JIMMY C.H. CHEUNG & COCertified Public Accountants
Hong KongDate:  February 12, 2007
1607 Dominion Centre, 43 Queens Road East, Wanchai, Hong Kong
Tel:  (852) 25295500   Fax:  (852) 28651067   Email:
jchc@krestoninternational.com.hk

Website:  http://www.jimmycheungco.comF-1


EVER-GLORY INTERNATIONAL GROUP, INC. 
AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
AS OF DECEMBER 31, 2006 AND 2005






ASSETS2006



2005CURRENT ASSETSCash and cash equivalents

$

660,096

$

1,467,245Accounts receivable, net of allowances



6,225,936



236,289Accounts receivable - related companies



2,516,767



-Inventories, net



746,817



396,207Income tax recoverable



-



59,021Other receivables and prepaid expenses



83,923



20,955Total Current Assets



10,233,539



2,179,717GOODWILL, NET



10,079,156



-LAND USE RIGHT, NET



2,521,109



-PROPERTY AND EQUIPMENT, NET



12,158,912



5,855,562TOTAL ASSETS

$

34,992,716

$

8,035,279LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESAccounts payable

$

897,609

$

84,300Accounts payable - related companies



1,408,504



486,475Due to related parties



2,621,130



-Other payables and accrued liabilities



3,305,778



1,054,942Value added tax



202,243



49,276Income tax payable and other taxes payable



61,536



-Notes payable



4,482,180



611,247Total Current Liabilities



12,978,980



2,286,240LONG-TERM LIABILITIESDue to a related company



4,238,526



-TOTAL LIABILITIES



17,217,506



2,286,240COMMITMENTS AND CONTINGENCIES



-



-STOCKHOLDERS' EQUITYPreferred stock ($.0001 par value, authorized 5,000,000 shares,Nil shares issued and outstanding)



-



-Series A Convertible Preferred Stock ($.0001 par value,authorized 10,000 shares, 7,883 shares issued andoutstanding as of December 31, 2006 and 2005)



1



1Common stock ($.0001 par value, authorized 100,000,000 shares,issued and outstanding 19,971,758 shares as ofDecember 31, 2006 and 2005



1,997



1,997Common stock to be issued for acquisition (20,833,333 shares)



2,083



-Additional paid-in capital



11,261,666



1,263,749Retained earningsUnappropriated



3,713,144



2,437,823Appropriated



2,230,145



2,012,041Accumulated other comprehensive income



566,174



33,428Total Stockholders' Equity



17,775,210



5,749,039TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

34,992,716

$

8,035,279The accompanying notes are an integral part of these financial statementsF-2


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOMEFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2006




2005NET SALESTo related parties

$

86,672


$

713,580To third parties



22,245,696




10,100,381Total net sales



22,332,368




10,813,961COST OF SALESFrom related parties



(2,792,554
)



(2,246,856
)From third parties



(15,450,823
)



(6,465,709
)Total cost of sales



(18,243,377
)



(8,712,565
)GROSS PROFIT



4,088,991




2,101,396OPERATING EXPENSESStock issued for services



-




42,045Export quota charges



153,997




-Selling expenses



450,832




85,108General and administrative expenses



888,447




597,727Salaries and allowances



476,071




213,825Loss on disposal of fixed assets



5,233




2,065Depreciation and amortization



53,251




28,893Total Operating Expenses



2,027,831




969,663INCOME FROM OPERATIONS



2,061,160




1,131,733OTHER INCOME (EXPENSES)Interest income



5,520




131,610Interest expenses



(285,876
)



(74,284
)Other income from a related company



18,811




18,337Other income



6,113




64Other expenses



(293
)



(2,240
)Total Other Income (Expenses)



(255,725
)



73,487INCOME BEFORE INCOME TAX EXPENSE



1,805,435




1,205,220INCOME TAX EXPENSE



(312,010
)



(161,680
)NET INCOME



1,493,425




1,043,540OTHER COMPREHENSIVE INCOMEForeign currency translation gain



532,746




5,621COMPREHENSIVE INCOME

$

2,026,171


$

1,049,161Net income per share - basic

$

0.07


$

0.02Net income per share - diluted

$

0.02


$

0.01Weighted average number of shares outstanding duringthe year - basic



20,028,836




55,224,701Weighted average number of shares outstanding duringthe year - diluted



79,943,824




115,139,689The accompanying notes are an integral part of these financial statementsF-3


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005






Series A Convertible




Common stock


Additional Unappropriated


Appropriated    Accumulated otherPreferred Stock

Preferred Stock

Common Stock


to be issued


paid-in


retained


retained


comprehensiveShares

Amount

Shares


Amount

Shares


Amount


for acquisition


capital


earnings


earnings


income


TotalBalance at December 31, 2004
-



-

-


-

58,317,270


5,832


-


1,217,870


1,599,034


1,807,290


27,807


4,657,833Stock issued in reverse merger
-



-

-


-

19,971,758


1,997


-


(1,997
)

-


-


-


-Stock issued for services
-



-

-


-

1,597,718


160


-


41,885


-


-


-


42,045Stock exchanged for series A

    Convertible
Preferred Stock
-



-

7,883


1

(59,914,988
)

(5,992
)

-


5,991


-


-


-


-Net income for the year
-



-

-


-

-


-


-


-


1,043,540


-


-


1,043,540Other comprehensive income
-



-

-


-

-


-


-


-


-


-


5,621


5,621Transfer to statutory and staff 
    welfare reserves
-



-

-


-




-


-


-


(204,751
)

204,751


-


-Balance at December 31, 2005
-



-

7,883


1

19,971,758


1,997


-


1,263,749


2,437,823


2,012,041


33,428


5,749,039Stock to be issued for accquisition
-



-

-


-

20,833,333


-


2,083


9,997,917


-


-


-


10,000,000Net income for the year
-



-

-


-

-


-


-


-


1,493,425


-


-


1,493,425Other comprehensive income
-



-

-


-

-


-


-


-


-


-


532,746


532,746Transfer to statutory and staff
   
welfare reserves
-



-

-


-

-


-


-


-


(218,104
)

218,104


-


-Balance at December 31, 2006
-
$


-

7,883

$
1

40,805,091

$
1,997

$
2,083

$
11,261,666

$
3,713,144

$
2,230,145

$
566,174

$
17,775,210The accompanying notes are an integral part of these consolidated financial statements
F-4


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2006




2005CASH FLOWS FROM OPERATING ACTIVITIESNet income

$

1,493,425


$

1,043,540Adjusted to reconcile net income to cash providedby operating activities:Stock issued for services



-




42,045Depreciation and amortization - cost of sales



234,483




134,013Depreciation and amortization



53,251




28,893Loss on disposal of fixed assets



5,233




2,065Changes in operating assets and liabilities(Increase)decrease in:Accounts receivable



(3,284,045
)



(55,676
)Accounts receivable - related companies



(2,516,767
)



130,784Due from a related party



-




2,535,500Other receivables and prepaid expenses



(50,310
)



122,460Inventories



268,018




398,205Increase (decrease) in:Accounts payable



477,817




(238,025
)Accounts payable - related companies



(346,507
)



(1,094,394
)Other payables and accrued liabilities



2,218,307




321,341Value add tax payables



(6,847
)



(17,241
)Income tax and other tax payables



120,143




(143,841
)Net cash (used in) provided by operating activities



(1,333,799
)



3,209,669CASH FLOWS FROM INVESTING ACTIVITIESNet cash inflow from business combination (Note 2)



39,280




-Purchase of land use right



(205,693
)



-Purchase of property and equipment



(8,282,558
)



(2,519,904
)Net cash used in investing activities



(8,448,971
)



(2,519,904
)CASH FLOWS FROM FINANCING ACTIVITIESDue to related parties



4,859,656




-Repayment of note payable



(611,247
)



-Proceeds from notes payable



4,482,180




611,247Net cash provided by financing activities



8,730,589




611,247EFFECT OF EXCHANGE RATE ON CASH



245,032




5,621NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(807,149
)



1,306,633CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR



1,467,245




160,612CASH AND CASH EQUIVALENTS AT END OF YEAR

$

660,096


$

1,467,245SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the year for:Interest expenses

$

50,017


$

12,594Cash paid during the year for:Income taxes

$

357,280


$

306,434The accompanying notes are an integral part of these financial statements
F-5


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION(A)
OrganizationEver-Glory International Group, Inc. (EGLY) was incorporated in Florida on October 19, 1994.Perfect Dream Limited (Perfect Dream) was incorporated in the British Virgin Islands on July 1, 2004. Goldenway Nanjing Garments Company Limited (Goldenway), a Peoples Republic of China
(PRC) wholly foreign-owned enterprise was incorporated on December 31, 1993. Goldenway is principally engaged in the manufacturing and sale of garments.During 2004, Perfect Dream acquired 100% of Goldenway for a cash in the amount of $1,338,404. The transaction was accounted for as a reorganization of entities under common control as the companies were
beneficially owned by principally identical stockholders and shared common management.On July 29, 2005, EGLY entered into an Agreement and Plan of Reorganization with the stockholders of Perfect Dream whereby the stockholders of Perfect Dream exchanged 100% of their shares of Perfect Dream for 7,673,325
shares of restricted common stock of EGLY.On completion of the reorganization, the merger of EGLY and Perfect Dream was treated for accounting purposes as a capital transaction and recapitalization by Perfect Dream (the accounting acquirer) and
reorganization by EGLY (the accounting acquiree). The financial statements have been prepared as if the reorganization had occurred retroactively.Accordingly, the financial statements include the following:(1)
The balance sheet consists of the net assets of the acquirer at historical cost and the net assets of the acquiree at historical cost.(2)
The statement of operations includes the operations of the acquirer for the periods presented and the operations of the acquiree from the date of the merger.On November 17, 2005, EGLY filed an Amendment to its Articles of Incorporation to change its name to Ever-Glory International Group, Inc.On November 9, 2006, Perfect Dream entered into a purchase agreement with Ever-Glory Enterprises (HK) Limited (Ever-Glory Hong Kong) whereby Ever-Glory Hong Kong sold 100% interest of Nanjing New-Tailun
Garments Company Limited (New Tailun) to Perfect Dream (the New-Tailun transaction). Pursuant to the terms of the purchases agreement, Perfect Dream will pay to Ever-Glory Hong Kong an amount of $2,000,000 in cash and
issue 20,833,333 shares of the EGLYs restricted common stock having a value of $10,000,000, such value of shares were based on the preceding 30-day average of high bid and the low ask price for the EGLYs common stock on the date of
the transfer within 90 days of the closing of the New-Tailun transaction. The New-Tailun transaction closed on December 30, 2006.New-Tailun is a wholly foreign-owned enterprise incorporated in PRC on March 27, 2006 with its principal place of business in Nanjing, PRC and is principally engaged in the manufacturing and sale of garments.EGLY, Perfect Dream, Goldenway and New Tailun are hereinafter referred to as (the Company).F-6


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)(B)
Use of estimatesThe preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.(C)
Principles of consolidationThe accompanying 2006 and 2005 consolidated financial statements include the accounts of EGLY and its 100% owned subsidiaries Perfect Dream, Goldenway and New-Tailun.All significant inter-company transactions and balances have been eliminated in consolidation.(D)
Cash and cash equivalentsFor purpose of the statements of cash flows, cash and cash equivalents include cash on hand and demand deposits with a bank with maturities of less than three months.(E)
Accounts receivableThe Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful
accounts is established and recorded based on managements assessment of the credit history with the customer and current relationships with them.As of December 31, 2006 and 2005, the Company considers all its accounts receivable to be collectable and no provision for doubtful accounts has been made in the financial statements.(F)
InventoriesInventories are stated at lower of cost or market value, cost being determined on a specific identification method. The Company provided inventory allowances based on excess and obsolete inventories determined
principally by customer demand.(G)
Long-lived assetsThe Company accounts for long-lived assets under the Statements of Financial Accounting Standards Nos. 142 and 144 Accounting for Goodwill and Other Intangible Assets and Accounting for Impairment or
Disposal of Long-Lived Assets (SFAS No. 142 and 144). In accordance with SFAS No. 142 and 144, long-lived assets, goodwill and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, when undiscounted future cash flows will not be sufficient to recover an
assets carrying amount, the asset is written down to its fair value.(H)
Property and equipmentProperty and equipment are stated at cost, less accumulated depreciation. Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense
as incurred.Depreciation is provided on a straight-line basis, less an estimated residual value over the assets estimated useful lives. The estimated useful lives are as follows:Factory buildings
15-20 YearsLeasehold improvements
10 YearsPlant and machinery
10YearsFurniture and fixtures
5 YearsOffice equipment
5 YearsMotor vehicles
5 YearsF-7


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005






1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)(I)
Fair value of financial instrumentsStatement of Financial Accounting Standards No. 107, "Disclosure About Fair Value of Financial Instruments," requires certain disclosures regarding the fair value of financial instruments. Trade accounts receivable,
accounts payable, and accrued liabilities are reflected in the financial statements at fair value because of the short-term maturity of the instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant
judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.The carrying value of cash and cash equivalents, accounts receivable (trade and others), accounts payable (trade and related party) and accrued liabilities approximate their fair value because of the short-term nature
of these instruments. The Company places its cash and cash equivalents with what it believes to be high credit quality financial institutions. The Company has a diversified customer base, most of which are in Europe, Japan, the United States and the
PRC. The Company controls credit risk related to accounts receivable through credit approvals, credit limit and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the
credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.(J)
Revenue and cost recognitionThe Company recognizes revenue upon delivery for local sales and upon shipment of the products for export sales, at which time title passes to the customer provided that: there are no uncertainties regarding customer
acceptance; persuasive evidence of an arrangement exists; the sales price is fixed and determinable; and collectability is deemed probable.Local transportation and unloading charges and product inspection charges are included in selling expenses.Cost of goods sold includes the appropriate materials purchasing, receiving and inspection costs, inbound freight where applicable, direct labor cost and manufacturing overheads consistent with the revenue
earned.(K)
Income taxesThe Company accounts for income taxes under the Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement 109). Under Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that included the enactment date.PRC income tax is computed according to the relevant laws and regulations in the PRC. The Company is also entitled to a reduction of 50% of any income tax rate for achieving export sales in excess of 70% of its total
sales since 2005.(L)
Foreign currency transactionsEGLY, Perfect Dream, Goldenway and New-Tailun maintain their accounting records in their functional currencies of US$, US$, RMB and RMB respectively.Foreign currency transactions during the year are translated to the functional currency at the approximate rates of exchange on the dates of transactions. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the approximate rates of exchange at that date. No-monetary assets and liabilities are translated at the rates of exchange prevailing at the time the asset or liability was acquired. Exchange
gains or losses are recorded in the statement of operations.F-8


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005






1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)(M)

Foreign currency translationThe financial statements of Goldenway and New-Tailun (whose functional currency is the RMB) are translated into US$ using the closing rate method. The balance sheet items are translated into US$ using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the year. All exchange differences are recorded within equity. Translation gain for the years ended December 31, 2006 and 2005 were $532,746 and $5,621 respectively.(N)

Comprehensive incomeThe foreign currency translation gain or loss resulting from translation of the financial statements expressed in RMB to United States Dollars is reported as other comprehensive income in the statements of operations and stockholders equity. Comprehensive income for the years ended December 31, 2006 and 2005 were $532,746 and $5,621 respectively.(O)

Income per shareBasic income per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.(P) SegmentsThe Company adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131). SFAS establishes standards for operating information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions how to allocate resources and assess


































performance. The information disclosed herein, materially represents all of the financial information related to the Companys principal operating segments. The Company operates in a single segment.(Q)

Recent accounting pronouncementsEffective January 1, 2006, we adopted the SEC
issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when quantifying Misstatements in Current Year Financial
Statements" ("SAB 108"). SAB 108 requires companies to evaluate the materiality
of identified unadjusted errors on each financial statement and related
financial statement disclosure using both the rollover approach and the iron
curtain approach. The rollover approach quantifies misstatements based on the
effects of correcting the misstatement existing in the balance sheet at the end
of the current year, irrespective of the misstatement's year(s) of origin.
Financial statements would require adjustment when either approach results in
quantifying a misstatement that is material. Correcting prior year financial
statements for immaterial errors would not require previously filed reports to
be amended. The adoption of SAB 108 did not have a material impact on the
Company's consolidated financial statements.In
February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155), which amends SFAS No. 133, Accounting for Derivatives Instruments and Hedging Activities (SFAS 133) and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (SFAS 140). SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the cont

















ractual interest or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative instruments. The Company is currently evaluating the impact this new Standard, but believes that it will not have a material impact on the Companys financial position.In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assetsan amendment to FASB Statement No. 140 (SFAS 156). SFAS 156 requires that all separately recognized servicing rights be initially measured at fair value, if practicable. In addition, this statement permits an entity to choose between two measurement methods (amortization method or fair value measurement method) for each class of separately recognized servicing assets and liabilities. This new accounting standard is effective January 1, 2007. We do not expect the adoption of SFAS 156 to have a material impact on our results of operations or financial condition.F-9


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005






1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)(Q)
Recent accounting pronouncementsIn July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement 109 (FIN 48), which clarifies the accounting for uncertainty in
tax positions. This Interpretation provides that the tax effects from an uncertain tax position can be recognized in the Companys financial statements, only if the position is more likely than not of being sustained on audit, based on the
technical merits of the position. The provisions of FIN 48 are effective as of the beginning of fiscal 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is
currently evaluating the impact this new Standard, but believes that it will not have a material impact on the Companys financial position.In September 2006, FASB issued Statement 157, Fair Value Measurements. This statement defines fair value and establishes a framework for measuring fair value in generally accepted accounting principles (GAAP). More
precisely, this statement sets forth a standard definition of fair value as it applies to assets or liabilities, the principal market (or most advantageous market) for determining fair value (price), the market participants, inputs and the
application of the derived fair value to those assets and liabilities. The effective date of this pronouncement is for all full fiscal and interim periods beginning after November 15, 2007. The Company is currently evaluating the impact this new
Standard, but believes that it will not have a material impact on the Companys financial position.In September 2006, FASB issued Statement 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, which amend FASB Statements No. 87, 88, 106 and 132(R). This statement requires
employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its financial statements and to recognize changes in that funded status in the year in which the changes occur. The
effective date for the Company would be for any full fiscal years ending after December 15, 2006. The Company is currently evaluating the impact this new Standard, but believes that it will not have a material impact on the Companys financial
position.2.
BUSINESS COMBINATIONOn December 30, 2006, Perfect Dream acquired 100% ownership interest of New Tailun, a PRC company engaged in the manufacturing and sale of garments. Pursuant to the terms of the purchases agreement, Perfect Dream will
pay to Ever-Glory Hong Kong, stockholders of New-Tailun, an amount of $2,000,000 in cash and the issue of 20,833,333 shares of the EGLYs restricted common stock having a value of $10,000,000, such value of shares were based on the
preceding 30-day average of high bid and the low ask price for the EGLYs common stock on the date of the transfer within 90 days of the closing of the New-Tailun transaction.The preliminary allocation of the net assets acquired is as follows:Cash and cash equivalents

$

39,280Accounts receivable



2,705,602Inventories



618,628Other receivables and prepaid expenses



12,658Total current assets



3,376,168Property and equipment, net



341,461Total assets



3,717,629Less: Accounts payable



(1,604,028
)Other payables and accrued expenses



(32,529
)Value added tax and other tax payables



(160,228
)Net assets acquired



1,920,844Consideration for acquisition



12,000,000Goodwill

$

10,079,156F-10


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2.
BUSINESS COMBINATION (CONTINUED)Analysis of the net inflow of cash and cash equivalents in respect of the business combination is as follows:Cash and cash equivalents acquired

$
39,280Net cash inflow

$
39,280
The acquisition of New-Tailun was accounted for as a purchase under SFAS No. 141, Business Combinations. Accordingly, the operating results of New-Tailun have been included in the consolidated statements of operation
and comprehensive income after the effective date. The following table reflects the unaudited pro forma combined results of operations for the year ended December 31, 2006, assuming the acquisition had occurred at the beginning of 2006.
Revenues

$
32,001,324Net income

$
2,471,255Net income per share- basic

$
0.06- diluted

$
0.02
3.
ACCOUNTS RECEIVABLEAccounts receivable at December 31, 2006 and 2005 consisted of the following:2006


2005Accounts receivable

$
6,225,936


236,289Less: allowance for doubtful accounts


-


-Accounts receivable, net of allowance

$
6,225,936

$
236,289As of December 31, 2006 and 2005, the Company considered all accounts receivable collectable and has not recorded a provision for doubtful accounts.4.
INVENTORIESInventories at December 31, 2006 and 2005 consisted of the following:2006


2005Raw materials

$
194,728

$
90,828Work-in-progress


414,564


305,379Finished goods


137,525


-746,817


396,207Less: provision of obsolescence


-


-Inventories, net

$
746,817

$
396,207For the years ended December 31, 2006 and 2005, no provision for obsolete inventories was recorded by the Company.
F-11


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
5.
GOODWILLGoodwill at December 31, 2006 and 2005 consisted of the following:2006


2005Goodwill acquired during the year

$
10,079,156

$
-Impairments


-


-Goodwill, net

$
10,079,156

$
-The goodwill acquired during the year ended December 31, 2006, relates to acquisition of New-Tailun. In accordance with SFAS No. 142 Goodwill and other intangible assets, goodwill is not amortized but is
tested for impairment. The Company performed an assessment on goodwill arising from New-Tailun acquisition and concluded there was no impairment as to the carrying value of the goodwill in 2006.6.
LAND USE RIGHTSLand use rights at December 31, 2006 and 2005 consisted of the following:2006


2005Land use rights

$
2,550,869

$
-Less: accumulated amortization


29,760


-Land use rights, net

$
2,521,109

$
-Amortization expenses for the year ended December 31, 2006 was $29,143.7.
PROPERTY AND EQUIPMENTThe following is a summary of property and equipment at December 31:2006


2005Factory buildings

$
3,695,637

$
637,689Plant and machinery


1,931,710


1,356,135Office equipment


161,955


82,618Motor vehicles


134,898


115,269Furniture and fixtures


226


213Leasehold improvements


110,291


104,164Construction in progress


7,392,010


4,496,92513,426,727


6,793,013Less: accumulated depreciation


1,267,815


937,451Property and equipment, net

$
12,158,912

$
5,855,562Construction in progress represents a deposit paid for factory land and buildings and subsequent construction costs capitalized on new factory buildings under construction. Construction in progress is stated at cost
less any impairment losses, and is not depreciated. Construction in progress is reclassified to the appropriate category of long-term assets when completed and ready for use. Management is of the opinion that no impairment loss is considered
necessary at the year-end.
Depreciation expenses for the years ended December 31, 2006 and 2005 were $258,591 and $162,906, respectively.  During 2006 and 2005 the Company recognized a loss on disposal of property and equipment of
$5,233 and $2,065 respectively.
F-12


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
8.
DUE TO RELATED PARTIESDue to related parties at December 31, 2006 and 2005 consist of the following:2006


2005Due to a company owned by a stockholder

$
613,542

$
-Due to a stockholder


7,588


-Due to a stockholder and director for acquisition (Note 2)


2,000,000


-$
2,621,130

$
-9.
OTHER PAYABLES AND ACCRUED LIABILITIESOther payables and accrued liabilities at December 31, 2006 and 2005 consist of the following:2006


2005Other payables

$
41,515

$
87,110Accrued interest expenses


-


61,690Accrued professional fees


148,115


151,699Accrued building construction costs


2,927,498


-Accrued wages


-


156,723Welfare payable


188,650


597,720$
3,305,778

$
1,054,94210.
NOTES PAYABLEBalance at December 31, 2006 and 2005:2006


2005Note payable to a bank, interest rate of 0.5115% per month,

$
-

$
611,247guaranteed by a related company, due August 23, 2006Note payable to a bank, interest rate of 0.4875% per month,


1,920,936collateralized by buildings of the Company, due April 18, 2007Note payable to a bank, interest rate of 0.4875% per month,


640,311collateralized by buildings of the Company, due May 20, 2007Note payable to a bank, interest rate of 0.4875% per month,


640,311collateralized by buildings of the Company, due June 20, 2007Note payable to a bank, interest rate of 0.4875% per month,


640,311collateralized by buildings of the Company, due June 14, 2007Note payable to a bank, interest rate of 0.4875% per month,


640,311collateralized by buildings of the Company, due June 26, 20074,482,180


611,247Less: current maturities


(4,482,180
)

(611,247
)$
-

$
-Maturities are as follows:For the year ending December 31,2007

$
4,482,180Interest paid in 2006 and 2005 was $50,017 and $12,506 respectively.F-13


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
11.
INCOME TAXa
EGLY was incorporated in the United States and has incurred net operating losses for income tax purposes for 2006 and 2005.Perfect Dream was incorporated in the British Virgin Islands and under the current laws of the British Virgin Islands, is not subject to tax on income or on capital.Goldenway was incorporated in the PRC and is subject to PRC income tax which is computed according to the relevant laws and regulations in the PRC. The applicable tax rate has been 24%. In 2005, Goldenway is entitled
to a refund of 50% of any income taxes paid for achieving export sales in excess of 70% of the total sales in a calendar year. In 2006, Goldenway was subject to an applicable tax rate of 12%.The income tax expenses for 2006 and 2005 are summarized as follows:PRC Income Tax


2006


2005Current

$
312,010

$
323,360Less: Amount to be refunded


-


161,680$
312,010

$
161,680
b
The Companys deferred tax assets at December 31, 2006 and 2005 consists of net operating loss carry forwards calculated using statutory effective tax rates. Due to its history of losses, the Company determined
that realization of its net deferred tax asset is currently judged to be unlikely rather than not.
Consequently, the Company has provided a valuation allowance covering 100% of its net deferred tax assets.As at December 31, 2006, the Company had net operating loss carry forwards of approximately $63,744 for U.S. income tax purposes available for offset against future taxable U.S. income, which expire in 2025. The
net change in the valuation allowance for 2006 was $26,772.c
The reconciliation of income taxes computed at the statutory income tax rates to total income taxes for the years ended December 31, 2006 and 2005 is as follows:2006


2005EGLYIncome tax computed at the federal statutory rate

34
%

34
%State income taxes, net of federal tax benefit

8
%

8
%Valuation allowance

(42
%)

(42
%)Total deferred tax asset

0
%

0
%
12.
NET INCOME PER SHAREThe following is net income per share information at December 31:2006

2005Net income

$
1,493,425
$
1,043,540Basic weighted-average common stock outstanding


20,028,836

55,224,701Effect of dilutive securitiesSeries A Convertible Perferred Stock


59,914,988

59,914,988Diluted weighted-average common stock outstanding


79,943,824

115,139,689Net income per share - basic

$
0.07
$
0.02Net income per share - diluted

$
0.02
$
0.01F-14


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
13.
STOCKHOLDERS EQUITYAppropriated retained earningsThe Companys PRC subsidiaries are required to make appropriations to reserve funds, comprising the statutory surplus reserve, statutory public welfare fund and discretionary surplus reserve, based on after-tax
net income determined in accordance with generally accepted accounting principles of the Peoples Republic of China (the PRC GAAP). Appropriation to the statutory surplus reserve should be at least 10% of the after tax net income
determined in accordance with PRC GAAP until the reserve is equal to 50% of the entities registered capital. Appropriations to the statutory public welfare fund are at 10% of the after tax net income determined in accordance with PRC GAAP. The
statutory public welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation. Appropriations to the discretionary surplus reserve are
made at the discretion of the Board of Directors. Effective January 1, 2006, the Company is only required to contribute to one statutory reserve fund at 10% of net income after tax per annum, such contributions not to exceed 50% of the respective
companies registered capital.During 2006 and 2005, the Company appropriated $218,104 and $204,751, respectively, to the statutory surplus reserve and statutory public welfare funds based on its net income under PRC GAAP.14.
RELATED PARTY TRANSACTIONSDuring 2006 and 2005, the Company sub-contracted certain manufacturing work valued at $2,771,322 and $2,246,856 respectively to six related companies which are controlled by a shareholder and director of the
Company. The Company provided raw materials to the sub-contractors who charged the Company a fixed labor charge for the sub-contracting work.During 2006, the Company purchased raw materials valued at $21,232 from a related company which is controlled by a shareholder and director of the Company.As of December 31, 2006 and 2005 the Company owed $1,408,504 and $486,475, respectively to seven related companies which are controlled by a shareholder and director of the Company for sub-contracting work done
and inventory purchases made.During 2006 and 2005, the Company sold products and provided sub-contracting services totaling $86,672 and $713,580 respectively to four related companies which are controlled by a shareholder and director of
the Company. As of December 31, 2006 and 2005 accounts receivable from related companies amounted to $48,812 and $ Nil respectively for products sold and sub-contracting services provided.A related company which is controlled by a shareholder and director of the Company provides treasury services to the Company by negotiating all of the Companys letters of credit and receiving proceeds thereon and
paying creditors for inventory purchases made by the Company. As of December 31, 2006 and 2005, Company is owed $2,467,955 and $Nil, respectively from a related company.During 2006 and 2005, the Company received rental income of $18,811 and 18,337 respectively for the lease of factory space to a related company which is controlled by a shareholder and director of the
Company.As of December 31, 2006 and 2005 the Company owed
an aggregate of $4,238,526 and $Nil, respectively to a related company which is
controlled by a shareholder and director of the Company for advances made.
Interest is charged at 6% per annum on the amounts due. The loan is payable to
the related party between July 2010 and April 2011. During 2006 and 2005, the
Company paid interest of $235,859 and $61,690 respectively to the related
company.On June 26, 2006, the Company entered into an Agreement for the purchase and sale of stock (the Agreement) with Ever-Glory Hong Kong and Nanjing Catch-Luck Garments Co, Limited (Catch-Luck) for
the sale of all of Ever-Glory Hong Kongs ownership interest in Catch-Luck to the Company (the Catch-Luck transaction). Pursuant to the terms of the Agreement, the Company will pay to Ever-Glory Hong Kong an amount of $600,000
in cash and common stock of EGLY equivalent to $9,400,000 on the date of the transfer within 90 days of the closing of the Catch-Luck transaction.F-15


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
14
RELATED PARTY TRANSACTIONS (CONTINUED)On August 31, 2006, the Company entered into an amendment to the Agreement (the Amendment) whereupon the terms of payment on the purchase consideration was amended as follows:4
.

The Company will pay to Ever-Glory Hong Kong an amount of $600,000 in cash and common stock of EGLY equivalent to $3,400,000 on the date of the transfer within 90 days of the closing of the Catch-Luck transaction. The number of shares of common stock to be issued to the Ever-Glory Hong Kong in satisfaction of the Stock Purchase Price shall be calculated based on the preceding 30-average high and low price for the Companys common stock as quoted on the Over-the-Counter Bulletin Board as of the date of the closing;5
.

At the end of the first full fiscal year ending December 31, 2006 in which Catch-Luck generates gross revenues of at least $19,000,000 and net profit of at least $1,500,000, the Company will issue to Ever-Glory Hong Kong that number of shares of EGLYs common stock having an aggregate fair market value of $3,000,000; and6
.

At the end of the second full fiscal year ending December 31, 2007 in which Catch-Luck generates gross revenues of at least $19,000,000 and net profit of at least $1,500,000, the Company will issue to Ever-Glory Hong Kong that number of shares of EGLYs common stock having an aggregate fair market value of $3,000,000.As of December 31, 2006, the Catch-Luck transaction has not closed.On November 9, 2006, the Company entered into a purchase agreement with a related company which is controlled by a shareholder and director of the Company whereby the related company sold all of its shares in New-Tailun to the Company. Pursuant to the terms of the purchases agreement, the Company will pay to a related company an amount of $2,000,000 in cash and common stock of EGLY equivalent to $10,000,000 on the date of the transfer within 90 days of the closing of the New-Tailun transaction. As of December 31, 2006, the Company owed $2,000,000 and 20,833,333 shares of the EGLYs restricted common stock to a related  company for consideration of the New-Tailun transaction.15
COMMITMENTS(A)

Capital commitmentAccording to the Articles of Association of Goldenway, Goldenway has to fulfill registered capital requirements of $17,487,894 within three years from February 2, 2005. As of December 31, 2006, the Company has fulfilled $2,630,000 of its registered capital requirements and has a registered capital commitment of $14,857,894, which is payable by February 1, 2008.(B)

Operating lease commitmentThe Company leases factory and office spaces from a related company under an operating lease which expires on March 31, 2008 at an annual rental of $25,081. Accordingly, for the period ended December 31, 2006, the Company recognized rental expense for these spaces in the amount of $Nil.As of December 31, 2006, the Company has outstanding commitments of $31,352 with respect to the above non-cancelable operating lease, which are due in 2008.F-16


EVER-GLORY INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
16.CONTINGENCIESThe Company accounts for loss contingencies in accordance with SFAS 5 Accounting for Loss Contingencies, and other related guidance. Set forth below is a description of certain loss contingencies as of
December 31, 2006 and managements opinion as to the likelihood of loss in respect of each loss contingency.On April 17, 2006, Mark B. Aronson filed a Complaint against the Company in the United States Court of common pleas of Allegheny County Pennsylvania. The action alleges that Company violated the Pennsylvania
Unsolicited Telecommunication Advertisement Act to spam emails to plaintiff to purchase its shares of common stock. The action seeks an award of damages in excess of $12,100. The Company denies that it was a party to such email spamming
activities and intends to vigorously defend its legal position.In September 2006, the Company filed responses to plaintiff's interrogatories with the court of common pleas of Allegheny County in Pennsylvania to vigorously defend Mr. Aronson's accusation that the company has used
faxes to promote its stock.On January 4, 2007, the case was dismissed without prejudice by Mark B. Aronson.Accordingly, no provision has been made to the above claim as of December 31, 2006.17.RECLASSIFICATIONCertain 2005 balances in the financial statements have been reclassified to conform with
the 2006 presentation.18.CONCENTRATIONS AND RISKSDuring 2006 and 2005, 100% of the Companys assets were located in China.The Company principally relied on four customers for its revenue during 2006 and on three customers for its revenue during 2005, detail of which are as follows:Customer A


Customer B


Customer C


Customer DDuring2006

27
%

17
%

17
%

11
%2005

22
%

19
%

13
%

At of December 31, 2006 and 2005, accounts receivable to those customers totaled $2,991,135 and Nil respectively.The Company principally relied on a supplier for its
materials during 2006 and on two suppliers for its materials during 2005, detail of which are as follows:Supplier A


Supplier BDuring2006

15
%2005

12
%

10
%

The following is geographic information of the Companys revenue for the year ended December 31:2006


2005The People Republic of China

$
1,186,747

$
702,212Europe


15,372,013


5,391,067Japan


1,292,904


3,353,655United States


3,994,387


1,367,027Others


486,317


-$
22,332,368

$
10,813,961F-17