**UNITED
      STATES**
 **SECURITIES
      AND EXCHANGE COMMISSION**
 
 **WASHINGTON,
      D.C. 20549**
 
 **FORM
      10-KSB/A**
 **Amendment
        No. 2**
 
 x
      ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15 (d)
 OF
      THE
      SECURITIES EXCHANGE ACT OF 1934
 
 For
      the
      Fiscal Year Ended December 31, 2006
 
 Commission
      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.)
 
 
 
 100
            N.
            Barranca Ave. #810
 West
            Covina, California 91791
 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  □
 
 Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.) YES  □  NO 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.  □
 
 The
          issuer's revenues for the fiscal year ended December 31, 2006 were
31,974,990.
  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): YES □  NO  x
  
  
  **EXPLANATORY
      NOTE**
 
 This
          Amendment No. 2 to this Annual Report of Form 10-KSB for the year ended
          December
          31, 2006 was filed in order to restate the consolidated financial statements
          as
          of and for the year ended December 31, 2006 to revise the accounting treatment
          for the acquisition of Nanjing New-Tailun Garments Co, Ltd, a Chinese limited
          liability company (“New-Tailun”) from Ever-Glory Enterprises (HK) Ltd, a British
          Virgin Islands company (“Seller”) on December 30, 2006.  The
          acquisition of New-Tailun was originally recorded at the fair value of
          the
          assets acquired. However, as a result of discussions with the Staff of
          the
          Securities and Exchange Commission, the Company determined that the acquisition
          of New-Tailun should have been accounted for as a merger of entities under
          common control in accordance with paragraph 11 of SFAS 141. Accordingly,
          the
          assets and liabilities of New-Tailun should have been recorded at their
          carrying
          amounts, not fair value.
  Parts
          1 and 2
          have been amended herein to reflect this change. 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. This amendment does not otherwise update information
          in the original filing to reflect facts or events occurring subsequent
          to the
          date of the original filing.
 
 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.
  2
  **TABLE
      OF CONTENTS**
 
 PageForward
                    Looking StatementsPART
                    IItem
                    1.
                Description
                  of Business
                5Item
                    1.
                Description
                  Property
                13Item
                    3.
                Legal
                  Proceedings
                14Item
                    4.
                Submission
                  of Matters to a Vote of Security Holders
                14PART
                    IIItem
                    5.
                Market
                    Price for Common Equity and Related Stockholder
                16Item
                    6.
                Management's
                    Discussion and Analysis or Plan of Operation
                16Item
                    7.
                Financial
                    Statements
                22Item
                    8.
                Changes
                    in and Disagreements with Accountants on Accounting and Financial
                    Disclosure
                22Item
                    8A.
                Controls
                    and Procedures
                23Item
                    8B.
                Other
                    Information
                24PART
                    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
                31Item
                    13.
                Exhibits
                32Item
                    14.
                Principal
                    Accountant Fees and Services Audit Fees
                33SIGNATURES
                34
 
 3
  **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.
 
  4
  **PART
      I**
 **ITEM
      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.
 
 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
 
 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.
 5
  **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 60% of the Company’s revenues
        came from customers in European countries,18% from customers in Japan, 15%
        from
        customers in the United States, and 5% from customers in China. In the fiscal
        year ended December 31, 2006, three customers represented approximately 22%,
        12%, and 12% 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 11% 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.
 
 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.
  6
  **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 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 year’s 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.
 7
  **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.
 
 **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.
  8
  One
        supplier represented approximately 11% 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 havelong-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, three customers represented approximately 46% of the
        Company’s sales.****Net
        sales
        to our three largest customers totaled approximately 46% and 54% of total
        net
        sales in 2006 and 2005, respectively. Our largest customer accounted for
        approximately 22% 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 is officers, directors or material shareholders
        of any
        of these three customers.
 
 **Our
        internal controls and procedures have been materially deficient, and we are
        in
        the process of correcting internal control
        deficiencies.**
 
 In
          the
          second quarter of 2007, resulting from comments by and discussions with
          the
          Staff of the SEC related to the Company’s Preliminary Information Statement on
          Form 14C, the Company and its independent registered public accounting
          firm
          recognized that our internal controls had material weaknesses.  We are
          restating our results of operations for the year ended December 31, 2006
          and our
          quarterly results for the quarter ended March 31, 2007 as a result of our
          purchase accounting for the acquisition of New-Tailun completed on December
          30,
          2006.
 
 If
          we
          cannot rectify these material weaknesses through remedial measures and
          improvements to our systems and procedures, management may encounter
          difficulties in timely assessing business performance and identifying incipient
          strategic and oversight issues. Management is currently focused on remedying
          internal control deficiencies, and this focus will require management from
          time
          to time to devote its attention away from other planning, oversight and
          performance functions.
 
 We
          cannot
          provide assurances as to the timing of the completion of these efforts.
          We
          cannot be certain that the measures we take will ensure that we implement
          and
          maintain adequate internal controls in the future. Any failure to implement
          required new or improved controls, or difficulties encountered in their
          implementation, could harm our operating results or cause us to fail to
          meet our
          reporting obligations.
 9
  **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 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
      needs****Any 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;
  10
  ·
              use
                  cash, which may result in a reduction of our
                  liquidity;
 
 ·
            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:
 
 ·
            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.
 11
  **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.
 
 **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.  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.
  12
  **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;
                or
  ·
            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
      PROPERTY
 
 In
      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.
 13
  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 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.
 
 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.
  14
  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 third quarter of 2007. The Information
        Statement has not yet been delivered to the shareholders of the
        Company.
 15
  **PART
      II**
 
 **ITEM
      5.        MARKET FOR THE REGISTRANT'S
      COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES
      OF EQUITY SECURITIES.**
 
 **Market
      Information**
 EGLY
      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.
 
 **EGLY****COMMON****STOCK****HIGH**
            
            **LOW**FISCAL
                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
            
            $
            .15
 
 **Outstanding
      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.
 
 **Dividends**
 
 We
      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.**
 
 **Overview**
 
 Ever-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.
  16
  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 enable the 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 60% of the Company’s revenues
          came from customers in the Europe, 18% from customers in Japan, 15% from
          customers in the United States and5%
          from customers in China.  In the fiscal year ended December 31, 2006,
          three customers represented approximately 46% of the Company’s sales. Management
          believes that the relationship with these customers is good.
 
 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 11% 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 two factories in the Nanjing Jiangning Economic and
          Technological Development Zone and the Shangfang Town, Jiangning District
          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.
 
 Two
        factories employ a staff of over 1500 people with an annual production capacity
        of over  3million 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%. New-Tailun was approved as
        a
        wholly foreign-owned enterprise in 2006 and is entitled to the income tax
        exemptions for 2006 and 2007
 
 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.
 
 On
        November 9, 2006, the Company, through its wholly owned subsidiary, Perfect
        Dream Ltd, a British Virgin Islands corporation, entered into a purchase
        agreement with Ever-Glory Hong Kong to acquire 100% of the interests in Nanjing
        New-Tailun Garments Co, Ltd, a Chinese limited liability company (“New-Tailun”).
        Pursuant to the terms of the purchase agreement, in consideration for the
        acquisition of New-Tailun, the Company is obligated to pay Ever-Glory Hong
        Kong
        $2,000,000 in cash and 20,833,333 shares of the Company’s restricted common
        stock having a value of $10,000,000, based on the average of the high bid
        and
        the low ask prices for the Company’s common stock for a 30 day consecutive
        period within 90 days of the closing of transaction. The New-Tailun transaction
        closed on December 30, 2006.
  17
  This
        transaction was accounted for as a merger of entities under common
        control in accordance with paragraph 11 of SFAF 141. Accordingly, the
        operations of New-Tailun for the period from March 27, 2006 (inception) to
        December 31, 2006 are included in the Company’s consolidated financial
        statements as if the transaction had occurred at the beginning of the first
        period presented, with each account stated at its historical
        cost.
 
 **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.
 
 **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 Operations****Year
                  Ended December 31,**
              
              **2006**
              
              **2005****$**
              
              
              
              **%**
              
              **$**
              
              **%**Sales
              
              31,974,990
              
              
              
              100.00
              %
              
              10,813,961
              
              100.00
              %Gross
                  Profit
              
              5,611,967
              
              
              
              17.55
              %
              
              2,101,396
              
              19.43
              %Operating
                  Expense
              
              2,579,437
              
              
              
              8.06
              %
              
              969,663
              
              8.97
              %Income
                  From Operations
              
              3,032,530
              
              
              
              9.48
              %
              
              1,131,733
              
              10.47
              %Other
                  Income (Expenses)
              
              (249,265
              )
              
              
              (0.77
              )%
              
              73,487
              
              0.68
              %Net
                  Income
              
              2,471,225
              
              
              
              7.72%
              %
              
              1,043,540
              
              9.65
              %
  Revenues, Cost of Revenues and Gross
        Margin
  **Revenues**
 Revenues
              for the year ended December 31, 2006 were $ 31,974,990, an increase
              of 196% from
              $10,813,961 for 2005. Our increase in revenues was primarily attributable
              to two
              factors:  first, the acquisition of New-Tailun, which contributed
              $9,642,622, or 46%, to our revenues, and second, an overall increase in
              sales to customers in Europe, the U.S. and the 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 the PRC increased by approximately $484,535 or 69% as
              compared to
              2005.
 **Cost
        of Sales and Gross Margin**
 
 Cost
        of
        sales for the year ended December 31, 2006 was $26,363,023, an increase of
        203%
        from $8,712,565 in 2005. As a percentage of revenues, cost of sales increased
        to
        approximately 82% for 2006 from approximately 80.57% for 2005. Consequently,
        gross margin as a percentage of revenues decreased to approximately 18% for
        2006
        from approximately 19.43% for 2005. Of the 1.43% decrease in gross margin,
        approximately 1% was attributable to an increase in the material purchasing
        price and approximately 0.33% was attributable to increases in labor costs,
        which could not entirely be passed on to the Company’s
        customers.
 
 **Export
        Quota Charges**
 
 Export
      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 507% from $85,108 in 2005 to $516,719 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 64% to $982,280 from $597,727
        in 2005. The increase in general and administrative expenses was mainly
        attributable to the increase of the expenses related to the investor relations
        activities.
  18
  **Salaries
        and Allowances**
  Salaries
        and allowances for management in 2006 increased by 298% from $213,825 in 2005 to
        $851,947. The increase was mainly due to an increase in management’s
        salaries.  We believe that such increase was necessary for us to
        support our business expansion and to implement our strategic plan of future
        growth.
 
  19
  **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 an increase in our short
        term
        bank loans associated with our construction.  As of December 31, 2006,
        we had credit agreements with a lending institution to borrow an aggregate
        principal amount of up to $6.41 million that mature within twelve
        months.  As of December 31, 2006, our loan balance was $4,482,180
        compared to $611,247 in 2005.  These short term bank loans bear
        interest at monthly rates ranging from 0.485% to
        0.5115%.
 
 In
        addition, as of December 31, 2006, the Company had borrowed $4,859,656 from
        a
        related party for the main purpose of funding the increased registered capital
        of Goldenway.  Interest paid to this related party totaled $235,859 as
        of December 31, 2006.
 
 **Income
        Tax Expenses**
 
 Income
        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 in our operating
        income.
 
 **Net
        Income**
 
 Net
        Income in 2006 was $2,471,255, an increase of $1,427,715 or 137% from $1,043,540
        in 2005. The increase was mainly attributable to the increased income from
        profits earned by our new subsidiary New-Tailun as well as an increase in
        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
          provided in operating activities for 2006 was $1,840,449, compared with
          net cash
          provided by operating activities of $3,209,669 in 2005. The decrease in
          our net
          cash was attributable to the increase of our accounts receivable of $5,933,971
          as the result of the increase of net sales, as compared to the year of
          2005.
 
 Net
          cash
          used in investing activities was approximately $8,886,513 in 2006, compared
          with
          $2,519,904 in 2005. The increase was primarily attributable to construction
          costs of approximately $5,953,033 associated with the construction of our
          new
          office building and factory, and the purchase of new manufacturing equipment
          of
          approximately $2,727,787.
 
 Net
          cash
          provided by financing activities was $9,630,589 in 2006, compared with
          $611,247
          in 2005.
 
 On
          August
          15, 2006, Goldenway entered into credit agreements with a local bank to
          borrow
          an aggregate principal amount of up to $6.41 million within 24 months.
          The loans
          were secured by our new facilities and were used to fund the construction
          costs
          as well as our daily operations.   As of December 31, 2006,
          we had borrowed $4,482,180 at an interest rate of 0.4875% per month. The
          maturity of these borrowings can be extended at the Company’s
          option.  We plan to repay the loans with cash flows from operations.
          In the event we do not have available cash flows from operations to repay
          these
          loans, we will seek to consolidate and refinance the loans at
          maturity.
 In
        addition, as of December 31, 2006, the Company had borrowed $4,859,656 from
        a
        related party for the main purpose of funding the increased registered capital
        of Goldenway. Interest paid to this related party totaled $235,859 as of
        December 31, 2006.
 
 **Capital
        Commitments**
 
 The
        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 Liquidity**
 
 The
      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.
  20
 **Sources
        of Liquidity**
 
 The
      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 theChinese 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 and New-Tailun (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 $575,760 and $5,621,
        respectively.
 
 **CRITICAL
        ACCOUNTING POLICIES**
 
 We
      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 approximates
        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.
  21
  OFF-BALANCE SHEET ARRANGEMENTS
  We
      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**
 
 Effective
        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 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 instrument. 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
        over
        funded or under funded 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.
  22
  **ITEM
        8A.    CONTROLS AND
        PROCEDURES.**
  **Disclosure
      Controls and Procedures**
 
 Internal
          Controls
 
 Under
          the
          supervision and with the participation of our management, including our
          chief
          executive officer and our chief financial officer, we have assessed the
          effectiveness of the design and operation of our disclosure controls and
          procedures pursuant to Securities Exchange Act of 1934 Rule 13a-15(e) as
          of the
          end of the period covered by this report. Based on that assessment, our
          management has concluded that our internal control over financial reporting
          was
          not effective as of December 31, 2006 because of the material weaknesses
          identified and described below.
 Control
          Activities:
 
 The
          Company did not maintain effective controls to ensure the completeness,
          accuracy
          and valuation over the accounting for business combinations, including
          the
          inability to prepare financial statements and footnotes in accordance with
          SEC
          rules and regulations and with our 2006 acquisition of New-Tailun. We misapplied
          generally accepted accounting principles whereby we did not value the
          acquisitions and record the resulting purchase accounting in accordance
          with
          SFAS 141 and EITF 02-5. As a result, we were required to restate our financial
          results for the year ended December 31, 2006 and for the three months ended
          March 31, 2007. Management determined that the disclosure controls and
          procedures for these periods were not effective.
 
 Remediation
          of Material Weaknesses in Internal Control over Financial Reporting
 
 In
          light
          of the need for these restatements and the material weaknesses described
          above,
          management will undertake a review of our disclosure, financial information
          and
          internal controls and procedures regarding these areas for future complex
          financing transactions and acquisitions. This review will include efforts
          by our
          management and directors, as well as the use of additional outside resources,
          as
          follows:
 
 ·
                Senior
                    accounting personnel and our chief financial officer will continue
                    to
                    review any future acquisition or divestiture in order to evaluate,
                    document and approve its accounting treatment in accordance with
                    SFAS 141
                    and EITF 02-5; and
 
 ·
                We
                    will augment, as necessary, such procedures by obtaining concurrence
                    with
                    independent outside accounting experts prior to finalizing financial
                    reporting for such transactions;
                    and
 
 In
          conjunction with the measures outlined below, we believe these actions
          will
          strengthen our internal control over our valuation and purchase accounting
          of
          acquisitions, and this material weakness should be resolved. Management
          does not
          anticipate any extra cost from this change over the review of our valuation
          and
          purchase accounting of future acquisitions.
 
 We
          believe that we will satisfactorily address the control deficiencies and
          material weakness relating to these matters by the end of the third quarter
          of
          2007, although there can be no assurance that we will do so.
 
 Given
          the
          presence of material weaknesses in our internal control over financial
          reporting, there is a more than a remote likelihood that a material misstatement
          of the annual or interim financial statements will not be prevented or
          detected.
          Our financial reporting process includes extensive procedures we undertake
          in
          order to obtain assurance regarding the reliability of our published financial
          statements, notwithstanding the material weaknesses in internal control.
          We have
          expanded our review of accounting for business combinations to help compensate
          for our material weaknesses in order to provide assurance that the financial
          statements are free of material inaccuracies or omissions of material fact.
          As a
          result, management, to the best of its knowledge, believes that (i) the
          report
          does not contain any untrue statements of a material fact or omits any
          material
          fact and (ii) the consolidated financial statements and other financial
          information included in this report for the quarter ended March 31, 2007
          has
          been prepared in conformity with GAAP and fairly present in all material
          aspects
          our financial condition, results of operations and cash flows.
 
 Management,
          including our chief executive officer and our chief financial officer,
          does not
          expect that our disclosure controls and internal controls will prevent
          all error
          or all fraud, even as the same are improved to address any deficiencies
          and/or
          weaknesses. A control system, no matter how well conceived and operated,
          can
          provide only reasonable, not absolute, assurance that the objectives of
          the
          control system are met. Over time, controls may become inadequate because
          of
          changes in conditions or deterioration in the degree of compliance with
          policies
          or procedures. Further, the design of a control system must reflect the
          fact
          that there are resource constraints, and the benefits of controls must
          be
          considered relative to their costs. Because of the inherent limitations
          in all
          control systems, no evaluation of controls can provide absolute assurance
          that
          all control issues and instances of fraud, if any, within the Company have
          been
          detected. These inherent limitations include the realities that judgments
          in
          decision-making can be faulty, and that breakdowns can occur because of
          simple
          error or mistake. Additionally, controls can be circumvented by the individual
          acts of some persons, by collusion of two or more people, or by management
          override of the control.
  23
  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 INFORMATION**
 
 On
        August
        15, 2006, Goldenway entered into credit agreements with a local bank to borrow
        up to an aggregate principal amount of $6.41 million over the next 24 months.
        The borrowings are secured by our new facilities and are being used to fund
        the
        construction costs as well as daily operations.   As of December
        31, 2006, we had borrowed $4,482,180 at an interest rate of 0.4875% per month.
        The maturity date of the borrowings may be extended at the option of the
        Company.  We plan to repay the loans out of cash flows from
        operations. In the event we do not have available cash flows from operations
        to
        repay these loans, we may seek to consolidate and refinance these loans at
        maturity.
  24
  **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
            2005
 
   25
  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
        Proceedings**
 
 Our
      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 Expert**
 
 Our
      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 Act**
 
 Section
      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 Ethics**
 
 We
      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 TABLE**
 
 **Name
                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
      COMPENSATION**
 **Name
                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.
 
 **Amount****and
                Nature****of****Amount
                and**
            
            
            
            **Beneficial****Nature**
            
            
            
            **Ownership****of
                Beneficial**
            
            **Percent**
            
            **of
                Series**
            
            **Percent****Ownership
                of**
            
            **of
                Class**
            
            **A
                Preferred**
            
            **of
                Class****Name
                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%
  29
  Li,
                Ning
            
            -
            
            
            
            384
            
            4.9%Guo,
                Yan
            
            -
            
            
            
            -
            
            -**All
                Executive Officers and Directors as****a
                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 shareholders. In addition, on November
        1, 2005, the
        Company affected 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.
  30
 **Equity
        Compensation Plan Information**
  The
      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 $4.7 million of manufacturing
        to  six companies related to the Company: (1) Nanjing Jiangning
        Shangfang Garments Co., Ltd.; (2) Nanjing Hi-Tech Knitting & Weaving
        Technology Development 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 in Nanjing 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
                  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 $201,195. 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.
 
 During
        2006, the Company paid rent of 18,811 for factory and office spaces leased
        from
        a related company.
 
 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.**
            **Description**2.1
            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 Purchase 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.*
                    previously filed
 **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.July
                    11, 2007
                By:
                /s/Kang
                    Yi
                    HuaKang
                    Yi HuaChief
                    Executive Officer
 Pursuant
      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
              
              July
                    11, 2007Kang
                  Yi Hua
              (Principal
                  Executive Officer)/s/
                  Sun Jia Jun
              Chief
                  Operating Officer and Director
              
              July
                    11, 2007Sun
                  Jia Jun/s/
                  Guo Yan
              Chief
                  Financial Officer and Treasurer
              
              July
                    11, 2007Guo
                  Yan
              (Principal
                  Accounting and Financial Officer)/s/
                  Yan Xiao Dong
              Director
              
              July
                    11, 2007Yan
                  Xiao Dong/s/
                  Li Ning
              Director
              
              July
                    11, 2007Li
                  Ning/s/
                  Wei Ru Qin
              Director
              
              July
                    11 2007Wei
                  Ru Qin
 
  34
  **CONSOLIDATED
      FINANCIAL STATEMENTS**
 **AS
      OF DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 Index
      To
      Consolidated Financial Statements
 **Pages
      F-**
 
 Report
                of Independent Registered Public Accounting Firm
            
            1Consolidated
                Balance Sheets as of December 31, 2006 (Restated) and 2005
            
            2Consolidated
                Statements of Operations and Comprehensive Income for the years ended
                December 31, 2006 (Restated) and 2005
            
            3Consolidated
                Statements of Stockholders' Equity for the years ended December 31,
                2006
                (Restated) and 2005
            
            4Consolidated
                Statements of Cash Flows for the years ended December 31, 2006 (Restated)
                and 2005
            
            5Notes
                to the Consolidated Financial Statements as of December 31, 2006
                (Restated) and 2005
            
            6
                -
                20
  
  
 Jimmy
                C.H. Cheung & Co
            Registered
                with the Public Company
              Accounting
                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 (restated) and 2005 and
      the
      related consolidated statements of operations, stockholders’ equity and cash
      flows for the years ended December 31, 2006 (restated) 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 (restated) and 2005 and the
      results of its operations and its cash flows for the years ended December 31,
      2006 (restated) and 2005, in conformity with accounting principles generally
      accepted in the United States of America.
 
 As
      discussed in Note 2, the accompanying consolidated financial statements for
      the
      year ended December 31, 2006 have been restated.
 
 
 **JIMMY
      C.H. CHEUNG & CO**
 Certified
      Public Accountants
 
 Hong
      Kong
 
 Date:  February
          12, 2007 except for Note 2, to which the date is July 4,
          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.com
 
  F-1
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **CONSOLIDATED
      BALANCE SHEETS**
 **AS
      OF DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 **ASSETS**2006
              
              
              2005Restated**CURRENT
                  ASSETS**Cash
                  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
              
              
              
              2,179,717**LAND
                  USE RIGHT, NET**
              
              
              2,521,109
              
              
              
              -**PROPERTY
                  AND EQUIPMENT, NET**
              
              
              12,158,912
              
              
              
              5,855,562**TOTAL
                  ASSETS**
              
              $
              24,913,560
              
              
              $
              8,035,279**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  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
              
              
              
              2,286,240**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              -
              
              
              
              -**LONG-TERM
                  LIABILITIES**Due
                  to a related company
              
              
              4,238,526
              
              
              
              -**TOTAL
                  LIABILITIES**
              
              
              17,217,506
              
              
              
              2,286,240**STOCKHOLDERS'
                  EQUITY**Preferred
                  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
              
              
              161,666
              
              
              
              1,263,749Retained
                  earningsUnappropriated
              
              
              4,495,408
              
              
              
              2,437,823Appropriated
              
              
              2,425,711
              
              
              
              2,012,041Accumulated
                  other comprehensive income
              
              
              609,188
              
              
              
              33,428Total
                  Stockholders' Equity
              
              
              7,696,054
              
              
              
              5,749,039**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              24,913,560
              
              
              $
              8,035,279
 
 The
      accompanying notes are an integral part of these consolidated financial
      statements
  F-2
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **CONSOLIDATED
      STATEMENTS OF OPERATIONS AND**
 **COMPREHENSIVE
      INCOME**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
   2006
              
              
              2005Restated**NET
                  SALES**To
                  related parties
              
              $
              201,195
              
              
              $
              713,580To
                  third parties
              
              
              31,773,795
              
              
              
              10,100,381Total
                  net sales
              
              
              31,974,990
              
              
              
              10,813,961**COST
                  OF SALES**From
                  related parties
              
              
              (4,690,678
              )
              
              
              (2,246,856
              )From
                  third parties
              
              
              (21,672,345
              )
              
              
              (6,465,709
              )Total
                  cost of sales
              
              
              (26,363,023
              )
              
              
              (8,712,565
              )**GROSS
                  PROFIT**
              
              
              5,611,967
              
              
              
              2,101,396**OPERATING
                  EXPENSES**Stock
                  issued for services
              
              
              -
              
              
              
              42,045Export
                  quota charges
              
              
              153,997
              
              
              
              -Selling
                  expenses
              
              
              516,719
              
              
              
              85,108General
                  and administrative expenses
              
              
              982,280
              
              
              
              597,727Salaries
                  and allowances
              
              
              851,947
              
              
              
              213,825Loss
                  on disposal of fixed assets
              
              
              5,233
              
              
              
              2,065Depreciation
                  and amortization
              
              
              69,261
              
              
              
              28,893Total
                  Operating Expenses
              
              
              2,579,437
              
              
              
              969,663**INCOME
                  FROM OPERATIONS**
              
              
              3,032,530
              
              
              
              1,131,733**OTHER
                  INCOME (EXPENSES)**Interest
                  income
              
              
              5,924
              
              
              
              131,610Interest
                  expenses
              
              
              (285,876
              )
              
              
              (74,284
              )Other
                  income from a related company
              
              
              18,811
              
              
              
              18,337Other
                  income
              
              
              12,169
              
              
              
              64Other
                  expenses
              
              
              (293
              )
              
              
              (2,240
              )Total
                  Other Income (Expenses)
              
              
              (249,265
              )
              
              
              73,487**INCOME
                  BEFORE INCOME TAX EXPENSE**
              
              
              2,783,265
              
              
              
              1,205,220**INCOME
                  TAX EXPENSE**
              
              
              (312,010
              )
              
              
              (161,680
              )**NET
                  INCOME**
              
              
              2,471,255
              
              
              
              1,043,540**OTHER
                  COMPREHENSIVE INCOME**Foreign
                  currency translation gain
              
              
              575,760
              
              
              
              5,621**COMPREHENSIVE
                  INCOME**
              
              $
              3,047,015
              
              
              $
              1,049,161Net
                  income per share - basic
              
              $
              0.06
              
              
              $
              0.02Net
                  income per share - diluted
              
              $
              0.02
              
              
              $
              0.01Weighted
                  average number of shares outstanding duringthe
                  year - basic
              
              
              40,805,091
              
              
              
              55,224,701Weighted
                  average number of shares outstanding duringthe
                  year - diluted
              
              
              100,720,079
              
              
              
              115,139,689
 The
      accompanying notes are an integral part of these consolidated financial
      statements
  F-3
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) 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 AConvertible
                  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 staffwelfare
                  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
              
              
              
              5,749,039Capital
                  contribution from a stockholder
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              900,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              900,000Stock
                  to be issued for merger of New-Tailun
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              20,833,333
              
              
              
              -
              
              
              
              2,083
              
              
              
              (2,083
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Distribution
                  to a stockholder formerger
                  of New-Tailun
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,000,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,000,000
              )Net
                  income for the year
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,471,255
              
              
              
              -
              
              
              
              -
              
              
              
              2,471,255Other
                  comprehensive income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              575,760
              
              
              
              575,760Transfer
                  to statutory and staffwelfare
                  reserves
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (413,670
              )
              
              
              413,670
              
              
              
              -
              
              
              
              -Balance
                  at December 31, 2006 (Restated)
              
              
              -
              
              
              $
              -
              
              
              
              7,883
              
              
              $
              1
              
              
              
              40,805,091
              
              
              $
              1,997
              
              
              $
              2,083
              
              
              $
              161,666
              
              
              $
              4,495,408
              
              
              $
              2,425,711
              
              
              $
              609,188
              
              
              $
              7,696,054
 The
      accompanying notes are an integral part of these consolidated financial
      statements
  F-4
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **CONSOLIDATED
      STATEMENTS OF CASH FLOWS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
  2006
              
              
              2005(Restated)**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income
              
              $
              2,471,255
              
              
              $
              1,043,540Adjusted
                  to reconcile net income to cash providedby
                  operating activities:Stock
                  issued for services
              
              
              -
              
              
              
              42,045Depreciation
                  and amortization - cost of sales
              
              
              274,096
              
              
              
              134,013Depreciation
                  and amortization
              
              
              69,261
              
              
              
              28,893Loss
                  on disposal of fixed assets
              
              
              5,233
              
              
              
              2,065Changes
                  in operating assets and liabilities(Increase)
                  decrease in:Accounts
                  receivable
              
              
              (5,989,647
              )
              
              
              (55,676
              )Accounts
                  receivable - related companies
              
              
              (2,516,767
              )
              
              
              130,784Due
                  from a related party
              
              
              -
              
              
              
              2,535,500Other
                  receivables and prepaid expenses
              
              
              (62,968
              )
              
              
              122,460Inventories
              
              
              (350,610
              )
              
              
              398,205Increase
                  (decrease) in:Accounts
                  payable
              
              
              813,309
              
              
              
              (238,025
              )Accounts
                  payable - related companies
              
              
              922,029
              
              
              
              (1,094,394
              )Other
                  payables and accrued liabilities
              
              
              2,250,836
              
              
              
              321,341Value
                  add tax payables
              
              
              152,967
              
              
              
              (17,241
              )Income
                  tax and other tax payables
              
              
              120,557
              
              
              
              (143,841
              )Net
                  cash (used in) provided by operating activities
              
              
              (1,840,449
              )
              
              
              3,209,669**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of land use right
              
              
              (205,693
              )
              
              
              -Purchase
                  of property and equipment
              
              
              (8,680,820
              )
              
              
              (2,519,904
              )Net
                  cash used in investing activities
              
              
              (8,886,513
              )
              
              
              (2,519,904
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Contribution
                  by stockholder
              
              
              900,000
              
              
              
              -Due
                  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
              
              
              9,630,589
              
              
              
              611,247**EFFECT
                  OF EXCHANGE RATE ON CASH**
              
              
              289,224
              
              
              
              5,621**NET
                  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS**
              
              
              (807,149
              )
              
              
              1,306,633**CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF YEAR**
              
              
              1,467,245
              
              
              
              160,612**CASH
                  AND CASH EQUIVALENTS AT END OF YEAR**
              
              $
              660,096
              
              
              $
              1,467,245**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION**Cash
                  paid during the year for:Interest
                  expenses
              
              $
              50,017
              
              
              $
              12,594Cash
                  paid during the year for:Income
                  taxes
              
              $
              357,280
              
              
              $
              306,434
  The
      accompanying notes are an integral part of these financial
      statements
  F-5
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 1.   
      **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
      ORGANIZATION**
 
 (A)    Organization
 
 Ever-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 STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 1.     **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
      (CONTINUED)**
 
 (B)     
Use
      of estimates
 
 The
      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 consolidation
 The
      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 equivalents
  For
      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 receivable
 The
      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)      
        Inventories
 
 Inventories
      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 assets
 The
      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 equipment
  Property
      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
              10
                  YearsFurniture
                  and fixtures
              5
                  YearsOffice
                  equipment
              5
                  YearsMotor
                  vehicles
              5
                  Years
  F-7
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 
 1.     **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
      (CONTINUED)**
  (I)      
Fair
      value of financial instruments
 
 Statement
      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 recognition
 
 The
      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 collectibility 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
      taxes
 
 The
      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.  According to the relevant laws and regulations in the PRC,
      enterprises with foreign investment in the PRC are entitled to full exemption
      from income tax for two years beginning from the first year the enterprise
      became profitable and had accumulated profits, and a 50% income tax reduction
      for the subsequent three years calculated in accordance with PRC
      GAAP.
 
 Goldenway
      is 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.
 
 New-Tailun
      was approved as a wholly foreign-owned enterprise in 2006 and is entitled to
      the
      income tax exemptions for 2006 and 2007.
  F-8
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
  1.    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
      (CONTINUED)**
  Foreign
      currency transactions
 
 EGLY,
      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.
  (M)     
Foreign
      currency translation
  The
      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 $575,760and $5,621respectively.
  (N)     
Comprehensive
      income
 The
      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
      $575,760 and $5,621 respectively.
  (O)     
Income
      per
      share
 Basic
      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)    
         Segments
  The
      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 pronouncements
 
 Effective
      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.
  F-9
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 
 1.     **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
      (CONTINUED)**
  (Q)      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 Hedging Activities”  (“SFAS 133”) and
      SFAS No. 140, “*Accounting for Transfers and Servicing of Financial Assets
      and Ex**tinguishment 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
      Statem**ent 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 the Company’s 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 over funded or under funded 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.
   F-10
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 2.**RESTATEMENT
      OF FINANCIAL STATEMENTS**
 
 The
      acquisition by the Company of New-Tailun from Ever-Glory Hong Kong as originally
      reported was recorded at the fair value of the assets acquired. However, as
      a
      result of discussions with the Staff of the Securities and Exchange Commission,
      the Company determined that the acquisition of New-Tailun should have been
      accounted for as a merger of entities under common control in accordance with
      paragraph 11 of SFAS 141. Accordingly, the assets and liabilities of New-Tailun
      should have been  recorded at their carrying amounts, not their fair
      values and the consolidated financial statements of the Company should have
      been
      prepared as if the acquisition had occurred retroactively. The Company has
      therefore restated the accounting for its acquisition of New-Tailun in its
      Consolidated Balance Sheet, Consolidated Statement of Operations, Consolidated
      Statement of Stockholders' Equity and Consolidated Statement of Cash Flows
      for
      the year ended December 31, 2006.
  A
      summary
      of significant effects of the restatement is as follows:
  **CONSOLIDATED
                BALANCE SHEETS**
            
            As
                of December 31, 2006PreviouslyRestated
            
            
            Adjustments
            
            
            Reported**CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            660,096
            
            
            $
            
            
            
            $
            660,096Accounts
                receivable, net of allowances
            
            
            6,225,936
            
            
            
            
            
            
            
            6,225,936Accounts
                receivable - related companies
            
            
            2,516,767
            
            
            
            
            
            
            
            2,516,767Inventories,
                net
            
            
            746,817
            
            
            
            
            
            
            
            746,817Other
                receivables and prepaid expenses
            
            
            83,923
            
            
            
            
            
            
            
            83,923Total
                Current Assets
            
            
            10,233,539
            
            
            
            
            
            
            
            10,233,539**GOODWILL,
                NET**
            
            
            -
            
            
            
            (10,079,156
            )
            
            
            10,079,156**LAND
                USE RIGHT, NET**
            
            
            2,521,109
            
            
            
            
            
            
            
            2,521,109**PROPERTY
                AND EQUIPMENT, NET**
            
            
            12,158,912
            
            
            
            
            
            
            
            12,158,912**TOTAL
                ASSETS**
            
            $
            24,913,560
            
            
            $
            
            
            
            $
            34,992,716**LIABILITIES
                AND STOCKHOLDERS' EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            897,609
            
            
            
            
            
            
            $
            897,609Accounts
                payable - related companies
            
            
            1,408,504
            
            
            
            
            
            
            
            1,408,504Due
                to related parties
            
            
            2,621,130
            
            
            
            
            
            
            
            2,621,130Other
                payables and accrued liabilities
            
            
            3,305,778
            
            
            
            
            
            
            
            3,305,778Value
                added tax
            
            
            202,243
            
            
            
            
            
            
            
            202,243Income
                tax payable and other taxes payable
            
            
            61,536
            
            
            
            
            
            
            
            61,536Notes
                payable
            
            
            4,482,180
            
            
            
            
            
            
            
            4,482,180Total
                Current Liabilities
            
            
            12,978,980
            
            
            
            
            
            
            
            12,978,980**COMMITMENTS
                AND CONTINGENCIES**
            
            
            -
            
            
            
            
            
            
            
            -**LONG-TERM
                LIABILITIES**Due
                to a related company
            
            
            4,238,526
            
            
            
            
            
            
            
            4,238,526**TOTAL
                LIABILITIES**
            
            
            17,217,506
            
            
            
            
            
            
            
            17,217,506**STOCKHOLDERS'
                EQUITY**Preferred
                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)
            
            
            1
            
            
            
            
            
            
            
            1Common
                stock ($.0001 par value, authorized 100,000,000 shares,issued
                and outstanding 19,971,758 shares as ofDecember
                31, 2006)
            
            
            1,997
            
            
            
            
            
            
            
            1,997Common
                stock to be issued for acquisition (20,833,333 shares)
            
            
            2,083
            
            
            
            
            
            
            
            2,083Additional
                paid-in capital
            
            
            161,666
            
            
            
            11,100,000
            
            
            
            11,261,666Retained
                earningsUnappropriated
            
            
            4,495,408
            
            
            
            (782,264
            )
            
            
            3,713,144Appropriated
            
            
            2,425,711
            
            
            
            (195,566
            )
            
            
            2,230,145Accumulated
                other comprehensive income
            
            
            609,188
            
            
            
            (43,014
            )
            
            
            566,174Total
                Stockholders' Equity
            
            
            7,696,054
            
            
            
            
            
            
            
            17,775,210**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            24,913,560
            
            
            $
            
            
            
            $
            34,992,716
 F-11
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 2.**RESTATEMENT
      OF FINANCIAL STATEMENTS (CONTINUED)**
 **CONSOLIDATED
                STATEMENTS OF OPERATIONS**
            
            For
                the year endedDecember
                31, 2006PreviouslyRestated
            
            
            Adjustments
            
            
            ReportedNET
                SALESTo
                related parties
            
            $
            201,195
            
            
            $
            (114,523
            )
            
            $
            86,672To
                third parties
            
            
            31,773,795
            
            
            
            (9,528,099
            )
            
            
            22,245,696Total
                net sales
            
            
            31,974,990
            
            
            
            
            
            
            
            22,332,368COST
                OF SALESFrom
                related parties
            
            
            (4,690,678
            )
            
            
            1,898,124
            
            
            
            (2,792,554
            )From
                third parties
            
            
            (21,672,345
            )
            
            
            6,221,522
            
            
            
            (15,450,823
            )Total
                cost of sales
            
            
            (26,363,023
            )
            
            
            
            
            
            
            (18,243,377
            )**GROSS
                PROFIT**
            
            
            5,611,967
            
            
            
            
            
            
            
            4,088,991**OPERATING
                EXPENSES**Export
                quota charges
            
            
            153,997
            
            
            
            
            
            
            
            153,997Selling
                expenses
            
            
            516,719
            
            
            
            65,887
            
            
            
            450,832General
                and administrative expenses
            
            
            982,280
            
            
            
            93,833
            
            
            
            888,447Salaries
                and allowances
            
            
            851,947
            
            
            
            375,876
            
            
            
            476,071Loss
                on disposal of fixed assets
            
            
            5,233
            
            
            
            
            
            
            
            5,233Depreciation
                and amortization
            
            
            69,261
            
            
            
            16,010
            
            
            
            53,251Total
                Operating Expenses
            
            
            2,579,437
            
            
            
            
            
            
            
            2,027,831INCOME
                FROM OPERATIONS
            
            
            3,032,530
            
            
            
            
            
            
            
            2,061,160OTHER
                INCOME (EXPENSES)Interest
                income
            
            
            5,924
            
            
            
            (404
            )
            
            
            5,520Interest
                expenses
            
            
            (285,876
            )
            
            
            
            
            
            
            (285,876
            )Other
                income from a related company
            
            
            18,811
            
            
            
            
            
            
            
            18,811Other
                income
            
            
            12,169
            
            
            
            (6,056
            )
            
            
            6,113Other
                expenses
            
            
            (293
            )
            
            
            
            
            
            
            (293
            )Total
                Other Expenses
            
            
            (249,265
            )
            
            
            
            
            
            
            (255,725
            )**INCOME
                BEFORE INCOME TAX EXPENSE**
            
            
            2,783,265
            
            
            
            
            
            
            
            1,805,435**INCOME
                TAX EXPENSE**
            
            
            (312,010
            )
            
            
            
            
            
            
            (312,010
            )**NET
                INCOME**
            
            
            2,471,255
            
            
            
            
            
            
            
            1,493,425**OTHER
                COMPREHENSIVE INCOME**Foreign
                currency translation gain
            
            
            575,760
            
            
            
            (43,014
            )
            
            
            532,746**COMPREHENSIVE
                INCOME**
            
            $
            3,047,015
            
            
            $
            
            
            
            $
            2,026,171**Net
                income per share - basic**
            
            $
            0.06
            
            
            $
            
            
            
            $
            0.07**Net
                income per share - diluted**
            
            $
            0.02
            
            
            $
            
            
            
            $
            0.02Weighted
                average number of shares outstanding duringthe
                year - basic
            
            
            40,805,091
            
            
            
            20,776,255
            
            
            
            20,028,836Weighted
                average number of shares outstanding duringthe
                year - diluted
            
            
            100,720,079
            
            
            
            20,776,255
            
            
            
            79,943,824
  F-12
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 2.**RESTATEMENT
      OF FINANCIAL STATEMENTS (CONTINUED)**
  **CONSOLIDATED
                STATEMENTS OF CASH FLOWS**
            
            For
                the year endedDecember
                31, 2006PreviouslyRestated
            
            
            Adjustments
            
            
            Reported**CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income
            
            $
            2,471,255
            
            
            $
            977,830
            
            
            $
            1,493,425Adjusted
                to reconcile net income to cash providedby
                operating activities:Depreciation
                and amortization - cost of sales
            
            
            274,096
            
            
            
            39,613
            
            
            
            234,483Depreciation
                and amortization
            
            
            69,261
            
            
            
            16,010
            
            
            
            53,251Loss
                on disposal of fixed assets
            
            
            5,233
            
            
            
            
            
            
            
            5,233Changes
                in operating assets and liabilities(Increase)
                decrease in:Accounts
                receivable
            
            
            (5,989,647
            )
            
            
            (2,705,602
            )
            
            
            (3,284,045
            )Accounts
                receivable - related companies
            
            
            (2,516,767
            )
            
            
            
            
            
            
            (2,516,767
            )Other
                receivables and prepaid expenses
            
            
            (62,968
            )
            
            
            (12,658
            )
            
            
            (50,310
            )Inventories
            
            
            (350,610
            )
            
            
            (618,178
            )
            
            
            268,018Increase
                (decrease) in:Accounts
                payable
            
            
            813,309
            
            
            
            335,492
            
            
            
            477,817Accounts
                payable - related companies
            
            
            922,029
            
            
            
            1,268,536
            
            
            
            (346,507
            )Other
                payables and accrued liabilities
            
            
            2,250,836
            
            
            
            32,529
            
            
            
            2,218,307Value
                add tax payables
            
            
            152,967
            
            
            
            159,814
            
            
            
            (6,847
            )Income
                tax and other tax payables
            
            
            120,557
            
            
            
            414
            
            
            
            120,143Net
                cash used in operating activities
            
            
            (1,840,449
            )
            
            
            
            
            
            
            (1,333,799
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Net
                cash inflow from business combination
            
            
            -
            
            
            
            (39,280
            )
            
            
            39,280Purchase
                of land use right
            
            
            (205,693
            )
            
            
            
            
            
            
            (205,693
            )Purchase
                of property and equipment
            
            
            (8,680,820
            )
            
            
            (398,262
            )
            
            
            (8,282,558
            )Net
                cash used in investing activities
            
            
            (8,886,513
            )
            
            
            
            
            
            
            (8,448,971
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Contribution
                by stockholder
            
            
            900,000
            
            
            
            900,000
            
            
            
            -Due
                to related parties
            
            
            4,859,656
            
            
            
            
            
            
            
            4,859,656Repayment
                of note payable
            
            
            (611,247
            )
            
            
            
            
            
            
            (611,247
            )Proceeds
                from notes payable
            
            
            4,482,180
            
            
            
            
            
            
            
            4,482,180Net
                cash provided by financing activities
            
            
            9,630,589
            
            
            
            
            
            
            
            8,730,589**EFFECT
                OF EXCHANGE RATE ON CASH**
            
            
            289,224
            
            
            
            44,192
            
            
            
            245,032**NET
                DECREASE IN CASH AND CASH EQUIVALENTS**
            
            
            (807,149
            )
            
            
            
            
            
            
            (807,149
            )**CASH
                AND CASH EQUIVALENTS AT BEGINNING OF YEAR**
            
            
            1,467,245
            
            
            
            
            
            
            
            1,467,245**CASH
                AND CASH EQUIVALENTS AT END OF YEAR**
            
            $
            660,096
            
            
            $
            
            
            
            $
            660,096**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION**Cash
                paid during the year for:Interest
                expenses
            
            $
            50,017
            
            
            $
            
            
            
            $
            50,017Cash
                paid during the year for:Income
                taxes
            
            $
            357,280
            
            
            $
            
            
            
            $
            357,280
  F-13
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 
 3.  **BUSINESS
      COMBINATIONS BETWEEN ENTITIES UNDER COMMON CONTROL**
  The
      Company entered into a purchase agreement on November 9, 2006 with Ever-Glory
      Hong Kong to acquire 100% of the interests in New-Tailun. Pursuant to the terms
      of the purchase agreement, in consideration for the acquisition of New-Tailun,
      the Company is obligated to pay Ever-Glory Hong Kong $2,000,000 in cash and
      20,833,333 shares of the Company’s restricted common stock having a value of
      $10,000,000, based on the average of the high bid and the low ask prices for
      the
      Company’s common stock for a 30 day consecutive period within 90 days of the
      closing of transaction. The New-Tailun transaction closed on December 30,
      2006.
  This
      transaction was accounted for as a merger of entities under common control.
      Accordingly, the operations of New-Tailun for the period from March 27, 2006
      (inception) to December 31, 2006 were included in the Company’s consolidated
      financial statements as if the transaction had occurred at the beginning of
      the
      first period presented, with each account stated at its historical
      cost.
 
 
 4.**ACCOUNTS
      RECEIVABLE**
 
 Accounts
      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
            
            
            $
            236,289
 As
      of
      December 31, 2006 and 2005, the Company considered all accounts receivable
      collectable and has not recorded a provision for doubtful accounts.
 
 
 5.**INVENTORIES**
 
 Inventories
      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
              
              
              $
              396,207
  For
      the
      years ended December 31, 2006 and 2005, no provision for obsolete inventories
      was recorded by the Company.
 
 
 6.   **LAND
      USE RIGHTS**
 
 Land
      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.
 
  F-14
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 
 7.**PROPERTY
      AND EQUIPMENT**
 
 The
      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
              
              
              $
              5,855,562
 
 Construction
      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 $314,214 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.
 
 
 8.**DUE
      TO RELATED PARTIES**
 
 Due
      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 company owned by a stockholder for merger
              
              
              2,000,000
              
              
              
              -$
              2,621,130
              
              
              $
              -
  9.**OTHER
      PAYABLES AND ACCRUED LIABILITIES**
 
 Other
      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
              
              
              $
              1,054,942
 
  F-15
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 10.**NOTES
      PAYABLE**
 
 Balance
      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
              
              $
              4,482,180
 
 Interest
      paid in 2006 and 2005 was $50,017 and $12,506 respectively.
 
 
 11.**INCOME
      TAX**
 
 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%.
 
 New-Tailun
      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. According to the
      relevant laws and regulations in the PRC, enterprises with foreign investment
      in
      the PRC are entitled to full exemption from income tax for two years beginning
      from the first year the enterprises become profitable and has accumulated
      profits and a 50% income tax reduction for the subsequent three years.
      New-Tailun was approved as a wholly foreign-owned enterprise in 2006 and is
      entitled to the income tax exemptions in 2006 and 2007. In 2006, no income
      tax
      was recorded as New-Tailun is entitled to full exemption from income
      tax.
 
 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
  F-16
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
  11. **INCOME
      TAX (CONTINUED)**
 
 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 SHARE**
 
 The
      following is net income per share information at December 31:
 2006
              
              
              2005Net
                  income
              
              $
              2,471,255
              
              
              $
              1,043,540Basic
                  weighted-average common stock outstanding
              
              
              40,805,091
              
              
              
              55,224,701Effect
                  of dilutive securitiesSeries
                  A Convertible Perferred Stock
              
              
              59,914,988
              
              
              
              59,914,988Diluted
                  weighted-average common stock outstanding
              
              
              100,720,079
              
              
              
              115,139,689Net
                  income per share - basic
              
              $
              0.06
              
              
              $
              0.02Net
                  income per share - diluted
              
              $
              0.02
              
              
              $
              0.01
 
 13.**STOCKHOLDERS’
      EQUITY**
 
 **Appropriated
      retained earnings**
 
 The
      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 $413,670 and $204,751, respectively,
      to
      the statutory surplus reserve and statutory public welfare funds based on its
      net income under PRC GAAP.
  F-17
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 14.**RELATED
      PARTY TRANSACTIONS**
 
 During
      2006 and 2005, the Company sub-contracted certain manufacturing work valued
      at
      $4,663,553 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 $27,125 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 $201,195 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.
 
 During
      2006, the Company paid rent of $18,811 for factory and office spaces leased
      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 $613,542 and $Nil respectively
      for
      advance to a related company which is owned by a stockholder. The amount is
      interest-free and is repayable on demand.
 
 As
      of
      December 31, 2006 and 2005, the Company owed $7,588 and $Nil respectively for
      advance to a stockholder. The amount is interest-free and is repayable on
      demand.
 
 As
      of
      December 31, 2006 and 2005, the Company owed $2,000,000 and Nil respectively
      for
      merger of New-Tailun to a related company which owned by a
      stockholder.
 
 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 repayable to the related company 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.
 
 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;
 
  F-18
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 14. **RELATED
      PARTY TRANSACTIONS (CONTINUED)**
 
 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; and
 
 3.
            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
      commitment
 
 According
      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 commitment
 
 The
      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
      $18,811.
 
 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.
 16.   **CONTINGENCIES**
  The
      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.  **RECLASSIFICATION**
 
 Certain
      2005 balances in the financial statements have been reclassified to conform
      to
      2006 presentation.
  F-19
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
 **AND
      SUBSIDIARIES**
 **NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 (RESTATED) AND 2005**
 
 
 18.**CONCENTRATIONS
      AND RISKS**
 
 During
      2006 and 2005, 100% of the Company’s assets were located in China.
 
 The
      Company principally relied on three customers for its revenue during 2006 and
      2005, detail of which are as follows:
 Customer
                  A
              
              
              Customer
                  B
              
              
              Customer
                  CDuring2006
              
              
              22
              %
              
              
              12
              %
              
              
              12
              %2005
              
              
              22
              %
              
              
              19
              %
              
              
              13
              %
 
 At
      of
      December 31, 2006 and 2005, accounts receivable to those customers totaled
      $3,207,933 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
              
              
              11
              %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
                
                $
                1,605,623
                
                
                $
                702,212Europe
                
                
                19,152,275
                
                
                
                5,391,067Japan
                
                
                5,750,842
                
                
                
                3,353,655United
                    States
                
                
                4,891,222
                
                
                
                1,367,027Others
                
                
                575,028
                
                
                
                -$
                31,974,990
                
                
                $
                10,813,961
 F-20