UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K


(Mark
One)


x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
fiscal year ended December 31, 2008


Or


 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
transition period from ____________ to ______________





Commission
file number: 0-28806





EVER-GLORY
      INTERNATIONAL GROUP, INC.


(Exact
      name of registrant as specified in its charter)Florida
              
              65-0420146(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)





100
N. Barranca Ave. #810


West
Covina, California 91791


(Address
of principal executive offices) (Zip Code)




(626)
839-9116


(Registrant’s
telephone number, including area code)




Securities
registered under Section 12(b) of the Act:




Title of each class registered:
                Name of each exchange on which registered:Common
      Stock
                NYSE
      Amex LLC





Securities
registered under Section 12(g) of the Act:  None.




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes  ̈ No
x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈ No
x





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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  ̈No x







Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
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-K
or any amendment to this Form 10-K.  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
      (Do not check if smaller reporting company)
              Smaller Reporting companyx





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes  ̈ No
x





As of
June 30, 2008, 11,747,316 shares of common stock were outstanding. The aggregate
market value of the common stock held by non-affiliates of the registrant, as of
June 30, 2008, the last business day of the 2nd fiscal quarter, was
approximately $11,728,970 based on the closing price of $
4.35 for the registrant’s common stock as reported on the NYSE Amex LLC
(formerly, the American Stock Exchange and the NYSE Alternext US LLC). Shares of
common stock held by each director, each officer and each person who owns 10% or
more of the outstanding common stock have been excluded from this calculation in
that such persons may be deemed to be affiliates. The determination of affiliate
status is not necessarily conclusive.





As of
March 27, 2009, there were 12,394,652 shares of our common stock issued and
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





None.




2




EVER-GLORY
INTERNATIONAL GROUP, INC.


FORM
10-K


For
the Year Ended December 31, 2008





TABLE OF CONTENTS




Part
      IItem
      1.
                                                              Business
                                                              
                                                              5Item
      1A.
                                                              Risk
      Factors
                                                              
                                                              21Item
      1B.
                                                              Unresolved
      Staff Comments
                                                              
                                                              32Item
      2.
                                                              Properties
                                                              
                                                              32Item
      3.
                                                              Legal
      Proceedings
                                                              
                                                              33Item
      4.
                                                              Submission
      of Matters to a Vote of Security Holders
                                                              
                                                              34Part
      II34Item
      5.
                                                              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                                              
                                                              36Item
      6.
                                                              Selected
      Financial Data
                                                              
                                                              37Item
      7.
                                                              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                              
                                                              50Item
      7A.
                                                              Quantitative
      and Qualitative Disclosures about Market Risk
                                                              
                                                              50Item
      8.
                                                              Financial
      Statements and Supplementary Data
                                                              
                                                              51Item
      9.
                                                              Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                              
                                                              52Item
      9A.
                                                              Controls
      and Procedures
                                                              
                                                              53Item
      9B.
                                                              Other
      InformationPart
      IIIItem
      10.
                                                              Directors,
      Executive Officers, and Corporate Governance
                                                              
                                                              55Item
      11.
                                                              Executive
      Compensation
                                                              
                                                              59Item
      12.
                                                              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                                              
                                                              64Item
      13.
                                                              Certain
      Relationships and Related Transactions, and Director
      Independence
                                                              
                                                              66Item
      14.
                                                              Principal
      Accounting Fees and Services
                                                              
                                                              68Part
      IVItem
      15
                                                              Exhibits,
      Financial Statement Schedules
                                                              
                                                              69Signatures
                                                              
                                                              
                                                              73





3





Note
Regarding Forward-Looking Statements





Statements
contained in this Annual Report on Form 10-K, which are not historical facts,
are forward-looking statements, as the term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements, whether
expressed or implied, are subject to risks and uncertainties which can cause
actual results to differ materially from those currently anticipated, due to a
number of factors, which include, but are not limited to:




·
            Competition within our
      industry;


·
            Seasonality of our
      sales;


·
            Success of our investments in
      new product development;


·
            Our plans to open new retail
      stores;


·
            Success of our acquired
      businesses;


·
            Our relationships with our
      major customers;


·
            The popularity of our
      products;


·
            Relationships with suppliers
      and cost of supplies;


·
            Financial and economic
      conditions in Asia, Japan, Europe and the
  U.S.;


·
            Anticipated effective tax
      rates in future years;


·
            Regulatory requirements
      affecting our business;


·
            Currency exchange rate
      fluctuations;


·
            Our future financing needs;
      and


·
            Our ability to attract
      additional investment capital on attractive
  terms.





Forward-looking
statements also include the assumptions underlying or relating to any of the
foregoing or other such statements. When used in this report, the words “may,”
“will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “predict,” “continue,” and similar expressions are generally
intended to identify forward-looking statements.





Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management’s opinions only as of the date hereof. We undertake no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Readers should carefully review the factors
described in the Section of this report entitled “Risk Factors” beginning on
page 15 and other documents we file from time to time with the Securities
and Exchange Commission (‘SEC’), including the Quarterly Reports on Form 10-Q to
be filed by us in the fiscal year 2008.




4




PART
I





Item
1. BUSINESS





Corporate
History and Background





Ever-Glory
International Group, Inc., sometimes referred to in this report as “Ever-Glory”,
the “Company,”  “we”, or “us”,  is a holding company that
oversees the operations of its subsidiaries, and provides its subsidiaries with
resources and services in financial, legal, administrative and other areas. The
Company was incorporated in Florida on October 19, 1994. We changed our name
from Andean Development Corporation to “Ever-Glory International Group, Inc.” on
November 17, 2005.





Perfect
Dream Limited (“Perfect Dream”) was incorporated in the British Virgin Islands
on July 1, 2004. Perfect Dream was originally formed as a holding company, and
it became our wholly-owned subsidiary as a result of a share exchange
transaction completed in November 2005.





In
January 2005, Perfect Dream acquired 100% of Goldenway Nanjing Garments Company
Limited (“Goldenway”). 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. Until December
2004, Goldenway was a joint venture held by Jiangsu Ever-Glory International
Group Corporation (“Jiangsu Ever-Glory”). After it was acquired by Perfect
Dream, Goldenway changed its status to that of a wholly foreign owned enterprise
and increased its registered capital from US$2,512,106 to US$20,000,000. The
increased registered capital was required to be contributed in installments
within three years of the issuance of Goldenway's updated business license. As
of December 31, 2008, we have paid $8.14 million of our registered capital
requirements. We received approval from Jiangsu Administration for Industry
Commerce to extend the deadline for payment of the remaining registered capital
to April 25, 2009. Management expect to apply for a further extension through
December 31,2009. Management doesn’t expect this requirement to have an impact
on the Company’scompany’s financial position or results of
operations





On
November 9, 2006, Perfect Dream entered into a purchase agreement with
Ever-Glory Enterprises (HK) Limited (“Ever-Glory Hong Kong”) whereby we acquired
a 100% interest in Nanjing New-Tailun Garments Co, Ltd. (“New-Tailun”) from
Ever-Glory Hong Kong (the “New-Tailun transaction”). Pursuant to the terms of
the purchases agreement for this acquisition, we agreed to pay Ever-Glory Hong
Kong $2,000,000 in cash and issue 20,833,333 shares of our restricted common
stock having a value of $10,000,000. We valued the shares based on the preceding
30-day average of high bid and the low ask price for our common stock on the
date of the transfer within 90 days of the closing of the New-Tailun
transaction. The total consideration due to Ever-Glory Hong Kong in connection
with this transaction has been paid. The New-Tailun transaction closed on
December 30, 2006. New-Tailun is a 100% foreign-owned enterprise incorporated in
the PRC and is engaged in the manufacturing and sale of garments. New-Tailun has
a staff of approximately 700 employees with the annual production capacity of
about 2.5 million pieces.





On August
27, 2007, we acquired Nanjing Catch-Luck Garments Co, Ltd. (“Catch-Luck”), which
further expanded our production capacity. Catch-Luck is primarily engaged in the
manufacturing and sale of garments in China. Founded in 1995, Catch-Luck has
approximately 600 employees with an annual production capacity of 1.2 million
garments. It currently operates one factory spanning 6,635 square meters in the
Nanjing Jiangning Economic and Technological Development Zone. For further
details concerning this acquisition, seeRecent Developmentsbelow.




5


Shanghai
La Go Go Fashion Company Limited (“LA GO GO”), a joint venture of Goldenway and
Shanghai La Chapelle Garment and Accessories Company Limited (“La Chapelle”),
was incorporated in the PRC on January 24, 2008. Goldenway invested
approximately US$826,200 (Renminbi (“RMB”) 6.0 million) in cash, and La Chapelle
invested approximately US$553,040 (RMB 4.0 million) in cash, for a 60% and 40%
ownership interest, respectively, in the joint venture. The business objective
of the joint venture is to establish and create a leading brand of ladies’
garments for the mainland Chinese market. For further details regarding LA GO
GO, see Recent
Developmentsbelow.





Ever-Glory
International Group Apparel Inc.(“Ever-Glory Apparel”), a wholly owned
subsidiary of Goldenway, was incorporated in the PRC on January 6,
2009.  Goldenway invested approximately US$733,500 (RMB 5.0 million)
in cash into Ever-Glory Apparel. Ever-Glory Apparel is principally engaged in
the import and export of apparel, fabric and accessories. Upon receipt of the
necessary licenses and approval from the PRC government, Ever-Glory Apparel is
expected to be our primary import and export agent.





Ever-Glory
Apparel will focus on import and export business.  Goldenway focuses
primarily on quality and production control, and coordinating with outsourced
contract manufacturers. New-Tailun focuses on the Japanese market, and has
strengths in the design, production, sale and marketing of jeans and trousers.
Catch-Luckis geared toward the European market, and it designs and makes
products that complement the product lines of our other subsidiaries. LA GO GO
focuses on establishing and creating a leading brand of ladies’ garments for the
mainland Chinese market.





As a
result of our acquisitions of and the investments in Goldenway, New-Tailun,
Catch-Luck, LA GO GO and Ever-Glory Apparel, we now own and operate five
subsidiaries in China. Our corporate structure is illustrated
below.





Our
Current Corporate Structure









6


Business
Operations





Our
wholesale operations include manufacturing and worldwide sale of apparel to
well-known casual wear, sportswear and outerwear brands and retailers in major
markets. We manufacture our apparel products in our three factories located in
the Nanjing Jiangning Economic and Technological Development Zone and Shang Fang
Town respectively in Nanjing, China. We conduct our original design
manufacturing (“ODM”)operations
through three wholly-owned subsidiaries in China: Goldenway, New-Tailun, and
Catch-Luck. Our three manufacturing facilities in Nanjing have approximately
1,800 employees, with an annual production capacity of more than 12 million
pieces.  In 2008, we achieved total sales of $93,965,647.





Although
we have our own manufacturing capacity, we currently outsource most of the
manufacturing to our strategic alliances as part of our overall business
strategy. Outsourcing allows us to maximize our production capacity and remain
flexible while reducing capital expenditures and the costs of keeping skilled
workers on production lines during low season. We inspect products manufactured
by our long-term contractors to ensure that they meet our high quality control
standards. See Production and
Quality Control below.





Our
retail operation is conducted by our subsidiary, LA GO GO. The business
objective of the joint venture is to establish and create a leading brand of
women’s wear and to build a nationwide retail distribution channel in China. LA
GO GO had approximately 400 employees as of December 31, 2008. In 2008, we
opened 93 retail stores in China and achieved total sales of
$3,506,035.





Wholesale
Segment





Products





We
manufacture a broad array of products in various categories for the women’s,
men’s and children’s markets. Within those categories, various product
classifications including high and middle grade casual-wear, sportswear and
outwear, including the following product lines:





Women’s
      Clothing:
                
                coats,
      jackets, slacks, skirts, shirts, trousers, and jeansMen’s
      Clothing:
                
                vests,
      jackets, trousers, skiwear, shirts, coats and
  jeans




7




Children’s
      Clothing:
              
              coats,
      vests, down jackets, trousers, knitwear and
  jeans





Customers





We
manufacture garments for a number of well-known retail chains and famous
international brands. We also have our own in-house design capabilities and can
provide our customers with a selection of original designs that the customer may
have manufactured-to-order. We ordinarily supply our customers’ through purchase
orders, and we have no long-term supply contracts with any of them.





In the
fiscal year ended December 31, 2008, approximately 54% of our sales revenue came
from customers in Europe, 17% from customers in the United States, 17% from
customers in Japan, and 12% from customers in China. In 2008, sales to our
single largest customer represented approximately 29% of our total net sales.
Also, in 2008, sales to our five largest customers generated approximately 52%
of our total net sales.




Suppliers





We
purchase the majority of our raw materials (including fabric, fasteners, thread,
buttons, labels and related materials) directly from numerous local fabric and
accessories suppliers. For our wholesale business, collectively, purchases from
our five largest suppliers represented approximately 18.6% and 21.1% of total
raw material purchases in 2008 and 2007, respectively. No single supplier
provided more than 10% of our total purchases.





We also
purchase finished goods from contract manufacturers. For our wholesale business,
collectively, purchases from our five largest contract manufacturers represented
approximately 40.7% and 38.7% of total finished goods purchases in 2008 and
2007, respectively. One contract manufacturers provided approximately 21.5% and
12.0% of our total finished goods purchases in 2008 and 2007,
respectively.





For our
wholesale business, we generally agree to pay our suppliers within 30-60 days
after our receipt of goods. We typically place orders for materials from
suppliers when we receive orders from our customers.On average, the supplies we
hold in stock will generally be consumed by production in approximately 20
days.




8


Sales and
Marketing





We have
set up our own merchandising department to interface with our customers. We
believe we have developed good and stable business relationships with our main
customers in the Europe, U.S., Japan and China. Our sales staff typically work
directly with our customers and arrange the terms of the contracts with
them.





Our
management believes that we continue to benefit from our solid reputation for
providing high quality goods and professional service in the markets where we
have a presence, which provides us further opportunities to work with desirable
customers. Our marketing strategy aims to attract customers with the strongest
brands within the strongest markets. We market directly to branded retailers and
retail chains instead of selling through intermediary buyers and agents. We seek
to attract customers mainly from Europe, the U.S., Japan, and China. In
addition, we look for customers with strong brand appeal and product lines that
require high quality manufacturing and generate sufficient sales volume to
support our sizeable production capacity. Referrals from existing customers have
been and continue to be a fruitful source of new customers. In addition, we aim
to maintain an active presence in trade shows around the world, including those
in Europe, the U.S., Japan, and China.




Production
and Quality Control





In 2008,
we manufactured approximately 30% of the products we sold in our own
manufacturing facilities. We typically outsource a large portion of our products
based upon factory capacity and customer demand. The number of outside contract
manufacturers to which we outsource is expected to increase in order to meet the
anticipated growth in demand from our customers.





In 2007,
we completed the process of consolidating our operations into our new building
constructed in 2006. The new facility occupies 10,000 square meters of space and
is equipped with state-of-the-art production equipment. This consolidation
allowed us to increase our production capacity during 2007 and
2008.





As of
December, 31, 2008, our total production capacity including outsourcing reached
12 million pieces per year. At present, our production capacity is sufficient to
meet customer demand, and we have no significant backlog of sales
orders.





We are committed to designing and manufacturing high
quality garments. We place a higher standard on quality control. because we
emphasize the high quality of our products. We have implemented strict quality
control and craft discipline systems. Before we manufacture large quantities, we
obtain the approval from our customers either through in-person visits to the
factories or by shipping samples of our products to our customers for testing,
inspection and feedback. This ensures that our products perfectly meet
specifications prior to production. In addition, our trained professional
quality control personnel periodically inspect the manufacturing process and
quality of our apparel products. Our factory is ISO 9001:2000certified.
ISO 9000 is a family ofstandardsforquality management systemsmaintained by ISO,International Organization for
Standardization, and is
administered by
accreditation and certification bodies. We have been independently audited and
certified to be in conformance with ISO 9001 which certifies that formalized
business processes are being applied.




9


Due to
our strict quality control and testing process, we have not undergone any
product or merchandise recalls, and we generally do not receive any significant
requests by our customers to return finished goods. Product returns are not a
material factor in our operating expenses.





We
anticipate continuing outsourcing a large portion of our production, even with
our recent increases in production capacity. Management believes that
outsourcing allows us to maximize our production flexibility while reducing
significant capital expenditure and the costs associated with managing a large
production workforce. We contract for the production of a portion of our
products through various outside independent manufacturers. Quality control
reviews are done by our employees to ensure that material and component
qualities and the products “fits” are in accordance with our specifications. We
inspect prototypes of each product prior to cutting by the contractors, and
conduct a final inspection of finished products prior to shipment to ensure that
they meet our high standards.





Delivery
and Transportation





We do not
hold any significant inventory of finished goods, as we typically ship finished
goods to our customers upon completion.





We
deliver most of our products through Jiangsu Ever-Glory, our primary export and
logistics agent prior to January 2009. Our products are generally shipped
directly to customers. Jiangsu Ever-Glory has access to a variety of ground,
sea and air shipping companies and can typically deliver a finished product
to the client within the timeframes we require. Merchandise is carried from our
production facilities by truck to a port where it is consolidated and loaded on
containerized vessels for ocean or air transport to the ultimate
destination.  We expect that Ever-Glory Apparel, a subsidiary
we incorporated in January 2009, will gradually replace Jiangsu
Ever-Glory as our primary export and logistics agent.




Competition





The
garment manufacturing industry is highly competitive, particularly in China. Our
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 us. We have been in the garment manufacturing business since 1993
and believe that we have earned a reputation for producing high quality products
efficiently and at competitive prices, with excellent customer service. We
believe we provide one-stop-service and more valuable products for our
customers. We believe that we compete effectively with other companies based on
the experience and know-how that we have acquired since 1993. Additionally, our
state-of-the-art manufacturing equipment and facilities enable us to produce
high-quality garments at competitive prices.





Currently,
we have several competitors in China including small to large sized companies
including some state-owned trading groups and private garment companies. We
believe we differentiate ourselves from the competition and will be able to
effectively compete with our rivals due to our persistent pursuit of quality
control, a diversified casual wear product lineup, and in-house design talent.
In addition, we believe we derive advantages from the rapid feedback we receive
from our customers in the supply chain and using our advanced
Enterprise Resource Planning (“ERP”) system. Our ERP system integrates many of
our operational processes into one system including order processing,
statistical analysis, purchasing, manufacturing, logistics and payment control
systems, providing management with instantaneous feedback on important aspects
of our business operations.




10


Governmental
Regulations/Quotas





Pursuant
to a World Trade Organization (“WTO”) agreement, effective January 1, 2005, the
United States and other WTO member countries agreed to remove quotas that
apply to textiles.  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.





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 (“EU MOU”) with
China in which ten categories of textiles and apparel became subject to
restraints. Additionally, on November 8, 2005, the U.S. and China entered into a
memorandum of understanding (“US MOU”) in which 21 categories of textiles and
apparel became subject to restraints. Although certain of our apparel
products fell within the categories subject to the safeguards in the U.S. and
the EU, the imposition of quotas in 2005 did not have a material effect on our
net sales, although it did impact our gross margin. Jiangsu Ever Glory, which
functioned as our primary export agent before January 2009, has sufficient
export quotas for us due to its excellent export track record  In addition,
we may bid for additional export quota allocation from the government for the
U.S. and EU markets. The elimination of export quotas to the EU became effective
as of January 1, 2008, and the export quotas to the U.S. market were effectively
eliminated as of January 1, 2009. We expect that these new developments will
give us more access to the EU and U.S. markets.  Nevertheless, we noticed
many European clients tightened their chemical inspection requirements after the
lift of the quotas. In addition, there can be no assurance that additional trade
restrictions will not be imposed on the export of our products in the future.
 Such actions could result in increases in the cost of our products
generally and may adversely affect our results of operations. On a longer term
basis, we believe that our customer mix and our ability to adjust the types of
apparel we manufacture will mitigate our exposure to such trade restrictions in
the future.





We are
also required to comply with Chinese laws and regulations that apply to some of
the products we produce, in the countries we export to. In order to address
these Chinese compliance issues, we have established an advanced fabric testing
center to ensure that our products meet certain quality and safety standards in
the U.S. and EU. In addition, we work closely with our customers so that they
understand our testing and inspection process.





Seasonality





Our
business is affected by seasonal trends, with higher levels of wholesale sales
in our third and fourth quarters and higher retail sales in our first and fourth
quarters. These trends result primarily from the timing of seasonal wholesale
shipments and holiday periods in the retail segment.




11


Retail
Segment





In
January 2008, we established a joint venture with La Chapelle, a Shanghai-based
women’s fashion retailer widely known in China that operating a retail network
of over 500 stores to launch our new LA GO GO private label into the Chinese
market. We have a 60% stake in this newly-formed joint venture. As of December
31, 2008, LA GO GO had 93 retail stores in China to sell its own brand clothing.
We believe our advantages in the retail segments are the acute and prompt
response to the market trend, quick turn-around in design and production, and
appropriate pricing.   In 2008, we achieved total net sales
of approximately USD 3.5 million for our retail business.





Supplier





We
purchase the majority of our raw materials (including fabric, fasteners, thread,
buttons, labels and related materials) directly from numerous local fabric and
accessories suppliers. For our retail business, collectively, purchases from our
five largest suppliers represented approximately 36.3% of total purchases in
2008. No single supplier provided more than 10% of our total purchases in 2008.
We have not experienced difficulty in obtaining raw materials essential to our
business.





We also
purchase finished goods from contract manufacturers. For our retail business,
collectively, our five largest contract manufacturers represented approximately
50.1% of total finished goods purchases in 2008. Two largest contract
manufacturers each provided more than 10% of our total finished goods purchases
in 2008. We have not experienced difficulty in obtaining finished products from
our contract manufacturers.





For our
retail business, we generally agree to pay our suppliers within 30-180 days
after our receipt of goods. We typically place orders for materials from
suppliers when the style was confirmed by our chief of design. On average, the
supplies we hold in stock will generally be consumed in production in
approximately 20 days.





Customers





LA GO GO
intends to appeal to fashionable urban females between the ages of 21 to
39.  Our products are priced at a middle-to-high level in order to
appeal to the targeted customers.





Design
and Production





We have
our own design, production and quality control departments. LA GO GO
releases new designs twice a year during October for the spring/summer season
and May for the autumn/winter season.  Our design team attends
many fashion shows each year to track the trend in Europe, Japan and Asia. The
designing team produces approximately 1000 designs each year. LA GO GO hosts its
own order-placing fair twice each year to determine the new products to be
released for the spring/summer and autumn/winter season based on the orders
placed by all the regional sales managers at such fair, the chief designer
decides the design to be manufactured. The production department will then
produce sample for the designer’s approval.   Our quality control
department checks the quality of the final products by follow-up inspection. The
final products will be shipped to the logistics and distribution center for
sale.




12


Sales and
Marketing





Our LA GO GO products are sold in flagship stores, and
stores-within-a-store.  The sales department develops new sales
channels.   According to the new store opening plan, the ratio of
flagship stores and stores-within-a-store are carefully balanced.  The
store-within-a-store enters into contracts with department stores. The flagship
stores are carefully chosen at prominent locations and have lease agreements
with each property owner.  Under our return and exchange policy,
products may be returned or exchanged for any reason within 15 days. During
2008, the return and exchange rate wasvery low andwas not a material factor in our
operations.





Store
Operation





We opened
93 stores in 2008, each store generating average revenue of approximately $8,500
per month.  There are 9 flagship stores in 7 cities. The majority of
our retail stores are situated as stores-within-a-store in large, mid-tier
department stores located in over 45 cities and 20 provinces in China.





Trademark





We regard
our trademarks as an important part of our business due to the name recognition
of our customers. We currently have pending trademark registration applications
at the China Trademark Office (“CTO”) for the mark “LA GO GO” in class 25 and
class 18. La Chapelle applied for trademark registration in 2007 and later
assigned the application to LA GO GO in 2008 upon the latter’s incorporation. We
believe that the CTO will issue its decision on whether to
approve the applications for registration sometime in 2011.  According
to the Trademark Law of the PRC, we are entitled to use the mark before
obtaining such approval.  As of December 31, 2008, we are not aware of
any prior registration or valid claim or challenges to our right to use the
mark.





Information
Technology





We
recognize the importance of high-quality information management system in the
retail operation.  As a result, we use “Parkson Retail Management
Sytem”, a comprehensive and mature retail management application in China, to
monitor and manage the merchandise planning, inventory and sales
information.





Employees





As of
December 31, 2008, we had over 2200 employees. None of our employees belong to a
labor union. We consider our relationships with our employees to be good, and we
have never experienced a labor strike or work stoppage. We are in full
compliance with the Chinese labor laws and regulations and are committed to
providing safe and comfortable working conditions and accommodations for
our employees.




13


Labor
Costs.





The
manufacture of garments is a labor-intensive business. Although much of our
production process is automated and mechanized, we rely on skilled labor to make
our products.  During the fiscal year ended December 31, 2008, we
benefitted from the abundance of affordable skilled workers as a result of the
economic downturn in China. Generally, we offer one to three months of training
to new workers to improve their skills during an apprenticeship period.
Management expects that our access to reasonably priced and competent labor will
continue into the foreseeable future.





Working
Conditions and Employee Benefits





We
consider our social responsibilities to our workers to be an important
objective, and we are committed to providing a safe, clean, comfortable working
environment and accommodations. Our employees are also entitled to paid holidays
and vacations. In addition, we frequently monitor our third party manufacturers’
working conditions to ensure their compliance with related labor laws and
regulations. We are in full compliance with our obligations to provide pension
benefits to our workers, as mandated by the PRC government. We strictly comply
with Chinese labor laws and regulations, and offer reasonable wages, life
insurance and medical insurance to our workers.




Compliance
with Environmental Laws





Based on
the present nature of our operations, we do not believe that environmental laws
and the cost of compliance with those laws have or will have a material impact
on our operations.





Description
of Property





In 2008, we operated threefacilitiesoncertainlandin the
Nanjing Jiangning Economic and Technological Development Zone and in Shangfang Town, which are located in Nanjing,
China.For further details concerning our property, see Item 2
of this report regardingProperties.





Taxation




Our five
operating subsidiaries, all of which are incorporated in the PRC, are
governed by PRC income tax laws and are subject to the PRC enterprise income
tax. Each of our consolidated entities files its own separate tax return, and we
do not file a consolidated tax return. Goldenway was incorporated in the PRC and
is subject to PRC income tax laws and regulations. The applicable tax
rate was 24% before 2008. In 2007, Goldenway was 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 resulting in an effective income tax
rate of 12%. In 2008, Goldenway’s income tax rate was 25%.





New-Tailun
and Catch-Luck were incorporated in the PRC and are subject to PRC income tax
laws and regulations. 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 have accumulated profits and a 50% income tax reduction
for the subsequent three years. New-Tailun and Catch-Luck were approved as
wholly foreign-owned enterprises in 2006 and are entitled to the income tax
exemptions in 2006 and 2007. In 2007, no income tax was recorded by New-Tailun
and Catch-Luck as these entities were entitled to full exemption from income
tax. Starting from 2008 and through 2010, New-Tailun and Catch-Luck are entitled
to a 50% reduction of the income tax rate of 25%. Therefore these two
subsidiaries will be taxed at 12.5% for 2008, 2009 and 2010.




14


LA GO GO
was established on January 24, 2008, its income tax rate is 25%.





Ever-Glory
Apparel was established on January 6, 2009, its income tax rate is
25%.





All of
our income tax expenses are related to our operations in China.





Recent
Developments





Acquisition
of Catch-Luck




On August
27, 2007, we acquired Catch-Luck, from Ever-Glory Hong Kong, which further
expanded our production capacity. Catch-Luck was originally incorporated as a
joint venture, and later became a wholly owned foreign enterprise after we
acquired it.





The
acquisition of Catch-Luck was financed by a combination of US$0.6 million in
cash, and common stock valued at US$9.4 million. Upon completion of this
transaction, Catch-Luck became a wholly owned subsidiary of Ever-Glory. Under
the Agreement for the Purchase and Sale of Stock dated June 26, 2006, as amended
on August 31, 2006 (the “Amendment”), by and between us, Perfect Dream
Ltd., Ever-Glory Hong Kong and Catch-Luck, we agreed to pay Ever-Glory
Hong Kong an amount US$600,000 in cash and issue 1,307,693 shares of our
common stock to Ever-Glory Hong Kong. As agreed, we issued the 1,307,693
shares of common stock at the closing of this transaction. . We paid the
US$400,000 cash portion of this consideration in 2008. We plan to pay the
remining $200,000 balance in 2009. In addition, upon Catch-Luck’s
achievement of certain financial targets for the fiscal years 2008 and 2009, we
will issue an additional 1,153,846 shares of common stock to Ever-Glory
Hong Kong for each of these two fiscal years (i.e., 1,153,846 shares for 2008
and 1,153,846 shares for 2009). For fiscal year ended December 31, 2008,
Catch-Luck generated gross revenues of US$43,087,830 and net profit of
US$3,540,828. Based on the Amendment, 1,153,846 shares of the Company’s
restricted common stock will be issued in the second quarter of
2009.




Ever-Glory
Hong Kong was 100% owned by our President and Chairman of the Board, Edward Yihua Kang at the time we entered
into the acquisition agreement. Mr. Kang has subsequently sold100% of
his interest in Ever-Glory Hong Kong, for
nominal consideration, to Yan Xiaodong who is one of our former
directors. We and Ever-Glory Hong Kong received a business valuation report for
Catch-Luck from Savills Valuation and Professional Services Ltd., dated March 7,
2006. Our Board of Directors was fully informed of the interests of each of
these directors, including Mr. Kang, in Ever-Glory Hong Kong. The board
conditioned the consummation of the Catch-Luck acquisition on approval by a
majority of our disinterested shareholders in accordance with the Florida
Business Organizations Code. These disinterested shareholders approved the Catch-Luck acquisition on
June 2, 2006. None of the consenting shareholders had any interest in Ever-Glory
HongKong or its affiliates.




15





Indebtedness
of Goldenway
 
 Revolving
Line of Credit
 
 On July
31, 2008, Goldenway entered into a two-yearrevolving line ofcredit agreement(“Revolving Line of Credit”)withNanjing Bank, a PRC Bank, which allows
Goldenwayto borrow
up to RMB50million(approximatelyUSD7.3 million)at an interest
rate of 0.60225% per month or 7.227% per year.  It shall be used
solely for working capital purposes. The
Revolving Line of Credit is guaranteed
by Jiangsu Eve-Glory, an entity controlled by Mr. Kang, our Chief Executive
Officer, pursuant to certain guaranty agreement and alsocollateralized by the 50-year land use
right held by Goldenway and the facilitieson that land pursuant to certain
mortgage agreement.We did
not pay any fee to Mr. Kang or Jiangsu Eve-Glory for such security.Goldenway may not pay back the loan under this Revolving Line of Credit before
the maturity date without Nanjing Bank’s prior consent. TheRevolving Line of Credit is
subject to, among other things, certain conditions as
follows:
 
 ·
              The
      use of the proceeds of the Loan shall be for working capital
      only;
 ·
              Goldenway
      shall repay the principle and interest when due in compliance with the
      repayment schedule of the Revolving Line of Credit
      Agreement;
 ·
              Goldenway
      shall faithfully disclose its banking information and balance of the
      revolving line of credit to the Nanjing
Bank;
 ·
              The
      Nanjing Bank is entitled to inspect Goldenway’s business, credit and
      financial condition from time to
time.
 
 As of
December 31, 2008, Goldenway borrowed approximately $5.8 million under this
Revolving Line of Credit. The $5.8 million was repaid in January and
February of 2009. Also in January and February 2009 Goldenway borrowed
approximately $5.9 million under this Revolving Line of Credit which is
currently outstanding.
 
 November
Loan
 
 On
November 19, 2008, Goldenway entered into a loan agreement with Nanjing Branch of China Merchant Bank for a working capital loan
(the “November Loan”). The November Loan has a one-year term from December 8,
2008 to December 8, 2009 for a principal amount of RMB 5 million (approximately
USD $735,000) at an interest rate of 0.48825% per month or 5.859% per
annum.  It shall be used solely for working capital
purposes.  The November Loan is personally guaranteed by our Chief
Executive and Chairman of the Board, Mr. Yihua Kang pursuant to an irrevocable
guaranty agreement.  Mr. Yihua Kang will be jointly and severably
liable for the total amount of the November Loan if we default on the
payments.  In addition, Mr. Yihua Kang and his son, Mr. Huake Kang,
provided security for the Loan by mortgaging certain real estate they own, the
total value of which are RMB 5 million pursuant to certain mortgage
agreements.  We did not pay any fee to Mr. Kang nor Mr. Huake Kang for
such security. Goldenway may not pay back the November Loan before the maturity
date without the Nanjing Branch of China Merchant Bank’s prior consent. The Loan
is subject to, among other things, certain conditions as
follows:
 
 ·
              The
      use of the proceeds of the November Loan shall be for working capital
      only;
 ·
              Goldenway
      shall repay the principle and interest when due in compliance with the
      repayment schedule of the November Loan
  Agreement;
 ·
              Goldenway
      shall faithfully disclose its banking information and balance of the
      November Loan to the Nanjing Branch of China Merchant
  Bank;
 ·
              The
      Nanjing Branch of China Merchant Bank is entitled to inspect Goldenway’s
      business, credit and financial condition from time to
  time.




Private
Placement Financing





On August
2, 2007, we completed a US$2 million private placement involving the issuance of
our secured convertible notes and warrants pursuant to subscription agreements
(“Subscription Agreements”) with six accredited investors. This private
placement financing closed on August 6, 2007.





Under the
terms of the financing, we issued and sold two-year secured convertible notes in
the principal amount of US$2,000,000 to investors, secured by all of the assets
of Ever-Glory, excluding its subsidiaries. The convertible notes issued had
an interest rate of 6% per year payable by us on a quarterly basis in
either cash, or absent any event of default, in shares of our common stock equal
to 110% of the interest due (based on the volume-weighted average price of our
common stock for the ten trading days prior to interest payment due date). The
maturity date of the notes is August 2, 2009, at which time we must redeem the
notes by paying all unpaid principal and interest under all then-outstanding
notes. The notes are convertible at a fixed conversion price of US$0.22 per
share, into a total of approximately 9.1 million shares of common stock,
provided, however that the notes are subject to full-ratchet anti-dilution
protection, i.e., if we issue shares (with certain enumerated exceptions) at an
average per-share price below $0.22 per share, the conversion price of the notes
shall be adjusted downward to match such per-share price. Under the terms of the
notes, the full-ratchet anti-dilution adjustments do not apply to (i) full or
partial consideration in connection with a merger, acquisition, consolidation or
purchase of substantially all of the securities or assets of Ever-Glory or any
other entity which the holders of such securities or debt are not at any time
granted registration rights, (ii) issuance of securities in connection with
strategic license agreements and other partnering arrangements so long as such
issuances are not for the purpose of raising capital and which holders of such
securities or debt are not at any time granted registration rights, (iii)
issuance of Common Stock or the issuances or grants of options to purchase
Common Stock to employees, directors, and consultants , not to exceed, in the
aggregate, 816,102  shares
as compensation for services, (iv) as a result of the exercise of Warrants or
conversion of Notes which are granted or issued pursuant to this Agreement, (v)
the Company’s issuance of Common Stock in connection with an acquisitions of an
entity other than an affiliate, having a fair market value not less than
US$8,000,000, (vi) the Company’s issuance of Common Stock to non-affiliates in
connection with services rendered or to be rendered to the Company, not to
exceed, in the aggregate, 816,102  shares
and (vii) the Company’s issuance of securities in connection with a bona fide
underwritten public offering resulting in gross proceeds in excess of
US$5,000,000. We may at any time, redeem the notes by paying 125% of the unpaid
principal and accrued interest.




16


The
performance of our obligations under the notes along with certain other
obligations in connection with the financing is secured by all of our assets,
excluding our subsidiaries, pursuant to a security agreement. Our performance of
the notes and other obligations in connection with the financing is also secured
by a pledge of 3,897 shares of Series A Preferred Stock personally held by
Edward Yihua Kang pursuant to a stock pledge agreement. Upon any event of
default (as defined in the notes, the security agreement and the stock pledge
agreement), the investors will be entitled to exercise their respective rights
under the security agreement and stock pledge agreement. In addition, our
subsidiaries, Perfect Dream and Goldenway each guaranteed the performance of our
obligations under the notes and the subscription agreement under a subsidiary
guaranty agreement.





On
October 3, 2007, all 7,883 shares of our Series A Preferred Stock were
automatically converted into a total of 59,910,800 shares of common stock.
Accordingly, the 3,897 pledged shares of Series A Preferred Stock held by Mr.
Kang were converted into 29,617,200 shares of common stock. On November 20,
2007, we amended our Articles of Incorporation to effectuate a 10-to-1
reverse stock split, and, accordingly, the 29,617,200 pledged shares were split
into 2,961,720 shares of common stock, which presently remain pledged but are in
the process of being released from the pledge pursuant to the stock pledge
agreement.





In
connection with the financing, on August 2, 2007, we issued warrants to
investors that are exercisable for up to approximately 9,100,000 shares of our
common stock with an exercise price of US$0.32 per share. The warrants issued in
the August 2007, financing are exercisable for five years following the date on
which the underlying warrant shares are registered for resale under an effective
registration statement filed with the SEC. The warrants are subject to
full-ratchet anti-dilution protection in the event that we issue shares (with
certain exceptions) at an average per-share price below US$0.32 per share.
Similar to the notes, under the terms of the warrants, full-ratchet
anti-dilution adjustments do not apply to (i) full or partial consideration in
connection with a merger, acquisition, consolidation or purchase of
substantially all of the securities or assets of Ever-Glory or any other entity
which holders of such securities or debt are not at any time granted
registration rights, (ii) issuance of securities in connection with strategic
license agreements and other partnering arrangements so long as such issuances
are not for the purpose of raising capital and which holders of such securities
or debt are not at any time granted registration rights, (iii) issuance of
Common Stock or the issuances or grants of options to purchase Common Stock to
employees, directors, and consultants , not to exceed, in the aggregate, 816,102  shares
as compensation for services, (iv) as a result of the exercise of Warrants or
conversion of Notes which are granted or issued pursuant to this Agreement, (v) the Company’s issuance of Common Stock in
connection with an acquisitions of an entity other than an affiliate, having a
fair market value not less than US$8,000,000, (vi) the Company’s issuance of
Common Stock to non-affiliates in connection with services rendered or to be
rendered to the Company, not to exceed, in the aggregate, 816,102  shares
and (vii) the Company’s issuance of securities in connection with a bona fide
underwritten public offering resulting in gross proceeds in excess of
US$5,000,000.   If at any time after fifteen months after the
closing date there is no effective registration statement covering the resale of
the shares underlying the warrants, the warrant holders may exercise their
warrants by means of a cashless exercise.





17




In
connection with the financing, we agreed to register the common stock issuable
upon conversion of the notes issued to the investors, for resale by them, by
filing an appropriate form for registration with the SEC within 60 days
following the closing. We also agreed to file a separate registration statement
to register the common stock issuable upon exercise of the warrants, within 300
days following the closing. On October 5, 2007, we filed a registration
statement on Form S-1 with the SEC to register (for resale) common stock
issuable upon conversion of the notes. This registration statement was declared
effective on November 13, 2007. On May 27, 2008, we filed a registration
statement on Form S-1 with the SEC to register (for resale) common stock
issuable upon exercise of warrants.  This registration statement was
declared effective on June 6, 2008.





In
connection with the financing, we entered into a letter of intent with Mr.
Edward Yihua Kang for the acquisition by Ever-Glory of a branded retail
division, owned by Mr. Kang provided that the acquisition would be consummated
if the retail business operates more than 14 stores worldwide and achieves
annual consolidated sales of at least US$5,000,000. Mr. Kang entered into a
lockup agreement to refrain from sales of shares held by him, for a period of 12
months following the closing. Mr. Kang also entered into a non-competition
agreement with us which prohibits competition against us or solicitation of our
customers or employeesfor the shorter period of
(i) four years from August 7, 2007 or (ii) three years from the date of the
termination of Mr. Kang’s employment agreement. Subscribers in the financing
also have a twelve-month right of first refusal to participate in certain future
financing transactions involving the sale and issuance of our
securities.





As of
December 31, 2008, the note holders had converted all principal of US$2,000,000
plus accrued interest of US$33,059 into 922,554 shares of common stock of the
Company.





On
January 4, 2008, the Company issued 72,728 warrants to a placement agent for the
above private placement financing with an exercise price of $3.20 per share
(“Warrants”). The Warrants will expire January 4, 2011. These Warrants were
issued in connection with the private placement described above. The warrants
were valued at $130,082 using the Black Scholes Model and will be amortized to
interest expense over the life of the convertible notes. For the year ended
December 31, 2008, the Company recorded $130,082 for amortization of the debt
issuance costs as interest expense in the statement of operations.




18


Strategic
Investment in La Chapelle





On
January 9, 2008, our subsidiary, Goldenway entered into a Capital Contribution
Agreement (“Capital Contribution Agreement”) with La Chapelle and several
shareholders of La Chapelle. Under the terms of the Capital Contribution
Agreement, Goldenway agreed to invest RMB 10 million (approximately US$1.35
million) in La Chapelle for a 10% stake in La Chapelle.





Prior to
the Capital Contribution Agreement, the capital of La Chapelle registered with
the PRC business administration authorities amounted to RMB 4.5 million,
consisting of RMB 3.69 million invested by Xing Jiaxing accounting for 82% of
its total registered capital, RMB 0.405 million invested by Wu Jinying
accounting for 9% of its total registered capital, and RMB 0.405 million
invested by Zhang Danling accounting for 9% of its total registered capital. As
a result of the investment under the Capital Contribution Agreement, these three
shareholders will retain a 60% stake in La Chapelle, and two new investors
(including Goldenway) will acquire a 40% stake. Of the 40% stake, Goldenway will
hold 10%, and 30% will be held by Wuxi Xin Bao Lian Investment Company Limited
(“Wuxi Xin Bao”), a strategic investor. As a result of this capital
contribution, the total registered capital of La Chapelle will increase from RMB
4.5 million to RMB 7.5 million.





The total
amount invested by Goldenway and Wuxi Xin Bao is RMB 40 million in cash
(approximately US$5.41 million). Goldenway and Wuxi Xin Bao each have the right
to designate one director on La Chapelle’s five-member Board of Directors. The
total investment amount was paid by Goldenway and Wuxi Xin Bao in January
2008.





La
Chapelle agreed that it will meet the quantitative conditions that are required
in order to list its shares as national Class A Shares or Class B Shares in
China by December 31, 2010, and if it does not satisfy this criteria, Goldenway
and Wuxi Xin Bao will have the right to sell their shares in La Chapelle to the
founding shareholders of La Chapelle for a purchase price of not less than the
original purchase price of the shares plus 10% interest per annum.





La
Chapelle also agreed to meet certain audited net income targets of at least RMB
20 million in 2008 and RMB 30 million in 2009.  In the event La
Chapelle’s actual audited net income falls below 90% of either of these targets,
the overall equity interest of Goldenway and Wuxi Xin Bao shall, in
each instance, be increased proportionally in accordance with a formula set
forth in the Capital Contribution Agreement. La Chapelle’s net income in the
year of 2008 is approximately RMB18 million which is not lower than 90% of the
agreed target of RMB 20 million. As a result, there will be no change of the
equity interest of Goldenway or Wuxi Xin Bao.





Joint
Venture with La Chapelle





Also on
January 9, 2008, concurrently with Goldenway’s strategic investment in La
Chapelle, Goldway entered into a Joint Venture Agreement with La Chapelle, to
form a joint venture to develop, promote and market our new line of women’s wear
in China. Goldenway agreed to initially invest RMB 6 million (US$0.8 million),
and La Chapelle agreed to invest RMB 4 million (USD $0.54 million), for a 60%
and 40% stake, respectively, in the joint venture. The joint venture obtained
its business registration from the relevant PRC authority on April 3 2008 under
the registered name of “Shanghai LA GO GO Fashion Company
Limited.  (the “Joint Venture”)




19


The
business objective of LA GO GO is to establish a leading brand of ladies’
garments for the mainland Chinese market. Its scope of business includes all
activities relating to the development of the “LA GO GO” brand, including
marketing and branding activities, design, production, and sales. In connection
with the establishment of the Joint Venture, La Chapelle transferred all of its
rights and ownership in the “LA GO GO” trademark (including any related
trademark) to the Joint Venture.





The
parties agreed that La Chapelle will be primarily responsible for appointing
design and sales teams, while Goldenway shall be responsible for appointing
accounting and financial managers and supervisors in charge of production. In
addition, the parties agreed to jointly appoint personnel in charge of
procurement and logistics.





The joint
venture agreement contains restrictions on the ability of each joint venture
party to transfer its equity interest in the Joint Venture, and provides for a
right of first refusal to acquire shares of the other partner in the event of an
approved transfer of interests. The parties of the Joint Venture agreed that
future capital contributions would be made on a pro rata basis in accordance
with the 60-40 split unless otherwise approved by the parties or if one party
fails to make additional contributions. The parties agreed each party shall at
all times maintain a minimum 30% interest in the Joint Venture.





At the
end of December 2008, we have successfully opened 93 LA GO GO retail stores
throughout China, each store generating average revenue of approximately
US$8,500 per month.  Since January, 2009, we opened seven new
store-within-a-store in shopping malls in five different municipalities and
provinces throughout China.





Establishment
of a subsidiary of Goldenway





Goldenway
incorporated a 100% owned subsidiary Ever-Glory International Group Apparel Inc.
(“Ever-Glory Apparel”) on January 6, 2009, in order to have it gradually replace
Jiangsu Ever-Glory as our export and logistics agent.  Ever-Glory
Apparel has a registered capital of RMB 5 million.  The approved scope
of business of Ever-Glory Apparel includes import and export of apparel, fabric
and accessories, trading, and agency business.


Our
Growth Strategy





Supply
chain management:


·
            Expand
      the global sourcing network


·
            Invest
      in the overseas low-cost manufacturing
base


·
            Focus
      on value and continue the Average Selling Price
  uptrend




20




·
            Emphasis
      on product design and technology
application


·
            Seek
      strategic acquisitions of international distributors that could enhance
      global sales and distribution
network





Retailing
business development:


·
            Multi-brand
      operator


·
            Firmly
      build up LA
      GO GOto become a major Chinese mid-end mass market ladies' wear
      brand


·
            Seek
      opportunities for long-term cooperation with reputable international
      brands


·
            Facilitate
      the entry of international brands into the PRC
  market


·
            Retail
      network expansion


·
            Improve
      store efficiency and increase same store sales
  (“SSS”)


·
            Strengthen
      brand marketing


·
            Launch
      flagship stores in Tier-1 Cities


·
            Increase
      penetration and coverage in Tier-2 and Tier-3
  Cities





ITEM
1A.RISK FACTORS





You
should carefully consider the risks described below together with all of the
other information included in this Annual Report before making an investment
decision with regard to our securities. The statements contained in or
incorporated into this Annual Report that are not historic facts are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements. If any of the following events
described in these risk factors actually occurs, our business,
financial condition or results of operations could be harmed. In that case, the
trading price of our common stock could decline, and you may lose all or part of
your investment.





Risks
Relating to Our Industry





Our
sales are influenced by general economic cycles. A prolonged period of depressed
consumer spending would have a material adverse effect on our
 profitability.





Apparel is a cyclical industry that is dependent upon
the overall level of consumer spending. Purchase of apparel generally declines
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. We currently sell to customers in the U.S., the EU and
Japan. Accordingly, economic conditions and consumer spending patterns in these
regions could affect our sales, and an economic down turn in one or more of
these regions could have an adverse effect on our business. The economic downturn in
the latter part of
2008 has resulted in the shortening of production cycles, i.e. from the
placement of orders by customers to the production of the finished
products.   As a result, we had more pressure in
our production cycle and our gross margin
decreased.




21


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 other countries. 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. We
may also import specialty fabrics to meet specific customer requirements. We
also purchase 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.




22




As of
December 31, 2008 and 2007, we did not rely on any raw material supplier which
exceeds 10% of all of our total raw material purchases. For the wholesales
business, during 2008 and 2007 we relied on one manufacturer for 21% and 12% of
purchased finished goods. For the retail business, during 2008 we relied on two
manufacturers for 29% of purchased finished goods. We do not have
any long-term written agreements with any of these suppliers and do not
anticipate entering into any such agreements in the near future. However, we
always execute a written agreement for each order placed with our suppliers. We
do not believe that loss on any of these suppliers would have a material adverse
effect on our ability to obtain finished goods or raw materials essential to our
business because we believe we can locate other suppliers in a timely
manner.





Risks
Relating to Our Business





Our
wholesale business depends on some 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.





For the
year ended December 31, 2008, our top five largest customers represented
approximately 52% of our total net sales. For the year ended December 31, 2007,
our five largest customers represented approximately 56% of our total net sales.
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 any material risk of
loss of any of these customers during the next 12 months. We also believe that
the unexpected loss of these customers could have material adverse effect on our
earnings or financial condition. While we believe that we could replace these
customers within 12 months, the loss of which will not have material adverse
effect on our financial condition in the long term. None of our affiliates are
officers, directors, or material shareholders of any of these
customers.




23


Our
business relies heavily on our ability to identify changes in fashion
trend.




Our
success depends in part on our ability to effectively predict and respond to
changing fashion tastes by offering appropriate products.  Failure to
effectively follow the changing fashion trend will lead to higher seasonal
inventory levels.  Our continuous ability to respond to the changing
customer demands constitutes a material risk to the success of our retail
success.  For our wholesale business, if we could not swiftly respond
to the changing fashion trend, the sample we designed for the clients may not be
accepted or the products based on our design may be put into inventory and thus
have a negative impact on the amount of order the client may place with
us.





Our
ability to attract customers to the stores heavily depends on their
location.




Our
flagship stores and the store-within-a-stores are selectively located in what we
believe to be prominent locations or popular department stores to generate
customer traffic.  The availability and/or cost of appropriate
locations for the existing or future stores may fluctuate for reasons beyond our
control.   If we are unable to secure these locations or to renew
store leases on acceptable terms, we may not continue to attract the amount of
customers, which will have a material adverse effect on our sales and results of
operations.





We
may not be successful in expanding our LA GO GO retail business by opening
profitable new stores.




Our
future growth requires our continuous increase of new flagship stores and
stores-within-a-store in selected cities, improve our operating capabilities,
and retain and hire qualified sales personnel in these stores.  There
can be no assurance that we will be able to achieve our store expansion goals,
nor any assurance that our newly opened stores will achieve revenue or
profitability levels comparable to those of our existing stores. If our stores
fail to achieve acceptable revenue, we may incur significant costs associated
with closing those stores.





We
depend on key personnel, and our ability to grow and compete will be harmed if
we do not retain the continued services of such personnel.




We depend
on the efforts and expertise of our management team. The loss of services of one
or more members of this team, each of whom have substantial experience in the
garment industry, could have an adverse effect on our business. If we are unable
to hire and retain qualified management or if any member of our management
leaves, such departure could have an adverse effect on our operations. In
particular, we believe we have benefited substantially from the leadership and
strategic guidance of our CEO and Chairman of the Board, Mr. Edward Yihua
Kang.




Our
ability to anticipate and effectively respond to changing fashion trends depends
in part on our ability to attract and retain key personnel in our design,
merchandising and marketing areas. In addition, if we experience material
growth, we will need to attract and retain additional qualified personnel. The
market for qualified and talented design and marketing personnel in the apparel
industry is intensely competitive, and we cannot be sure that we will be able to
attract and retain a sufficient number of qualified personnel in future periods.
If we are unable to attract or retain qualified personnel as needed, our growth
will be hampered and our operating results could be materially adversely
affected.




24


If
we fail to protect our trademark and maintain the value of our LA GO GO brand,
our retail sales are likely to decline.




We intend
to vigorously protect our trademark against infringement, but we may not be
successful in doing so. The unauthorized reproduction or other misappropriation
of our trademark would diminish the value of our brand, which could reduce
demand for our products or the prices at which we can sell our products. The
success of our retail operation significantly depends on the value and image of
the LAGOGO
brand. Our brand could be adversely affected if we fail to maintain and promote
the LA GO GO brand by successful marketing.





Failure
to maintain and/or upgrade our information technology systems may have an
adverse effect on our operation.





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
acquire new systems with new functionality. We are considering additional
investments in updating our ERP system to help us improve our internal control
system and to meet compliance requirements under Section 404. We are also
continuing to develop and update our internal 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, this may require the use of
cash, or we may incur debt or assume contingent liabilities.





As part
of our business strategy, we expect to continue to review opportunities to buy
or invest in other businesses or technologies that we believe would complement
our current products, expand the breadth of our markets or enhance our technical
capabilities, or that may otherwise offer growth opportunities. If we buy or
invest in other businesses, products or technologies in the future, we
could:





·
            incur
      significant unplanned expenses and personnel
  costs;


·
            issue
      stock that would dilute our current shareholders’ percentage
      ownership;


·
            use
      cash, which may result in a reduction of our
  liquidity;


·
            incur
      debt; assume liabilities; and


·
            spend
      resources on unconsummated
transactions.




25




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:





·
            unsuccessfully
      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 EU, 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;





·
            require
      us to take extra security precautions for our operations;
    and





·
            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.




26


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.





Risks
Related to Doing Business in China





Because
our assets are located overseas, shareholders 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 our assets are
located overseas, our assets may be outside of the jurisdiction of U.S. courts
if we are the subject of an insolvency or bankruptcy proceeding. As a result, if
we declared bankruptcy or insolvency, our shareholders may not receive the
distributions on liquidation that they would
otherwise be entitled to if our assets were to be located within the
U.S., 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
us.





Pursuant
to a World Trade Organization (“WTO”) agreement, effective January 1, 2005, the
United States and other WTO member countries agreed to remove quotas applicable
to textiles.  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,
arousing strong objection from China.





On June
10, 2005, in response to the surge of Chinese imports into the EU, the EU
Commission signed a Memorandum of Understanding (“EU MOU”) with China in which
ten categories of textiles and apparel are subject to restraints.
Additionally, on November 8, 2005, the U.S. and China entered into a Memorandum
of Understanding (“US MOU”) in which 21 categories of textiles and
apparel are subject to restraints. Although certain of our apparel products
fall within the categories subject to the safeguards in the U.S. and the EU,
which could adversely affect our ability to export and sell these products, the
imposition of quotas in 2005 did not have a material effect on our net
sales, although it did impact our gross margin. There can be no assurance that
additional trade restrictions will not be imposed on the exportation of our
products in the future.  Such actions could result in increases in the cost
of our products generally and may adversely affect our results of
operations.




27


Adverse
changes in economic and political policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could
adversely affect our business.




All of
our business operations are currently conducted in the PRC, under the
jurisdiction of the PRC government. Accordingly, our results of operations,
financial condition and prospects are subject to a significant degree to
economic, political and legal developments in China. China’s economy differs
from the economies of most developed countries in many respects, including with
respect to the amount of government involvement, level of development,
growth rate, control of foreign exchange and allocation of resources. While
the PRC economy has experienced significant growth in the past 20 years, growth
has been uneven across different regions and among various economic sectors of
China. The PRC government has implemented various measures to encourage economic
development and guide the allocation of resources. Some of these measures
benefit the overall PRC economy, but may also have a negative effect on us. For
example, our financial condition and results of operations may be adversely
affected by government control over capital investments or changes in tax
regulations that are applicable to us. Since early 2004, the PRC government has
implemented certain measures to control the pace of economic growth. Such
measures may cause a decrease in the level of economic activity in China, which
in turn could adversely affect our results of operations and financial
condition.





Unprecedented
rapid economic growth in China may increase our costs of doing business, and may
negatively impact our profit margins and/or profitability.





Our
business depends in part upon the availability of relatively low-cost labor and
materials. Rising wages in China may increase our overall costs of production.
In addition, rising raw material costs, due to strong demand and greater
scarcity, may increase our overall costs of production. If we are not able to
pass these costs on to our customers in the form of higher prices, our profit
margins and/or profitability could decline.




Fluctuation
in the value of Chinese RMB relative to other currencies may have a
material adverse effect on our business and/or an investment in our
shares.




The value
of RMB against the U.S. Dollar, the Euro and other currencies may fluctuate and
is affected by, among other things, changes in political and economic
conditions. In the last decade, the RMB has been pegged at RMB 8.2765 to one
U.S. Dollar. Following the removal of the peg to the U.S. Dollar and pressure
from the United States, the People’s Bank of China also announced that the RMB
would be pegged to a basket of foreign currencies, rather than being strictly
tied to the U.S. Dollar, and would be allowed to float trade within a narrow
0.3% daily band against this basket of currencies. The PRC government
has stated that the basket is dominated by the U.S. Dollar, the Euro,
Japanese Yen and South Korean Won, with a smaller proportion made up of the
British Pound, Thai Baht, Russian Ruble, Australian Dollar, Canadian Dollar and
Singapore Dollar. There can be no assurance that the relationship between the
RMB and these currencies will remain stable over time, especially in light of
the significant political pressure on the Chinese government to permit the free
flotation of the RMB, which could result in greater and more frequent
fluctuations in the exchange rate between the RMB, the U.S. Dollar, and the
Euro. If the RMB were to increase in value against the U.S. Dollar and other
currencies, for example, consumers in the U.S., Japan and Europe would
experience an increase in the relative prices of goods and services produced by
us, which might translate into a decrease in sales. In addition, if the RMB were
to decline in value against these other currencies, the financial value of your
investment in our shares would also decline.




28




You
may face difficulties in protecting your interests, and your ability to protect
your rights through the U.S. federal courts may be limited, because our
subsidiaries are incorporated in non-U.S. jurisdictions, we conduct
substantially all of our operations in China, and a majority of our officers
reside outside the United States.




Although
we are incorporated in Florida, we conduct substantially all of our operations
in China through our wholly owned subsidiaries in China. The majority of our
officers reside outside the United States and some or all of the assets of those
persons are located outside of the United States. As a result, it may be
difficult or impossible for you to bring an action against us or against these
individuals in China in the event that you believe that your rights have been
infringed under the securities laws or otherwise. Even if you are successful in
bringing an action of this kind, the laws of the PRC may render you unable to
enforce a judgment against our assets or the assets of our directors and
officers.





As a
result of all of the above, our public shareholders may have more difficulty in
protecting their interests through actions against our management, directors or
major shareholders than would shareholders of a corporation doing business
entirely within the United States.





Risks
Related to an Investment in Our Securities




Our
common stock has limited liquidity.





Our
common stock has been trading on the NYSE Amex (formerly, the American
Stock Exchange and NYSE Alternext US LLC) since July 16, 2008, but it is
thinly traded compared to larger more widely known companies in the same
industry. Thinly traded common stock can be more volatile than stock trading in
an active public market. We cannot predict the extent to which an active public
market for our 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 ended December
31, 2008 has been US$4.89 and US$0.89 per share respectively.





We cannot
predict the extent to which an active public market for our common stock will
develop or be sustained.  Our common shares are currently traded, but
currently with low volume, based on quotations on the NYSE Amex, meaning that
the number of persons interested in purchasing our common shares at or near bid
prices at any given time may be relatively small or non-existent. This situation
is attributable to a number of factors, including the fact that we are a small
company which is still relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence trading volume. And even if we came to the attention of such persons,
they tend to be risk-averse and would be reluctant to follow an unproven company
such as ours or purchase or recommend the purchase of our shares until such time
as we became more seasoned and viable. As a consequence, there may be periods of
several days or more when trading activity in our shares is minimal or
non-existent, as compared to a seasoned issuer which has a large and steady
volume of trading activity that will generally support continuous trading
without an adverse effect on share price. We cannot give you any assurance that
a broader or more active public trading market for our common stock will develop
or be sustained, or that trading levels will be sustained.




29


FINRA sales
practice requirements may also limit a shareholder’s ability to buy and sell our
stock.





FINRA 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, FINRA believes that there is a high probability that speculative
low priced securities will not be suitable for at least some customers. The
FINRA 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.





We
expect to experience volatility in our stock price, which could negatively
affect shareholders’ investments.





The
market price for shares of our 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 risks included in this section, that may have a
significant impact on the market price of our 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 our backlog, sales or earnings in any given period relative to the
      levels expected by securities analysts or projected by
  us;


·
            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 our financial disclosures or practices;
      or


·
            earthquakes
      or other natural disasters in Nanjing or Shanghai, China where a
      significant portion of our 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 our common stock price, we may be the target
of securities litigation in the future. Securities litigation could result in
substantial costs and divert management’s attention and resources.




30




To
date, we have not paid any cash dividends and no cash dividends will be paid in
the foreseeable future.





We do not
anticipate paying cash dividends on our common stock in the foreseeable future
and we may not have sufficient funds legally available to pay dividends. Even if
the funds are legally available for distribution, we may nevertheless decide not
to pay any dividends. We presently intend to retain all earnings for our
operations.





Our
corporate actions are substantially controlled by our principal shareholders and
affiliated entities.




Our
principal shareholders, which includes our officers and directors, and their
affiliated entities own approximately 66% of our outstanding shares of common
stock. These shareholders, acting individually or as a group, could exert
substantial influence over matters such as electing directors and approving
mergers or other business combination transactions. In addition, because of the
percentage of ownership and voting concentration in these principal shareholders
and their affiliated entities, elections of our Board of Directors will
generally be within the control of these shareholders and their affiliated
entities. While all of our shareholders are entitled to vote on matters
submitted to our shareholders for approval, the concentration of shares and
voting control presently lies with these principal shareholders and their
affiliated entities. As such, it would be difficult for shareholders to propose
and have approved proposals not supported by management. There can be no
assurances that matters voted upon by our officers and directors in their
capacity as shareholders will be viewed favorably by all of our
shareholders.





The
elimination of monetary liability against our directors, officers and employees
under Florida law and the existence of indemnification rights to our directors,
officers and employees may result in substantial expenditures by our company and
may discourage lawsuits against our directors, officers and
employees.





Our
amended and restated Articles of Incorporation contain a provision permitting us
to eliminate the liability of our directors for monetary damages to our company
and shareholders to the extent provided by Florida law. We may also have
contractual indemnification obligations under our employment agreements with our
officers. The foregoing indemnification obligations could result in our company
incurring substantial expenditures to cover the cost of settlement or damage
awards against directors and officers, which we may be unable to recoup. These
provisions and resultant costs may also discourage our company from bringing a
lawsuit against directors and officers for breaches of their fiduciary duties,
and may similarly discourage the filing of derivative litigation by our
shareholders against our directors and officers even though such actions, if
successful, might otherwise benefit our company and shareholders.




31


If
we fail to maintain an effective system of internal controls, we may not be able
to accurately report our financial results or prevent material
misstatements.




Under
Section 404 of the Sarbanes-Oxley Act of 2002, we are required to evaluate
and determine the effectiveness of our internal control over financial
reporting. In our Annual Reports on Form 10-K for the year ended
December 31, 2008, we concluded that our internal control over financial
reporting was effective as of December 31, 2008 based on our
assessment.  However, should we or our independent registered public
accounting firm, determine in future fiscal periods that we have a material
weakness in our internal control over financial reporting, our failure to
achieve and maintain effective internal control reporting could result in loss
of our investor confidence in the reliability of our financial statements, which
in turn could harm our business and negatively impact the trading price of our
common stock.  Furthermore, we anticipate that we will incur
considerable costs and use significant management time and other resources in an
effort to comply with Section 404 and other requirements of the Sarbanes-Oxley
Act.


Item
1B. UNRESOLVED STAFF COMMENTS





None.





Item
2. PROPERTIES





Wholesale
segment





In
2008, we operated three complexesas our operating and
production facilitiesat
509 Chengxin Road,in the
Nanjing Jiangning Economic and Technological Development Zone,Shangfang Town, Nanjing, China.
The following is a description of thesefacilities:




(i)Goldenway. Our Goldenway facilitiesinclude 112,442 square meters of
floor space. Approximately 400 employees work at this location. Our Goldenway
facilityhostsadministrative, sales and distribution
functions in addition to manufacturing.We obtained the right to use the
land on which these facilities are constructed for 50 years as of June 24,
2006.There areno material encumbrances on these
facilities.




(ii)New-Tailun. Our New-Tailun facilitiesinclude 25,000 square meters of
floor space. Approximately 700 employees work at this location. Our New-Tailun
facility mainly handles manufacturing.We lease the New-Tailun facility
and the land from Jiangsu Ever-Gloryfor US$50,452 per annum under a two
year leasing arrangement that began on January 1,
2008.




32




(iii)Catch-Luck.Our Catch-Luck facilities include
6,635 square meters of office and production space. Approximately 600 employees
work atthoselocations. Our Catch-Luckfacilitymainly handles
manufacturing.These
facilities arelocated onthe piece of land for which we have the
50-year land use right.




In
addition,under certain lease arrangement between
Goldenway and Jiangsu Ever-Glory International Group Corporation, (“Jiangsu Ever-Glory”),Goldenway currently holds the
right tolease certain
land andusecertainbuilding and improvementsonthat landuntil 2016. We plan to lease
these facilities to third party.




We believe that our current
facilitieswill be sufficient to sustain ourwholesaleoperations for the foreseeable
future.




Retail Segment




For our
retail operations, we have a two year lease arrangement for our administrative
offices and a four-year lease for the warehouse.  The current flagship
storesare generally
leased under agreementswith real estate developers or
department store or shopping mall operators for terms ranging from 2 to 5
years.  The store-within-a-store are counters leased from department
stores for which we generally payapproximately30% of sales revenue as rent.Webelieve the administrative and
warehouse locations facilities are adequent to sustain our operations for the
foreseeable future. We also believe the locations of the flagship stores and the
stores-within-a-store units are carefully selected and suitable for the LA GO GO
operation.




Item
3. LEGAL PROCEEDINGS





We were
named as a 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 Douglas
G. Furth (“Plaintiff”). The other principal parties are named defendants John
Zanic, Wilson-Davis & Co., and Godwin, Pappas, Longley & Ronquillo, LLP.
The action alleges,inter alia,that we
breached an agreement with the plaintiff under which we 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  US$75,000. We denied that we
were a party to such an agreement, that we breached the agreement or that we are
otherwise liable. We vigorously defended our legal position. After vigorously
defending this action, the complaint was voluntarily dismissed by the Plaintiff
without prejudice from an action pending in the U.S. District Court for the
Northern District of Ohio. In May 2007, the Plaintiff filed a Second Amended
Complaint in the litigation asserting claims against us and other principal
parties. We have denied all the claims and have filed the responses and
objections to the Plaintiff and asked for dismissal with prejudice by the
plaintiff. No payment was made to the Plaintiff.  On November 29, 2007, we
made a motion to dismiss the action for lack of personal jurisdiction. On
February 2, 2009, the motion for summary judgment was granted by the U.S.
District Court for the Northern District of Ohio. Plaintiff agreed by way
of settlement not to appeal the Court’s grant of summary judgment in favor of
the Company. The matter is concluded.





33





Item
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





On
November 25, 2008, we held our 2008 Annual Meeting of Shareholders (the “Annual
Meeting”) at the Ever-Glory China headquarters in compliance with the Florida
Corporation Law and NYSE Amex Company Guide.  The matters voted upon
at the Annual Meeting were:





1.
Election of a board of five (5) directors, to serve until the 2009 annual
meeting of shareholders or until their successors are duly elected and
qualified;


2.
Ratification of the appointment of Moore Stephens Wurth Frazer and Torbet, LLP
as our independent auditor for the year ending December 31, 2008.





Following
is a summary of the votes cast at the meeting:





Name of Nominee
              For
              Against
              AbstainEdward
      Yihua Kang
              10,620,239
              28,613
              14,252Jiajun
      Sun
              10,620,133
              28,623
              14,348Bennet
      P. Tchaikovsky
              10,623,600
              25,943
              13,562Changyu
      Qi
              10,622,649
              26,107
              14,348Zhixue
      Zhang
              10,622,900
              25,857
              14,348Ratification
      of Moore Stephens Wurth Frazer and Torbet, LLP
              10,635,769
              17,522
              9,814





Shares
which abstained from voting as to these matters, and shares held in “street
name” by brokers or nominees who indicated on their proxies that they did not
have discretionary authority to vote such shares as to these matters (“broker
non-votes”), were not counted as votes in favor of such matters.  For
purposes of determining whether the affirmative vote of a majority of the shares
present at the meeting and entitled to vote on a proposal had been obtained,
abstentions were included in, and broker non-votes were excluded from, the
number of shares present and entitled to vote.





PART
II





Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY,RELATED STOCKHOLDER
MATTERSAND ISSUER
PURCHSES OF EQUITY SECURITIES.





Market
for Common Equity





Our
common stock was quoted on the Over-The-Counter Bulletin Board (the “OTCBB”)
initially under the symbol “EGLY” and then it was changed to “EVGY” in
2007.  On July 16, 2008 our common stock commenced trading on the NYSE
Amex LLC (“NYSE Amex”)(formerly named the American Stock Exchange and the NYSE
Alternext US LLC) under the symbol of “EVK”. As of December 31, 2008, there
were approximately 66 shareholders of record of our common stock. The number of
registered shareholders excludes any estimate by us of the number of beneficial
owners of common shares held in street name. The following table sets forth the
high and low bid information for the common stock for each quarter within the
last two fiscal years, as reported by the OTCBB on a quarterly basis for the
periods during which our common stock was quoted on the OTCBB and as reported by
the NYSE Amex for the last two quarters of 2008 following our listing
thereon.  These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.




34




NYSE
AMEX


Bid PricePERIOD
                              
                              HIGH
                              
                              
                              LOWFISCAL
      YEAR 2008:Fourth
      Quarter ended December 31, 2008
                              
                              $
                              2.49
                              
                              
                              $
                              0.89Third
      Quarter ended September 30, 2008
                              
                              $
                              4.89
                              
                              
                              $
                              1.90





OTCBB


Bid PricePERIOD
                                          HIGH
                                          
                                          LOWFISCAL
      YEAR 2008:Second
      Quarter ended June 30, 2008
                                          
                                          $
                                          4.80
                                          
                                          
                                          $
                                          3.89First
      Quarter ended March 31, 2008
                                          
                                          $
                                          3.60
                                          
                                          
                                          $
                                          2.60FISCAL
      YEAR 2007:Fourth
      Quarter ended December 31, 2007
                                          
                                          $
                                          5.00
                                          
                                          
                                          $
                                          3.10Third
      Quarter ended September 30, 2007
                                          
                                          $
                                          4.00
                                          
                                          
                                          $
                                          2.80Second
      Quarter ended June 30, 2007
                                          
                                          $
                                          3.30
                                          
                                          
                                          $
                                          1.80First
      Quarter ended March 31, 2007
                                          
                                          $
                                          2.60
                                          
                                          
                                          $
                                          1.60





On March
27, 2009, the closing sale price of our common stock on the NYSE  Amex
was $2.35 per share. The stock prices shown in the table above are retroactively
adjusted, as applicable, to reflect our 10-to-1 reverse stock split effective on
November 20, 2007.





Dividend
Policy





We have
never declared or paid any cash dividends on our capital stock. We currently
intend to retain all of our net income for use in our business, and do not
anticipate paying any cash dividends in the foreseeable future. Any future
determination relating to dividend policy will be made at the discretion of
our Board of Directors and will depend on a number of factors, including future
earnings, capital requirements, financial condition and future prospects and
other factors the Board of Directors may deem relevant.




35


Item
6. SELECTED FINANCIAL DATA








36





ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





The
following discussion and analysis of our financial condition and results of
operations for the year ended December 31, 2008 should be read in conjunction
with the Financial Statements and corresponding notes included in this Annual
Report on Form 10-K. Our discussion includes forward-looking statements based
upon current expectations that involve risks and uncertainties, such as our
plans, objectives, expectations, and intentions. Actual results and the timing
of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth under the Risk Factors and Special Note Regarding Forward-Looking
Statements in this report. We use words such as “anticipate,” “estimate,”
“plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions
to identify forward-looking statements.





Overview





Our
Business





We are a
leading apparel manufacturer, supplier and retailer in China, and the first
Chinese apparel company listed on the NYSE Amex.




37


We
classify our businesses into two segments: Wholesale and Retail. Our wholesale
business consists of wholesale-channel sales made principally to famous brands,
department stores and specialty stores located throughout Europe, U.S., Japan
and the PRC. We have a focus on well-known, middle-to-high grade casual wear,
sportswear, and outerwear brands. We also manufacture, market and distribute our
own branded products through our retail business which consists of
retail-channel sales directly to consumers through full-price retail stores
located throughout the PRC.





On
January 24, 2008, we incorporated Shanghai LA GO GO Fashion Company in Shanghai
which is our retail business.





Our
Business Strategy





We
manufacture our products in the PRC, in our three factories located in the
Nanjing Jiangning Economic and Technological Development Zone and Shang Fang
Town in the Jiangning District in Nanjing. We conduct our original design
manufacturing (“ODM”) operations through three wholly-owned subsidiaries:
Goldenway, New-Tailun, and Catch-Luck.





Although
we have our own manufacturing facilities, we currently outsource most of the
manufacturing to our strategic alliances as part of our overall business
strategy. Outsourcing allows us to maximize our production capacity and maintain
our flexibility while reducing capital expenditures and the costs of keeping
skilled workers on production lines during low season. We inspect products
manufactured by our long-term contractors to ensure that they meet our high
quality control standards.





As of
December 31, 2008, our three manufacturing facilities in Nanjing had
approximately 1,800 employees, with an annual production capacity in excess
of 12 million pieces and our new joint venture LA GO GO had approximately 400
employees.





Our
Collection Policy





For our
new customers, we require orders placed to be backed by letters of credit. For
our established customers, we generally give them payment terms between 30 to
120 days following delivery of finished goods.  For our existing
customers, we reevaluate any potential credit impairment from time to time and
adjust their terms accordingly.





Our
Objectives and Risks





Our core
strengths include long-term satisfactory relationships with a portfolio of
well-known, mid-class global brands, a strong and experienced management team,
and a proven ability to design, market and distribute our own brand through
fast-growing retail channels in a highly populated country. We opened 93 stores
in 2008 and we expect to open an additional 80-100 stores in 2009. Our business
objective for our wholesale segment is to expand our portfolio into higher class
brands, expand our customer base and improve our margin. Our business objective
for our retail segment is to establish and create a leading brand of women’s
apparel and to build a nationwide retail distribution channel in
China.




38


In
connection with our key objectives, we intend to continue to pursue
opportunities for growth during the course of Fiscal Year 2009 and beyond. These
opportunities and continued investment initiatives include:





Wholesale
business development:


·
            Expand
      the global sourcing network;


·
            Invest
      in lower cost manufacturing bases located outside of mainland
      China;


·
            Focus
      on value and while continuing to increase our average selling
      prices;


·
            Emphasis
      on product designs and implementing new technologies;
  and


·
            Seek
      strategic acquisitions of international distributors that could enhance
      ourglobal
      sales and distribution network





Retail
business development:


·
            Build
      up LA GO GO to become a major Chinese middle to high end mass market
      women's wear brand;


·
            Seek
      opportunities for long-term cooperation with reputable international
      brands;


·
            Facilitate
      the entry of international brands into the PRC
  market;


·
            Further
      expand our retail network;


·
            Improve
      our store efficiency and increase same store
  sales;


·
            Further
      strengthen brand marketing; and


·
            Launch
      flagship stores in Tier-1 Cities and increase penetration and coverage in
      Tier-2 and Tier-3 Cities





Despite
the various risks and uncertainties associated with the current global economy,
we believe our core strengths will continue to allow us to execute our strategy
for long-term sustainable growth in revenue, net income and operating cash
flow.





Seasonality





Our
business is affected by seasonal trends, with higher levels of wholesale sales
in our third and fourth quarters and higher retail sales in our first and fourth
quarters. These trends result primarily from the timing of seasonal wholesale
shipments and holiday periods in the retail segment.





Global
Economic Uncertainty





Our
business is dependent on consumer demand for our products. We believe that
significant uncertainty in the slowdown of the global economy economy has
increased our wholesale clients’ product price sensitivity. We experienced
continuous price pressure in the latter part of 2008. If the global economic
environment continues to weaken, these worsening economic conditions could have
a negative impact on our sales growth and operating margin on our wholesale
business segment in 2009.




39


Summary
of 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.





Revenue
Recognition





We
recognize revenue, net of value added taxes, upon delivery for domestic sales
and upon shipment of the products for international sales, at which time title
passes to the customer provided that: there are no uncertainties regarding
customer acceptance; persuasive evidence of an existing arrangement; the sales
price is fixed and determinable; and collectability is deemed
probable.  Retail sales are recorded at the time of register
receipt.





Estimates
and Assumptions





In
preparing our consolidated financial statements, we use estimates and
assumptions that affect the reported amounts and disclosures. Our estimates are
often based on complex judgments, probabilities and assumptions that we believe
to be reasonable, but that are inherently uncertain and unpredictable. We are
also subject to other risks and uncertainties that may cause actual results to
differ from estimated amounts. Significant estimates in 2008 and 2007 include
the estimated residual value and useful lives of property and equipment, and the
assumptions we made when we used the Black Scholes option price model to value
the warrants granted.





Inventory





Inventories,
consisting of raw materials, work-in-process and finished goods related to our
products are stated at the lower of cost or market utilizing the specific
identification method.





Details
regarding our use of these policies and the related estimates are described in
the accompanying notes to the Consolidated Financial Statements. There have been
no material changes to our critical accounting policies that impacted our
financial condition or results of operations.




Results
of Operations





The
following table summarizes our results of operations for the years ended
December 31, 2008 and 2007. The table and the discussion below should be read in
conjunction with the consolidated financial statements and the notes thereto
appearing elsewhere in this report.


40


Revenue





The
following table sets forth a breakdown of our total sales revenue, by region,
for the years ended December 31, 2008 and 2007.




2008
                        
                        
                        % of
                          total
                          sales
                        
                        
                        2007
                        
                        
                        % of
                          total
                          sales
                        
                        
                        Growth in
                          2008
                          compared
                          with 2007Wholesales
      businessThe
      People’s republic of China
                        
                        $
                        7,625,288
                        
                        
                        
                        7.8
                        %$
                        
                        
                        4,590,798
                        
                        
                        
                        6.5
                        %
                        
                        
                        66.1
                        %Europe
                        
                        
                        52,855,580
                        
                        
                        
                        54.2
                        
                        
                        
                        40,308,166
                        
                        
                        
                        57.3
                        
                        
                        
                        31.1Japan
                        
                        
                        16,579,037
                        
                        
                        
                        17.0
                        
                        
                        
                        10,956,030
                        
                        
                        
                        15.6
                        
                        
                        
                        51.3United
      states
                        
                        
                        16,905,742
                        
                        
                        
                        17.3
                        
                        
                        
                        14,480,389
                        
                        
                        
                        20.6
                        
                        
                        
                        16.7Total
      Wholesales business
                        
                        
                        93,965,647
                        
                        
                        
                        96.4
                        
                        
                        
                        70,335,383
                        
                        
                        
                        100.0
                        
                        
                        
                        33.6Retail
      business
                        
                        
                        3,506,035
                        
                        
                        
                        3.6
                        
                        
                        
                        -
                        
                        
                        
                        *
                        
                        
                        
                        *Total
                        
                        $
                        97,471,682
                        
                        
                        
                        100.0
                        % $
                        
                        
                        70,335,383
                        
                        
                        
                        100.0
                        %
                        
                        
                        38.6
                        %
 *
Calculation is not meaningful as retail operations commenced in
2008.




We
generate revenues primarily from our wholesale business mainly from
international markets. In 2008, we entered into the Chinese domestic retail
market, focusing on sales of our own brand apparel.





Sales for
the year ended December 31, 2008 were US$97,471,682, an increase of 38.6% from
2007. The increase in our sales was primarily attributable to:





·           
Sales orders increased in our wholesale business to customers in Europe, ,
Japan, the United States and the PRC; and the revenue contribution from our
newly launched retail product “LA GO GO” in 2008,





Sales
growth was partially offset by:


·           
Price pressures in the fourth quarter of 2008 to maintain market share in an
uncertain economic environment.





Sales to
customers in Europecontributed 54.2% of our
total sales in 2008, an increase of 31.1% compared to 2007. This growth was
primarily attributable to higher demand from several of our largest existing
European customers.





Sales to
customers in the U.S. contributed 17.3% of our total sales in 2008, an increase
of 16.7% compared to 2007. The growth was primarily due to two large U.S.
customers increasing orders in 2008.





Sales to
customers in Japan contributed 17.0% of our total sales in 2008, an increase of
51.3% compared to 2007. The increase was attributable to our success with
establishing long-term relationships with premium brands in the Japanese market,
and strong demand in 2008.





Sales to
customers in the Chinese market contributed 7.8% of our total sales in 2008, an
increase of 66.1% compared to 2007. The increase was attributable to more orders
from existing customers in Hong Kong.





Sales
generated from our retail business were US$3.5 million in 2008. During the year
ended December 31, 2008, we had opened 93 LA GO GO retail stores and
generated revenue averaged $8,500 per month after two months of
operations.




41


Below is
a breakdown of our total sales generated from related parties and third parties
for the years ended December 31, 2008 and 2007.





Year
      Ended December 31,2008
                            
                            
                            2007(in
      U.S. dollars, except for percentages)Sales
      to related parties
                            
                            $
                            681,167
                            
                            
                            
                            0.7
                            %
                            
                            $
                            1,155,998
                            
                            
                            
                            1.6
                            %Sales
      to third parties
                            
                            
                            96,790,515
                            
                            
                            
                            99.3
                            
                            
                            
                            69,179,385
                            
                            
                            
                            98.4Total
                            
                            $
                            97,471,682
                            
                            
                            
                            100.0
                            %
                            
                            $
                            70,335,383
                            
                            
                            
                            100.0
                            %




Sales to
related parties accounted for 0.7% of our total sales in 2008, a decrease of
41.1% compared to 2007. We expect sales to related parties will continue to
constitute a small portion of our total sales.





Costs
and Expenses




Cost
of Sales and Gross Margin





Cost of
goods sold includes direct material cost, direct labor cost, and manufacturing
overhead, which includes depreciation of production equipment, consistent with
the revenue earned, as well as rent for store space used by our retail
business.





The
following table sets forth the components of our cost of sales and gross profit
both in amounts and as a percentage of total sales for the years ended December
31, 2008 and 2007.





Year
      Ended December 31,2008
                                  
                                  
                                  2007(in
      U.S. dollars, except for percentages)Total
      Sales
                                  
                                  $
                                  97,471,682
                                  
                                  
                                  
                                  100.0
                                  %
                                  
                                  $
                                  70,335,383
                                  
                                  
                                  
                                  100.0
                                  %Raw
      materials
                                  
                                  
                                  44,583,815
                                  
                                  
                                  
                                  45.7
                                  
                                  
                                  
                                  30,784,337
                                  
                                  
                                  
                                  43.8Labor
                                  
                                  
                                  3,079,043
                                  
                                  
                                  
                                  3.2
                                  
                                  
                                  
                                  3,151,476
                                  
                                  
                                  
                                  4.5Outsource
      Production Costs
                                  
                                  
                                  30,438,432
                                  
                                  
                                  
                                  31.2
                                  
                                  
                                  
                                  23,458,802
                                  
                                  
                                  
                                  33.4Other
      costs and Overhead
                                  
                                  
                                  1,247,140
                                  
                                  
                                  
                                  1.3
                                  
                                  
                                  
                                  1,631,650
                                  
                                  
                                  
                                  2.3Retail
      costs
                                  
                                  
                                  2,221,085
                                  
                                  
                                  
                                  2.3Total
      Cost of Sales
                                  
                                  
                                  81,569,516
                                  
                                  
                                  
                                  83.7
                                  
                                  
                                  
                                  59,026,265
                                  
                                  
                                  
                                  83.9Gross
      Profit
                                  
                                  $
                                  15,902,166
                                  
                                  
                                  
                                  16.3
                                  %
                                  
                                  $
                                  11,309,118
                                  
                                  
                                  
                                  16.1
                                  %




Raw
materials cost for our wholesale business accounted for 45.7% of our total sales
in 2008, an increase of 44.8% compared to 2007. This increase was mainly due to
increased raw material prices.




42


Labor
costs for our wholesale business accounted for 3.2% of our total sales in 2008,
down from 4.5% in the prior year. This decrease was mainly due to headcount
reduction. In 2008, after performing a comprehensive review of our processes and
organization, management of Goldenway decided to increase outsourcing to
independent contractors to improve performance and efficiency, as well as to
better manage our labor costs.





Outsource
production costs for our wholesale business accounted for 31.2% of our total
sales in 2008, an increase of 29.8% from the prior year. These costs, as a
percentage of our total sales, decreased from 33.4% of total sales in 2007 to
31.2% of total sales in 2008. This decrease was mainly due to an increase in the
volume of our outsourced production. We concentrated on outsourcing to increase
our ability to negotiate a lower price.





Overhead
and other expenses for our wholesale business accounted for 1.3% of our total
sales in 2008, compared to 2.3% of total sales in 2007. This decrease was due to
our headcount reduction as a result of increased outsourcing.





Our
retail business cost accounted for 2.3% of our total sales for the year ended
December 31, 2008.





Total
cost of sales for the year ended December 31, 2008 was US$81,569,516, an
increase of 38.2% from 2007. As a percentage of total sales, our cost of sales
decreased to 83.7% of total sales for 2008, compared to 83.9% of total sales in
2007. Consequently, gross margin as a percentage of total sales increased
slightly to 16.3% for 2008 from 16.1% for 2007.





We
purchase the majority of our raw materials directly from numerous local fabric
and accessories suppliers. For our wholesale business, purchases from our five
largest suppliers represented approximately 18.6% and 21.1% of raw material
purchases in 2008 and 2007, respectively. No single supplier provided more than
10% of our raw material purchases. For our retail business, purchases from our
five largest suppliers represented approximately 36.3% of raw material purchases
in 2008. No single supplier provided more than 10% of our total purchases in
2008. We have not experienced difficulty in obtaining raw materials essential to
our business, and we believe we maintain good relationships with our
suppliers.





We also
purchase finished goods from contract manufacturers. For our wholesale business,
purchases from our five largest contract manufacturers represented approximately
40.7% and 38.7% of finished goods purchases in 2008 and 2007, respectively. One
contract manufacturers provided approximately 21.5% and 12.0% of our finished
goods purchases in 2008 and 2007, respectively. For our retail business, our
five largest contract manufacturer represented approximately 50.1% of finished
goods purchases in 2008. Our two largest contract manufacturers provided more
than 10% of our finished goods purchases in 2008. We have not experienced
difficulty in obtaining finished products from our contract manufacturers and we
believe we maintain good relationships with our contract
manufacturers.





Selling,
General and Administrative (SG&A) Expenses





Our
selling expenses consist primarily of freight-out, unloading costs and product
inspection charges.




43


For
      the Year Ended December 31,2008
                            
                            
                            2007(in
      U.S. Dollars, except for percentages)Gross
      Profit
                            
                            $
                            15,902,166
                            
                            
                            
                            16.3
                            %
                            
                            $
                            11,309,118
                            
                            
                            
                            16.1
                            %Operating
      Expenses:Selling
      Expenses
                            
                            
                            1,966,926
                            
                            
                            
                            2.0
                            
                            
                            
                            593,570
                            
                            
                            
                            0.8General
      and Administrative Expenses
                            
                            
                            6,390,180
                            
                            
                            
                            6.6
                            
                            
                            
                            3,381,108
                            
                            
                            
                            4.8Total
                            
                            
                            8,357,106
                            
                            
                            
                            8.6
                            
                            
                            
                            3,974,678
                            
                            
                            
                            5.7Income
      from Operations
                            
                            $
                            7,545,060
                            
                            
                            
                            7.7
                            %
                            
                            $
                            7,334,440
                            
                            
                            
                            10.4
                            %




Selling
expenses were US$1,966,926 in 2008, an increase of 231.4% compared to 2007. The
increase was attributable to:





·           Increased
traveling expenses and marketing expenses incurred by the international sales
force to obtain new customers for our wholesale business;


·           Increased
export expenses due to the expansion of our wholesale business; and


·           Approximately
US$870,000 related to the promotion of LA GO GO, our newly launched domestic
retail brand in 2008.





G&A
expenses were US$6,390,180 in 2008, an increased of 89.0% compared to 2007. The
increase was partially due to:





·           Higher
depreciation and amortization related to new office facilities;


·           An
increase in payroll for additional management staff as a result of our business
expansion;


·           Expenses
incurred for investor relations; and approximately US$426,000 related to the
promotion of LA GO GO, our newly launched domestic retail brand in
2008.


44


Revenue,
Cost of Sales and Gross Profit by Segment





The
following table sets forth our total sales, cost of sales, gross profit and
gross margin of our wholesale and retail businesses for the years ended December
31, 2008 and 2007.




For
      the year ended December 31,2008
                                  
                                  
                                  2007Sales
                                  
                                  
                                  Cost
      of
                                    sales
                                  
                                  
                                  Gross
                                    profit
                                  
                                  
                                  Gross
                                    margin
                                  
                                  
                                  Sales
                                  
                                  
                                  Cost
      of
                                    sales
                                  
                                  
                                  Gross
                                    profit
                                  
                                  
                                  Gross
                                    margin(in
      U.S. dollars, except for percentages)Wholesales
                                  
                                  $
                                  93,965,647
                                  
                                  
                                  $
                                  79,348,431
                                  
                                  
                                  $
                                  14,617,216
                                  
                                  
                                  
                                  15.6
                                  %
                                  
                                  $
                                  70,335,383
                                  
                                  
                                  $
                                  59,026,265
                                  
                                  
                                  $
                                  11,309,118
                                  
                                  
                                  
                                  16.1
                                  %Retail
                                  
                                  
                                  3,506,035
                                  
                                  
                                  
                                  2,221,085
                                  
                                  
                                  
                                  1,284,950
                                  
                                  
                                  
                                  36.6
                                  %
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Total
                                  
                                  $
                                  97,471,682
                                  
                                  
                                  $
                                  81,569,516
                                  
                                  
                                  $
                                  15,902,166
                                  
                                  
                                  
                                  16.3
                                  %
                                  
                                  $
                                  70,335,383
                                  
                                  
                                  $
                                  59,026,265
                                  
                                  
                                  $
                                  11,309,118
                                  
                                  
                                  
                                  16.1
                                  %
  Gross
profit in our wholesale business for the year ended December 31, 2008 was
US$14,617,462, an increase of 29.3% over 2007. Gross margin was 15.6% of our
wholesale sales in 2008, a decrease of 0.5% compared to 2007. The decrease in
our gross margin was mainly due to price pressures as a result of  the
worldwide economic slowdown, especially in the fourth quarter of
2008.





Gross
margin for our new retail brand, LA GO GO, was 36.6% for the year ended December
31, 2008.




Income
from Operations





Income
from operations increased 2.9% from US$7,334,440 in 2007 to US$7,545,060 in
2008.





Interest
Expense




2008
                        
                        
                        2007
                        
                        
                        Increase
                        
                        
                        % IncreaseBank
      Loans
                        
                        $
                        327,834
                        
                        
                        $
                        112,515
                        
                        
                        $
                        215,319
                        
                        
                        
                        191.4
                        %Related
      party
                        
                        
                        175,100
                        
                        
                        
                        236,458
                        
                        
                        
                        -61,358
                        
                        
                        
                        (25.9
                        )Convertible
      notes interest
                        
                        
                        58,659
                        
                        
                        
                        49,972
                        
                        
                        
                        8,687
                        
                        
                        
                        17.4Convertible
      notes-non cash expenses
                        
                        
                        2,296,575
                        
                        
                        
                        25,503
                        
                        
                        
                        2,271,072
                        
                        
                        
                        8,905.1Total
                        
                        $
                        2,858,168
                        
                        
                        $
                        424,448
                        
                        
                        $
                        2,433,720
                        
                        
                        
                        573.4
                        %




Interest
expense was US$2,858,168 in 2008, an increase of 573.4% compared to 2007. This
increase was mainly due to the amortization of discount related to convertible
notes issued in August 2007 to interest expense.




45


Other
Expense





Other
expense was US$302,200 in 2008, an increase of 229.2% compared to 2007. The
increase was mainly due to the unfavorable impact of foreign exchange rates on
transactions during the year.





Income
Tax Expenses




Income
tax expense for 2008 and 2007 amounted to US$1,091,006 and US$252,682,
respectively, and our effective income tax rates were 23.5% and 3.6% during 2008
and 2007, respectively.





This
increase was mainly because Goldenway’s tax holiday expired on December 31,
2007, and Catch-Luck and New-Tailun were subject to higher tax rates since the
beginning of 2008.





Our PRC
subsidiaries are subject to various preferential tax policies and were entitled
to the following income tax rates in 2008 and 2007:





2008
                      
                      
                      2007Goldenway
                      
                      
                      25.0
                      %
                      
                      
                      12.0
                      %Catch-Luck
                      
                      
                      12.5
                      %
                      
                      
                      -New-Tailun
                      
                      
                      12.5
                      %
                      
                      
                      -LA
      GO GO
                      
                      
                      25.0
                      %
                      
                      
                      -





Our then
four operating subsidiaries in 2008 all of
which are incorporated in the PRC, are governed by the PRC income tax laws and
are subject to the PRC enterprise income tax. Each of our consolidating entities
files its own separate tax return.





Goldenway
enjoyed a 50% reduction in its income tax as a foreign invested enterprise that
exports over 70% of its output, and was entitled to a reduced income tax rate of
12% in 2007. In 2008, the income tax rate for Goldenway was 25%.





New-Tailun
and Catch-Luck were approved as a wholly foreign-owned enterprise in 2006 and
were entitled to 100% income tax exemption in 2006 and 2007 and a 50% reduction
for the next three years. In 2008, the income tax rate for New-Tailun and
Catch-Luck was 12.5%.





LA GO GO
was established on January 24, 2008, and its income tax rate is
25%.





Perfect
Dream was incorporated in the British Virgin Islands on July 1, 2004, and has no
income tax.





Ever-Glory
International Group Inc. was incorporated in the United States and has incurred
net operating losses for income tax purposes through December 31, 2008. The net
operating loss carry forwards for United States income taxes may be available to
reduce future years’ taxable income. These carry forwards will expire, if not
utilized, through 2028. Management believes that the realization of the benefits
from these losses appears uncertain due to our limited operating history and
continuing losses for United States income tax purposes. Accordingly, we have
provided a 100% valuation allowance on the deferred tax asset benefit to reduce
the asset to zero.




46


Net
Income





Net
income in 2008 was US$3,559,791, a decrease of 47.4% compared to 2007. This
decrease was mainly attributable to the interest expense related to the
convertible notes issued in August 2007 and increased income tax expense. Our
diluted earnings per share were US$0.26 and US$0.94 for the years ended December
31, 2008 and 2007, respectively.





Minority
Interest





On
January 9, 2008, Goldenway entered into an Agreement with La Chapelle, to form a
joint venture to develop, promote and market a new line of women’s wear in
China. Goldenway agreed to initially invest RMB 6 Million (approximately
US$826,200) in cash, and La Chapelle agreed to invest RMB 4 Million
(approximately US$553,040) in cash, for a 60%- and 40%- interest in the joint
venture, respectively. The joint venture is included in the Company’s
consolidated financial statements in 2008, and the 40% interest held by La
Chapelle is classified as minority interest. As of December 31, 2008, minority
interest was US$548,977.





Summary
of Cash Flows





Net cash
provided by operating activities in 2008 was US$2,832,441 compared with net cash
provided by operating activities of US$1,876,458 in 2007. This increase was
mainly attributable to the decrease of our account receivables.





Net cash
used in investing activities was US$2,324,798 in 2008, compared with
US$4,695,462 in 2007. On January 9, 2008, Goldenway entered into a Capital
Contribution Agreement with La Chapelle, pursuant to which Goldenway invested
US$1,467,000 in cash (RMB 10 million) in La Chapelle for a 10% ownership
interest in La Chapelle.





Net cash
provided by financing activities was US$166,515 in 2008, compared with
US$1,757,480 in 2007. The decrease was mainly due to the repayment of
US$1,990,000 to Blue Power Holding Ltd, partially offset by US$553,040 from La
Chapelle’s investment in  LA GO GO, and US$219,635 received upon the
exercise of warrants.





Liquidity
and Capital Resources





As of
December 31, 2008, we had cash and cash equivalents of US$1,445,363, other
current assets of US$27,464,949 and current liabilities of US$13,308,691. We
presently finance our operations primarily from cash flows from our operations,
and we anticipate that this will continue to be our primary source of funds to
finance our short-term cash needs.





Bank
Loan





In 2006,
we acquired a fifty-year land use right for 112,442 square meters (approximately
1,209,876 square feet) of land in the Nanjing Jiangning Economic and
Technological Development Zone, which houses our existing facility of 26,629
square meters (approximately 286,528 square feet), including our manufacturing
facility and office space. In 2006, we completed the construction of our new
facilities and moved our headquarters into the new office building and
consolidated part of our operations into our new manufacturing facility in
January 2007. The new manufacturing facility occupies an area of 10,000 square
meters (approximately 107,600 square feet) and is equipped with state-of-the-art
equipment. The land
and building are being used as collateral for bank loans.




47


On July
31, 2008, Goldenway entered into a two-year revolving line of credit agreement
with a PRC Bank, which allows Goldenway to borrow up to approximately $7.3
million (RMB50million). These borrowings are guaranteed by Jiangsu Ever-Glory,
an entity controlled by Mr. Kang, the Company’s Chief Executive Officer. These
borrowings are also collateralized by the 50-year land use right held by
Goldenway and the Company’s facilities on that land. As of December 31, 2008,
bank loans include approximately $5.8 million borrowed under this agreement. The
$5.8 million was repaid in January and February 2009. Also in January and
February 2009, Goldenway borrowed approximately $5.9 million under this
agreement.
  The bank
loan for $733,500 is guaranteed by Mr. Kang and collateralized by real
properties owned by Mr. Kang and a member of his family.


Long-term
Loan





During
2008 we repaid US$1.99 million to Blue Power Holdings Limited (“Blue Power”). As
of December 31, 2008, the long-term loan to Blue Power was US$2,660,085 Interest
accrued on the loan to Blue power totaled US$175,100 for 2008.





Capital
Commitments





We have a
continuing program for the purpose of improving our manufacturing facilities. We
anticipate that cash flows from operations and borrowings from banks will be
used to pay for these capital commitments. The Articles of Association of our
Goldenway subsidiary required that registered capital of approximately US$17.5
million be paid by Goldenway on February 1, 2008. The increased registered
capital is to be paid in installments within three years of the issuance of
Goldenway’s updated business license. As of February 1, 2008, the Company had
fulfilled US$3.6 million of its registered capital requirements and had a
registered capital commitment of US$13.9 million payable by February 1,
2008.  In April 2008, the Company obtained the approval from the
government granting the extension to make the required capital contribution by
July 25, 2008. As of July 20, 2008, the Company had fulfilled US$5.6 million of
its registered capital requirements and had a registered capital commitment of
US$11.9 million payable by July 25, 2008.  In July 2008, the Company
obtained the approval from the government granting the extension to make the
required capital contribution by April 25, 2009. Management expects to apply for
a further extension through December 31,2009. Management doesn’t expect this
requirement to have an impact on the Company’s financial position or results of
operations




48


Uses
of Liquidity





Our cash
requirements through the end 2008 will be primarily to fund daily operations and
the growth of our business.





Sources
of Liquidity





Our
primary sources of liquidity for our short-term cash needs are expected to be
from cash flows generated from operations, and cash and cash equivalents
currently on hand. We believe that we will be able to borrow additional funds if
necessary.





We
believe our cash flow from operations together with our cash and cash
equivalents currently on hand will be sufficient to meet our needs for working
capital, capital expenditure and other commitments through the end of 2009. No
assurance can be made that additional financing will be available to us if
required, and adequate funds may not be available on terms acceptable to us. If
funding is insufficient at any time in the future, we will develop or enhance
our products or services and expand our business through our own cash flows from
operations.





As of
December 31, 2008, we had access to a US$7.3 million a line of credit. Of this
line of credit, US$1.5 million was unused and is currently available. This
credit facility does not include any covenants.





Foreign
Currency Translation Risk





Our
operations are, for the most part, located in the PRC, which may give rise to
significant foreign currency risks from fluctuations and the degree of
volatility of foreign exchange rates between the United States dollar and the
Chinese RMB. Most of our sales 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 8.2765 to
8.11 RMB to the dollar. In 2008, the RMB continued to appreciate against the
U.S. dollar. As of December 31, 2008, the market foreign exchange rate had
increased to RMB6.82  to one U.S. dollar. As a result, the ongoing
appreciation of RMB to U.S. dollar negatively impacted our margins for the year
ended December 31, 2008. We are continuously negotiating 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 will pass some of the increased cost to our customers.





In
addition, the financial statements of Goldenway, New-Tailun, Catch-Luck and LA
GO GO (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 period. All exchange
differences are recorded within equity. The foreign currency translation gain
for the years ended December 31, 2008 and 2007 was US$1,880,500 and
US$1,383,279, respectively.




49


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.





ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





We do not
use derivative financial instruments in our investment portfolio and have no
foreign exchange contracts. Our financial instruments consist of cash and cash
equivalents, trade accounts receivable, accounts payable and long-term
obligations. We consider investments in highly-liquid instruments purchased with
a remaining maturity of 90 days or less at the date of purchase to be cash
equivalents.





Interest Rates. Our exposure
to market risk for changes in interest rates relates primarily to our short-term
investments and short-term obligations; thus, fluctuations in interest rates
would not have a material impact on the fair value of these securities. At
December 31, 2008, we had approximately $1.4 million in cash and cash
equivalents. A hypothetical 5% increase or decrease in either short term or long
term interest rates would not have any material impact on our earnings or loss,
or the fair market value or cash flows of these instruments.





Foreign Exchange Rates. We
pay our suppliers and employees in Chinese RMB, however, we sell to customers in
the U.S., Japan and Europe and we generate sales in U.S. Dollars Euros and
British Pounds. Accordingly, our business has substantial exposure to changes in
exchange rates between and among the Chinese RMB, the U.S. Dollars, the Euro and
the British Pound. In the last decade, the RMB has been pegged at 8.2765 RMB to
one U.S. Dollar. On July 21, 2005 it was revalued to 8.11 per U.S. Dollar.
Following the removal of the peg to the U.S. Dollar and pressure from the United
States, the People’s Bank of China also announced that the RMB would be pegged
to a basket of foreign currencies, rather than being strictly tied to the U.S.
Dollar, and would be allowed to float trade within a narrow 0.3% daily band
against this basket of currencies. The PRC government has stated that the basket
is dominated by the U.S. Dollar, Euro, Japanese Yen and South Korean Won, with a
smaller proportion made up of the British Pound, Thai Baht, Russian Ruble,
Australian Dollar, Canadian Dollar and Singapore Dollar. There can be no
assurance that the relationship between the RMB and these currencies will remain
stable over time, especially in light of the significant political pressure on
the Chinese government to permit the free flotation of the RMB, which could
result in greater and more frequent fluctuations in the exchange rate between
the RMB, the U.S. Dollar and the Euro. At December 31, 2008, the exchange rate
between the RMB and U.S. Dollar was 6.82 RMB to one U.S. Dollar. For additional
discussion regarding our foreign currency risk, see the section titled Risk Factors—Fluctuation in the value of ChineseRMBrelative to other currencies may
have a material adverse effect on our business and/or an investment in our
shares.





ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




The
Consolidated Financial Statements and Financial Statement Schedule are included
in Part III, Item 15 (a) (1) and (2) of this Annual Report
on Form 10-K.




50




CONSOLIDATED
FINANCIAL STATEMENTS





As
of December 31, 2008





CONTENTS





Reports
      of Registered Public Accounting Firms
                
                
                F-1ConsolidatedBalance Sheets
                
                
                F-3Consolidated
      Statements of Operations and
      Comprehensive Income
                
                
                F-4Consolidated
      Statements of Shareholders' Equity
                
                
                F-5Consolidated
      Statements of Cash Flows
                
                
                F-6Notes
      to Consolidated Financial Statements
                
                
                F-7




51




REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 The Board
of Directors and Shareholders
 Ever-Glory
International Group, Inc.
 
 We have
audited the accompanying consolidated balance sheet of Ever-Glory International
Group, Inc. and subsidiaries as of December 31, 2008 and the related
consolidated statements of operations and comprehensive income, stockholders'
equity and cash flows for the year then ended. 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 audit.
 
 We
conducted our audit 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 audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated 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, 2008, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
 
 
 
 /s/GHP
Horwath, P.C.
 Denver,
Colorado
 March 31,
2009
  F-1
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders
 of
Ever-Glory International Group, Inc.
  We have
audited the accompanying consolidated balance sheet of Ever-Glory International
Group, Inc. and subsidiaries as of December 31, 2007, and the related
consolidated statements of operations and comprehensive income, stockholders’
equity, and cash flows for the year then ended. Ever-Glory International Group,
Inc.’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
  We
conducted our audit 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. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit 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, 2007, and the results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
   /s/ Moore
Stephens Wurth Frazer and Torbet, LLP
 
  Walnut,
California
 March 10,
2008


F-2




EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSAS
      OF DECEMBER 31, 2008 AND 2007





2008
                                                          
                                                          
                                                          2007ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                                                          
                                                          $
                                                          1,445,363
                                                          
                                                          
                                                          $
                                                          641,739Accounts
      receivable
                                                          
                                                          
                                                          9,485,338
                                                          
                                                          
                                                          
                                                          13,035,299Accounts
      receivable - related parties
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          158,235Inventories
                                                          
                                                          
                                                          3,735,227
                                                          
                                                          
                                                          
                                                          1,897,023Other
      receivables and prepaid expenses
                                                          
                                                          
                                                          945,191
                                                          
                                                          
                                                          
                                                          150,855Advances
      on inventory purchases
                                                          
                                                          
                                                          288,256
                                                          
                                                          
                                                          
                                                          -Amounts
      due from related party
                                                          
                                                          
                                                          11,565,574
                                                          
                                                          
                                                          
                                                          2,568,040Total
      Current Assets
                                                          
                                                          
                                                          27,464,949
                                                          
                                                          
                                                          
                                                          18,451,191DEFERRED
      FINANCING COSTS
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          191,995LAND
      USE RIGHT, NET
                                                          
                                                          
                                                          2,854,508
                                                          
                                                          
                                                          
                                                          2,729,183PROPERTY
      AND EQUIPMENT, NET
                                                          
                                                          
                                                          12,494,452
                                                          
                                                          
                                                          
                                                          12,140,903INVESTMENT
      AT COST
                                                          
                                                          
                                                          1,467,000
                                                          
                                                          
                                                          
                                                          -TOTAL
      ASSETS
                                                          
                                                          $
                                                          44,280,909
                                                          
                                                          
                                                          $
                                                          33,513,272LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESBank
      loans
                                                          
                                                          $
                                                          6,542,820
                                                          
                                                          
                                                          $
                                                          4,798,500Accounts
      payable
                                                          
                                                          
                                                          3,620,543
                                                          
                                                          
                                                          
                                                          1,796,655Accounts
      payable - related parties
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          245,589Other
      payables- related party
                                                          
                                                          
                                                          754,589
                                                          
                                                          
                                                          
                                                          650,000Other
      payables and accrued liabilities
                                                          
                                                          
                                                          1,683,977
                                                          
                                                          
                                                          
                                                          1,069,682Value
      added and other taxes payable
                                                          
                                                          
                                                          368,807
                                                          
                                                          
                                                          
                                                          381,957Income
      tax payable
                                                          
                                                          
                                                          257,946
                                                          
                                                          
                                                          
                                                          143,167Deferred
      tax liabilities
                                                          
                                                          
                                                          80,009
                                                          
                                                          
                                                          
                                                          -Convertible
      notes payable, net of unamortized discount of $1,974,497 as of December
      31,2007
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          25,503Total
      Current Liabilities
                                                          
                                                          
                                                          13,308,691
                                                          
                                                          
                                                          
                                                          9,111,053LONG-TERM
      LIABILITIESLoan
      from related party
                                                          
                                                          
                                                          2,660,085
                                                          
                                                          
                                                          
                                                          4,474,985TOTAL
      LIABILITIES
                                                          
                                                          
                                                          15,968,776
                                                          
                                                          
                                                          
                                                          13,586,038MINORITY
      INTEREST
                                                          
                                                          
                                                          548,977
                                                          
                                                          
                                                          
                                                          -COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITYPreferred
      stock ($.001 par value, authorized 5,000,000 shares, no shares issued
      and outstanding)
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Common
      stock ($.001 par value, authorized 50,000,000 shares, 12,373,567 and
      11,379,309 shares issued and outstanding as of December 31, 2008 and
      2007, respectively)
                                                          
                                                          
                                                          12,374
                                                          
                                                          
                                                          
                                                          11,379Additional
      paid-in capital
                                                          
                                                          
                                                          4,549,004
                                                          
                                                          
                                                          
                                                          2,154,368Retained
      earnings
                                                          
                                                          
                                                          15,807,539
                                                          
                                                          
                                                          
                                                          12,247,748Statutory
      reserve
                                                          
                                                          
                                                          3,437,379
                                                          
                                                          
                                                          
                                                          3,437,379Accumulated
      other comprehensive income
                                                          
                                                          
                                                          3,956,860
                                                          
                                                          
                                                          
                                                          2,076,360Total
      Stockholders' Equity
                                                          
                                                          
                                                          27,763,156
                                                          
                                                          
                                                          
                                                          19,927,234TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                          
                                                          $
                                                          44,280,909
                                                          
                                                          
                                                          $
                                                          33,513,272






F-3




EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME





FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007





2008
                
                
                2007NET
      SALESRelated
      parties
                
                $
                681,167
                
                
                $
                1,155,998Third
      parties
                
                
                96,790,515
                
                
                
                69,179,385Total
      net sales
                
                
                97,471,682
                
                
                
                70,335,383COST
      OF SALESRelated
      parties
                
                
                621,103
                
                
                
                995,398Third
      parties
                
                
                80,948,413
                
                
                
                58,030,867Total
      cost of sales
                
                
                81,569,516
                
                
                
                59,026,265GROSS
      PROFIT
                
                
                15,902,166
                
                
                
                11,309,118OPERATING
      EXPENSESSelling
      expenses
                
                
                1,966,926
                
                
                
                593,570General
      and administrative expenses
                
                
                6,390,180
                
                
                
                3,381,108Total
      Operating Expenses
                
                
                8,357,106
                
                
                
                3,974,678INCOME
      FROM OPERATIONS
                
                
                7,545,060
                
                
                
                7,334,440OTHER
      INCOME (EXPENSES)Interest
      income
                
                
                227,090
                
                
                
                174,036Interest
      expense
                
                
                (2,858,168
                )
                
                
                (424,448
                )Other
      income
                
                
                34,952
                
                
                
                25,708Other
      expenses
                
                
                (302,200
                )
                
                
                (91,805
                )Total
      Other Expenses
                
                
                (2,898,326
                )
                
                
                (316,509
                )INCOME
      BEFORE INCOME TAX EXPENSE AND MINORITY INTEREST
                
                
                4,646,734
                
                
                
                7,017,931INCOME
      TAX EXPENSE
                
                
                (1,091,006
                )
                
                
                (252,682
                )INCOME
      BEFORE MINORITY INTEREST
                
                
                3,555,728
                
                
                
                6,765,249




MINORITY
      INTEREST
                        
                        
                        4,063
                        
                        
                        
                        -NET
      INCOME
                        
                        
                        3,559,791
                        
                        
                        
                        6,765,249OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain
                        
                        
                        1,880,500
                        
                        
                        
                        1,383,279COMPREHENSIVE
      INCOME
                        
                        $
                        5,440,291
                        
                        
                        $
                        8,148,528EARNINGS
      PER SHARENet
      income per share - basic
                        
                        $
                        0.30
                        
                        
                        $
                        0.99Net
      income per share - diluted
                        
                        $
                        0.26
                        
                        
                        $
                        0.94Weighted
      average number of shares outstandingduring
      the year - basic
                        
                        
                        11,895,048
                        
                        
                        
                        6,865,482Weighted
      average number of shares outstandingduring
      the year - diluted
                        
                        
                        13,489,769
                        
                        
                        
                        7,244,062






F-4


EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY





FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007





Common stockSeries A Convertible
                        
                        
                        
                        
                        
                        
                        
                        
                        to be issued
                        
                        
                        Additional
                        
                        
                        Retained Earnings
                        
                        
                        Accumulated otherPreferred Stock
                        
                        
                        Common Stock
                        
                        
                        for acquistion
                        
                        
                        paid-in
                        
                        
                        
                        
                        
                        Statutory
                        
                        
                        comprehensiveShares
                        
                        
                        Amount
                        
                        
                        Shares
                        
                        
                        Amount
                        
                        
                        Shares
                        
                        
                        Amount
                        
                        
                        capital
                        
                        
                        Unrestricted
                        
                        
                        reserve
                        
                        
                        income
                        
                        
                        TotalBalance
      at January 1, 2007
                        
                        
                        789
                        
                        
                        $
                        1
                        
                        
                        
                        1,997,203
                        
                        
                        $
                        1,997
                        
                        
                        
                        2,083,333
                        
                        
                        $
                        2,083
                        
                        
                        $
                        161,666
                        
                        
                        $
                        6,260,518
                        
                        
                        $
                        2,659,360
                        
                        
                        $
                        693,081
                        
                        
                        $
                        9,778,706Stock
      issued for merger of New- Tailun
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,083,333
                        
                        
                        
                        2,083
                        
                        
                        
                        (2,083,333
                        )
                        
                        
                        (2,083
                        )
                        
                        
                        -Stock
      issued for merger of Catch-luck
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,307,693
                        
                        
                        
                        1,308
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1,308
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Conversion
      of preferred stock
                        
                        
                        (789
                        )
                        
                        
                        (1
                        )
                        
                        
                        5,991,080
                        
                        
                        
                        5,991
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (5,990
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Warrants
      issued to convertible note holders
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,056,203
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,056,203Beneficial
      conversion feature on notes
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        943,797
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        943,797Net
      income for the year
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        6,765,249
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        6,765,249Statutory
      reserve
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (778,019
                        )
                        
                        
                        778,019
                        
                        
                        
                        -
                        
                        
                        
                        -Foreign
      currency translation gain
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,383,279
                        
                        
                        
                        1,383,279Balance
      at December 31, 2007
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        11,379,309
                        
                        
                        $
                        11,379
                        
                        
                        
                        
                        
                        
                        $
                        
                        
                        
                        $
                        2,154,368
                        
                        
                        $
                        12,247,748
                        
                        
                        $
                        3,437,379
                        
                        
                        $
                        2,076,360
                        
                        
                        $
                        19,927,234Stock
      issued for compensation
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,068
                        
                        
                        
                        3
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        12,851
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        12,854Stock
      issued for conversion of
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -convertible
      notes and interest
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        922,554
                        
                        
                        
                        923
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,032,136
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,033,059Warrants
      issued for services
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        130,082
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        130,082Stock
      issued upon exercise of warrants
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        68,636
                        
                        
                        
                        69
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        219,567
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        219,636Net
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,559,791
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,559,791Foreign
      currency translation gain
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,880,500
                        
                        
                        
                        1,880,500Balance
      at December 31, 2008
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        12,373,567
                        
                        
                        $
                        12,374
                        
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        4,549,004
                        
                        
                        $
                        15,807,539
                        
                        
                        $
                        3,437,379
                        
                        
                        $
                        3,956,860
                        
                        
                        $
                        27,763,156







F-5




EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007





2008
                                        
                                        
                                        2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                        
                                        $
                                        3,559,791
                                        
                                        
                                        $
                                        6,765,249Adjustments
      to reconcile net income to cash provided by operating
      activities:Minority
      interest
                                        
                                        
                                        (4,063
                                        )
                                        
                                        
                                        -Depreciation
      and amortization
                                        
                                        
                                        1,010,379
                                        
                                        
                                        
                                        876,094Deferred
      income tax
                                        
                                        
                                        78,618
                                        
                                        
                                        
                                        -Amortization
      of discount on convertible notes
                                        
                                        
                                        1,973,587
                                        
                                        
                                        
                                        25,503Amortization
      of deferred financing costs
                                        
                                        
                                        191,995
                                        
                                        
                                        
                                        50,525Stock
      issued for interest
                                        
                                        
                                        33,059
                                        
                                        
                                        
                                        -Stock
      issued for compensation
                                        
                                        
                                        12,854
                                        
                                        
                                        
                                        -Warrants
      issued for services
                                        
                                        
                                        130,082
                                        
                                        
                                        
                                        -Loss
      on disposal of fixed assets
                                        
                                        
                                        -
                                        
                                        
                                        
                                        901Changes
      in operating assets and liabilitiesAccounts
      receivable
                                        
                                        
                                        4,385,144
                                        
                                        
                                        
                                        (3,798,964
                                        )Accounts
      receivable - related parties
                                        
                                        
                                        166,372
                                        
                                        
                                        
                                        1,601,978Inventories
                                        
                                        
                                        (1,675,726
                                        )
                                        
                                        
                                        (571,377
                                        )Other
      receivables and prepaid expenses
                                        
                                        
                                        (771,610
                                        )
                                        
                                        
                                        11,383Advances
      on inventory purchases
                                        
                                        
                                        (283,245
                                        )
                                        
                                        
                                        -Amounts
      due from related party
                                        
                                        
                                        (8,664,442
                                        )
                                        
                                        
                                        (1,668,357
                                        )Accounts
      payable
                                        
                                        
                                        1,668,565
                                        
                                        
                                        
                                        425,682Accounts
      payable - related parties
                                        
                                        
                                        (362,806
                                        )
                                        
                                        
                                        (1,844,649
                                        )Other
      payables and accrued liabilities
                                        
                                        
                                        535,878
                                        
                                        
                                        
                                        143,002Other
      payables-related parties
                                        
                                        
                                        784,278
                                        
                                        
                                        
                                        (334,672
                                        )Value
      added and other taxes payable
                                        
                                        
                                        (39,201
                                        )
                                        
                                        
                                        118,603Income
      tax payable
                                        
                                        
                                        102,932
                                        
                                        
                                        
                                        75,557Net
      cash provided by operating activities
                                        
                                        
                                        2,832,441
                                        
                                        
                                        
                                        1,876,458CASH
      FLOWS FROM INVESTING ACTIVITIESPayment
      for acquisition of New-Tailun
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (2,000,000
                                        )Other
      payables-related party
                                        
                                        
                                        (400,000
                                        )
                                        
                                        
                                        -Investment
      in La Chapelle
                                        
                                        
                                        (1,467,000
                                        )
                                        
                                        
                                        -Purchase
      of property and equipment
                                        
                                        
                                        (530,764
                                        )
                                        
                                        
                                        (3,127,321
                                        )Proceeds
      from sale of equipment
                                        
                                        
                                        72,966
                                        
                                        
                                        
                                        431,859Net
      cash used in investing activities
                                        
                                        
                                        (2,324,798
                                        )
                                        
                                        
                                        (4,695,462
                                        )CASH
      FLOWS FROM FINANCING ACTIVITIESContribution
      from minority shareholders
                                        
                                        
                                        553,040
                                        
                                        
                                        
                                        -Proceeds
      from bank loans
                                        
                                        
                                        12,137,430
                                        
                                        
                                        
                                        8,558,550Repayment
      of bank loans
                                        
                                        
                                        (10,753,590
                                        )
                                        
                                        
                                        (8,558,550
                                        )Repayment
      of long term loan from related party
                                        
                                        
                                        (1,990,000
                                        )
                                        
                                        
                                        -Proceeds
      from exercise of warrants
                                        
                                        
                                        219,635
                                        
                                        
                                        
                                        -Net
      proceeds from convertible notes
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,757,480Net
      cash provided by financing activities
                                        
                                        
                                        166,515
                                        
                                        
                                        
                                        1,757,480EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                        
                                        
                                        129,466
                                        
                                        
                                        
                                        806,170NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                        
                                        
                                        803,624
                                        
                                        
                                        
                                        (255,354
                                        )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
                                        
                                        
                                        641,739
                                        
                                        
                                        
                                        897,093CASH
      AND CASH EQUIVALENTS AT END OF YEAR
                                        
                                        $
                                        1,445,363
                                        
                                        
                                        $
                                        641,739SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the year for:Interest
                                        
                                        $
                                        384,339
                                        
                                        
                                        $
                                        162,156Income
      taxes
                                        
                                        $
                                        909,444
                                        
                                        
                                        $
                                        199,071





SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:





During
2008, convertible notes of $2,000,000 were converted into 909,091 shares of
common stock of the Company.







F-6




EVER-GLORY
INTERNATIONAL GROUP, INC AND SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS





DECEMBER
31, 2008 AND 2007





NOTE
1 - ORGANIZATION AND BASIS OF PRESENTATION





Ever-Glory
International Group, Inc. (“Ever-Glory”) was incorporated in Florida on October
19, 1994. All of its businesses are operated through its subsidiaries in the
People’s Republic of China (“PRC”).





Perfect
Dream Limited (“Perfect Dream”), a wholly-owned subsidiary of Ever-Glory, was
incorporated in the British Virgin Islands on July 1, 2004.





Goldenway
Nanjing Garments Co. Ltd. (“Goldenway”), a wholly-owned subsidiary of Perfect
Dream, was incorporated in the PRC on December 31, 1993.





Nanjing
Catch-Luck Garments Co, Ltd. (“Catch-Luck”), a wholly owned subsidiary of
Perfect Dream, was incorporated in the PRC on December 21, 1995.





Nanjing
New-Tailun Garments Co. Ltd. (“New-Tailun’), a wholly-owned subsidiary of
Perfect Dream, was incorporated in the PRC on March 27, 2006.





These
three subsidiaries (Goldenway, Catch-Luck and New-Tailun) are principally
engaged in the manufacture and sale of garments.





Shanghai
LA GO GO Fashion Company Limited (“LA GO GO”), a joint venture of Goldenway and
Shanghai La Chapelle Garment and Accessories Company Limited (“La Chapelle”),
was incorporated in the PRC on January 24, 2008. Goldenway invested
approximately $826,200 (RMB 6.0 million) in cash, and La Chapelle invested
approximately $553,040 (RMB 4.0 million) in cash, for a 60% and 40% ownership
interest, respectively, in the joint venture. The joint venture was formed to
establish and create a leading brand of ladies’ apparel for the mainland Chinese
market. As of December 31, 2008, LA GO GO was operating 93 retail stores selling
its LA GO GO Brand clothing.





Ever-Glory,
Perfect Dream, Goldenway, New-Tailun, Catch-Luck, and LA GO GO are hereinafter
referred to as (the “Company”).





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principles of
Consolidation





The
consolidated financial statements include Ever-Glory and its subsidiaries, and
are prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). All significant intercompany accounts and
transactions have been eliminated in consolidation.





Business Combinations with
Entities under Common Control





On
November 9, 2006, the Company acquired 100% of New-Tailun from Ever-Glory
Enterprises (HK) Limited (Ever-Glory Hong Kong) . The Company paid $2,000,000 in
cash and, in September 2007, issued 20,833,333 shares of the Company’s
restricted common stock in connection with the transaction.


F-7





On June
26, 2006, the Company acquired 100% of Catch-Luck from Ever-Glory Hong Kong. The
Company paid Ever-Glory Hong Kong $600,000 in cash and issued 1,307,693 shares
of the Company’s restricted common stock in connection with the transaction. On
August 31, 2006, the Company amended the terms of the purchase consideration as
follows: An additional 1,153,846 shares of the Company’s restricted common stock
are to be issued to Ever-Glory Hong Kong if Catch-Luck generates gross revenues
of at least $19,000,000 and net income of $1,500,000 for the year ended December
31,2008. These targets were met in 2008 and the shares are expected to issue in
the second quarter of 2009. An additional 1,153,846 shares of the Company’s
restricted common stock will be issued to Ever-Glory Hong Kong if Catch-Luck
generates gross revenues of at least $19,000,000 and net income
of  $1,500,000 for the year ending December 31,2009. The Catch-Luck
transaction closed on August 27, 2007. Assets acquired and debts assumed as of
the acquisition date were as follows:





Historical Book
                      ValueCurrent
      assets
                    
                    $
                    7,028,842Property,
      plant, and equipment
                    
                    
                    799,579Total
      assets
                    
                    
                    7,828,421Total
      liabilities
                    
                    
                    4,769,080Net
      assets
                    
                    $
                    3,059,341





Mr Edward
Yihua Kang, is the Company’s Chairman and Chief Executive Officer,and is also a
significant shareholder of the Company. Mr Kang was also the controlling
shareholder of Ever-Glory Hong Kong at the time of these transactions.
Accordingly these transactions were accounted for as mergers of entities under
common control, and have been included in the consolidated financial statements
as of the beginning of the first post-merger period presented with each account
stated at historical cost.




Use ofEstimatesand
Assumptions




In
preparing the consolidated financial statements in conformity with GAAP,
management makes certain estimates and assumptions that affect the reported
amounts and disclosure of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Management believes that the estimates utilized in
preparing the financial statements are reasonable and prudent based on the best
information available at the time the estimates are made. Actual results could
differ from these estimates.





Economic and Political
Risks





The
majority of the Company’s operations are conducted in the PRC. Accordingly, the
Company’s business, financial condition and results of operations may be
influenced by the political, economic and legal environment in the PRC, and by
the general state of the PRC economy. The Company's operations in the PRC are
subject to special considerations and significant risks not typically associated
with companies in North America and Western Europe. These include risks
associated with, among others, the political, economic and legal environment and
foreign currency exchange. The Company's results may be adversely affected by
changes in the political and social conditions in the PRC, and by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion, remittances abroad, and rates and methods of
taxation.


F-8





Cash and Cash
Equivalents





Cash and
cash equivalents include cash on hand and demand deposits with banks with
original maturities within three months.





Accounts
Receivable





The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks to minimum by performing credit
checks and actively pursuing past due accounts.  An allowance for
doubtful accounts is established and recorded based on management’s assessment
of the credit history with the customer and current relationships with them. The
Company writes off accounts receivable when amounts are deemed
uncollectible.





As of
December 31, 2008 and 2007, the Company considers all its accounts receivable to
be collectable and no provision for doubtful accounts has been made in the
consolidated financial statements.





Inventories





Manufactured
inventories are stated at lower of cost or market value, cost being determined
on a specific identification method. The Company manufactures products upon
receipt of orders from its customers. All the products must pass the customers’
quality assurance procedures before delivery. Therefore, products are rarely
returned by customers after delivery.





Retail
merchandise inventories are stated at the lower of average cost or
market.  The Company has a limited history of retail operations, but
to date, returns have been insignificant.





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 estimated residual value, over the
assets’ estimated useful lives.  The estimated useful lives are as
follows:





Property
      and plant
                      15-20
      YearsLeasehold
      improvements
                      10
      YearsMachinery
      and equipment
                      10
      YearsOffice
      equipment and furniture
                      5
      YearsMotor
      vehicles
                      5
      Years




F-9




Land Use
Rights




All land
in the PRC is owned by the government and cannot be sold to any individual or
company. However,
the government may grant a “land use right” to occupy, develop and use land. The
Company records land use rights obtained as intangible assets at cost, which is
amortized evenly over the grant period of 50 years.




Long-Lived
Assets





The
Company accounts for long-lived assets under Statement of Financial Accounting
Standards (SFAS) No. 144 “Accounting for Impairment or Disposal of Long-Lived
Assets”.  In accordance with SFAS No.144, long-lived assets, property,
equipment and land use rights 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. There were no impairments of long-lived assets
as of December 31, 2008.




Cost
Investment





Cost
Investment consists of the Company’s 10% equity investment in La Chapelle,
acquired on January 9, 2008 for approximately $1,467,000. If a decline in the
fair value of a cost method investment is determined to be other than temporary,
an impairment charge is recorded and the fair value becomes the new cost basis
of the investment. Management evaluates the cost method investment for
impairment in accordance with FASB Staff Position (“FSP”) 115-1 and FAS 124-1
“The Meaning of Other Than
Temporary Impairment and its Application to Certain Investments”;
however, the fair value of the cost method investment is not required to be
determined unless impairment indicators are present. When impairment indicators
exist, discounted cash flow analyses are generally used to estimate the fair
value.





Management determined that there was no
impairment of the cost investment as of December 31, 2008.




Financial
Instruments




Management
has estimated that the carrying amounts of non-related party financial
instruments approximate their fair values due to their short-term maturities.
The fair value of amounts due from (to) related parties is not practicable to
estimate due to the related party nature of the underlying
transactions.




F-10




Fair Value
Accounting




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Statement No. 157, “Fair
Value Measurements” (“FAS No.157”). SFAS No.157 defines fair
value, establishes a framework for measuring fair value under GAAP, and expands
disclosures about fair value measurements. The provisions of FAS No.157
were adopted January 1, 2008. In February 2008, the FASB staff issued FASB
Staff Position (“FSP”) No. 157-2 “Effective Date of FASB Statement
No. 157” (“FSP FAS No.157-2”). FSP FAS No.157-2 delayed
the effective date of FAS No.157 for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). The
provisions of FSP FAS No.157-2 are effective for the Company’s fiscal year
beginning January 1, 2009, and are not expected to have a significant
impact on the Company.




FAS No.157
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy
under FAS No.157 are described below:





Level 1
            Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or liabilities;Level 2
            Quoted
      prices in markets that are not active, or inputs that are observable,
      either directly or indirectly, for substantially the full term of the
      asset or liability;Level 3
            Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (supported by little or no
      market activity).




At December 31, 2008, the Company’s
financial assets consist of cash placed with financial institutions management
considers to be of a high quality.




Effective
January 1, 2008, the Company also adopted SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—Including an Amendment of FASB Statement No.
115”, which allows an entity to choose to measure certain financial
instruments and liabilities at fair value on a contract-by-contract basis.
Subsequent fair value measurement for the financial instruments and liabilities
an entity chooses to measure will be recognized in earnings. As of December 31,
2008, the Company did not elect such option for its financial instruments and
liabilities.




Revenue and Cost
Recognition





The
Company recognizes wholesale revenue, net of value added taxes, upon delivery
for local sales and upon shipment of the products for export sales, at which
time title passes to the customer provided that there are no uncertainties
regarding customer acceptance, persuasive evidence of an arrangement exists, the
sales price is fixed and determinable and collectability is deemed probable.
Retail sales are recorded at the time of register receipt.





Local
transportation and unloading charges, and product inspection charges, are
included in selling expenses and totaled $114,473 in 2008 and $195,995 in 2007,
respectively.





Cost of
goods sold includes the direct raw material cost, direct labor cost,
manufacturing overheads including depreciation of production equipment and rent
consistent with the revenue earned.


F-11





Income
Taxes





The
Company accounts for income taxes under the SFAS No. 109, “Accounting for Income
Taxes”. Under SFAS No 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 SFAS No 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.





The
Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”) as of January 1, 2007. A tax position is recognized as a
benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than
50% likely of being realized on examination. For tax positions not meeting the
“more likely than not” test, no tax benefit is recorded. The adoption had no
effect on the Company’s consolidated financial statements.





Minority
Interest





Minority
interest consists of La Chapelle’s 40% interest in LA GO GO. As of December 31,
2008 2007, minority interest was $548,977.





Foreign Currency Translation
and Other Comprehensive Income





The
reporting currency of the Company is the U.S. dollar. The functional currency of
Ever-Glory and Perfect Dream is the U.S. dollar. The functional currency of
Goldenway, New Tailun, Catch-luck and LA GO GO is the Chinese RMB.





For the
subsidiaries whose functional currencies are the RMB, all assets and liabilities
were translated at the exchange rate on the balance sheet date; stockholders’
equity is translated at historical rates and items in the statement of
operations are translated at the average rate for the period. Translation
adjustments resulting from this process are included in accumulated other
comprehensive income in the statements of stockholders’ equity. The resulting
translation gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred and amounted to $295,053 and
$87,355 for the year ended December 31, 2008 and 2007 respectively. Items in the
cash flow statement are translated at the average exchange rate for the
period.





Translation
adjustments resulting from this process included in accumulated other
comprehensive income in the consolidated statements of stockholders’ equity
amounted to $3,956,860 and $2,076,360 as of December 31, 2008 and 2007,
respectively. Assets and liabilities at December 31, 2008 and 2007 were
translated at RMB6.82 and RMB7.29 to $1.00, respectively. The average
translation rates applied to income statement accounts and statement of cash
flows for the years ended December 31, 2008 and 2007 were RMB6.94 and RMB7.59 to
$1.00, respectively. As a result, amounts related to assets and liabilities
reported on the statement of cash flows will not necessarily agree with changes
in the corresponding balances on the balance sheets.





Earnings Per
Share





The
Company reports earnings per share in accordance with the provisions of SFAS No.
128, “Earnings Per Share” (“SFAS No. 128”). SFAS No. 128 requires presentation
of basic and diluted earnings per share in conjunction with the disclosure of
the methodology used in computing such earnings per share. Basic earnings per
share excludes dilution and is computed by dividing income available to common
stockholders by the weighted average common shares outstanding during the
period. Diluted earnings per share takes into account the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised and converted into common stock. Further, according to SFAS No. 128,
if the number of common shares outstanding increases as a result of a stock
dividend or stock split or decreases as a result of a reverse stock split, the
computations of a basic and diluted EPS shall be adjusted retroactively for all
periods presented to reflect that change in capital structure.




F-12





Segments





The Company adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for operating information regarding operating segments
in annual financial statements and requires selected information for those
segments to be presented in financial reports issued to stockholders. SFAS No.
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 decision how to allocate resources and assess
performance.The Company reports financial and operating information in
two segments:


(1)
            Wholesale
      apparel manufacture and sales


(2)
            Retail
      sales of own-brand clothing





Reclassification





Certain
amounts reported in the 2007 financial statements have been reclassified to
conform to the 2008 presentation.





Recent Accounting
Pronouncements




In June
2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
No. 07-5”). This Issue is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years. Early application is not permitted. Paragraph 11(a) of Statement of
Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own
stock and (b) classified in stockholders’ equity in the statement of
financial position would not be considered a derivative financial instrument.
EITF No.07-5 provides a new two-step model to be applied in determining whether
a financial instrument or an embedded feature is indexed to an issuer’s own
stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
This standard triggers liability accounting on all options and warrants
exercisable at strike prices denominated in any currency other than the
functional currency of the operating entity in China (Renminbi). The Company is
currently evaluating the impact of adoption of EITF No. 07-5 on the Company’s
consolidated financial statements.




F-13




In
December 2007, the FASB issued Statement of Financial Accounting Standard No.
141 (R), "Business Combinations" ("SFAS 141 (R)"), which becomes effective for
fiscal periods beginning after December 15, 2008 (January 1, 2009 for the
Company). SFAS No. 141 (R) requires all business combinations completed after
the effective date to be accounted for by applying the acquisition method
(previously referred to as the purchase method). Companies applying this method
will have to identify the acquirer, determine the acquisition date and purchase
price and recognize at their acquisition date fair values of the identifiable
assets acquired, liabilities assumed, and any noncontrolling interests in the
acquisition. In the case of a bargain purchase the acquirer is required to
reevaluate the measurements of the recognized assets and liabilities at the
acquisition date and recognize a gain on that date if an excess remains. The
Company is currently assessing the impact of this statement, and believes it
will have a material impact on the accounting for business combinations
completed subsequent to December 31, 2008.





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51" ("SFAS 160") which
becomes effective for fiscal periods beginning after December 15, 2008 (January
1, 2009 for the Company). This statement amends ARB 51 to establish accounting
and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. The statement requires ownership interests
in subsidiaries held by parties other than the parent be clearly identified,
labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parent's equity. The statement also
requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interest with
disclosure on the face of the consolidated statement of income, of the amounts
of consolidated net income attributable to the parent and to the non-controlling
interest. In addition this statement establishes a single method of accounting
for changes in a parent's ownership interest in a subsidiary that do not result
in deconsolidation and requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. The Company is currently assessing
the impact of this statement, and believes it will have a material impact on its
consolidated financial statements.





NOTE
3 - INVENTORIES




Inventories
at December 31, 2008 and 2007 consisted of the following:





2008
                    
                    
                    2007Raw
      materials
                    
                    $
                    328,607
                    
                    
                    $
                    304,178Work-in-progress
                    
                    
                    342,303
                    
                    
                    
                    338,599Finished
      goods
                    
                    
                    3,064,317
                    
                    
                    
                    1,254,246Total
      inventories
                    
                    $
                    3,735,227
                    
                    
                    $
                    1,897,023





For the
years ended December 31, 2008 and 2007, no provision for obsolete inventories
was recorded by the Company.





NOTE
4 - LAND USE RIGHTS




In 2006,
the Company obtained a fifty-year land use right on 112,442 square meters of
land in the Nanjing Jiangning Economic and Technological Development
Zone.





Land use
rights at December 31, 2008 and 2007 consisted of the following:





2008
                  
                  
                  2007Land
      use rights
                  
                  $
                  3,068,813
                  
                  
                  $
                  2,867,991Less:
      accumulated amortization
                  
                  
                  (214,305
                  )
                  
                  
                  (138,808
                  )Land
      use rights, net
                  
                  $
                  2,854,508
                  
                  
                  $
                  2,729,183




F-14





Amortization
expense was $64,634 and $59,038 for the years ended December 31, 2008 and 2007,
respectively. Estimated amortization expense is approximately $65,000 per year
for each of the next 5 years.




NOTE
5 - PROPERTY AND EQUIPMENT




The
following is a summary of property and equipment at December 31 2008 and
2007:





2008
                    
                    
                    2007Property
      and plant
                    
                    $
                    12,065,223
                    
                    
                    $
                    11,358,142Equipment
      and machinery
                    
                    
                    3,588,705
                    
                    
                    
                    3,128,928Office
      equipment and furniture
                    
                    
                    410,710
                    
                    
                    
                    208,327Motor
      vehicles
                    
                    
                    234,971
                    
                    
                    
                    165,39316,299,609
                    
                    
                    
                    14,860,790Less:
      accumulated depreciation
                    
                    
                    3,805,157
                    
                    
                    
                    2,719,887Property
      and equipment, net
                    
                    $
                    12,494,452
                    
                    
                    $
                    12,140,903





Depreciation
expense was $945,745 and $817,056 for the years ended December 31, 2008 and
2007, respectively. For the year ended December 31, 2007, $124,808 of interest
was capitalized into construction in progress which was subsequently transferred
to property and plant when construction was completed.





NOTE
6 - OTHER PAYABLES AND ACCRUED LIABILITIES




Other
payables and accrued liabilities at December 31, 2008 and 2007 consisted of the
following:





2008
                    
                    
                    2007Building
      construction costs payable
                    
                    $
                    633,725
                    
                    
                    $
                    390,207Accrued
      professional fees
                    
                    
                    224,985
                    
                    
                    
                    252,495Accrued
      wages and welfare
                    
                    
                    553,690
                    
                    
                    
                    337,995Other
      payables
                    
                    
                    271,577
                    
                    
                    
                    88,985Total
      other payables and accrued liabilities
                    
                    $
                    1,683,977
                    
                    
                    $
                    1,069,682




NOTE
7 - BANK LOANS




Bank
loans represent amounts due to various banks and are due on demand or normally
within one year. These loans generally can be renewed with the banks. Short term
bank loans consisted of the following:


2008
                                          
                                          
                                          2007Bank
      loan, interest rate at 0.60225% per month,due February
      9, 2009, paid in full, January and February 
      2009
                                          
                                          $
                                          5,809,320
                                          
                                          
                                          $
                                          -Bank
      loan, interest rate at 0.48825% per month,due
      December 8, 2009
                                          
                                          
                                          733,500
                                          
                                          
                                          
                                          -Bank
      loan, interest rate at 0.5442% per month,due
      February 9, 2008; paid in full, January 2008.
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,371,000Bank
      loan, interest rate at 0.58482% per month,due
      May 11, 2008; paid in full ,February 2008
                                          
                                          
                                          -
                                          
                                          
                                          
                                          685,500Bank
      loan, interest rate at 0.58482% per month,due
      June 2, 2008; paid in full, May 2008
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,371,000Bank
      loan, interest rate at 0.58482% per month,due
      June 12, 2008; paid in full June 2008
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,371,000Total
      bank loans
                                          
                                          $
                                          6,542,820
                                          
                                          
                                          $
                                          4,798,500


F-15




On July
31, 2008, Goldenway entered into a two-year revolving line of credit agreement
with a PRC Bank, which allows Goldenway to borrow up to approximately $7.3
million (RMB50million). These borrowings are guaranteed by Jiangsu Ever-Glory,
an entity controlled by Mr. Kang, the Company’s Chief Executive Officer. These
borrowings are also collateralized by the 50-year land use right held by
Goldenway and the Company’s facilities on that land. As of December 31, 2008,
bank loans include approximately $5.8 million borrowed under this agreement. The
$5.8 million was repaid in January and February 2009. Also in January and
February 2009, Goldenway borrowed approximately $5.9 million under this
agreement.
  The bank
loan for $733,500 is guaranteed by Mr. Kang and collateralized by real
properties owned by Mr. Kang and a member of his family.


Total
interest expense on bank loans was $327,834 and $237,323 for the years ended
December 31, 2008 and 2007, respectively.





NOTE
8 - CONVERTIBLE NOTES PAYABLE




On August
2, 2007, the Company consummated a private placement of $2,000,000 principal
amount of 6% secured convertible notes with five-year common stock warrants to
six accredited investors.  Financing cost of $242,520 was paid out of
the gross proceeds.  Pursuant to APB 21, financing cost is amortized
over the life of the notes to interest expense using the effective interest
method. The Company amortized $191,995 and $50,525 of financing costs in
interest expense for the years ended December 31, 2008 and 2007,
respectively.





The
secured convertible notes had a due date of August 2, 2009 and were originally
convertible into 9,090,909 shares of common stock of the Company at a conversion
price of $0.22 per share. In November 2007, a 10:1 reverse stock split was made
effective on the Company’s common stock. Accordingly, the number of shares of
common stock convertible from the notes was adjusted to 909,091 at a conversion
price of $2.20 per share.





The
Company issued warrants to the investors in the note financing, for the purchase
of up to a total of 909,091 shares of common stock at an exercise price of
$3.20. The warrants are exercisable through September 29, 2013. As of December
31, 2008, 68,636 shares of common stock had been issued upon the exercise of
warrants.




The
Company accounted for the secured convertible notes under Emerging Issues Task
Force Issue 00-27, ‘‘Application of Issue 98-5 to Certain Convertible
Instruments’’(“EITF00-27”).   Based on EITF 00-27, the Company
determined that the convertible notes contained a beneficial conversion feature
because at August 2, 2007 (date of issue), the effective conversion price of the
convertible notes was $1.10 when the market value per share was $2.70. In
accodance with EITF 00-27 the Company allocated the proceeds received in the
private placement to the beneficial conversion feature and the warrants on a
relative fair value basis




Accordingly
the Company recorded a discount on the note related to the intrinsic value of
the beneficial conversion feature totaling $943,797 and $1,056,203 for the fair
value of the warrants issued. The fair value of the warrants was calculated
using the Binomial model with the following assumptions: (i) risk-free interest
rate of 4.62%; (ii) expected life (in years) of 6; (iii) expected volatility of
112%; (iv) expected dividend yield of 0.00%; and (v) market value of $2.70 per
share. The discount on the notes payable was being amortized using the effective
interest method over 2 years. Amortization of discount of $25,503 was recorded
to interest expense in 2007.


F-16


The
secured convertible notes bore interest at 6% per annum payable in arrears on
the last business day of each calendar quarter thereafter and on the maturity
date. $58,659 and $49,972 was recorded as interest expense for the years ended
December 31, 2008 and 2007, respectively.





During
2008, the note holders converted the total principal of $2,000,000 plus accrued
interest of $33,059 into 922,554 shares of common stock of the Company.
Accordingly the Company amortized the remaining discount of $1,974,497 as
interest expense for the year ended December 31, 2008.





On
January 4, 2008, the Company issued 72,728 warrants with an exercise price of
$3.20 per share (“Warrants”) for services in connection with the debt financing.
The Warrants expire January 4, 2011. The warrants were valued at $130,082 using
the Black Scholes Model, which was charged to expense in 2008.





NOTE
9 - INCOME TAX




Pre-tax
income for the years ended December 31 2008 and 2007 was taxable in the
following




2008
                    
                    
                    
                    1007PRC
                    
                    $
                    7,408,479
                    
                    
                    $
                    7,996,979Others
                    
                    
                    (2,761,745
                    )
                    
                    
                    (979,048
                    )$
                    4,646,734
                    
                    
                    $
                    7,017,931







Ever-Glory
was incorporated in the U.S. and has incurred net operating losses for income
tax purposes for 2008 and 2007. As of December 31, 2008, the net operating loss
carry forward for U.S. income taxes was approximately $747,000 which may be
available to reduce future years’ taxable income. These net operating loss carry
forwards will expire, if not utilized, through 2028. Management believes that
the realization of the benefits from these losses is uncertain due to the
Company’s limited operating history and continuing losses for United States
income tax purposes. Accordingly, the Company has provided a 100% valuation
allowance on the deferred tax asset to reduce the asset to zero. The valuation
allowance at December 31, 2008 was approximately $254,000.





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.





The
Company’s subsidiaries are governed by the Income Tax Law of the PRC concerning
Foreign Investment Enterprises and Foreign Enterprises and various local income
tax laws (“the Income Tax Laws”).





Beginning
January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the old laws
for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
(“FIEs”).





The key
changes are:





a.
            The
      new standard EIT rate of 25% replaces the 33% rate applicable to both DES
      and FIEs, except for High Tech companies that pay a reduced rate of
      15%;





b.
            Companies
      established before March 16, 2007 continue to enjoy tax holiday treatment
      approved by local governments for a grace period of either the next 5
      years, or until the tax holiday term is completed, whichever is
      sooner.


F-17





The
Company and its subsidiaries, except for LA GO GO, were established before March
16, 2007 and therefore are qualified to continue to avail of the reduced tax
rate as described above.





Upon
approval by the PRC tax authorities, FIEs' scheduled to operate for a period of
10 years or more and engaged in manufacturing and production may by exempt from
income taxes for two years, commencing with their first profitable year of
operations, after taking into account any losses brought forward from prior
years, and thereafter with a 50% reduction for the subsequent three
years.





In 2007,
Goldenway’s income tax rate was 12% , and in 2008, Goldenway’s income tax rate
was 25%.





New-Tailun
and Catch-Luck were approved as wholly foreign-owned enterprises in 2006 and are
entitled to income tax exemptions in 2006 and 2007. Accordingly in 2007, no
income tax expense was recorded by New-Tailun and Catch-Luck as these entities
were entitled to full exemption from income tax. For 2008, 2009 and 2010,
New-Tailun and Catch-Luck are entitled to a 50% reduction to the income tax rate
of 25%. Therefore these two subsidiaries are taxed at 12.5% for these three
years.





LA GO GO
was established on January 24, 2008, and its income tax rate is
25%.





Income
tax expense was $1,091,006 and $252,682 for the years ended December 31, 2008
and 2007, respectively.





The
following table reconciles the PRC statutory rates to the Company’s effective
tax rate for the years ended December 31, 2008 and 2007:





2008
                  
                  
                  2007PRC
      Statutory Rate
                  
                  
                  25.0
                  %
                  
                  
                  33.0
                  %Income
      tax exemption
                  
                  
                  (12.8
                  )
                  
                  
                  (29.4
                  )Other
                  
                  
                  2.5
                  
                  
                  
                  -Effective
      income tax rate
                  
                  
                  14.7
                  %
                  
                  
                  3.6
                  %





Income
tax expense for the years ended December 31,2008 and 2007 is as
follows:





2008
                    
                    
                    2007Current
                    
                    $
                    1,012,388
                    
                    
                    $
                    252,682Deferred
                    
                    
                    78,618
                    
                    
                    
                    -Income
      tax expense
                    
                    $
                    1,091,006
                    
                    
                    $
                    252,682





At
December 31,2008, deferred tax liabilities are from temporary differences
relating to sales and purchase invoices, which, for PRC tax purposesare recorded upon issuance
of invoices and are recorded upon delivery or shipment for book
purposes.


F-18


NOTE
10 - EARNINGS PER SHARE




Basic and
diluted earnings per share for 2008 and 2007 were calculated as
follows:


2008
                    
                    
                    2007Net
      income
                    
                    $
                    3,559,791
                    
                    
                    $
                    6,765,249Add:
      interest expense related to convertible notes
                    
                    
                    
                    
                    
                    
                    75,474Adjusted
      net income for calculating EPS-diluted
                    
                    $
                    3,559,791
                    
                    
                    $
                    6,840,723Weighted
      average number of common shares- Basic
                    
                    
                    11,895,048
                    
                    
                    
                    6,865,482Contingently
      issuable shares for Catch Luck acquisition
                    
                    
                    1,594,721Convertible
      notes
                    
                    
                    
                    
                    
                    
                    378,580Weighted
      average number of common shares- Diluted
                    
                    
                    13,489,769
                    
                    
                    
                    7,244,062Earnings
      per share - basic
                    
                    $
                    0.30
                    
                    
                    $
                    0.99Earnings
      per share –diluted
                    
                    
                    0.26
                    
                    
                    
                    0.94




As of
December 31, 2008, the Company excluded 913,182 warrants outstanding from
diluted earnings per share because the exercise price of $3.20 exceeded the
average trading price of $3.17 for the year ended December 31, 2008, making
these warrant anti-dilutive. As of December 31, 2007, the Company excluded all
909,091 warrants outstanding from diluted earnings per share because the
exercise price of $3.20 exceeded the average trading price of $2.86 for the year
ended December 31, 2007, making these warrant anti-dilutive.





NOTE
11 - STOCKHOLDERS’ EQUITY




Stock Issued for
Acquisitions of entities under Common Control




In
September 2007, the Company issued 2,083,333 shares of restricted common stock
to a related company as part of the consideration for the acquisition of
New-Tailun.




In
September 2007, the Company issued 1,307,693 shares of restricted common stock
to a related company as part of the consideration for the acquisition of
Catch-Luck.




Conversion of Convertible
Notes to Common Stock




During
2008, convertible notes and accrued interest expense totaling
$2,033,059 was converted into 922,554 shares of common stock.




Stock Issued to Independent
Directors





On
September 2, 2008, the Company issued 3,068 shares of common stock to the
Company’s three independent directors as compensation for their services in the
first and second quarters of 2008. The shares were valued at $4.19 per share,
being the average market price of the common stock for the five days before June
30, 2008.


F-19




Statutory
Reserve




Subsidiaries
incorporated in China 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.





As of
December 31, 2008, New-Tailun and Catch-Luck had fulfilled the 50% statutory
reserve contribution requirement; therefore no further transfers are required
for those entities. Goldenway and LA GO GO did not generate net income in 2008,
therefore, contribution to the reserve is not required.





As of
December 31, 2008 and 2007, the Company recorded $3,437,379 and $3,437,379,
respectively, in the statutory reserve.




Warrants




Following
is a summary of the warrant activity:





Number of SharesOutstanding
      as of January 1, 2007
                    
                    
                    -Granted
                    
                    
                    909,091Forfeited
                    
                    
                    -Exercised
                    
                    
                    -Outstanding
      as of December 31, 2007
                    
                    
                    909,091Granted
                    
                    
                    72,728Forfeited
                    
                    
                    -Exercised
                    
                    
                    (68,636
                    )Outstanding
      as of December 31, 2008
                    
                    
                    913,183





Following
is a summary of the status of warrants outstanding and exercisable at December
31, 2008 and 2007:





2008
                          
                          
                          2007Exercise Price
                          
                          Number of
                            Shares
                          
                          
                          Average
                            Remaining
                            Contractual Life
                          
                          
                          Average
                            Exercise Price
                          
                          
                          Number of
                            Shares
                          
                          
                          Average
                            Remaining
                            Contractual Life$
                          3.20
                          
                          
                          840,455
                          
                          
                          
                          4.43
                          
                          
                          $
                          3.20
                          
                          
                          
                          909,091
                          
                          
                          
                          5.43$
                          3.20
                          
                          
                          72,728
                          
                          
                          
                          2.01Total
                          
                          
                          913,183
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          909,091




F-20




NOTE
12 - RELATED PARTY TRANSACTIONS




All
transactions associated with the following companies controlled by Mr. Kang and
Ever-Glory Hong Kong are considered to be related party transactions. All
related party outstanding balances are short-term in nature and are expected to
be settled in cash.




Sales and Cost of Sales to
Related Parties




The
Company sells products to Nanjing High-Tech Knitting & Weaving Technology
Development Co., Ltd (“Nanjing Knitting”), a company controlled by Ever-Glory
Hong Kong.




Sales and
related cost of sales in connection with Nanjing Knitting was $681,167 and
$621,103 for the year ended December 31, 2008 and $1,155,998 and $995,398 for
the year ended December 31, 2007, respectively.




Purchases from, and
Sub-contracts with Related Parties




The
Company purchases raw materials from Nanjing Knitting. Raw materials totaling
$1,828,661 and $446,561 during 2008 and 2007, respectively.




In
addition, the Company sub-contracted certain manufacturing work to related
companies totaling $1,327,965 and $4,048,689 for the years ended December 31,
2008 and 2007, respectively. The Company provided raw materials to the
sub-contractors and was charged a fixed fee for labor provided by the
sub-contractors.




Sub-contracts
with related parties included in cost of sales for the years ended December 31,
2008 and 2007 are as follows:




2008
                  
                  
                  2007Ever-Glory
      Enterprises (Chuzhou) Co., Ltd
                  
                  $
                  -
                  
                  
                  $
                  2,802,874Nanjing
      High-Tech Knitting & Weaving Technology Development Co.,
      Ltd
                  
                  
                  706,201
                  
                  
                  
                  268,743Kunshan
      Enjin Fashion Co., Ltd.
                  
                  
                  -
                  
                  
                  
                  503,498Nanjing
      Ever-Kyowa Garment Washing Co., Ltd.,
                  
                  
                  621,764
                  
                  
                  
                  228,903Nanjing
      Jiangning Shangfang Garments Manufacturing Co., Ltd.
                  
                  
                  
                  
                  
                  
                  244,671Total
                  
                  $
                  1,327,965
                  
                  
                  $
                  4,048,689




F-21


Accounts Receivable –
Related Parties




Accounts
receivable from related parties was $158,235 for products sold and
sub-contracting services provided for the year ended December 31,
2007.




Accounts Payable – Related
Parties




The
Company purchases raw materials from and subcontracts some of its production to
related parties. Accounts payable to Kunshan Enjin Fashion Co., Ltd. a company
controlled by the Company’s Chief Executive Officer was $245,589 at December 31,
2007,




Amounts Due From Related
Party




Jiangsu
Ever-Glory International Group Corp., (“Jiangsu Ever-Glory”) is an entity
engaged in importing and exporting, apparel-manufacture, real-estate
development, car sales and other activities. Jiangsu Ever-Glory is controlled by
the Company’s Chief Executive Officer. Because of restrictions on its ability to
directly import and export products, the Company utilizes Jiangsu Ever-Glory as
its agent, to assist the Company with its import and export transactions and its
international transportation projects. Import transactions primarily consist of
purchases of raw materials and accessories designated by the Company’s customers
for use in garment manufacture. Export transactions consist of the Company’s
sales to foreign markets such as Japan, Europe and the United States. As the
Company’s agent, Jiangsu Ever-Glory’s responsibilities include managing customs,
inspection, transportation, insurance and collections on behalf of the Company.
Jiangsu Ever-Glory also manages transactions denominated in currencies other
than the Chinese RMB at rates of exchange agreed between the Company and Jiangsu
Ever-Glory and based upon rates of exchange quoted by the People’s Bank of
China. In return for these services, Jiangsu Ever-Glory charges the Company a
fee of approximately 3% of export sales.  For import transactions, the
Company may make advance payments, through Jiangsu Ever-Glory, for the raw
material purchases, or Jiangsu Ever-Glory may make advance payments on the
Company’s behalf. For export transactions, accounts receivable for export sales
are remitted by the Company’s customers through Jiangsu Ever-Glory, who forwards
the payments to the Company. The Company and Jiangsu Ever-Glory have agreed that
balances from import and export transactions may be offset.  Amounts
due to (from) Jiangsu Ever-Glory are typically settled within 60-90 days.
Interest of 0.5% is charged on net amounts due at each month end. Interest
income for the years ended December 31, 2008 and 2007 was $217,181 and $165,201
respectively. Following is a summary of import and export transactions for the
years ended December 31, 2008 and 2007:





Accounts
      Receivable
                        
                        
                        Accounts
      Payable
                        
                        
                        NetAs
      of January 1,2008
                        
                        $
                        12,764,043
                        
                        
                        $
                        10,196,003
                        
                        
                        $
                        2,568,040Sales/Purchase
                        
                        
                        93,965,893
                        
                        
                        
                        55,749,209Payment
      Received/Made
                        
                        
                        88,791,655
                        
                        
                        
                        59,572,505As
      of December 31,2008
                        
                        $
                        17,938,281
                        
                        
                        $
                        6,372,707
                        
                        
                        $
                        11,565,574





Approximately
80% of the receivable balance at December 31, 2008 was settled by March 20,
2009.


F-22




Other Payables – Related
Party




As of
December 31, 2008 and 2007, other payables due to Ever-Glory Hong Kong were
$754,589 and $650,000, respectively.




As of
December 31, 2008, $200,000 was due for the purchase of Catch-Luck and $554,589
was due for legal and professional fees paid by Ever-Glory Hong Kong on behalf
of the Company.




As of
December 31, 2007, $600,000 was due for the purchase of Catch-Luck and $50,000
was due for legal and professional fees paid by Ever-Glory Hong Kong on behalf
of the Company.




Long-Term Liability –
Related Party




As of
December 31, 2008 and 2007 the Company owed $2,660,085 and $4,474,985,
respectively to Blue Power Holdings Limited., a company controlled by the
Company’s Chief Executive Officer. Interest is charged at 6% per annum on the
amounts due. The loans are due between July 2010 and April 2011. For years ended
December 31,2008 and 2007, the Company incurred interest expense of $175,100 and
$236,459, respectively. The accrued interest is included in the carrying amount
of the loan in the accompanying balance sheets. On June 26, 2008, the Company
repaid $1,990,000 to Blue Power Holdings Limited.




NOTE
13 – COMMITMENTS AND CONTINGENCIES




Capital
Commitment




According
to the Articles of Association of Goldenway, Goldenway has to fulfill its
registered capital requirements of $17,487,894 within three years from February
2, 2005. As of December 31, 2008, the Company had fulfilled $5,630,000 of its
registered capital requirements and had a registered capital commitment of
$11,857,894 which was payable by February 1, 2008. In July 2008, the Company
obtained an extension to April 25, 2009 to fulfill the remaining capital
contribution requirement of $11,857,894. Management expects to apply for a
further extension through December 31,2009. Management doesn’t expect this
requirement to have an impact on the Company’s financial position or results of
operations




Operating Lease
Commitment




The
Company leases factory and office space from Jiangsu Ever-Glory International
Group Corp. under an operating lease which expired on December 31, 2007 at an
annual rental of $26,256, and an operating lease which expires on December 31,
2009 at an annual rental of $50,452. Accordingly, for the period ended December
31, 2008 and 2007, the Company recognized rental expense in the amounts of
$50,452 and $26,256, respectively. The outstanding commitments of this
non-cancelable lease were $50,452 as of December 31, 2008.


F-23





The
Company leases retail space, warehouse and office facilities under operating
leases expiring on various dates through 2013.  The majority of the
Company’s retail leases are for twelve-month periods and provide for contingent
rents, which are determined as a percentage of gross sales in excess of
specified levels. The Company records a rent liability in the consolidated
balance sheets and the corresponding rent expense when management determines
that achieving the specified levels during the fiscal year is
probable.  Future minimum lease payments for leases with initial or
remaining noncancelable lease terms in excess of one year are as
follows:





Year
ending December 31,





2009
                  
                  $
                  196,1002010
                  
                  
                  138,2002011
                  
                  
                  33,9002012
                  
                  
                  4,1002013
                  
                  
                  2,000$
                  374,300





Rent
expense for the year ended December 31, 2008 was approximately
$1,500,400,.




Legal
Proceedings




The
Company was named as a 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,inter
alia,  that the Company breached an agreement with
the plaintiff under which it had promised to provide plaintiff 1,000,000 shares
of the Company's common stock in exchange for certain assistance in
marketing and financial public relations services. The action sought an
award of damages in excess of $75,000. The Company denied that it
was a party to such an agreement, that it breached the agreement
or that it was otherwise liable.  After vigorously defending
this action, the complaint was voluntarily dismissed by the Plaintiff without
prejudice by the court. In May 2007, Plaintiff Douglas G. Furth filed a Second
Amended Complaint asserting claims against the Company and other
principal parties. The Company denied all the claims and filed
responses and objections to the Plaintiff and asked for dismissal without
prejudice by the plaintiff.  No payment was made to the
plaintiff.  On November 29, 2007, the Company made a motion to dismiss the
action for lack of personal jurisdiction. On February 2, 2009, the motion for
summary judgment was granted by the court.  The plaintiff agreed by
way of settlement not to appeal the Court’s grant of summary judgment in favor
of the Company.  The matter is now concluded.





NOTE14
- CONCENTRATIONS AND RISKS




Cash includes cash on hand and demand
deposits in accounts maintained with stateowned banks within the People’s
Republic of China and Hong Kong. Total cash deposited with these banks at
December 31, 2008 and December 31, 2007 amounted to $1,396,312 and $625,947,
respectively, of which no deposits are covered by insurance. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
risks on its cash in bank accounts.




Sales to
our largest wholesale customer represented approximately 29% and 31% of total
sales and represented approximately 2.45% and 23.19% of accounts receivable as
of December 31, 2008 and 2007, respectively. No other customrs accounted
for more than 10% of total sales in 2008 and 2007.


F-24




The
Company did not rely on any single raw material supplier during 2008 and
2007.





For the
wholesale business, during 2008 and 2007, the Company relied on one manufacturer
for 21% and 12% of purchased finished goods. For the retail business, during
2008 the Company relied on two manufacturers for 29% of purchased finished
goods.





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


2008
                    
                    
                    2007The
      People’s Republic of China
                    
                    $
                    11,131,323
                    
                    
                    $
                    4,590,798Europe
                    
                    
                    52,855,580
                    
                    
                    
                    40,308,166Japan
                    
                    
                    16,579,037
                    
                    
                    
                    10,956,030United
      States
                    
                    
                    16,905,742
                    
                    
                    
                    14,480,389Total
                    
                    $
                    97,471,682
                    
                    
                    $
                    70,335,383





NOTE15-
SEGMENTS




The
Company set up a new retail segment and realigned its management and segment
reporting structure effective January 1, 2008. The new retail segment and
operating activity arose in 2008 and did not change the composition of the
wholesale segment or previously reported amounts. The segment data presented
reflects this new segment structure. The Company reports financial and operating
information in the following two segments for 2008:





(a)  Wholesale
segment


(b)  Retail
segment




The
Company also provides general corporate services to its segments and these costs
are reported as "Corporate and others."


F-25




Wholesale
                                          segment
                                        
                                        
                                        Retail
                                          segment
                                        
                                        
                                        Corporate and
                                          others
                                        
                                        
                                        TotalDecember
      31, 2008Segment
      profit or loss:Net
      revenue from external customers
                                        
                                        $
                                        93,284,480
                                        
                                        
                                        $
                                        3,506,035
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        96,790,515Net
      revenue from related parties
                                        
                                        $
                                        681,167
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        681,167Income
      from operations
                                        
                                        $
                                        7,789,642
                                        
                                        
                                        $
                                        (14,705
                                        )
                                        
                                        $
                                        (229,877
                                        )
                                        
                                        $
                                        7,545,060Interest
      income
                                        
                                        $
                                        222,368
                                        
                                        
                                        $
                                        4,608
                                        
                                        
                                        $
                                        114
                                        
                                        
                                        $
                                        227,090Interest
      expense
                                        
                                        $
                                        327,834
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        2,530,334
                                        
                                        
                                        $
                                        2,858,168Depreciation
      and amortization
                                        
                                        $
                                        783,621
                                        
                                        
                                        $
                                        4,077
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        787,698Income
      tax expense
                                        
                                        $
                                        1,091,006
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        1,091,006Segment
      assets:Additions
      to property, plant and equipment
                                        
                                        $
                                        462,691
                                        
                                        
                                        $
                                        68,073
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        530,764Total
      assets
                                        
                                        $
                                        41,340,062
                                        
                                        
                                        $
                                        4,240,453
                                        
                                        
                                        $
                                        40,199,256
                                        
                                        
                                        $
                                        85,779,771The
      reconciliations of segment information to the Company’s consolidated
      totals were as follows:December 31, 2008Revenues:Total
      reportable segments
                                        
                                        $
                                        97,471,682Elimination
      of intersegment revenues
                                        
                                        
                                        -Total
      consolidated
                                        
                                        $
                                        97,471,682Income
      (loss) from operations:Total
      segments
                                        
                                        $
                                        7,545,060Elimination
      of intersegment profits
                                        
                                        
                                        -Total
      consolidated
                                        
                                        $
                                        7,545,060Total
      assets:Total
      segments
                                        
                                        $
                                        85,779,771Elimination
      of intersegment receivables
                                        
                                        
                                        (41,498,862
                                        )Total
      consolidated
                                        
                                        $
                                        44,280,909




In 2007
the Company operates in a single segment.




NOTE
16 - SUBSEQUENT EVENTS




“Ever-Glory
International Group Apparel Inc.”(“Ever-Glory Apparel”) a wholly owned
subsidiary of Goldenway, was incorporated in the PRC on Jan 6,
2009.  Goldenway invested approximately $733,500 (RMB 5.0 million) in
cash. Ever-Glory Apparel is principally engaged in theimport and export of
apparel, fabric and accessories. Upon receipt of the
necessary licenses and approval from the PRC government, Ever-Glory Apparel is
expected to be the Company’s primary import and export
agent.




F-26




ITEM 9.
            CHANGES IN AND DISAGREEMENTS
      WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
    DISCLOSURE




Change in 2008




On
December 29, 2008, the Audit Committee of the Company’s Board of Directors with
the approval of the Board of Directors, dismissed Moore Stephens Wurth Frazer
and Torbet, LLP (“Moore Stephens”).  Moore Stephens was the
independent auditor for the Company from November 15, 2007 until December 29,
2008. None of Moore Stephens’s reports on our consolidated financial statements
during such period contained an adverse opinion or disclaimer of opinion or was
qualified or modified as to uncertainty, audit scope, or accounting principles.
There were no disagreements with Moore Stephens on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements, if not resolved to the satisfaction of Moore
Stephens, would have caused it to make reference to the subject matter of the
disagreements in connection with its reports.  There were no
reportable events as described in Item 304(a)(1)(v) of Regulation S-K occurred
during the period in which Moore Stephens served as the Company’s independent
auditor.





On
December 29, 2008 (“Engagement Date”), the Audit Committee, with the approval of
the Board of Directors, engaged GHP Horwath P.C. (“GHP Horwath”) as our
independent auditor. Prior to the Engagement Date: (1) neither we nor anyone on
its behalf consulted GHP Horwath regarding either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our financial statements; and neither
a written report nor oral advice was provided to the Company by GHP Horwath that
they concluded was an important factor considered by us in reaching a decision
as to the accounting, auditing or financial reporting issue; and (2) neither we
nor anyone on its behalf consulted GHP Horwath regarding any matter that was
either the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions) or a reportable events set forth in
Item 304(a)(1)(v) of Regulation S-K.





Change in
2007





Effective
December 12, 2007, as approved by our Board of Directors, we dismissed Jimmy
C.H. Cheung (“Cheung & Co.”) as our independent auditors.  Cheung
& Co. served as our independent auditors for the fiscal years ended December
31, 2006 and December 31, 2005, and the interim periods since the quarter ended
September 30, 2005.  Cheung & Co.’s reports on our financial
statements for the fiscal years ended December 31, 2006 and December 31, 2005
(the “Reports”) did not contain an adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope, or accounting
principles.




During
the fiscal years ended December 31, 2006 and December 31, 2005, and until Cheung
& Co’s dismissal, there were no disagreements with Cheung & Co. within
the meaning of Item 304 of Regulation S-B or any matter of accounting principles
or practices, financial disclosure, or auditing scope or procedure, which
disagreements, if not resolved to Cheung & Co.’s satisfaction, would have
caused Cheung & Co. to make reference to the subject matter of the
disagreements in connection with its Reports.


52


During
the fiscal years ended December 31, 2006 and December 31, 2005, and until Cheung
& Co.’s dismissal, there were no “reportable events” (as such term is
defined in Item 304(a)(1)(v) of Regulation S-B).





On
December 12, 2007, we engaged Moore Stephens as our independent accounting
firm.  This action was also approved by our Board of
Directors.  During our two most recent fiscal years and any subsequent
interim period prior to the engagement of Moore Stephens, neither we nor anyone
on our behalf consulted with Moore Stephens regarding either (i) the
application of accounting principles to a specified transaction, either
contemplated or proposed, or the type of audit opinion that might be rendered on
our financial statements, or (ii) any matter that was the subject of
a “disagreement” or a “reportable event.”





ITEM
9A. CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended ( the “Exchange Act”)  is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including its chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.





As of
December 31, 2008, the end of the fiscal year covered by this report, we
carried out an evaluation, under the supervision and with the participation of
our management, including our chief executive officer and our chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our chief executive officer and
chief financial officer concluded that our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were
effective at the reasonable assurance level.





Management’s
Annual Report on Internal Control over Financial Reporting





Our
management is also responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated
under the Exchange Act as a process designed by, or under the supervision of,
our principal executive and principal financial officers and effected by our
Board of Directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures
that:




53


 ̈
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;





 ̈
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company
      are being made only in accordance with authorizations of management and
      directors of the Company; and





 ̈
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company’s assets that
      could have a material effect on the financial
  statements.




Because
of its inherent limitations, our internal control over financial reporting may
not prevent or detect all misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





Our
management including our Chief Executive Officer and our Chief Financial Officer
has assessed the effectiveness of our internal control over financial reporting
as of December 31, 2008. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) inInternal
Control—Integrated Framework
..





Based on such assessment, they have
concluded that as of December 31, 2008, our internal control over financial
reporting was effective.





This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this Annual Report.





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,
2009 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.




ITEM
9B OTHER INFORMATION
 
 Indebtedness
of Goldenway
 
 Revolving
Line of Credit
 
 On July
31, 2008, Goldenway entered into a two-yearrevolving line ofcredit agreement(“RevolvingLine ofCredit”)withNanjing Bank, a PRC Bank,which allows Goldenwayto borrow up toRMB50million(approximatelyUSD7.3 million)at an interest rate of
0.60225% per month or 7.227% per year.  It shall be used solely for
working capital purposes.  TheRevolving Line of Creditare guaranteed
by Jiangsu Eve-Glory, an entity controlled by Mr. Kang, our Chief Executive
Officer, pursuant to certain guaranty agreement and alsocollateralized by the 50-year land use
right of Goldenway and the facilities on that land pursuant to certain mortgage
agreement. We did
not pay any fee to Mr. Kang or Jiangsu Eve-Glory for such security.Goldenway may not pay back the loan under this Revolving Line of Credit before
the maturity date without Nanjing Bank’s prior consent. TheRevolving Line of Credit is
subject to, among other things, certain conditions as follows:
 
 ·
              The
      use of the proceeds of the Loan shall be for working capital
      only;
 ·
              Goldenway
      shall repay the principle and interest when due in compliance with the
      repayment schedule of the Revolving Line of Credit
      Agreement;
 ·
              Goldenway
      shall faithfully disclose its banking information and balance of the
      revolving line of credit to the Nanjing
Bank;
 ·
              The
      Nanjing Bank is entitled to inspect Goldenway’s business, credit and
      financial condition from time to
time.
 
 As of
December 31, 2008, Goldenway borrowed approximately $5.8 million under this
Revolving Line of Credit. The $5.8 million was repaid in January and
February of 2009. Also in January and February 2009 Goldenway borrowed
approximately $5.9 million under this Revolving Line of Credit which is
currently outstanding.
 
 November
Loan
 
 On
November 19, 2008, Goldenway entered into a loan agreement with Nanjing Branch of China Merchant Bank for a working capital loan
(the “November Loan”). The November Loan has a one-year term from December 8,
2008 to December 8, 2009 for a principal amount of RMB 5 million (approximately
USD $735,000) at an interest rate of 0.48825% per month or 5.859% per
annum.  It shall be used solely for working capital
purposes.  The November Loan is personally guaranteed by our Chief
Executive and Chairman of the Board, Mr. Yihua Kang pursuant to an irrevocable
guaranty agreement.  Mr. Yihua Kang will be jointly and severably
liable for the total amount of the November Loan if we default on the
payments.  In addition, Mr. Yihua Kang and his son, Mr. Huake Kang,
provided security for the Loan by mortgaging certain real estate they own, the
total value of which are RMB 5 million pursuant to certain mortgage
agreements.  We did not pay any fee to Mr. Kang nor Mr. Huake Kang for
such security. Goldenway may not pay back the November Loan before the maturity
date without the Nanjing Branch of China Merchant Bank’s prior consent. The Loan
is subject to, among other things, certain conditions as
follows:
 
 ·
              The
      use of the proceeds of the November Loan shall be for working capital
      only;
 ·
              Goldenway
      shall repay the principle and interest when due in compliance with the
      repayment schedule of the November Loan
  Agreement;
 ·
              Goldenway
      shall faithfully disclose its banking information and balance of the
      November Loan to the Nanjing Branch of China Merchant
  Bank;
 ·
              The
      Nanjing Branch of China Merchant Bank is entitled to inspect Goldenway’s
      business, credit and financial condition from time to
  time.


54


PART
III


ITEM
      10.
            DIRECTORS
      AND EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




Departure
and Appointment of Directors




Departure
of Director





Effective
March 14, 2008, Ning Li and Ru Qin Wei each voluntarily resigned as directors on
the Board of Directors of the Company. Effective March 26, 2008, Ms. Yan Guo
voluntarily resigned as director on the Board of Directors of the Company. The
decision by each of these directors to resign from their positions was not the
result of any material disagreement with the Company on any matter relating to
the Company’s operations, policies or practices. Ms. Guo is presently the Chief
Financial Officer and Corporate Secretary of the Company, and will continue to
serve in this position.




Appointment
of Independent Director




Effective
March 14, 2008, the Board of Directors of the Company appointed Mr. Bennet P.
Tchaikovsky and Mr. Changyu Qi to fill the vacancies created by the resignations
of Mr. Li and Mr. Wei. Effective March 26, 2008, the Board of directors of the
Company appointed Mr. Zhixue Zhang to fill the vacancy created by the
resignation of Ms.Yan Guo. Based upon information submitted to the Board by Mr.
Tchaikovsky, Mr. Qi and Mr. Zhang, the Board of Directors has determined that
they are each “independent” under the NYSE Amex Company Guide. None of the three
appointees has participated in the preparation of the Company’s financial
statements or any current subsidiary at any time during the past three years,
and each of them are able to read and understand fundamental financial
statements.





Management




The
following table includes the names, positions held, and ages of our current
executive officers and directors as of December 31, 2008:




Name
                  
                  Age
                  
                  Position
                  
                  HeldPosition
                    SinceEdward
      Yihua Kang
                  
                  45
                  
                  Chief
      Executive Officer,  President, and Director
                  
                  2005Jiajun 
      Sun(3)
                  
                  35
                  
                  Chief
      Operating Officer and Director
                  
                  2005Yan Guo
                  
                  31
                  
                  Chief
      Financial Officer and Secretary
                  
                  2005Bennet
      P. Tchaikovsky (1)(2)
                  
                  39
                  
                  Director
                  
                  2008Changyu
      Qi (1)(2)
                  
                  63
                  
                  Director
                  
                  2008Zhixue
      Zhang (1)(2)
                  
                  41
                  
                  Director
                  
                  2008


_________________


(1)
Member of the Audit Committee


(2)
Member of the Compensation Committee


(3) Mr.
Sun was appointed as a director to our Board of Directors in 2005.




Each
director will hold office until the next annual meeting of shareholders and
until his or her successor has been elected and qualified.


55




EdwardYihuaKang has
served as our President and Chief Executive Officer and as the Chairman of our
Board of Directors, since 2005. From December 1993 to January 2008, Mr. Kang
served as the President and Chairman of the Board of Directors of Goldenway. Mr.
Kang has extensive worldwide managerial and operational experience focusing upon
business development and strategic planning. Mr. Kang formerly was the Senior
lecturer of the Management College, Nanjing Aeronautics and Astronautics
University, and the Vice General Manager of the Import and Export Department of
Nanjing Shenda Company. Mr. Kang earned a MS degree from Peking University, 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.




Jiajun Sun has
served as our Chief Operating Officer and a member of our Board of Directors
since 2005. Mr. Sun also has served as a member of the Board of Directors of
Goldenway since 2000 and as a member of the Board of Directors of New-Tailun
since 2006. 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 his
bachelor’s degree from the Wuhan Textile Industry Institute.




Yan Guohas
served as our Chief Financial Officer since 2005, and was appointed as Corporate
Secretary on May 26, 2008. From August 1, 2007 to March 26, 2008 Ms. Guo
was a member of the Board of Director. From July 1999 to 2004, Ms. Guo was the
Section Chief of the Financial and Accounting Department of Goldenway. Ms. Guo
earned her bachelor’s degree in Accounting from the Nanjing Audit
Institute.




Bennet P.
Tchaikovsky is a member of our Board of Directors, and serves as chairman
of our Audit Committee and a member of the Compensation Committee. Since
December 2008, Mr. Tchaikovsky has been a member of the board of directors of
Sino Clean Energy, an OTCBB company in the alternative fuel industry in the
People’s Republic of China, as chairman of the audit committee and member of the
compensation and nominating committees. Since May 2008, Mr. Tchaikovsky has
served as the Chief Financial Officer for Skystar Bio-Pharmacetical
Company, an OTCBB listed company that provides veterinary medicines and
medicines for livestock in the People’s Republic of China.  Mr. Tchaikovsky
served as the Chief Financial Officer of Innovative Card Technologies from July
2004 to October 2007, an OTCBB listed company that develops and markets secure
powered cards for payment, identification, physical and logical access
applications.. Mr. Tchaikovsky acted as a consultant to Innovative Card
Technologies from November 2007 until July 2008. From January 2003 through
November 2003, Mr. Tchaikovsky served as the Vice President, Finance of TJR
Industries, Inc., a company that produced trade shows for the woodworking
industry. Mr. Tchaikovsky is a licensed Certified Public Accountant and an
inactive member of the California State Bar. He received a B.A. in Business
Economics from the University of California at Santa Barbara, and a J.D. from
Southwestern University School of Law.




Changyu Qiis a member of the Board of Directors, and serves as a member of the
Audit Committee and Compensation Committees. Mr. Qi has over 30 years of
experience in international trade, and since February 2005, has served as
inspector and deputy secretary of the Party Leadership Group of the Jiangsu
Provincial Government’s Department of Foreign Trade and Economic Cooperation. In
addition, since 2007, Mr. Qi has also served as a director on the Board of
Directors of Jiangsu Skyrun International Group, which is a state-owned
enterprises focusing on import and export.  He is currently the
President of both the Jiangsu Chamber of Commerce for Import & Export Firms
and the Jiangsu International Freight Forwarders Association. Mr. Qi received a
B.S. in Foreign Trade and Economy from Beijing Foreign Trade
University.


56





Zhixue
Zhang was appointed to the Board of Directors in March 2008, and serves
on the Audit Committee and as chairman of the Compensation
Committee.  Mr. Zhang is a professor of Organizational Management at
Peking University, and has held this position since August 2008. Mr. Zhang has
over fifteen years of experience in the fields of organizational psychology,
management and organizational culture as it relates to conducting business
within China and with Chinese businesses. From August 2001 to July 2008, he was
the Associate professor at Peking University. From August 2006 to June 2007, he
was a Freeman Fellow at the University of Illinois at Urbana-Champaign. From
September 2001 to March 2002, he was a visiting scholar at the Kellogg School of
Management at Northwestern University. Mr. Zhang holds a Ph.D. from the
University of Hong Kong, and a M.Sc. from Beijing Normal University, and a B.Sc.
from Henan University.





Family
relationship





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.




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.


57


Board
Committees




During
March 2008, the Board created the Audit Committee and the Compensation Committee
and has adopted charters for these committees.  The Board has determined
that in its judgment, Mr. Tchaikovsky, Mr. Qi, and Mr. Zhang are independent
directors within the meaning of Section 803 of NYSE Amex Company Guide.
Accordingly, all of the members of the Audit Committee are independent within
the meaning of Section 803 of NYSE Amex Company Guide.





Audit
Committee




The Board
of Directors adopted and approved a charter for the Audit Committee on March 13,
2008, and the charter was amended on May 26, 2008 and further amended on June
20, 2008. Currently, three directors comprise the Audit Committee: Mr.
Tchaikovsky, Mr. Qi and Mr. Zhang. Mr. Tchaikovsky serves as Chairman of the
Audit Committee. The members of the Audit Committee are currently “independent
directors” as that term is defined in Section 803 of NYSE Amex Company Guide.
The Board of Directors has determined that Mr. Tchaikovsky qualifies as an
“audit committee financial expert” as defined by the rules of the
SEC.





Our Audit
Committee is responsible, in accordance with the Audit Committee charter,
recommending our independent auditors, and overseeing our audit activities and
certain financial matters to protect against improper and unsound practices and
to furnish adequate protection to all assets and records.





Our Audit
Committee pre-approves all audit and non-audit services provided by our
independent auditors. These services may include audit services, audit-related
services, tax services and other services. Pre-approval is generally provided
for up to one year and any pre-approval is detailed as to particular service or
category of services and is generally subject to a specific budget. The Audit
Committee has delegated pre-approval authority to its Chairman when expedition
of services is necessary. The independent auditors and management are required
to periodically report to the full Audit Committee regarding the extent of
services provided by the independent auditor in accordance with this
pre-approval, and the fees for the services performed to date.





Compensation
Committee





The
Compensation Committee currently consists of Mr. Tchaikovsky, Mr. Qi and Mr.
Zhang. Mr. Zhang  serves as Chairman of the Compensation Committee.
The members of the Compensation Committee are currently “independent directors”
as that term is defined in Section 803 of NYSE Amex Company Guide.





In
accordance with the Compensation Committee’s Charter, the Compensation Committee
is responsible for overseeing and, and as appropriate, making recommendations to
the Board regarding the annual salaries and other compensation of the Company’s
executive officers and general employees and other polices, providing assistance
and recommendations with respect to the compensation policies and practices of
the Company.


58


Section
16(a) of the Exchange Act




Section
16(a) of the Exchange Act, as amended, requires our directors and certain of our
officers, as well as persons who own more than 10% of a registered class of our
equity securities (“Reporting Persons”), to file reports with the SEC. To our
knowledge, based solely on review of the copies of such reports furnished to us
and written representations that no other reports were required, during the
fiscal year ended December 31, 2008, and all Section 16(a) filing requirements
applicable to 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 us at our
offices located at 100 N. Barranca Ave. #810 West Covina, California 91791,
Attention “Shareholder Relations.”




The Board
of Directors and management are currently reviewing our code of business conduct
in connection with an overall review of our corporate governance and other
policies in light of Section 406 of the Sarbanes-Oxley Act. We will timely
disclose any amendments to or waivers of certain provisions of our code of
business conduct and ethics as required by the Exchange Act and the rules and
regulations of the SEC.





ITEM
11. EXECUTIVE COMPENSATION





Compensation
Discussion and Analysis





This
compensation discussion and analysis describes the material elements of the
compensation awarded to our current executive officers. This compensation
discussion focuses on the information contained in the following tables and
related footnotes and narrative for the last completed fiscal year. In 2008, our
Board of Directors and, and now, the Compensation Committee, since its
chartering, has overseen and administered our executive compensation
program.





Our
current executive compensation program presently includes a base salary. Our
compensation program does not include (i) discretionary annual cash
performance-based incentives, (ii) termination/severance and change of control
payments, or (iii) perquisites and benefits.





Our
Compensation Philosophy and Objectives





Our
philosophy regarding compensation of our executive officers includes the
following principles:





·
            our
      compensation program should align the interests of our management team
      with those of our shareholders;




59


·
            our
      compensation program should reward the achievement of our strategic
      initiatives and short- and long-term operating and financial
      goals;





·
            compensation
      should appropriately reflect differences in position and
      responsibility; compensation should be reasonable and bear some
      relationship with the compensation standards in the market in which our
      management team operates; and





·
            the
      compensation program should be understandable and
    transparent.




In order
to implement such compensation principles, we have developed the following
objectives for our executive compensation program:





·
            overall
      compensation levels must be sufficiently competitive to attract and retain
      talented leaders and motivate those leaders to achieve superior
      results;


·
            a
      portion of total compensation should be contingent on, and variable with,
      achievement of objective corporate performance goals, and that portion
      should increase as an executive’s position and responsibility
      increases;


·
            total
      compensation should be higher for individuals with greater responsibility
      and greater ability to influence our achievement of operating goals and
      strategic initiatives;


·
            the
      number of elements of our compensation program should be kept to a
      minimum, and those elements should be readily understandable by and easily
      communicated to executives, shareholders, and others;
  and


·
            executive
      compensation should be set at responsible levels to promote a sense of
      fairness and equity among all employees and appropriate stewardship of
      corporate resources among
shareholders.





Determination
of Compensation Awards





Our Board
of Directors is provided with the primary authority to determine the
compensation awards available to our executive officers. To aid the Board of
Directors in making its determination for the last fiscal year, our current
senior management provided recommendations to the Compensation Committee
regarding the compensation of all executive officers.





Compensation
Benchmarking and Peer Group





Our Board
of Directors did not rely on any consultants or utilize any peer company
comparisons or benchmarking in 2008 in setting executive compensation. However,
our management has considered competitive market practices by reviewing publicly
available information relating to compensation of executive officers at other
comparable
companies in the apparel industry in China in making its recommendations
to our Board of Directors regarding our executives’ compensation for fiscal year
2008. As our company evolves, we expect to take steps, including the utilization
of peer company comparisons and/or hiring of compensation consultants, to ensure
that the Board has a comprehensive picture of the compensation paid to our
executives and with a goal toward total direct compensation for our executives
that are on a par with the median total direct compensation paid to executives
in peer companies if annually established target levels of performance at the
company and business segment level are achieved.


60




Elements
of Compensation
  Presently,
we compensate our executives with only a base salary. We do not pay any
compensation to our executive officers in the form of discretionary annual cash
performance-based incentives, long-term incentive plan awards or perquisites and
other compensation, although our Board of Directors may recommend and institute
such forms of compensation in the future.


Base
Salaries





Base
salary is used to recognize the experience, skills, knowledge and
responsibilities required of our employees, including our named executive
officers. All of our named executive officers, including our Chief Executive
Officer, are subject to employment agreements, and accordingly each of their
compensation has been determined as set forth in their respective agreement.
When establishing base salaries for 2008, subject to the provisions of each
person's employment agreement, our Board and management considered a number of
factors, including the seniority of the individual, the functional role of the
position, the level of the individual's responsibility, the ability to replace
the individual, the base salary of the individual at their prior employment and
the number of well qualified candidates to assume the individual's
role.





Discretionary
Annual Cash Performance-Based Incentives





In 2008,
we did not pay any compensation in the form of discretionary annual cash
performance-based incentives or other forms of bonuses to our Chief Executive
Officer and each other named executive officer. Our Compensation Committee may,
however, recommend such bonuses in the future.





Long-Term
Incentive Plan Awards





We
currently do not have an equity incentive plan, and no separate stock awards or
stock option grants were made to any of the named executive officers during the
fiscal year ended December 31, 2008. No stock options were held by the named
executive officers as of December 31, 2008.





Perquisites
and Other Compensation





We do not
have any retirement or pension plans in place for any of our named executives.
Our named executive officers are eligible for group medical benefits that are
generally available to and on the same terms as our other
employees.


61


Management’s
Role in the Compensation-Setting Process





Our
management plays a role in our compensation-setting process. We believe this
input from management to the Compensation Committee is needed in order for the
committee to evaluate the performance of our officers, recommend business
performance targets and objectives, and recommend compensation levels. Our
management may from time to time, make recommendations to our Board of Directors
regarding executive compensation. During this process, management may be asked
to provide the board with their evaluation of the executive officers’
performances, the background information regarding our strategic financial and
operational objectives, and compensation recommendations as to the executive
officers.




Summary Compensation
Table forFiscal Year 2008,2007 and 2006




The
following table sets forth information for the fiscal year ended December 31,
2008, 2007 and 2006 concerning the compensation paid and awarded to
all individuals serving as (a) our Chief Executive Officer and Chief Financial
Officer (b) the three most highly compensated Executive Officers (other than our
Chief Executive Officer and Chief Financial Officer) of ours and our
subsidiaries at the end of our fiscal year ended December 31,
2008, 2007 and 2006 whose total compensation exceeded $100,000 for
these periods, and (c) two additional individuals for whom disclosure would have
been provided pursuant to (b) except that they were not serving as executive
officers at the end of our fiscal year ended June 30, 2008. These individuals
may be collectively referred to in this report as our “Named Executive
Officers.”




Name and
                                        Principal Position
                                      
                                      Fiscal
                                        Year
                                      
                                      Salary
                                        ($)
                                      
                                      
                                      Bonus
                                        ($)
                                      
                                      
                                      Stock
                                        Awards
                                        ($)
                                      
                                      
                                      Option
                                        Awards
                                        ($)
                                      
                                      
                                      Non-
                                        Equity
                                        Incentive
                                        Plan
                                        Compen-
                                        sation
                                        ($)
                                      
                                      
                                      Non-
                                        qualified
                                        Deferred
                                        Compen-
                                        sation
                                        Earnings
                                        ($)
                                      
                                      
                                      All Other
                                        Compen-
                                        sation
                                        ($)
                                      
                                      
                                      Total
                                        ($)Kang
      YihuaChairman
      of theBoard,
      Chief
                                      
                                      2008
                                      
                                      
                                      25,824
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      25,824Executive
      Officer
                                      
                                      2007
                                      
                                      
                                      19,830
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      19,830and
      President
                                      
                                      2006
                                      
                                      
                                      12,675
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      12,675Guo
      YanChief
      Financial
                                      
                                      2008
                                      
                                      
                                      3161
                                      
                                      
                                      
                                      11,527
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      14,688Officer
      and
                                      
                                      2007
                                      
                                      
                                      2,805
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      2,805Director
                                      
                                      2006
                                      
                                      
                                      2,408
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      2,408




(1)
            All
      compensation is paid in Chinese RMB. For reporting purposes, the amounts
      in the table above have been converted to U.S. Dollars at the conversion
      rate of  7.81 RMB,  7.60 RMB] and 6.94 RMB to
      one  for year 2006, 2007 and 2008 respectively. The officers
      listed in this table received no other form of compensation in the years
      shown, other than the salary set forth in this
  table.




62


Other
Compensation




Other
than as described above, there were no post-employment compensation, pension or
nonqualified deferred compensation benefits earned by the executive officers
during the year ended December 31, 2008. We do not have any retirement, pension,
or profit-sharing programs for the benefit of our directors, officers or other
employees. The Board of Directors may recommend adoption of one or more such
programs in the future.





Employment
Contracts and Termination of Employment and Change-In-Control
Arrangements


The
Company entered into an employment agreement with Edward Yihua Kang on November
1, 2005 pursuant to which Mr. Kang was appointed as the Chief Executive Officer
and President of the Company. In determining the compensation to be paid to Mr.
Kang, the Board of Directors and the Compensation Committee reviewed the overall
performance of the Company and the relative contribution of Mr. Kang in order to
arrive at an appropriate compensation level.
  The
Company entered into an employment agreement with Jiajun Sun on November 1, 2005
pursuant to which Mr. Sun was appointed as the Chief Operating Officer of the
Company. In determining the compensation to be paid to Mr. Sun, the Board of
Directors and the Compensation Committee reviewed the overall performance of the
Company and the relative contribution of Mr. Sun in order to arrive at an
appropriate compensation level.
  The
Company entered into an employment agreement with Ms. Yan Guo on November 1,
2005 pursuant to which Mr. Guo was appointed as the Chief Finance Officer of the
Company. In determining the compensation to be paid to Ms. Guo, the Board of
Directors and the Compensation Committee reviewed the overall performance of the
Company and the relative contribution of Ms. Guo in order to arrive at an
appropriate compensation level.
  There are
no compensatory plans or arrangements, including payments to be received
from us, with respect to any director or executive officer of us which would in
any way result in payments to any such person because of his resignation,
retirement, or other termination of employment with us, any change in control of
the Company, or a change in the person’s responsibilities following a change in
control of the Company.


There are nocompensatory
plans or arrangements, including payments
to be received from us, with respect to any director or executive officer of us
which would in any way result in payments to any such person because of his
resignation, retirement, or other termination of employment with us, any change
incontrol of the Company, or a change in the
person’s responsibilities following a change in control of the
Company.




Director
Compensation for Fiscal 2008





The
following table reflects all compensation awarded to, earned by or paid to the
Company’s directors for the fiscal year ended December 31, 2008. Directors who
are also officers do not receive any additional compensation for their services
as directors.




Name
                
                Fees
                  Earned or
                  Paid in
                  Cash
                  ($)
                
                
                Stock
                  Awards
                  ($)(1)
                
                
                Options
                  Awards
                  ($)
                
                
                Non-Equity
                  Incentive
                  Plan
                  Compensat
                  ion
                  ($)
                
                
                Non-Qualif
                  ied
                  Deferred
                  Compensat
                  ion
                  Earnings
                  ($)
                
                
                All Other
                  Compensat
                  ion
                  ($)
                
                
                Total
                  ($)Kang
      Yihua
                
                
                25,824
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                25,824Sun
      Jia Jun
                
                
                28,199
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                28,199Guo
      Yan
                
                
                14,688
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                14,688Bennet
      P. Tchaikovsky
                
                
                —
                
                
                
                27,200
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                27,200Changyu
      Qi
                
                
                —
                
                
                
                4,000
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                4,000Zhixue
      Zhang
                
                
                —
                
                
                
                3,836
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                3,836





(1)
            All
      compensation was paid in RMB. The amounts in the foregoing table have been
      converted into U.S. Dollar at the conversion rate of 6.94 RMB to the
      dollar.


(2)
            Mr.
      Kang received salary during 2008 of $25,824  and total
      compensation of $25,824 in consideration of his services as our Chief
      Executive
Officer.


(3)
            Mr.
      Sun received salary during 2008 of $28,199 and total compensation of
      $28,199  in consideration of his services as our Chief Operating
      Officer.


(4)
            On
      March 14, 2008, the Board approved the following annual compensation for
      its independent (non-employee) directors, which shall apply for
      2008:


63





Service Description
                            
                            Amount (in U.S. dollars)Base
      Compensation
                            
                            $
                            3,000Audit
      Committee Member
                            
                            $
                            1,000Compensation
      Committee Member
                            
                            $
                            1,000Audit
      Committee Chairman
                            
                            $
                            3,000Audit
      Committee Financial Expert
                            
                            $
                            26,000




Each
director may be appointed to perform multiple functions or serve on multiple
committees, and accordingly, may be eligible to receive more than one category
of compensation described above. Annual compensation will be paid in the form of
a number of shares of the Company’s restricted common stock having an aggregate
value equal to the annual compensation, as determined by the average per share
closing prices of the Company’s common stock as quoted on the OTCBB or NYSE
Amex, as applicable, for the five trading days leading up to and including the
last trading date of the quarter following which the shares are to be issued
(i.e. when the shares are issued within 30 days following the end of the second
quarter, and the fourth quarter when the shares are issued within 30 days
following the end of the fourth quarter)of the year for which
compensation is being paid.  Compensation, in the form of shares,
shall be issued and paid semi-annually, within 30 days following the end of the
second quarter (beginning with the second quarter of 2008), and within 30 days
after the end of the fourth quarter, of each calendar year.  In
addition, the Annual Compensation will be pro rated daily (based on a 360 day
year) for any portion of the year during which a director
serves.  Independent directors are also eligible for reimbursement of
all travel and other reasonable expenses relating to the directors’ attendance
of board meetings. In addition, the Company has agreed to reimburse independent
directors for reasonable expenses incurred in connection with the performance of
duties as a director 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 2008 and there were no outstanding
unexercised options previously awarded to our officers and directors, at the
fiscal year end, December 31, 2008.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENTAND RELATED STOCKHOLDER
MATTERS





The
following table sets forth information regarding the beneficial ownership of our
common stock as of March 27, 2009, for each of the following
persons:





o
            each
      of our directors and each of the named executive officers in the
      “Management” section of this Annual
Report;


o
            all
      directors and named executive officers as a group;
  and





o
            each
      person who is known by us to own beneficially five percent or more of our
      common stock.


64




Beneficial
ownership is determined in accordance with the rules of the SEC. Unless
otherwise indicated in the table, the persons and entities named in the table
have sole voting and sole investment power with respect to the shares set forth
opposite the shareholder’s name. Unless otherwise indicated, the address of each
beneficial owner listed below is c/o Ever-Glory International Group, Inc. 100 N.
Barranca Ave. #810, West Covina, California 91791. The percentage of class
beneficially owned set forth below is based on 12,394,652 shares of our common
stock outstanding on March 27, 2009.




Name of Beneficial Owner
                  
                  Amount and
                    Nature
                    of Beneficial
                    Ownership of
                    Common Stock (1)
                  
                  
                  Percent of
                    ClassExecutive
      Officers and DirectorsYi
      Hua Kang
                  
                  
                  4,802,315
                  
                  
                  
                  38.745
                  %Jia
      Jun Sun
                  
                  
                  174,800
                  
                  
                  
                  1.411
                  %Yan
      Guo
                  
                  
                  -
                  
                  
                  
                  -Bennet
      P. Tchaikovsky
                  
                  
                  18,694
                  
                  
                  
                  0.15
                  %Changyu
      Qi
                  
                  
                  2749
                  
                  
                  
                  0.02
                  %Zhixue
      Zhang
                  
                  
                  2710
                  
                  
                  
                  0.02
                  %All
      Executive Officers and Directors as a Group (six persons)5%
      HoldersEver-Glory
      Enterprises (H.K.) Ltd. (2)
                  
                  
                  3,315,406
                  
                  
                  
                  26.75
                  %Chestnut
      Ridge Partners, LP
                  
                  
                  686,480
                  
                  
                  5.54
                  %Xiao
      Dong Yan (2)
                  
                  
                  379,240
                  
                  
                  
                  3.06
                  %


(1)
            The
      percentage of shares beneficially owned is based on 12,394,652 shares
      of common stock outstanding as of March 27 2009. 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.





(2)
            Xiao
      Dong Yan is the director of Ever-Glory Enterprises (H.K.) Ltd. and, as
      such, may be deemed to be the beneficial owner of the 3,315,406 shares
      held by Ever-Glory Enterprises (H.K.)
Ltd.




Equity
Compensation Plan Information




We have
not adopted any equity compensation plan as of December 31,
2008.




65




ITEM
13.CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE


Related Party Transactions





Mr. Kang
is Ever Glory’s Chairman of the Board of Directors and Chief Executive Officer.
Ever-Glory Hong Kong is the Company’s major shareholder. All transactions
associated with the following companies controlled by Mr. Kang and Ever-Glory
Hong Kong are considered to be related party transactions. All related party
outstanding balances are short-teRm in nature and are expected to be settled in
cash.





Sales and
Cost of Sales to Related Parties





The
Company sells products to Nanjing High-Tech Knitting & Weaving Technology
Development Co., Ltd (“Nanjing Knitting”), a company controlled by Ever-Glory
Hong Kong.





Sales and
related cost of sales in connection with Nanjing Knitting was $681,167 and
$621,103 for the year ended December 31, 2008 and $1,155,998 and $995,398 for
the year ended December 31, 2007, respectively.





Purchases
from, and Sub-contracts with Related Parties





The
Company purchases raw materials from Nanjing Knitting. Raw materials totaling
$1,828,661 and $446,561during 2008 and 2007, respectively.





In
addition, the Company sub-contracted certain manufacturing work to related
companies totaling $1,327,965 and $4,048,689 for the years ended December 31,
2008 and 2007, respectively. The Company provided raw materials to the
sub-contractors and was charged a fixed fee for labor provided by the
sub-contractors.





Sub-contracts
with related parties included in cost of sales for the years ended December 31,
2008 and 2007 are as follows:





2008
                  
                  
                  2007Ever-Glory
      Enterprises (Chuzhou) Co., Ltd
                  
                  
                  -
                  
                  
                  $
                  2,802,874Nanjing
      High-Tech Knitting & Weaving Technology Development Co.,
      Ltd
                  
                  $
                  706,201
                  
                  
                  $
                  268,743Kunshan
      Enjin Fashion Co., Ltd.
                  
                  
                  -
                  
                  
                  $
                  503,498Nanjing
      Ever-Kyowa Garment Washing Co., Ltd.,
                  
                  $
                  621,764
                  
                  
                  $
                  228,903Nanjing
      Jiangning Shangfang Garments Manufacturing Co., Ltd.
                  
                  
                  
                  
                  
                  $
                  244,671Total
                  
                  $
                  1,327,965
                  
                  
                  $
                  4,048,689





Accounts
Receivable – Related Parties





Accounts
receivable from related parties was $158,235 for products sold and
sub-contracting services provided for the year ended December 31,
2007.





Accounts
Payable – Related Parties




The
Company purchases raw materials from and subcontracts some of its production to
related parties. Accounts payable to Kunshan Enjin Fashion Co., Ltd. a company
controlled by the Company’s Chief Executive Officer was $245,589 at December 31,
2007,


66





Amounts
Due From Related Party





Jiangsu
Ever-Glory International Group Corp., (“Jiangsu Ever-Glory”) is an entity
engaged in importing and exporting, apparel-manufacture, real-estate
development, car sales and other activities. Jiangsu Ever-Glory is controlled by
the Company’s Chief Executive Officer. Because of restrictions on its ability to
directly import and export products, the Company utilizes Jiangsu Ever-Glory as
its agent, to assist the Company with its import and export transactions and its
international transportation projects. Import transactions primarily consist of
purchases of raw materials and accessories designated by the Company’s customers
for use in garment manufacture. Export transactions consist of the Company’s
sales to foreign markets such as Japan, Europe and the United States. As the
Company’s agent, Jiangsu Ever-Glory’s responsibilities include managing customs,
inspection, transportation, insurance and collections on behalf of the Company.
Jiangsu Ever-Glory also manages transactions denominated in currencies other
than the Chinese RMB at rates of exchange agreed between the Company and Jiangsu
Ever-Glory and based upon rates of exchange quoted by the People’s Bank of
China. In return for these services, Jiangsu Ever-Glory charges the Company a
fee of approximately 3% of export sales.  For import transactions, the
Company may make advance payments, through Jiangsu Ever-Glory, for the raw
material purchases, or Jiangsu Ever-Glory may make advance payments on the
Company’s behalf. For export transactions, accounts receivable for export sales
are remitted by the Company’s customers through Jiangsu Ever-Glory, who forwards
the payments to the Company. The Company and Jiangsu Ever-Glory have agreed that
balances from import and export transactions may be offset.  Amounts
due to (from) Jiangsu Ever-Glory are typically settled within 60-90 days.
Interest of 0.5% is charged on net amounts due at each month end. Interest
income for the years ended December 31, 2008 and 2007 was $217,181 and $165,201
respectively. Following is a summary of import and export transactions for the
years ended December 31, 2008 and 2007:


Accounts Receivable
                      
                      
                      Accounts Payable
                      
                      
                      NetAs
      of January 1,2008
                      
                      $
                      12,764,043
                      
                      
                      $
                      10,196,003
                      
                      
                      $
                      2,568,040Sales/Purchase
                      
                      $
                      93,965,893
                      
                      
                      $
                      55,749,209Payment
      Received/Made
                      
                      $
                      88,791,655
                      
                      
                      $
                      59,572,505As
      of December 31,2008
                      
                      $
                      17,938,281
                      
                      
                      $
                      6,372,707
                      
                      
                      $
                      11,565,574




Approximately
80% of the receivable balance at December 31, 2008 was settled by March 20,
2009.


Other
Payables – Related Party





As of
December 31, 2008 and 2007, other payables due to Ever-Glory Hong Kong were
$754,589 and $650,000, respectively.





As of
December 31, 2008, $200,000 was due for the purchase of Catch-Luck and $554,589
was due for legal and professional fees paid by Ever-Glory Hong Kong on behalf
of the Company.


67





As of
December 31, 2007, $600,000 was due for the purchase of Catch-Luck and $50,000
was due for legal and professional fees paid by Ever-Glory Hong Kong on behalf
of the Company.





Long-Term
Liability – Related Party





As of
December 31, 2008 and 2007 the Company owed $2,660,085 and $4,474,985,
respectively to Blue Power Holdings Limited., a company controlled by the
Company’s Chief Executive Officer. Interest is charged at 6% per annum on the
amounts due. The loans are due between July 2010 and April 2011. For years ended
December 31,2008 and 2007, the Company incurred interest expense of $175,100 and
$236,459, respectively. The accrued interest is included in the carrying amount
of the loan in the accompanying balance sheets. On June 26, 2008, the Company
repaid $1,990,000 to Blue Power Holdings Limited.




On July
31, 2008, Goldenway entered into a two-year revolving line of credit agreement
(“Revolving Line of Credit”) with Nanjing Bank, a PRC Bank, which allows
Goldenway to borrow up to RMB 50 million (approximately USD7.3 million) at an
interest rate of 0.60225% per month or 7.227% per year. It shall be used
solely for working capital purposes. The Revolving Line of Credit are guaranteed
by Jiangsu Eve-Glory, an entity controlled by Mr. Kang, our Chief Executive
Officer, pursuant to certain guaranty agreement and also collateralized by the
50-year land use right of Goldenway and the facilities on that land pursuant
to certain mortgage agreement.


On
November 19, 2008, Goldenway entered into a loan agreement with Nanjing Branch of China Merchant Bank for a working capital loan
(the “November Loan”). The November Loan has a one-year term from December 8,
2008 to December 8, 2009 for a principal amount of RMB 5 million (approximately
USD $735,000) at an interest rate of 0.48825% per month or 5.859% per
annum.  It shall be used solely for working capital
purposes.  The November Loan is personally guaranteed by our Chief
Executive and Chairman of the Board, Mr. Yihua Kang pursuant to an irrevocable
guaranty agreement.  Mr. Yihua Kang will be jointly and severably
liable for the total amount of the November Loan if we default on the
payments.  In addition, Mr. Yihua Kang and his son, Mr. Huake Kang,
provided security for the Loan by mortgaging certain real estate they own, the
total value of which are RMB 5 million pursuant to certain mortgage
agreements.  We did not pay any fee to Mr. Kang nor Mr. Huake Kang for
such security.





ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND
SERVICES





On December 29, 2008, the Audit Committee of the Board
of Directors of the Company, with the approval of the Board of Directors,
dismissed Moore Stephens.   Moore Stephens was the independent
auditor for the Company for the fiscal years ended December 31, 2007 and served
in such capacity from November 15, 2007 until December 29,
2008.   On December 29, 2008, the Audit Committee, with the
approval of the Board of Directors, engaged GHP Horwath as the Company’s
independent auditor. On
December 26, pursuant to the Audit Committee’s Charter, the Audit Committee held a
special meeting to discuss the qualification of GHP Horwath asthe Company’s independent auditor for the fiscal
year ended December 31, 2008 and unanimously agreed to recommend it to the Board
of Directors.





Fees for
audit services include fees associated with the annual audit and the review of
documents filed with the SEC including quarterly reports on Form 10-Q and the
Annual Report on Form 10-K. Audit-related fees principally included accounting
consultation and information system control reviews. Tax fees
included tax compliance, tax advice and tax planning work.




2008
                  
                  
                  2007Audit
      fees
                  
                  $
                  248,000
                  
                  
                  $
                  233,000Audit-
      related fees
                  
                  
                  -
                  
                  
                  
                  -Tax
      fees
                  
                  
                  17,300
                  
                  
                  
                  -All
      other fees
                  
                  
                  
                  
                  
                  
                  -




68




PART
IV


ITEM 15.
            EXHIBITS,
      FINANCIAL STATEMENTS SCHEDULE





a.
            (1) Financial
      Statements


The
following consolidated financial statements of Ever-Glory International Group,
Inc. are included in Part II, Item 8 of this Report:





Report of
GHP Horwath P.C Independent Auditors




Consolidated
Balance Sheets at December 31, 2008 and 2007




Consolidated
Statements of Operations and Comprehensive Income for the Years Ended December
31, 2008 and 2007




Consolidated
Statements of Stockholders’ Equity for the Years Ended December 31, 2008 and
2007




Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008 and
2007




Notes to
Consolidated Financial Statements




(2) 
Financial Statement Schedules




Schedules
are omitted because the required information is not present or is not present in
amounts sufficient to require submission of the schedule or because the
information required is given in the consolidated financial statements or the
notes thereto.


(3) 
Exhibits




EXHIBIT
INDEX






Number
            
            Description2.1
            
            Agreement
      and Plan of Reorganization as amended, dated as of July 29, 2005, by and
      among Andean, Perfect Dream and Perfect Dream Shareholders (incorporated
      by reference to Exhibit 2.1 of our Current Report on Form 8-K, filed
      August 24, 2005).




69




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 our Current 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 our Current 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
      our Current Report on Form 8-K, filed November 13,
  2006).3.1
                  
                  Restated
      Articles of Incorporation (incorporated by reference to Exhibit 3.1 of our
      Annual Report on Form 10-KSB, filed March 29, 2006).3.2
                  
                  Articles
      of Amendment as filed with the Department of State of Florida, effective
      November 20, 2007 (incorporated by reference to Exhibit 3.1 of our Current
      Report on Form 8-K, filed November 29, 2007).3.3
                  
                  Amended
      and Restated Bylaws (incorporated by reference to Exhibit 3.2(b) of our
      Annual Report on Form 10-KSB40, filed April 14, 1998).4.1
                  
                  Sections
      3.10, 7.10, and 7.11of the Amended and Restated Bylaws (incorporated by
      reference to Exhibit 3.2(b) of our Annual Report on Form 10-KSB40, filed
      April 14, 1998).4.2
                  
                  Articles
      of Association of Perfect Dream (incorporated by reference to Exhibit 4.1
      of our Current Report on Form 8-K, filed August 24,
  2005).4.3
                  
                  Articles
      of Association of Goldenway (incorporated by reference to Exhibit 4.2 to
      our Current Report on Form 8-K, filed August 24, 2005).10.1
                  
                  Subscription
      Agreement (incorporated by reference to Exhibit 10.1 of our Current Report
      on Form 8-K, filed August 8, 2007).10.2
                  
                  Form
      of Convertible Note (incorporated by reference to Exhibit 10.2 of our
      Current Report on Form 8-K, filed August 8, 2007).10.3
                  
                  Form
      of Class A Common Stock Purchase Warrant (incorporated by reference to
      Exhibit 10.3 of our Current Report on Form 8-K, filed August 8,
      2007).




70





10.4
              
              Security
      Agreement (incorporated by reference to Exhibit 10.4 of our Current Report
      on Form 8-K, filed August 8, 2007).10.5
              
              Stock
      Pledge Agreement (incorporated by reference to Exhibit 10.5 of our Current
      Report on Form 8-K, filed August 8, 2007).10.6
              
              Lockup
      Agreement (incorporated by reference to Exhibit 10.6 of our Current Report
      on Form 8-K, filed August 8, 2007).10.7
              
              Letter
      of Intent to Acquire Branded Retail Division (incorporated by reference to
      Exhibit 10.7 of our Current Report on Form 8-K, filed August 8,
      2007).10.8
              
              Non-Compete
      Agreement (incorporated by reference to Exhibit 10.8 of our Current Report
      on Form 8-K, filed August 8, 2007).10.9
              
              Guaranty
      (incorporated by reference to Exhibit 10.9 of our Current Report on Form
      8-K, filed August 8, 2007).10.10
              
              Equity
      Interest Transfer Agreement between Perfect Dream and Ever-Glory
      Enterprises (H.K.) Ltd. (incorporated by reference to Exhibit 10.1 of our
      Current Report on Form 8-K, filed August 24, 2005).10.11
              
              Equity
      Interest Transfer Agreement between Perfect Dream and Jiangsu Ever-Glory
      International Group Corporation (incorporated by reference to Exhibit 10.2
      of our Current Report on Form 8-K, filed August 24,
  2005).10.12
              
              Loan
      Agreement between Goldenway Nanjing Garments Co. Ltd. and Nanjing City
      Commercial Bank dated August 15, 2006 (incorporated by reference to
      Exhibit 10.3 of our Amendment No. 1 to its Annual Report on 10-KSB/A,
      filed May 9, 2007).10.21
              
              Capital
      Contribution Agreement, dated January 9, 2008 (incorporated by reference
      to Exhibit 99.1 of our Current Report on Form 8-K, filed January 15,
      2008).10.22
              
              Joint
      Venture Establishment Agreement, dated January 9, 2008 (incorporated by
      reference to Exhibit 99.2 of our Current Report on Form 8-K, filed January
      15, 2008).10.23
              
              Land
      Development Agreement between Jiangsu Ever-Glory International Group Corp.
      and Nanjing Goldenway Garment Co., Ltd.10.24
              
              Lease
      Agreement between Jiangsu Ever-Glory International Group Co. and Nanjing
      New-Tailun Garment Co., Ltd.




71






10.25
                      
                      Loan
      Agreement between Goldenway Nanjing Garments Company Limited and China
      Merchant Bank, Nanjing Branch.10.26
                      
                      Irrevocable
      Guaranty Agreement between China Merchant Bank, Nanjing Branch and Edward
      Yihua Kang.10.27
                      
                      Mortgage
      Agreement between China Merchant Bank, Nanjing Branch and Edward Yihua
      Kang.10.28
                      
                      Mortgage
      Agreement between China Merchant Bank, Nanjing Branch and Huake
      Kang.16.1
                      
                      Letter
      from Jimmy C.H. Cheung & Co., dated January 14, 2008 (incorporated by
      reference to Exhibit 16.1 of our Amendment No. 3 to our Current Report on
      Form 8-K, filed January 14, 2008).16.2
                      
                      Letter
      from Moore Stephens Wurth Frazer and Torbet, LLP dated January 8, 2009
      addressed to the Securities and Exchange Commission. (Incorporated by
      reference to Exhibit 16.1 of our Amendment No. 1 to our Current Report on
      Form 8-K, filed January8,
      2009).21.1
                      
                      Subsidiaries
      of Registrant.23.1
                      
                      Consent
      of Moore Stephens Wurth Frazer and Torbet, LLP31.1
                      
                      Certification by Chief Executive Officer pursuant
      to Sarbanes Oxley Section 302.31.2
                      
                      Certification
      by Chief Financial Officer pursuant to Sarbanes Oxley Section
      302.32.1
                      
                      Certification by Chief Executive Officer pursuant
      to 18 U.S.C. Section 1350.32.2
                      
                      Certification by Chief Financial Officer pursuant
      to 18 U.S.C. Section
1350.


72





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on the 31 day of March,
2009.





Ever-Glory
      International Group, Inc.,Date:
      March 31, 2009
              By
              /s/
      Edward Yihua KangEdward
      Yihua Kang,Chief
      Executive Officer, President and
                Chairman
      of the Board





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:




Signature
                
                Title
                
                Date/s/ Jia JunSun
                
                Chief
      Operating Officer
                
                March
      31, 2009Jia
      Jun Sun
                
                and
      Director/s/ YanGuo
                
                Chief
      Financial OfficerYan
      Guo
                
                (Principal
      Financial and Accounting Officer)
                
                March
      31, 2009/s/Bennet P.
      Tchaikovsky
                
                Director
                
                March
      31, 2009Bennet
      P. Tchaikovsky/s/Changyu
      Qi
                
                Director
                
                March
      31, 2009Changyu
      Qi/s/
      Zhixue Zhang
                
                Director
                
                March
      31,2009Zhixue
      Zhang




73


INDEX
TO EXHIBITS





Exhibit
                              Number
                            
                            Description2.1
                            
                            Agreement
      and Plan of Reorganization as amended, dated as of July 29, 2005, by and
      among Andean, Perfect Dream and Perfect Dream Shareholders (incorporated
      by reference to Exhibit 2.1 of our Current 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 our Current 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 our Current 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
      our Current Report on Form 8-K, filed November 13,
  2006).3.1
                            
                            Restated
      Articles of Incorporation (incorporated by reference to Exhibit 3.1 of our
      Annual Report on Form 10-KSB, filed March 29, 2006).3.2
                            
                            Articles
      of Amendment as filed with the Department of State of Florida, effective
      November 20, 2007 (incorporated by reference to Exhibit 3.1 of our Current
      Report on Form 8-K, filed November 29, 2007).3.3
                            
                            Amended
      and Restated Bylaws (incorporated by reference to Exhibit 3.2(b) of our
      Annual Report on Form 10-KSB40, filed April 14, 1998).4.1
                            
                            Sections
      3.10, 7.10, and 7.11of the Amended and Restated Bylaws (incorporated by
      reference to Exhibit 3.2(b) of our Annual Report on Form 10-KSB40, filed
      April 14, 1998).4.2
                            
                            Articles
      of Association of Perfect Dream (incorporated by reference to Exhibit 4.1
      of our Current Report on Form 8-K, filed August 24,
  2005).4.3
                            
                            Articles
      of Association of Goldenway (incorporated by reference to Exhibit 4.2 to
      our Current Report on Form 8-K, filed August 24,
  2005).
  74
  10.1
                
                Subscription
      Agreement (incorporated by reference to Exhibit 10.1 of our Current Report
      on Form 8-K, filed August 8, 2007).10.2
                
                Form
      of Convertible Note (incorporated by reference to Exhibit 10.2 of our
      Current Report on Form 8-K, filed August 8, 2007).


10.3
              
              Form
      of Class A Common Stock Purchase Warrant (incorporated by reference to
      Exhibit 10.3 of our Current Report on Form 8-K, filed August 8,
      2007).10.4
              
              Security
      Agreement (incorporated by reference to Exhibit 10.4 of our Current Report
      on Form 8-K, filed August 8, 2007).10.5
              
              Stock
      Pledge Agreement (incorporated by reference to Exhibit 10.5 of our Current
      Report on Form 8-K, filed August 8, 2007).10.6
              
              Lockup
      Agreement (incorporated by reference to Exhibit 10.6 of our Current Report
      on Form 8-K, filed August 8, 2007).10.7
              
              Letter
      of Intent to Acquire Branded Retail Division (incorporated by reference to
      Exhibit 10.7 of our Current Report on Form 8-K, filed August 8,
      2007).10.8
              
              Non-Compete
      Agreement (incorporated by reference to Exhibit 10.8 of our Current Report
      on Form 8-K, filed August 8, 2007).10.9
              
              Guaranty
      (incorporated by reference to Exhibit 10.9 of our Current Report on Form
      8-K, filed August 8, 2007).10.10
              
              Equity
      Interest Transfer Agreement between Perfect Dream and Ever-Glory
      Enterprises (H.K.) Ltd. (incorporated by reference to Exhibit 10.1 of our
      Current Report on Form 8-K, filed August 24, 2005).10.11
              
              Equity
      Interest Transfer Agreement between Perfect Dream and Jiangsu Ever-Glory
      International Group Corporation (incorporated by reference to Exhibit 10.2
      of our Current Report on Form 8-K, filed August 24,
  2005).10.12
              
              Loan
      Agreement between Goldenway Nanjing Garments Co. Ltd. and Nanjing City
      Commercial Bank dated August 15, 2006 (incorporated by reference to
      Exhibit 10.3 of our Amendment No. 1 to its Annual Report on 10-KSB/A,
      filed May 9, 2007).




75




10.21
                    
                    Capital
      Contribution Agreement, dated January 9, 2008 (incorporated by reference
      to Exhibit 99.1 of our Current Report on Form 8-K, filed January 15,
      2008).10.22
                    
                    Joint
      Venture Establishment Agreement, dated January 9, 2008 (incorporated by
      reference to Exhibit 99.2 of our Current Report on Form 8-K, filed January
      15, 2008).10.23
                    
                    Land
      Development Agreement between Jiangsu Ever-Glory International Group Corp.
      and Nanjing Goldenway Garment Co., Ltd.10.24
                    
                    Lease
      Agreement between Jiangsu Ever-Glory International Group Co. and Nanjing
      New-Tailun Garment Co., Ltd.10.25
                    
                    Loan
      Agreement between Goldenway Nanjing Garments Company Limited and China
      Merchant Bank, Nanjing Branch.10.26
                    
                    Irrevocable
      Guaranty Agreement between China Merchant Bank, Nanjing Branch and Edward
      Yihua Kang.10.27
                    
                    Mortgage
      Agreement between China Merchant Bank, Nanjing Branch and Edward Yihua
      Kang.10.28
                    
                    Mortgage
      Agreement between China Merchant Bank, Nanjing Branch and Huake
      Kang.16.1
                    
                    Letter from Jimmy C.H. Cheung & Co., dated
      January 14, 2008 (incorporated by reference to Exhibit 16.1 of our
      Amendment No. 3 to our Current Report on Form 8-K, filed January 14,
      2008).16.2
                    
                    Letter
      from Moore Stephens Wurth Frazer and Torbet, LLP dated January 8, 2009
      addressed to the Securities and Exchange Commission. (Incorporated by
      reference to Exhibit 16.1 of our Amendment No. 1 to our Current Report on
      Form 8-K, filed January 8, 2009).21.1
                    
                    Subsidiaries
      of Registrant.23.1
                    
                    Consent
      of Moore Stephens Wurth Frazer and Torbet, LLP31.1
                    
                    Certification by Chief Executive Officer pursuant
      to Sarbanes Oxley Section 302.31.2
                    
                    Certification by Chief Financial Officer pursuant
      to Sarbanes Oxley Section 302.32.1
                    
                    Certification by Chief Executive
      Officerpursuant to 18 U.S.C. Section
      1350.32.2
                    
                    Certification by Chief Financial Officer pursuant
      to 18 U.S.C. Section
1350.




76