*Table
          of Contents*





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


_______________





**FORM
      10-K**




**(Mark
      One)**


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


**For
      the fiscal year ended December 31, 2007**


o
              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
                of Incorporation)
            (I.R.S.
                Employer Identification No.)**100
                N. Barranca Ave. #810**
            **(626)
                839-9116****West
                Covina, California 91791**
            (Registrant’s
                telephone number, including area code)(Address
                of principal executive offices,
              including
                zip code)





Securities
      registered pursuant to Section 12(b) of the Act: ****  **None**


Securities
      registered pursuant to Section 12(g) of the Act: ****  **Common
      Stock, par value $0.001 per share**


**(Title
      of class)**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No þ





Indicate
      by check mark whether the registrant is required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes þ No o





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 þ No o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained to the best
      of
      the 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. o





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 (Check one):




Large Accelerated Filer o
            
            Accelerated Filer oNon-accelerated filer o
            
            Smaller reporting company þ




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





As
      of
      March 4, 2007, the aggregate market value of the voting stock held by
      non-affiliates of the Registrant was approximately $18.6 million based on a
      split-adjusted closing price of $3.10 per share of common stock as reported
      on
      the Over-the-Counter Bulletin Board on such date.




On
      December 31, 2007, we had 11,379,309 shares of our
      common stock issued and outstanding.




DOCUMENTS
      INCORPORATED BY REFERENCE: None.







*Table
        of Contents*




**EVER-GLORY
      INTERNATIONAL GROUP, INC.**


**FORM
      10-K**


**For
      the Year Ended December 31, 2007**





**TABLE
      OF CONTENTS**




Page**PART
                I**Item
                1.
            Business
            3Item
                1A.
            Risk
                Factors
            15Item
              1B.
            Unresolved
              Staff Comments
            26Item
                2.
            Properties
            26Item
                3.
            Legal
                Proceedings
            27Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            28




**PART
                II**Item
                5.
            Market
                for Registrant’s Common Equity and Related
                Stockholder Matters
            28Item
                6.
            Selected
                Financial Data
            30Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            31Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            44Item
                8.
            Financial
                Statements and Supplementary
                Data
            45Item
                9.
            Changes
                in and Disagreements With Accountants on Accounting
                and Financial Disclosure
            46Item
                9A.
            Controls
                and Procedures
            47**PART
                III**




Item
                10.
            Directors,
                Executive Officers and Corporate
                Governance
            50Item
                11.
            Executive
                Compensation
            53Item
                12.
            Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  StockholderMatters
            58Item
                13.
            Certain
                Relationships and Related Transactions, and
                Director Independence
            59


Item
                14.
            Principal
                Accounting Fees and Services
            62**PART
                IV**




Item
                15.
            Exhibits,
                Financial Statement Schedules
            62Signatures
            65




2
 *Table
          of Contents*




**PART
      I**





**Item
      1. BUSINESS**





**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;


·
            Success
                of our acquired businesses; ·
            Our
                relationships with our major customers;


·
            The
                popularity of our products;


·
            Relationships
                with suppliers, including foreign suppliers, and cost of supplies;


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


·
            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, including the Quarterly Reports on Form 10-Q to be
      filed by us in the fiscal year 2008.





3
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          of Contents*




**Business
      Operations**





We
      manufacture and sell apparel to well-known casual wear, sportswear and outerwear
      brands and retailers in major markets worldwide. We manufacture our apparel
      products in China, including from our three factories located in the Nanjing
      Jiangning Economic and Technological Development Zone and Shang Fang Town
      respectively in Nanjing, China. We have over 1,800 employees, and our factories
      are now capable of producing up to 9 million garments per year. In 2007, we
      achieved total net sales of $70,335,383.  We
      conduct our operations through three wholly-owned subsidiaries in China:
      Goldenway Nanjing Garments Company Limited (“Goldenway”), Nanjing New-Tailun
      Garments Company Limited (PRC) (“New-Tailun”), and Nanjing Catch-Luck Garments
      Co., Ltd. (“Catch-Luck”). Our corporate structure is illustrated below.





Although
      we have our own manufacturing capacity, we currently outsource a large portion
      of our manufacturing to our strategic contractors as a part of our overall
      sourcing strategy. Outsourcing work allows us to maximize production flexibility
      while managing capital expenditures and costs of maintaining what would
      otherwise be a massive workforce. We inspect products manufactured by our
      contractors to ensure that they meet our rigorous quality standards. See
“ *Production
      and Quality Control* ”
below.





**Our
      Current Corporate Structure**











4
 *Table
          of Contents*




Our
      Goldenway subsidiary focuses primarily on quality and production control, and
      coordinating with the contract manufacturers that we outsource to. Our
      New-Tailun subsidiary focuses on the Japanese market, and has strengths in
      the
      design, production, sale and marketing of jeans and trousers. Our Catch-Luck
      subsidiary is geared toward the European market, and it designs and makes
      products that complement the product lines of our other subsidiaries.





**Products**





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





*Womens’
                Clothing:*
            
            coats,
                jackets, slacks, skirts, shirts, trousers, and jeans*Mens’
                Clothing:*
            
            vests,
                jackets, trousers, skiwear, shirts, coats and jeans*Childrens’
                Clothing:*
            
            coats,
                vests, down jackets, trousers, knitwear and
                jeans





**Customers**





Ever-Glory
      manufactures garments for a number of well-known retail chains and
      internationally famous brands. We also have our own in-house design capabilities
      and can provide our customers with a selection of unique and 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 our customers.





In
      the
      fiscal year ended December 31, 2007, approximately 57% of our sales revenue
      came
      from customers in Europe, 21% from customers in the United States, 16% from
      customers in Japan, and 6% from customers in China. In 2007, sales to our single
      largest customer represented approximately 31% of our total net sales. Also,
      in
      2007, sales to our five largest customers generated approximately 59% of our
      total net sales.





In
      the
      fiscal year ended December 31, 2006, approximately 58% of our sales revenue
      came
      from customers in Europe, 16% from customers in the United States, 18% from
      customers in Japan, 6% from customers in China and 2% from customers in other
      countries. In 2006, sales to our single largest customer represented
      approximately 28% of our total net sales. In addition, in 2006, sales to our
      five largest customers resulted in approximately 56% of our total net sales.





**Suppliers**





We
      purchase raw materials (including fabric, fasteners, thread, buttons, labels
      and
      related materials) directly from local fabric and accessory suppliers, and
      import specialty fabrics to meet requirements specially requested by customers. In
      2007
      and 2006, we did not rely on any one supplier for more than 10% of our supply
      purchases, which we believe is a result of a steady diversification of our
      sources of supply. Up to the present we have not experienced any significant
      difficulty in obtaining materials that are essential to our 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 in production in approximately 20 days.




5
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          of Contents*




**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 U.S., the EU, Japan and China. Our sales representatives
      typically work directly with our customers and arrange the terms of our dealings
      with them, and to explore possible new relationships.





Management
      believes 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 Japan, Europe, the U.S. 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 in
      Europe, Japan, the U.S. and China.





In
      January 2008, we established a joint venture with La Chapelle Garments Co.,
      Ltd., a Shanghai-based womens’ fashion retailer widely known in China operating
      a retail network of over 350 outlets, to launch our new “LA GO GO” private label
      into the Chinese market. We have a 60% stake in this newly-formed joint venture.
      Through the joint venture, management expects to establish our brand presence
      in
      several dozen retail outlets through several major cities in China by the end
      of
      2008.





**Production
      and Quality Control**





In
      2007,
      we manufactured approximately 30% of the products we sold in our own
      manufacturing facilities. We typically outsource a 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
      2006,
      we completed the construction of a new office building. In 2007, we
      completed the process of consolidating our operations into our new building.
      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.





In
      2006
      and 2007, we acquired Nanjing New-Tailun Garments Co., Ltd. and Nanjing
      Catch-Luck Garments Co., Ltd. respectively to strengthen our manufacturing
      base
      and production capabilities as well as supplement our product lines. As of
      December, 31, 2007, our total production capacity including our outsourcing
      capacity increased approximately to 9 million pieces per year. At present,
      our production capacity is more than adequate to meet customer demand, and
      we
      have no significant backlog of customer orders.





We
      are
      committed to designing and manufacturing high quality garments. Because we
      emphasize the fit, performance and quality of our apparel products, we place
      a
      high priority on quality control. We have implemented strict quality control
      and
      craft discipline systems. Before we manufacture in large quantities, we obtain
      the approval from our customers either through in-person visits to the factories
      or by shipping samples of our apparel products to our customers for testing,
      inspection and feedback. This ensures that our products accurately meet
      specifications prior to production. In addition, our trained employees
      periodically inspect the manufacturing process and quality of our apparel
      products. Our factory is ISO 9000 certified.




6
 *Table
          of Contents*




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 our practice of outsourcing a 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 costs associated with managing a very 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 product’s “fit” 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. Jiangsu Ever-Glory acts as an independent contractor to handle
      export, shipping and transportation. Our products are usually shipped directly
      to customers. Jiangsu Ever-Glory has access to a variety of ground and air
      shipping companies and can typically deliver the finished product to the client
      within 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 transport to the ultimate destination.




**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 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 large and small 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, 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 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, proving management with instantaneous feedback on important aspects
      of
      our business operations.





7
 *Table
          of Contents*




**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, arousing strong objection from China.





On
      June
      10, 2005, in response to the surge of Chinese imports into the European Union
      (EU), the EU Commission signed a Memorandum of Understanding (MOU) with China
      in
      which ten categories of textiles and apparel are subject to restraints.
      Additionally, on November 8, 2005, the U.S. and China entered into a Memorandum
      of Understanding in which 21 categories of textiles and apparel are subject
      to restraints.





Although
      certain of 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.
      The
      imposition of quotas did not have a material effect on our net sales or our
      gross margins in both 2006 and 2007. See *Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations* .
      We
      believe that we will be able to obtain a sufficient quota allocation based
      on
      our experience in prior years.  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 from January 1, 2008,
      and we anticipate that export quotes to the U.S. market will be eliminated
      by
      the end of 2008. We expect that these new developments will give us more access
      to the EU and U.S. markets. Nevertheless,
      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 local regulations that apply to some of the
      products we produce, in the countries we export to. In order to address these
      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**





We
      have
      typically experienced seasonal fluctuations in sales volume due to the seasonal
      fluctuations experienced by the majority of our customers. These seasonal
      fluctuations typically result in sales decreases in the first and second
      quarters and sales increases in the third and fourth quarters of each
      year.




**Employees**





As
      of
      December 31, 2007, we had over 1,800 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.




8
 *Table
          of Contents*




*Labor
      Costs* .
      The
      manufacture of garments is a labor-intensive business. Although much of our
      productio n
      process
      is automated and mechanized, we rely on skilled labor to make our products.
      Recently, we have benefitted from the abundance of workers who migrate to urban
      areas such as Nanjing to seek jobs that pay relatively well. 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 them a safe, clean, comfortable
      working environment and accommodations. Our employees also are entitled to
      time
      off during national holidays. 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 the 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 us or our operations.




**Description
      of Property**





In
      2007,
      we operated three factories in the Nanjing Jiangning Economic and Technological
      Development Zone and in Shangfang Town, which are located in Nanjing,
      China.  In January 2007, we completed the construction of our new
      headquarters and a new manufacturing facility in Jiangning Economic and
      Technological Development Zone in Nanjing. Our operations have been consolidated
      into this new facility. We also hold a fifty-year land use right for 112,442
      square meters of land in the Nanjing Jiangning Economic and Technological
      Development Zone. For further details concerning our property, see Item 2 on
      page 26 of this report regarding “Properties.”





**Insurance**





We
      have
      purchased asset insurance coverage for our new facilities and fixed assets.
      We
      have no other material policies of insurance.





**Taxation**




Our three
        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. In
        addition, Goldenway currently enjoys a 50% reduction in its income
        tax as a foreign invested enterprise that exports over 70% of its
        output, and was entitled a lowered income tax rate of 12% for the
        2006 and 2007 tax years.   Both New-Tailun and Catch-Luck were
        entitled to two-year income tax exemptions effective for the
        2006 and 2007 tax years, and for the three year thereafter (2008, 2009 and
        2010)
        based on current law these entities will be entitled to a 50% reduction in
        enterprise income tax. All of our income before income taxes, and the income
        tax
        we pay, are related to our operations in China.





**Corporate
      History and Background**





Ever-Glory
      International Group, Inc., sometimes referred to in this report as the “Company,”
      is a holding
      company that oversees the operations of its subsidiaries, and provides these
      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 to “Ever-Glory International Group, Inc.” on November 17,
      2005.




9
 *Table
          of Contents*




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 a 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 its acquisition by
      Perfect Dream, Goldenway changed its status to that of a wholly foreign owned
      enterprise and increased its registered capital from $2,512,106 to $20,000,000.
      The increased registered capital was required to be paid in installments within
      three years of the issuance of Goldenway's updated business license. As of
      December 31, 2007, we have paid $3.63 million of our registered capital
      requirements. The remaining $13.86 million was due on January 28, 2008. On
      January 11, 2008, we submitted an application to Jiangsu Administration for
      Industry Commerce for the extension of the deadline for payment of the remaining
      registered capital to July 25, 2008. As of the date of this report, we have
      obtained approval for this extension.




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 Company Limited (“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 the amount of $2,000,000 in cash and issue 20,833,333 shares of our
      restricted common stock having a value of $10,000,000, such value of shares
      were
      based on the preceding 30-day average of high bid and the low ask price for
      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 over 700 people
      with the annual production capacity of about 2.5 million pieces.





On
      August
      27, 2007, we acquired Nanjing Catch-Luck Garments Co. Ltd., a Chinese limited
      liability company (“Catch-Luck”), which further expanded our production
      capacity. Catch-Luck is primarily engaged in the manufacturing and sale of
      garments to China, Europe, Japan, and the United States. Founded in 1995,
      Catch-Luck has more than 500 employees with annual production capacity of 1.2
      million garments. It currently operates one factory spanning 6,000 square meters
      in the Nanjing Jiangning Economic and Technological Development Zone. For
      further details concerning this acquisition, see *Recent
      Developments* below.





As
      a
      result of our acquisitions of Goldenway, New-Tailun, and Catch-Luck, we now
      own
      and operate three subsidiaries in China.





**Recent
      Developments**





*Acquisition
      of Nanjing Catch-Luck Garments Co. Ltd.*




On
      August
      27, 2007, we acquired Nanjing Catch-Luck Garments Co. Ltd., a Chinese limited
      liability company, 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.




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The
      acquisition of Catch-Luck was financed by a combination of $0.6 million in
      cash
      and common stock valued at $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 “Agreement”) by and between us, our wholly owned subsidiary,
      Perfect Dream Ltd., a British Virgin Islands corporation (“Perfect Dream”),
      Ever-Glory Hong Kong and Catch-Luck, we agreed to pay Ever-Glory Hong
      Kong an amount in Renminbi equal to $600,000 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
      have not yet paid the $600,000 cash portion of this consideration, however
      we
      plan to do so in the second quarter of 2008. 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).




Ever-Glory
      Hong Kong was 100% owned by our President and Chairman of the Board, Kang Yihua
      at the time we entered into the acquisition agreement. Mr. Kang has subsequently
      transferred 100% of his interest in Ever-Glory Hong Kong 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 Hong Kong or its
      affiliates.





*Private
      Placement Financing*





On
      August
      2, 2007, we completed a $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 $2,000,000 to investors, secured by all of the assets
      of
      Ever-Glory excluding its subsidiaries. The convertible notes issued in our
      August 2007 private placement financing bear interest at a 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 $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) the issuance of approximately
      up
      to $1.6 million shares or shares under options to employees and consultants,
      (ii) securities issued in connection with acquisitions of third parties valued
      above $8 million; (iii) the issuance of approximately up to $1.6 million shares
      or shares under warrants or other securities issued to non-affiliates for
      services rendered to us, as more fully described and set forth in the notes.
      The
      holders of the notes may convert the unpaid principal amount the notes into
      our
      common stock at any time prior to maturity, at the applicable conversion price.
      We may at any time at its option, redeem the notes by paying 125% of the unpaid
      principal and accrued interest.




11
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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 Series A Preferred Stock personally held by our
      current CEO 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 Limited, a British Virgin Islands corporation, and Goldenway
      Nanjing Garments Co. Ltd., a corporation in the People’s Republic of China, 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 under 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 9.1 million shares of our common
      stock with an exercise price of $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 Commission. 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 $0.32 per share. Similar
      to the notes, under the terms of the warrants, full-ratchet anti-dilution
      adjustments do not apply to (i) the issuance of approximately up to $1.6 million
      of shares or shares under options to employees and consultants, (ii) securities
      issued in connection with acquisitions of third parties valued above $8 million;
      (iii) the issuance of approximately up to $1.6 million of shares or shares
      under
      warrants or other securities issued to non-affiliates for services rendered
      to
      us, as more fully described and set forth in the warrants. If at any time after
      fifteen months after the closing date there is no effective registration
      statement covering the resale of the shared underlying the warrants, the warrant
      holders may exercise their warrants by means of a cashless
      exercise.





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. If we do not file these registration statements
      within the agreed time periods, or the registration statement covering the
      warrant shares does not become effective within 120 days after the filing of
      that registration statement, or if we fail to file a registration statement
      in
      connection with the investors’ piggyback or demand registration rights, or fail
      to keep a required registration statement continuously effective for two years,
      we will be subject to monthly liquidated damages payable in cash equal to 2%
      of
      the offering amount in the August 2007 private placement financing, up to a
      maximum of 10% of the offering amount, or $200,000. On October 5, 2007, we
      filed
      a registration statement on Form S-1 with the Commission to register (for
      resale) common stock issuable upon conversion of the notes. This registration
      statement was declared effective on November 13, 2007.





In
      connection with the financing, we agreed to enter into a letter of intent with
      Mr. 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 USD $5,000,000. Mr. Kang also agreed to enter
      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 agreed to enter into
      a
      two-year non-competition agreement with us which prohibits competition against
      us or solicitation of our customers or employees. 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.




12
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The
      securities were offered and sold in the financing to accredited investors in
      reliance on an exemption from the registration requirements of the Securities
      Act of 1933, as amended, under Regulation D. At the time of the closing, the
      offering was not registered under the Securities Act or any state securities
      or
“blue sky” laws.





*Strategic
      Investment in La Chapelle*





On
      January 9, 2008, our subsidiary, Goldenway Nanjing Garment Company Limited,
      a
      PRC company entered into a Capital Contribution Agreement (“Capital Contribution
      Agreement”) with Shanghai La Chapelle Garment and Accessories Company Limited
      (“La Chapelle”), a Shanghai-based garment maker, and several shareholders of La
      Chapelle. Under the terms of the Capital Contribution Agreement, Goldenway
      agreed to invest RMB 10 million (approximately USD $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 Li an
      is RMB
      $40 million in cash (approximately USD $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
      inves tment
      amount was paid by Goldenway and Wuxi Xin Bao Lian 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 (a copy of which is attached as an Exhibit to this Form
      8-K).





*Joint
      Venture with Shanghai La Chapelle Garment and Accessories Company*





Also
      on
      January 9, 2008, concurrently with Goldenway’s investment, Goldway entered into
      a Joint Venture Establishment Agreement with Shanghai La Chapelle Garment and
      Accessories Company Limited, to form a joint venture to develop, promote and
      market our new line of women’s wear in China referred to as “LA GO GO”. The
      joint venture will be in the form of a jointly owned PRC-based company to be
      registered as “Shanghai LA GO GO Fashion Company Limited .”
The
      joint venture’s registration process is expected to be completed by the end of
      March 2008.




13
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Goldenway
      agreed to initially invest RMB 6 million (USD $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
      business objective of the joint venture is to establish a leading brand of
      ladies’ garments for the mainland Chinese market. The scope of the business of
      the joint venture 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” brand
      name (including any related brand names) to the joint venture. The joint venture
      plans to select and engage at least twenty seasoned retailers in Shanghai,
      Chengdu, Nanjing, Suzhou, Beijing, and Tianjin to exclusively carry and sell
      the
      LA GO GO line of women’s clothing for 2008.





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 agreed that future capital
      contributions would be made on a pro rata basis 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.





**Our
      Growth Strategy**





We
      plan
      to expand our business and increase sales and profitability by:


·
              building
                  our own brand in the PRC market;
 ·
                developing
                    retail and wholesale distribution channels in the
                    PRC;


·
            expanding
                our production capacity through new
                facilities;




·
            further
                developing relationships with customers to increase
                sales;




·
            entering
                into strategic partnerships with our important customers and major
                suppliers;




·
            broadening
                and expanding our product offerings and product
                lines;




·
            continuing
                to enhance our manufacturing process to increase efficiency of
                production;




·
            building
                and promoting our own private label brands;
                and




·
            seeking
                acquisitions of complimentary businesses in the textile
                industry.




Our
      goal
      is to continue to strengthen our position to become a major multi-national
      apparel manufacturer, and to expand into new markets worldwide.




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**RISK
      FACTORS**





*You
      should carefully consider the risks described below together with all of the
      other information included in this prospectus before making an investment
      decision with regard to our securities. The statements contained in or
      incorporated into this prospectus 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 decline during recessionary periods
      when
      disposable income is low. Our customers anticipate and respond to adverse
      changes in economic conditions and uncertainty by reducing inventories and
      canceling orders. As a result, any substantial deterioration in general economic
      conditions, increases in energy costs or interest rates, acts of war, acts
      of
      nature or terrorist or political events that diminish consumer spending and
      confidence in any of the regions in which we compete, could reduce our sales
      and
      adversely affect our business and financial condition. 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.





**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:




15
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          of Contents*




·
            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.





As
      of
      December 31, 2007 and 2006, we did not rely on any one supplier which exceeds
      10% of all of our total supply purchases. 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**





**We
      depend 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, 2007, our five largest customers represented
      approximately 56% of our total net sales. For the year ended December 31, 2006,
      our five largest customers represented approximately 59% 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 four customers could have material adverse effect
      on our earnings or financial condition. While we believe that we could replace
      these three customers within 12 months, the loss of which will not have material
      adverse effect on our financial condition in the long term. None of our
      affiliates are officers, directors, or material shareholders of any of these
      three customers.




16
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**Our
      internal controls and procedures have been materially deficient, and we are
      in
      the process of correcting internal control deficiencies.** ****





In
      the
      second quarter of 2007, resulting from comments by and discussions with the
      staff of the SEC related to our Preliminary Information Statement on Form 14C,
      we and our independent registered public accounting firm recognized that our
      internal controls had material weaknesses.  We restated our results of
      operations for the year ended December 31, 2006 and our quarterly results for
      the quarter ended March 31, 2007 as a result of our purchase accounting for
      the
      acquisition of New-Tailun completed on December 30, 2006.





In
      2006
      and 2007, we did not maintain effective controls to ensure the completeness,
      accuracy, and valuation over the accounting for business combinations, including
      the inability to prepare financial statements and footnotes in accordance with
      SEC rules and regulations and with our 2006 acquisition of New-Tailun. We
      misapplied generally accepted accounting principles whereby we did not value
      the
      acquisitions and record the resulting purchase accounting in accordance with
      SFAS 141 and EITF 02-5. As a result, we were required to restate our financial
      results for the year ended December 31, 2006 and for the three months ended
      March 31, 2007.





If
      we
      cannot rectify these material weaknesses through remedial measures and
      improvements to our systems and procedures, management may encounter
      difficulties in timely assessing business performance and identifying incipient
      strategic and oversight issues. Management is currently focused on remedying
      internal control deficiencies, and this focus will require management from
      time
      to time to devote its attention away from other planning, oversight and
      performance functions.





We
      cannot
      provide assurances as to the timing of the completion of these efforts. We
      cannot be certain that the measures we take will ensure that we implement and
      maintain adequate internal controls in the future. Any failure to implement
      required new or improved controls, or difficulties encountered in their
      implementation, could harm our operating results or cause us to fail to meet
      our
      reporting obligations.





**We
      will be required to evaluate our internal control over financial reporting
      under
      Section 404 of the Sarbanes-Oxley Act.**





Failure
      to timely comply with the requirements of Section 404 or any adverse results
      from such evaluation could result in a loss of investor confidence in our
      financial reports and have an adverse effect on the trading price of our debt
      and equity securities.





We
      currently are not an “accelerated filer” as defined in Rule 12b-2 under the
      Securities Exchange Act of 1934, as amended. Beginning with our Annual Report
      for the year ended December 31, 2007, Section 404 of the Sarbanes-Oxley Act
      of
      2002 requires us to include an internal control report with our Annual Report
      on
      Form 10-K. That report must include management’s assessment of the effectiveness
      of our internal control over financial reporting as of the end of the fiscal
      year. This report must also include disclosure of any material weaknesses in
      internal control over financial reporting that we have identified. Additionally,
      for the fiscal year ended December 31, 2008 our independent registered public
      accounting firm will be required to issue reports on management’s assessment of
      our internal control over financial reporting and their evaluation of the
      operating effectiveness of our internal control over financial reporting. Our
      assessment requires us to make subjective judgments and our independent
      registered public accounting firm may not agree with our
      assessment.




17
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Achieving
      compliance with Section 404 within the prescribed period may require us to
      incur
      significant costs and expend significant time and management resources. If
      we
      are not able to complete our assessments as required under Section
      404 in a timely manner, we and our independent registered public accounting
      firm
      would be unable to conclude that our internal control over financial reporting
      is effective as of December 31, 2008. As a result, investors could lose
      confidence in our reported financial information, which could have an adverse
      effect on the trading price of our debt securities. In addition, our independent
      registered public accounting firm may not agree with our management’s assessment
      or conclude that our internal control over financial reporting is operating
      effectively. We will continue to consistently improve our internal control
      over
      the financial reporting with our best efforts and we plan to engage assistance
      from outside experts in doing so.





**We
      are listed on the over-the-counter bulletin board, and therefore we are subject
      to less stringent corporate governance requirements as opposed to a company
      listed on a national exchange. Specifically, we do not have a majority of
      independent directors on our board, nor do we have a separate audit committee,
      as these requirements are not applicable to us, and this provides less
      protection to our investors.**





Our
      board
      of directors currently does not have a separate audit committee or a member
      that
      qualifies as an audit committee financial expert or an independent director.
      In
      addition, we do not have an independent majority on our board of directors.
      Our
      management and board of directors are considering the addition of an independent
      director who qualified as a financial expert but there can be no assurance
      we
      will be able to attract one or more qualified independent directors or that
      any
      such directors can be added to our board as it may require us to increase the
      number of director on our board of directors, seek the resignation of directors
      who are not independent, or some combination thereof. If we are unable to
      attract qualified independent directors or nominate or elect such directors,
      our
      security holders will not have the protections provided by having independent
      directors or audit committee members. Although we believe that all actions
      taken
      by our directors on our behalf will be in our best interests, whether or not
      they are deemed to be independent, we cannot assure you that this will actually
      be the case. If actions are taken, or expenses are incurred that are not in
      our
      best interests, it could have a material adverse effect on our business and
      operations and the price of our stock held by our shareholders.





**We
      must successfully maintain and/or upgrade our information technology
      systems.**





We
      rely
      on various information technology systems to manage our operations, and we
      regularly evaluate these systems against our current and expected requirements.
      Although we have no current plans to implement modifications or upgrades to
      our
      systems, we will eventually be required to make changes to legacy
      systems and
      acquiring new systems with new functionality. We 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.**




18
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          of Contents*




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
      our 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.




**We
      may not realize the anticipated benefits of past or future acquisitions and
      strategic investments, and integration of acquisitions may disrupt our business
      and management.**





We
      may in
      the future acquire or make strategic investments in additional companies. We
      may
      not realize the anticipated benefits of these or any other acquisitions or
      strategic investments, which involve numerous risks, including:





·
            problems
                integrating the purchased operations, technologies, personnel or
                products
                over geographically disparate
                locations;




·
            unanticipated
                costs, litigation and other contingent
                liabilities;




·
            diversion
                of management’s attention from our core
                business;




·
            adverse
                effects on existing business relationships with suppliers and
                customers;




·
            incurrence
                of acquisition-related costs or amortization costs for acquired intangible
                assets that could impact our operating
                results;




·
            inability
                to retain key customers, distributors, vendors and other business
                partners
                of the acquired business;




·
            potential
                loss of our key employees or the key employees of an acquired
                organization; and




·
            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:




19
 *Table
          of Contents*




·
            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.




**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
      to administer 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 European Union
      (EU), the EU Commission signed a Memorandum of Understanding (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 in which 21 categories of textiles and apparel are subject
      to restraints.




20
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          of Contents*




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.
      The
      imposition of quotas did not have a material effect on our net sales or our
      gross margins in both 2006 and 2007. See *Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations* .
       We believe that we will be able to obtain a sufficient quota allocation
      based on our experience in prior years.  In addition, we may bid for
      additional export quota allocation from the government for the U.S. and EU
      markets.  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.





Nevertheless,
      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.





**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 Renminbi (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 8.2765 yuan 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, E uro,
          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.


21
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          of Contents*




**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 all 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. All 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 is traded on the Over-the-Counter Bulletin Board. 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 is $5.00 and $1.60 per
      share respectively.





**Our
      stock is categorized as a penny stock. Trading of our stock may be restricted
      by
      the SEC’s penny stock regulations which may limit a shareholder’s ability to buy
      and sell our stock.**





Our
      stock
      is categorized as a penny stock. The Securities and Exchange Commission has
      adopted Rule 15g-9 which generally defines “penny stock” to be any equity
      security that has a market price (as defined) less than $5.00 per share or
      an
      exercise price of less than $5.00 per share, subject to certain exceptions.
      Our
      securities are covered by the penny stock rules, which impose additional sales
      practice requirements on broker-dealers who sell to persons other than
      established customers and accredited investors. The penny stock rules require
      a
      broker-dealer, prior to a transaction in a penny stock not otherwise exempt
      from
      the rules, to deliver a standardized risk disclosure document in a form prepared
      by the SEC which provides information about penny stocks and the nature and
      level of risks in the penny stock market. The broker-dealer also must provide
      the customer with current bid and offer quotations for the penny stock, the
      compensation of the broker-dealer and its salesperson in the transaction and
      monthly account statements showing the market value of each penny stock held
      in
      the customer’s account. The bid and offer quotations, and the broker-dealer and
      salesperson compensation information, must be given to the customer orally
      or in
      writing prior to effecting the transaction and must be given to the customer
      in
      writing before or with the customer’s confirmation. In addition, the penny stock
      rules require that prior to a transaction in a penny stock not otherwise exempt
      from these rules, the broker-dealer must make a special written determination
      that the penny stock is a suitable investment for the purchaser and receive
      the
      purchaser’s written agreement to the transaction. These disclosure requirements
      may have the effect of reducing the level of trading activity in the secondary
      market for the stock that is subject to these penny stock rules. Consequently,
      these penny stock rules may affect the ability of broker-dealers to trade our
      securities. **** We
      believe that the penny stock rules discourage investor interest in and limit
      the
      marketability of our common stock.




22
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          of Contents*




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





In
      addition to the “penny stock” rules described above, FINRAhas 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 those 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, China where a significant
                portion
                of our operations are based.




23
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          of Contents*





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.




**Conversion
      of the notes into shares of our common stock will dilute the ownership interests
      of existing shareholders, including holders who will have already converted
      their notes.**





The
      conversion of some or all of the notes into our shares of our common stock
      will
      dilute the ownership interests of existing shareholders. Any sales in the public
      market of the shares of common stock issuable upon such conversion could
      adversely affect prevailing market prices of our shares of common stock. In
      addition, the existence of the notes may encourage short selling by market
      participants because the conversion of the notes could depress the price of
      our
      shares of common stock.





**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
      common shares are not currently traded at high volume, and you may be unable
      to
      sell at or near ask prices or at all if you need to sell or liquidate a
      substantial number of shares at one time.**





We
      cannot
      predict the extent to which an active public market for its common stock will
      develop or be sustained. However, we do not rule out the possibility of applying
      for listing on the American Stock Exchange or Nasdaq Capital Market or other
      markets.





Our
      common shares are currently traded, but currently with low volume, based on
      quotations on the “Over-the-Counter Bulletin Board”, 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 sales volume, and that 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
      sales 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.





Shareholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      “penny stocks” has suffered in recent years from patterns of fraud and abuse.
      Such patterns include (1) control of the market for the security by one or
      a few
      broker-dealers that are often related to the promoter or issuer; (2)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (3) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (4) excessive and undisclosed bid-ask differential and markups
      by
      selling broker-dealers; and (5) the wholesale dumping of the same securities
      by
      promoters and broker-dealers after prices have been manipulated to a desired
      level, along with the resulting inevitable collapse of those prices and with
      consequent investor losses. Our management is aware of the abuses that have
      occurred historically in the penny stock market. Although we do not expect
      to be
      in a position to dictate the behavior of the market or of broker-dealers who
      participate in the market, management will strive within the confines of
      practical limitations to prevent the described patterns from being established
      with respect to our securities. The occurrence of these patterns or practices
      could increase the future volatility of our share price.




24
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          of Contents*




**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 47% 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.





**Legislative
      actions, higher insurance costs and potential new accounting pronouncements
      may
      impact our future financial position and results of
      operations.**





There
      have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and
      there may potentially be new accounting pronouncements or additional regulatory
      rulings that will have an impact on our future financial position and results
      of
      operations. The Sarbanes-Oxley Act of 2002 and other rule changes as well as
      proposed legislative initiatives following the Enron bankruptcy are likely
      to
      increase general and administrative costs and expenses. In addition, insurers
      are likely to increase premiums as a result of high claims rates over the past
      several years, which we expect will increase our premiums for insurance
      policies. Further, there could be changes in certain accounting rules. These
      and
      other potential changes could materially increase the expenses we report under
      generally accepted accounting principles, and adversely affect our operating
      results.




25
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          of Contents*




**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.**




We
      are
      subject to reporting obligations concerning our internal controls, under the
      U.S. securities laws. The Securities and Exchange Commission, or the SEC, as
      required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
      requiring every public company to include a management report on such company’s
      internal controls over financial reporting in its annual report, which contains
      management’s assessment of the effectiveness of our internal controls over
      financial reporting. In addition, an independent registered public accounting
      firm must attest to management’s assessment of the effectiveness of our internal
      controls over financial reporting, and report on the effectiveness of these
      controls. These requirements will first apply to our annual report on Form
      10-K
      for the fiscal year ending December 31, 2007. Our management may conclude that
      our internal controls over our financial reporting are not effective. Moreover,
      even if our management concludes that our internal controls over financial
      reporting are effective, our independent registered public accounting firm
      may
      still decline to attest to our management’s assessment or may issue a report
      that is qualified if it is not satisfied with our controls or the level at
      which
      our controls are documented, designed, operated or reviewed, or if it interprets
      the relevant requirements differently from us. Our reporting obligations as
      a
      public company will place a significant strain on our management, operational
      and financial resources and systems for the foreseeable future. Effective
      internal controls, particularly those related to sales revenue recognition,
      are
      necessary for us to produce reliable financial reports and are important to
      help
      prevent material misstatements, or in certain extreme cases, fraud. As a result,
      our failure to achieve and maintain effective internal controls over financial
      reporting could result in the loss of investor confidence in the reliability
      of
      our financial statements, which in turn could harm our business and negatively
      impact the trading price of our 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**





*Factories*





In
      2007,
      we operated three office/factory complexes in the Nanjing Jiangning Economic
      and
      Technological Development Zone and in Shangfang Town, which are located in
      Nanjing, China. The following is a description of these factories:





(i)
      Goldenway. Our Goldenway facilities are located in Nanjing Jiangning
      Economic and Technological Development Zone, PRC, and includes 10,000 square
      meters of floor space. Approximately 600 employees work at this location. Our
      Goldenway facility handles administrative, sales and distribution functions
      in
      addition to manufacturing.




(ii)
      New-Tailun. Our New-Tailun facilities are located in Shangfang Town,
      Nanjing, PRC, and includes 25,000 square meters of floor space. Approximately
      700 employees work at this location. Our New-Tailun facility mainly handles
      manufacturing.





(iii) Catch-Luck.
      Our Catch-Luck facilities are located in Nanjing Jiangning Economic and
      Technological Development Zone, PRC, and includes 26,629 square meters of office
      and production space. Approximately 500 employees work at this location. Our
      Catch-Luck location mainly handles manufacturing.




26
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          of Contents*




In
      March
      1996, Goldenway entered into an agreement to develop certain land held by
      Jiangsu Ever-Glory International Group Corporation, its former parent company. Under
      that agreement, Goldenway agreed to pay for and develop a facility with 4,000
      square meters of floor space, on that land. In exchange, Goldenway obtained
      the
      use rights to the newly constructed facility for a twenty year period (after
      which period the use rights would revert back to Jiangsu Ever-Glory
      International Group Corporation.  Goldenway currently
      holds the right to use the building and improvements, and continues to lease
      the
      land from Jiangsu Ever-Glory under a 20 year lease.  Goldenway has
      offictively prepaid 100% of the rental payments of approximately $137,100 under
      the lease. There are no material encumbrances on the building and improvements.
      A copy of the Land Development Agreement is included as Exhibit 10.23 to this
      report.




The
      New-Tailun factory leases the land and building from Jiangsu Ever-Glory for
      $26,666 per annum under a two year leasing arrangement that began on April
      1,
      2006.





In
      2006,
      we made a full deposit of $2,730,890 to purchase a fifty-year land use
      right for 112,442 square meters of land in the Nanjing Jiangning Economic
      and Technological Development Zone. The land includes an existing facility
      with
      26,629 square meters of manufacturing and office space (now the Catch-Luck
      factory). On April 7, 2006, we closed the transaction with the local government
      of Nanjing City. On June 24, 2006, we obtained the title to the land for
      the land use rights for 50 years. This land is now used for our new headquarters
      and manufacturing facilities.





*Expansion
      of Facilities*





By
      the
      end of 2006, we completed the construction of our new headquarters and production
      facilities. These facilities occupy approximately 36,629 square meters, in
      which
      26,629 square meters were leased by Goldenway to Nanjing Catch-Luck Garments
      Co.
      Ltd. Following our acquisition of Goldenway, Catch-Luck ceased making lease
      payments to Goldenway.





In
      January 2007, we completed construction of our new headquarters and a new
      manufacturing facility in Jiangning Economic and Technological Development
      Zone
      in Nanjing, which replaces Goldenway's old facility in the Nanjing Jiangning
      Economic and Technological Development Zone. This new
      construction was financed through a construction loan with Nanjing City
      Commercial Bank. As of December 31, 2007, the remaining unpaid amount under
      our
      construction agreements with service providers relating to the construction
      was
      $390,207. Since the completion of our new headquarters and manufacturing
      facility in December 2006, we began consolidating our operations. On January
      10,
      2007, we completed the process of consolidating our operations into the new
      facility. Our new facility is equipped with state-of-the art manufacturing
      equipment. Our headquarters are now located at 509 Chengxin Road, Jiangning
      Economic and Technological Development Zone in Nanjing, People’s Republic of
      China. We
      plan
      to lease the older facility (previously occupied by Goldenway) to the third
      parties upon consolidation of all our operations into the new location. We
      believe that our current facilities, including the facilities newly built in
      2007, will be more than sufficient to sustain our operations for the foreseeable
      future.




**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
      Plaintiff Douglas G. Furth. The other principal parties are named defendants
      John Zanic, Wilson-Davis & Co., and Godwin, Pappas, Longley & Ronquillo,
      LLP. The action alleges that 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 $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 intend to vigorously defend 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, Plaintiff Douglas G. Furth has 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 plaintiff and no settlement has been discussed
      between us and the Plaintiff.  On
      November 29, 2007, we made a motion to dismiss the action for lack of personal
      jurisdiction, and a decision on this matter is pending.




27
 *Table
          of Contents*




We
      were
      also named as a defendant in a civil action in the U.S. court of common pleas
      of
      Allegheny County, Pennsylvania. The civil action was filed on April 17, 2006
      by
      Plaintiff Mark B. Aronson. The action alleged that we violated the Pennsylvania
      Unsolicited Telecommunication Advertisement Act by issuing “spam” emails
      soliciting purchasers for our common stock. The action seeks an award of damages
      in excess of $12,100. Management believes the allegations made in this action
      are baseless. On January 4, 2007, the case was dismissed without prejudice
      by
      the Plaintiff.





We
      are
      aware that “spam” emails soliciting purchasers for our common stock have
      originated from unknown sources. Ever-Glory does not endorse or authorize,
      nor
      does it participate, in the distribution of “spam” email to the public. We have
      declared an anti-spamming policy on our website.





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




On
      August
      10, 2007, a majority of the holders of our voting capital stock approved an
      amendment to our Articles of Incorporation to increase the authorized number
      of
      shares of the our common stock from 100,000,000 shares to 500,000,000 shares.
      This amendment was made in order to facilitate the conversion of Series A
      Preferred Stock to common stock. The shareholder approval was granted by written
      consent, in lieu of a special meeting of the shareholders. In order to provide
      information to our shareholders regarding this action, we filed a definitive
      information statement with the Securities and Exchange Commission and delivered
      it to our shareholders of record on September 11, 2007.





**PART
      II**





**Item
      5.****MARKET
      FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**





**Market
      Price of Common Equity**





Our
      common stock is current ly
      quoted
      on the OTC Bulletin Board under the symbol “EVGY.” As of December 31, 2007,
      there were approximately 70 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 OTC Bulletin Board. These quotations
      reflect inter-dealer prices, without retail mark-up, mark-down or commission
      and
      may not represent actual transactions.





28
 *Table
          of Contents*




Bid
                PricePERIOD
            
            HIGH
            
            LOWFISCAL
                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
            
            $
            1.60FISCAL
                YEAR 2006:Fourth
                Quarter ended December 31, 2006
            
            $
            7.30
            
            $
            2.80Third
                Quarter ended September 30, 2006
            
            $
            12.20
            
            $
            3.50Second
                Quarter ended June 30, 2006
            
            $
            18.70
            
            $
            9.00First
                Quarter ended March 31, 2006
            
            $
            30.00
            
            $
            9.00FISCAL
                YEAR 2005:Fourth
                Quarter ended December 31, 2005
            
            $
            10.10
            
            $
            1.50Third
                Quarter ended September 30, 2005
            
            $
            6.00
            
            $
            1.50Second
                Quarter ended June 30, 2005
            
            $
            8.20
            
            $
            2.70First
                Quarter ended March 31, 2005
            
            $
            5.50
            
            $
            3.50





On
      March
      3, 2008, the closing sale price of our common
      stock on the OTC Bulletin Board was $3.10 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.




29
 *Table
          of Contents*




**Item
      6. SELECTED FINANCIAL DATA**





You
      should read the summary consolidated financial data set forth below in
      conjunction with “ *Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations* ”
and
      our
      predecessor’s financial statements and the related notes included elsewhere in
      this prospectus. The financial data of Ever-Glory International Group, Inc.
      and its subsidiaries, for the twelve months ended December 31, 2007 and
      2006 were derived from the financial statements included in this prospectus.
      Historical results are not necessarily indicative of the results to be expected
      for any future period.





**Twelve
                Months Ended**
              **December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****(restated)**
            
            
            
            
            
            **(unaudited)****Income
                Statement Data:**Net
                Sales
            
            
            70,335,383
            
            
            51,065,249
            
            
            10,813,961
            
            
            7,967,601
            
            
            7,099,254Cost
                of Sales
            
            
            59,026,265
            
            
            42,448,928
            
            
            8,712,565
            
            
            6,092,868
            
            
            5,741,150Gross
                Profit
            
            
            11,309,118
            
            
            8,616,321
            
            
            2,101,396
            
            
            1,874,733
            
            
            1,358,104Operating
                Expenses
            
            
            3,974,678
            
            
            3,006,729
            
            
            969,663
            
            
            487,626
            
            
            668,616Income
                from Operations
            
            
            7,334,440
            
            
            5,609,592
            
            
            1,131,733
            
            
            1,387,107
            
            
            689,488Other
                Income (Expense), net
            
            
            (316,509
            )
            
            (262,312
            )
            
            73,487
            
            
            (
                8,668
            )
            
            (2,618
            )Income
                Before Taxes
            
            
            7,017,931
            
            
            5,347,280
            
            
            1,205,220
            
            
            1,378,439
            
            
            686,870Income
                Taxes
            
            
            (252,682
            )
            
            (312,010
            )
            
            161,680
            
            
            145,584
            
            
            82,424Net
                Income
            
            
            6,765,249
            
            
            5,035,270
            
            
            1,043,540
            
            
            1,232,855
            
            
            604,446Foreign
                Currency Translation
            
            
            1,383,279
            
            
            657,375
            
            
            5,621
            
            
            -
            
            
            -Comprehensive
                Income
            
            
            8,148,528
            
            
            5,692,645
            
            
            1,049,161
            
            
            1,232,855
            
            
            604,446Basic
                Net Income Per Share (in US$)
            
            
            0.99
            
            
            0.93
            
            
            0.20
            
            
            0.20
            
            
            -Diluted
                Net Income Per Share (in US$)
            
            
            0.94
            
            
            0.44
            
            
            0.10
            
            
            0.20
            
            
            -Basic
                Weighted Average Number of Shares Outstanding
            
            
            6,865,482
            
            
            5,388,201
            
            
            5,522,470
            
            
            5,831,727
            
            
            -Diluted
                Weighted Average Number of Shares Outstanding
            
            
            7,244,062
            
            
            11,379,700
            
            
            11,513,969
            
            
            5,831,727
            
            
            -




**Twelve
                Months Ended December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****Balance
                Sheet Data:**
            
            
            
            **(restated)**
            
            
            
            
            
            **(unaudited)**Total
                Assets
            
            
            33,513,272
            
            
            28,433,821
            
            
            8,035,279
            
            
            7,445,965
            
            
            5,988,415Current
                Liabilities
            
            
            9,111,053
            
            
            14,416,589
            
            
            2,286,240
            
            
            2,788,132
            
            
            2,563,433Long
                Term Liabilities
            
            
            4,474,985
            
            
            4,238,526
            
            
            -
            
            
            -
            
            
            -Stockholders
                Equity
            
            
            19,927,234
            
            
            9,778,706
            
            
            5,749,039
            
            
            4,657,833
            
            
            3,424,982





30
 *Table
          of Contents*




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





**Overview**





*The
      following discussion and analysis of our financial condition and results of
      operations for the quarter and the fiscal year ended December 31, 2007 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,” and similar expressions
      to identify forward-looking statements.*





We
      manufacture apparel for men, women, and children for primarily middle to
      high-grade well-known casual wear, sportswear, and outerwear brands and for
      a
      variety of companies. Most of our products are exported to Japan, Europe, and
      the United States. Our customers include large retailers and well-known brands.
      We manufacture our apparel products in China, including from our three factories
      located in the Nanjing Jiangning Economic and Technological Development Zone
      and
      Shang Fang town respectively in Nanjing, China. We conduct our operations
      through three wholly-owned subsidiaries in China: Goldenway
      Nanjing Garments Company Limited (“Goldenway”), Nanjing New-Tailun Garments
      Company Limited (PRC) (“New-Tailun”), and Nanjing
      Catch-Luck Garments Co., Ltd. (“Catch-Luck”).





Although
      we have our own manufacturing capacity, we currently outsource a large portion
      of our manufacturing to our strategic contractors as a part of our overall
      sourcing strategy. Outsourcing
      much of the manufacturing work allows us to maximize production flexibility
      while managing capital expenditures and costs of maintaining what would
      otherwise be a massive workforce. We inspect products manufactured by our
      contractors to ensure that they meet our rigorous quality standards. See
“ *Production
      and Quality Control* .”





We
      export
      garments to customers in Europe, the US, Japan, and China. During fiscal years
      2006 and 2007, sales generated from our five largest customers accounted for
      56%
      and 59% of our net sales respectively. Sales generated from the sales
      to our single largest customer, being the same European customer, accounted
      for
      28% and 31% of our total net sales respectively.





In
      2007,
      approximately 57% of our sales came from customers in Europe, 21% from customers
      in the United States, 16% from customers in Japan, and 6% from customers in
      China. In 2006, approximately 60% of our net sales came from customers in
      European countries, 18% from customers in Japan, 15% from customers in the
      United States, and 6% from customers in China. Management believes that we
      have established and maintained a solid business relationship with all of our
      major customers.





We
      purchase the majority of our raw materials directly from numerous local fabric
      and accessories suppliers. We **** also
      purchase finished goods from other contract manufacturers. In 2006 and 2007,
      we
      did not rely on any one supplier exceeding 10% of our purchases. **** Purchases
      from our single largest supplier accounted for 7% and 5% of our total supply
      purchases respectively. During fiscal years 2006 and 2007, purchases from our
      five largest suppliers accounted for 24% and 21% of our total supply purchases
      respectively. We have not experienced difficulty in obtaining raw materials
      essential to our business, and management believes that we have built and
      maintained a solid business relationship with all of our major suppliers.




31
 *Table
          of Contents*




In
      2007,
      we operated three factories in the Nanjing Jiangning Economic and Technological
      Development Zone and in Shangfang Town in the Jiangning District in Nanjing,
      China. Our three factories employ a staff of over 1,800 people, with an annual
      production capacity of over 9 million pieces. We consider relations with our
      employees to be satisfactory.





On
      April
      7, 2006, we completed the process of acquiring a fifty-year land use right
      on
      112,442 square meters of land in the Nanjing Jiangning Economic and
      Technological Development Zone. The land contains an existing facility of 26,629
      square meters, which includes manufacturing and office space. By the end of
      2006, we completed the construction of the new office buildings
      and adjoining factory. We consolidated our operation into our new
      headquarters and manufacturing facility in January 2007. The new manufacturing
      facility occupies an area of 10,000 square meters and is equipped with
      state-of-the-art equipment **.** The
      new
      land and its completed buildings were collaterized as the security for the
      Goldenway two year bank loan maturing in June 2010.





In
      2007,
      all Chinese manufacturers of certain garments were subject to aggregate export
      quotas, or limitations, to the United States and Europe. Although certain of
      our
      apparel products fall within the categories subject to the quotas with respect
      to exports to the United States and Europe, the Chinese government allocated
      a
      portion of the aggregate export quota to us based upon the amount of product
      that we exported in the prior year. Management believes that the imposition
      of
      such quotas did not have a material negative effect on our net sales and our
      net
      margin. See *Results
      of Operations* below.
      As a result of our prior export performance, we were awarded a sufficient
      portion of the export quotas to enable us to increase our sales to customers
      in
      Europe and the United States despite the export quotas. We believe that our
      customer mix and our ability to adjust the types of apparel it manufactures
      will
      mitigate our exposure to such trade restrictions in the future.




Our three
      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. In
      addition, Goldenway currently enjoys a 50% reduction in its income
      tax as a foreign invested enterprise that exports over 70% of its
      output, and was entitled a lowered income tax rate of 12% for the
      2006 and 2007 tax years.   Both New-Tailun and Catch-Luck were
      entitled to two-year income tax exemptions effective for the
      2006 and 2007 tax years, and for the three year thereafter (2008, 2009 and
      2010)
      based on current law these entities will be entitled to a 50% reduction in
      enterprise income tax. All of our income before income taxes, and the income
      tax
      we pay, are related to our operations in China.





*Acquisition
      of Nanjing Catch-Luck Garments Co. Ltd.*




On
      August
      27, 2007, we acquired Nanjing Catch-Luck Garments Co. Ltd., a Chinese limited
      liability company, which further expanded our production capacity. Catch-Luck
      is
      primarily engaged in the manufacturing and sale of garments to China, Europe,
      Japan and the United States. Founded in 1995, Catch-Luck has more than 500
      non-union employees with annual production capacity of 1.2 million garment
      pieces. It currently operates one factory spanning 6,000 square meters in the
      Nanjing Jiangning Economic and Technological Development Zone. During the first
      half of 2007, Catch-Luck generated net sales of $9.7 million and net income
      of $1.2 million. Approximately 78% of sales came from customers in Europe,
      9% from customers in the U.S., 8% from customers in China and 4% from customers
      in Japan. The acquisition of Catch-Luck was financed by a combination of $0.6
      million in cash and $9.4 million of our common stock. Upon completion of this
      transaction, Catch-Luck became a wholly owned subsidiary of Ever-Glory. For
      further details regarding our acquisition of Catch-Luck, please refer to
      page 10 of the Business section of this report.




32
 *Table
          of Contents*




*Private
      Placement Financing*





On
      August
      2, 2007, we completed a $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
      $2,000,000 to investors, secured by all of the assets of Ever-Glory excluding
      its subsidiaries. For a further description of the terms of the financing,
      please refer to page 11 in the Business section of this prospectus.





**Recent
      Subsequent Events**





*Strategic
      Investment in La Chapelle*





On
      January 9, 2008, our subsidiary, Goldenway Nanjing Garment Company Limited,
      a
      PRC company entered into a Capital Contribution Agreement (“Capital Contribution
      Agreement”) with Shanghai La Chapelle Garment and Accessories Company Limited
      (“La Chapelle”), a Shanghai-based garment maker, and several shareholders of La
      Chapelle. Under the terms of the Capital Contribution Agreement, Goldenway
      agreed to invest RMB 10 million (approximately USD $1.35 million) in La Chapelle
      for a 10% stake in La Chapelle.





*Joint
      Venture with Shanghai La Chapelle Garment and Accessories Company*





On
      January 9, 2008, concurrently with Goldenway’s investment, Goldway entered into
      a Joint Venture Establishment Agreement with Shanghai La Chapelle Garment and
      Accessories Company Limited, to form a joint venture to develop, promote and
      market our new line of women’s wear in China referred to as “LA GO GO.” The
      joint venture is in the form of a jointly owned PRC-based company registered
      as
“Shanghai LA GO GO Fashion Company Limited.” Goldenway agreed to initially
      invest RMB 6 million (USD $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
      business objective of the joint venture is to establish a leading brand of
      ladies’ garments for the mainland Chinese market. The scope of the business of
      the joint venture 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” brand
      name (including any related brand names) to the joint venture. The joint venture
      plans to select and engage at least sixty seasoned retailers in Shanghai,
      Chengdu, Nanjing, Suzhou, Beijing, and Tianjin to exclusively carry and sell
      the
      LA GO GO line of women’s clothing for 2008.




**2008
      Outlook**





As
      we
      look to 2008, we are working to make domestic growth in China a major part
      of
      our strategy and to launch the retail and wholesale distribution of our own
      youthful lifestyle and fashion products under our own brands in China. With
      our
      new agreement with Shanghai La Chapelle Garment and Accessories Co., Ltd.,
      one
      of the top-ranked fashion retailers in China which operates over 350 stores
      across the nation, we are in the process of launching our “LA GO GO” brand of
      ladies’ wear. We plan to expand our retail network to include several dozen
      stores by the end of this year, through which we plan to market and sell our
      new
      line. Over time, we believe sales of lifestyle and fashion products under our
      own brand names in China will enable us to achieve greater balance in our sales
      revenue from both overseas and domestic markets.





33
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          of Contents*




Building
      upon our accomplishments in 2007, we are eager to demonstrate additional
      progress in 2008. In
      fiscal
      2008, we expect to generate total net sales of $90 million to $100
      million and net income of $8 million to $8.6 million.





We
      are
      also pursuing plans to have our shares listed on a national exchange in the
      U.S., which we believe will provide additional benefits to our shareholders.
      Toward that end, we are currently seeking to appoint additional independent
      directors for our board, in order to fulfill one important aspect of the listing
      requirements for a national exchange.





**Sales and
      Expenses**




We
      market
      and sell our products through a combination of international distributors and
      direct sales to brands and retail chain stores primarily in Europe, the United
      States and Japan.





For
      our
      new customers, we ordinarily accept orders backed by a letter of credit. For
      our
      established customers, we generally accept payment within 30 to 60 days
      following delivery of finished goods to the customer.




Our
      cost
      of net sales consists of the appropriate materials purchasing, receiving
      and inspection costs, inbound freight where applicable, garment finishing fees,
      direct labor, and manufacturing overhead, including our contributions to a
      government mandated multi-employer defined contribution plan, packing materials
      and others. In addition, we subcontract a portion of our manufacturing, which
      costs are included in our cost of net sales.




Our
      selling expenses consist primarily of transportation and unloading charges
      and
      product inspection charges.




Our
      general and administrative expenses consist primarily of related expenses for
      executive, finance, accounting, facilities and human resources personnel, office
      expenses and professional fees.





**CRITICAL
      ACCOUNTING POLICIES**




We
      have
      identified critical accounting policies that, as a result of judgments,
      uncertainties, uniqueness and complexities of the underlying accounting
      standards and operation involved could result in material changes to our
      financial position or results of operations under different conditions or using
      different assumptions.




The
      preparation of our financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of sales revenue and expenses
      during the reporting period. Actual results could differ from those estimates.
      Significant estimates in 2006 and 2005 include the allowance for the useful
      life
      of property and equipment.




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




34
 *Table
          of Contents*




We
      recognize sales revenue in compliance with Staff Accounting Bulletin (“SAB”)
      104. Sales revenue is recognized upon delivery to our customers for local sales
      and upon shipment of the products for export sales, at which time title passes
      to the customer, a formal arrangement exists, the price is fixed or
      determinable, no other significant obligations of the Company exist and
      collectability is reasonably assured.




We
      recognize sales revenue upon delivery to our customers for local sales and
      upon
      shipment of the products for export sales, at which time title passes to the
      customer.




Details
      regarding our use of these policies and the related estimates are described
      in
      the accompanying financial statements as of December 31, 2007 and for the years
      ended December 31, 2007 and 2006. During the year ended December 31, 2007,
      there
      have been no material changes to our critical accounting policies that impacted
      our consolidated financial condition or results of operations.




**RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      July
      2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
      in
      Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”), which clarifies
      the accounting for uncertainty in tax positions. This interpretation provides
      that the tax effects from an uncertain tax position can be recognized in our
      financial statements, only if the position is more likely than not of being
      sustained on audit, based on the technical merits of the position. The
      provisions of FIN 48 are effective as of the beginning of fiscal 2007, with
      the
      cumulative effect of the change in accounting principle recorded as an
      adjustment to opening retained earnings. FIN 48 did not have an impact on the
      Company’s results of operations or financial condition.





In
      September 2006, FASB issued Statement 157, Fair Value Measurements. This
      statement defines fair value and establishes a framework for measuring fair
      value in generally accepted accounting principles (GAAP). More precisely, this
      statement sets forth a standard definition of fair value as it applies to assets
      or liabilities, the principle market (or most advantageous market) for
      determining fair value (price), the market participants, inputs and the
      application of the derived fair value to those assets and liabilities. The
      effective date of this pronouncement is for all full fiscal and interim periods
      beginning after November 15, 2008. We are currently evaluating the impact SFAS
      157 will have on our results of operations or financial condition.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159) which permits entities to
      choose to measure many financial instruments and certain other items at fair
      value that are not currently required to be measured at fair value. SFAS 159
      will become effective for us on January 1, 2008. We are currently evaluating
      the
      impact this new standard, but believes that it will not have a material impact
      on our financial position.





In
      December 2007, the FASB issued SFAS No. 160,”Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      the
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest, changes in a parent’s ownership interest and the
      valuation of retained non-controlling equity investments when ** a
      subsidiary is deconsolidated. The statement also establishes reporting
      requirements that provide sufficient disclosures that clearly identify and
      distinguish between the interests of the parent and the interests of the
      non-controlling owners. SFAS 160 is effective for fiscal years beginning after
      December 15, 2008. We have not determined the effect that the application of
      SFAS 160 will ** have
      on
      its consolidated financial statements.




35
 *Table
          of Contents*




In
      December 2007, the FASB issued SFAS 141R, “Business Combinations,” which applies
      to all transactions or other events in which an entity obtains control of one
      or
      more businesses, including those sometimes referred to as “true mergers” or
“mergers of equals” and combinations achieved without the transfer of
      consideration. This statement replaces FASB Statement No. 141 and applies to
      all
      business entities, including mutual entities that previously used the
      pooling-of-interests method of accounting for some business combinations. We
      believe that adoption of the FAS 141R will have an effect on future
      acquisitions.





***Results
      of Operations***





The
      following is a discussion and analysis of our results of operations, comparing
      the years ended December 31, 2007 and 2006. In connection with the following
      discussion, please refer to our *Selected
      Financial Data* appearing on page 30 of this Annual Report on Form 10-K.




**Year
      Ended December 31, 2007 Compared to Year Ended December 31,
      2006**





The
      following table summarizes our results of operations. The table and the
      discussion below should be read in conjunction with the audited financial
      statements and the notes thereto appearing elsewhere in this report.





**Results
      of Operations**




Year
                Ended December 31,2007
            
            2006(in
                U.S. Dollars, except for percentages)Sales
            
            $
            70,335,383
            
            
            100.00
            %
            $
            51,065,249
            
            
            100.00
            %Gross
                Profit
            
            $
            11,309,118
            
            
            16.08
            %
            $
            8,616,321
            
            
            16.87
            %Operating
                Expense
            
            $
            3,974,678
            
            
            5.65
            %
            $
            3,006,729
            
            
            5.89
            %Income
                From Operations
            
            $
            7,334,440
            
            
            10.43
            %
            $
            5,609,592
            
            
            10.98
            %Other
                Expenses
            
            $
            316,509
            
            
            0.45
            %
            $
            262,312
            
            
            0.51
            %Income
                tax expenses
            
            $
            252,682
            
            
            0.36
            %
            $
            312,010
            
            
            0.61
            %Net
                Income
            
            $
            6,765,249
            
            
            9.62
            %
            $
            5,035,270
            
            
            9.86
            %





36
 *Table
          of Contents*




**Sales,
      Cost of Sales and Gross Margin**





**Sales**





The
      following table sets forth a breakdown of our total sales revenue, by
      region, for the periods indicated:




**For
                  the year ended December 31,**2007
              
              
              2006(in
                    U.S. dollars, except for percentages)$
              
              %
                  of total
                sales revenue
              
              
              $
              
              % of total
                sales revenue
              
              
              Growth
                  in 2007 compared with 2006Europe
              
              $
              40,308,166
              
              
              57.3
              %
              
              $
              29,469,046
              
              
              57.7
              %
              
              
              36.8
              %US
              
              $
              14,480,389
              
              
              20.6
              %
              
              
              8,389,786
              
              
              16.4
              %
              
              
              72.6
              %Japan
              
              $
              10,956,030
              
              
              15.6
              %
              
              
              9,270,860
              
              
              18.2
              %
              
              
              18.2
              %China
              
              $
              4,590,798
              
              
              6.5
              %
              
              
              3,119,065
              
              
              6.1
              %
              
              
              47.2
              %Other
              
              $
              0
              
              
              -
              
              
              
              816,492
              
              
              1.6
              %
              
              
              -Total
                  Net Sales
              
              $
              70,335,383
              
              
              100.0
              %
              
              
              51,065,249
              
              
              100.0
              %
              
              
              37.7
              %




Sales
      for
      the year ended December 31, 2007 were $70,335,383, an increase of 38% from
      $51,065,249 for 2006. We generate revenue primarily from the production and
      the
      sale of garments to overseas as well as domestic Chinese markets. The increase
      in our sales was primarily attributable to an overall increase in sales to
      customers in Europe, the U.S., Japan and the PRC.





Sales
      to
      customers in Europe **** accounted
      for 57% of our total net sales in 2007, while sales to these
      customers increased by 37% from the prior year. This growth in sales
      was primarily due to the increase of orders from our largest customer in Germany
      in 2007.





Sales
      to
      customers in the U.S. **** accounted
      for 21% of our total net sales in 2007, while
      sales to these customers increased by 73% from the prior year. The growth in our sales was primarily
      due to the relatively large increase in orders from our two customers in the
      U.S. market. In 2007, our sales to one existing customer increased by 221%,
      and
      the addition of a new customer during 2007 accounted for an additional $1.9
      million in sales.





Sales
      to
      customers in Japan accounted for 16% of our total net sales in 2007, with sales
      to these customers increasing by 18% as compared to the prior year. Growth
      in
      sales to these customers was primarily due to the increase in sales to our
      largest customer in Japan.





Sales
      to
      customers in the Chinese market accounted for 6.5% of our total net sales in
      2007. Sales to Chinese customers grew by 47% as compared to the prior year.
      Growth in sales to these customers was primarily due to the increase of orders
      from our new customer in Hong Kong.




37
 *Table
          of Contents*




The
      following table summarizes our revenues generated from related parties and
      third
      parties during the periods indicated.




**Year
                Ended December 31,****2007**
            
            **2006**(in
                U.S. dollars, except for percentages)Net
                sales to related parties
            
            $
            1,155,998
            
            
            1.64
            %
            $
            479,004
            
            
            0.94
            %Net
                sales to third parties
            
            $
            69,179,385
            
            
            98.36
            %
            $
            50,586,245
            
            
            99.06
            %Total
            
            $
            70,335,383
            
            
            100.00
            %
            $
            51,065,249
            
            
            100.00
            %





Net
      sales
      to related parties accounted for 1.6% of our total sales in 2007, an increase
      from 0.94% in 2006. The increase was mainly attributable to an increase in
      new
      orders from a related party who operates in the Chinese domestic market.
      Management expects sales to related parties will continue to constitute
      a small portion of our total sales, in the future.





**Cost
      of Sales and Gross Profit Margin**





The
      following table sets forth the components of our cost of sales and gross profit
      both in absolute amount and as a percentage of total net sales for the periods
      indicated.




**Year
                Ended December 31,****2006**
            
            
            
            **2006**(in
                U.S. dollars, except for percentages)**Total
                Net Sales**
            
            **$**
            **70,335,383**
            
            
            100.00
            %
            
            **$**
            **51,065,249**
            
            
            100.00
            %Raw
                materials
            
            $
            30,784,337
            
            
            43.77
            %
            
            $
            23,076,654
            
            
            45.19
            %Labor
            
            $
            3,151,476
            
            
            4.48
            %
            
            $
            3,356,331
            
            
            6.57
            %Outsource
                Production Costs
            
            $
            23,458,802
            
            
            33.35
            %
            
            $
            14,518,853
            
            
            28.43
            %Other
                and Overhead
            
            $
            1,631,650
            
            
            2.32
            %
            
            $
            1,497,090
            
            
            2.93
            %**Total
                Cost of Sales**
            
            **$**
            **59,026,265**
            
            
            83.92
            %
            
            **$**
            **42,448,928**
            
            
            83.13
            %**Gross
                Profit**
            
            **$**
            **11,309,118**
            
            
            16.08
            %
            
            **$**
            **8,616,321**
            
            
            16.87
            %





Raw
      materials costs accounted for 44% of our total net sales in 2007, an increase
      of
      33% compared to the prior year. These costs, as a percentage of our total net
      sales, decreased from 45% of our total net sales in 2006 to 44% of our total
      net
      sales in 2007. This decrease was mainly due to slightly lower material prices
      as
      the result of discounts from our volume purchases of some kinds of fabrics
      in
      2007, which discounts did not apply in 2006.





Labor
      costs accounted for 4.5% of our total net sales in 2007, down from 6.6% in
      the
      prior year. This decrease was mainly due to a workforce reduction by our
      Goldenway subsidiary. In 2007, Goldenway began to increase outsourcing to
      independent contract manufacturers, and dismissed most of its workers in order
      to reduce direct labor costs.





Outsource
      production costs accounted for 33% of our total net sales in 2007, an increase
      of 5% from the prior year. These costs, as a percentage of our total net sales,
      incre ased
      from
      28% of total net sales in 2006 to 33% of total net sales in 2007. This increase
      was mainly due to an overall increase in the volume of our outsourced
      production.




38
 *Table
          of Contents*




Overhead
      and other expenses accounted for 2.3% of our total net sales in 2007, compared
      to 2.9% of total net sales in 2006. This decrease as the percentage of our
      net
      sales was mainly due our cost containment measures for water and electricity
      expenses.





Total
      cost of sales for the year ended December 31, 2007 was $59,026,265, an increase
      of 39% from $42,448,928 in 2006. As a percentage of total net sales, our cost
      of
      sales increased to approximately 83.92% of total net sales for 2007, up slightly
      from approximately 83.13% of total net sales in 2006. Consequently, gross margin
      as a percentage of total net sales decreased slightly to approximately 16.08%
      for 2007 from approximately 16.87% for 2006. The 0.79% decrease in
      gross margin
      was attributable to a slight increase in the cost of raw materials, an increase
      in outsource production cost and a modest increase in labor costs, which could
      not entirely be passed on to our customers in the form of
      higher prices.





The
      following table sets forth our total net sales, cost of sales, gross profit
      and
      gross margin of the geographic market segments for the periods
      indicated.




**For
                the year ended December 31,****2007**
            
            
            **2006****Net
                Sales**
            
            
            **Cost
                of sales**
            
            
            **Gross
                profit**
            
            
            **Gross
                margin**
            
            
            **Net
                Sales**
            
            
            **Cost
                of sales**
            
            
            **Gross
                profit**
            
            
            **Gross
                margin**(in
                U.S. dollars, except for percentages)Europe
            
            $
            40,308,166
            
            $
            33,742,787
            
            $
            6,565,379
            
            
            16.3
            %
            $
            29,757,894
            
            $
            24,284,729
            
            $
            5,473,165
            
            
            18.4
            %US
            
            
            14,480,389
            
            
            13,109,394
            
            
            1,370,995
            
            
            9.5
            %
            
            8,368,405
            
            
            7,432,476
            
            
            935,929
            
            
            11.2
            %Japan
            
            
            10,956,030
            
            
            8,982,183
            
            
            1,973,847
            
            
            18.0
            %
            
            9,436,593
            
            
            7,959,672
            
            
            1,476,921
            
            
            15.7
            %China
            
            
            4,590,798
            
            
            3,191,901
            
            
            1,398,897
            
            
            30.5
            %
            
            3,064,108
            
            
            2,408,191
            
            
            655,917
            
            
            21.4
            %Other
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            438,249
            
            
            363,860
            
            
            74,389
            
            
            17.0
            %Total
            
            
            70,335,383
            
            
            59,026,265
            
            
            11,309,118
            
            
            16.1
            %
            
            51,065,249
            
            
            42,448,928
            
            
            8,616,321
            
            
            16.9
            %





Overall
      gross margin in 2007 was 16.1%, which decreased from 16.9% in 2006 mainly as
      a
      result of increased reliance on outsourcing to contract manufacturers. Gross
      margin on sales to Japan and China increased significantly as we moved from
      mass
      market products to high quality upper market products, and launched higher
      margin women’s wear products. Gross margin on sales to the EU and U.S. markets
      declined under the margin pressures.




39
 *Table
          of Contents*




**Selling,
      General and Administrative Expenses**





**For
                the Year Ended December 31,****2007**
            
            **2006****$**
            
            **%
                of Total**
              **Net
                Sales**
            
            **$**
            
            **%
                of Total**
              **Net
                Sales**(in
                U.S. Dollars, except for percentages)Gross
                Profit
            
            $
            11,309,118
            
            
            16.1
            %
            $
            8,616,321
            
            
            16.9
            %Operating
                Expenses:Selling
                Expenses
            
            
            593,570
            
            
            0.8
            %
            
            726,574
            
            
            1.4
            %General
                and AdministrativeExpenses
            
            
            3,381,108
            
            
            4.8
            %
            
            2,280,155
            
            
            4.5
            %Total
            
            
            3,974,678
            
            
            5.7
            %
            
            3,006,729
            
            
            5.9
            %Income
                from Operations
            
            
            7,334,440
            
            
            10.4
            %
            
            5,609,592
            
            
            11.0
            %





Selling
      expenses in 2007 decreased by 18.31% from $726,574 in 2006 to $593,570 in 2007
      due to reduced export and export quota expenses as the PRC government moved
      toward a more transparent and merit-based quota allocation system.





General
      and administrative expenses increased by 48% from $2,280,155 in 2006 to
      $3,381,108 in 2007. The increase was partially explained by the higher
      depreciation and amortization on office facilities, expenditures on office
      equipment while we moved into new facilities during the year. Payroll also
      increased during the year as a result of the increase of our management staff
      to
      handle our business expansion.




40
 *Table
          of Contents*




Interest Expenses




Interest
      expenses were $424,448 in 2007 compared to $285,876 in 2006. This increase
      was
      mainly due to the increase from the intere st
      due on
      the Nanjing City Commerical Bank loan in the amount of $4,798,500 to
      finance our new construction and supplement our working capital.





We
      paid
      interest of $49,973 in connection with our private placement o f
      $2
      million in secured convertible notes, which began accruing interest (due and
      payable quarterly) beginning in August 2007. We
      also
      recorded a discount on the convertible notes 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 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) stock market price of $2.70.
      The discount on notes payable is amortized using effective interest method
      over
      2 years. For the year ended December 31, 2007, we recorded $25,503 as interest
      expense in our statement of operations.





**Income
      Tax Expenses**




Income
      tax expenses for 2006 and 2007 amounted to $312,010 and $252,862, respectively,
      and our effective income tax rates were 6% and 4% during 2006 and 2007
      respectively as a result of lower taxable income generated from
      Goldenway.





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




2007
            
            2006Goldenway
            
            
            12
            %
            
            12
            %Catch-Luck
            
            
            0
            %
            
            0
            %New-Tailun
            
            
            0
            %
            
            0
            %




Goldenway is
      a foreign invested enterprise that exports over 70% of its output, and as a
      result, Goldenway benefits from a 50% reduction in its income tax rate.
      Goldenway was entitled a lowered income tax rate of 12% for the 2006
      and 2007 tax years.  Both New-Tailun and Catch-Luck were entitled
      to two-year income tax exemptions effective for the 2006 and
      2007 tax years, and for the three year thereafter (2008, 2009 and 2010) based
      on
      current law these entities will be entitled to a 50% reduction in
      enterprise income tax.





Ever-Glory
      International Group, Inc. was incorporated in the United States and has incurred
      net operating losses for income tax purposes the years ended December 31, 2007
      and 2006. The net operating loss carry forwards for United States income taxes
      amounted to $461,854 which may be available to reduce future years’ taxable
      income. These carry forwards will expire, if not utilized, through 2027.
      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. The valuation allowance at December 31, 2007 was $461,854. Management
      will
      review this valuation allowance periodically and make adjustments as
      warranted.




41
 *Table
          of Contents*




**Net
      Income**





Net
      income in 2007 was $6,765,249, an increase of $1,729,979 or 34% from $5,035,270
      in 2006. This increase was mainly attributable to a significant increase in
      our
      net sales derived from customers in Europe and the U.S. Our fully diluted
      earnings per share was $0.94 for the year ended December 31, 2007 compared
      to
      $0.44 for the same period in 2006.




**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      December 31, 2007, we had cash and cash equivalents of $641,739, other current
      assets of $18,001,447 and current liabilities of $ 9,111,053. We presently
      finance our operations primarily from the cash flow from our operations, and
      we
      anticipate that this will continue to be our primary source of funds to finance
      our short-term cash needs. If we require additional capital to expand or enhance
      our existing facilities, we will consider debt or equity offerings or
      institutional borrowing as potential means of financing.





Net
      cash
      provided in operating activities for 2007 was $1,876,458 compared with net
      cash
      provided by operating activities of $3,749,859 in 2006. This decrease was mainly
      attributable to advances made by us for the purchase of raw materials as the
      result of our business expansion.





Net
      cash
      used in investing activities was approximately $4,695,462 in 2007, compared
      with
      $9,300,029 in 2006. This decrease in 2007 was mainly due to the completion
      of
      our new headquarters and facilities in early 2007. In 2006, we borrowed
      approximately $4.8 million from Nanjing City Commercial Bank to finance our
      new
      construction. In 2007, our new construction was completed, and accordingly
      we did not borrow additional funds relating to construction in 2007. Interest
      payment associated with the loan in 2007 was about $230,000.





Net
      cash
      provided by financing activities was $1,757,480 in 2007, compared with
      $4,662,180 in 2006. The decrease was mainly because we did not increase
      borrowings from the Nanjing City Commercial Bank in 2007 as compared to 2006.





On
      August
      15, 2006, Goldenway entered into credit agreements with Nanjing City Commercial
      Bank to borrow an aggregate principal amount of up to $6.58 million within
      24
      months. The loans were secured by our new facilities and were used to fund
      construction costs as well as our daily operations. As of December 31, 2007,
      we
      had borrowed $1,371,000 at an interest rate of 6.53% per annum and $3,427,500
      at
      an interest rate of 7 % per annum. The maturity of these borrowings can be
      extended at our option. We plan to repay the loans with cash flow from
      operations. In the event we do not have available cash flow from operations
      to
      repay these loans, we will seek to consolidate and refinance the loans at
      maturity.





On
      August
      2, 2007, we consummated a private placement of $2,000,000 of our secured
      convertible notes. The net proceeds was $1,757,480 excluding financing costs.
      The financing was mainly to supplement our working capital.





In
      addition, as of December 31, 2007, we had borrowed $4,474,985 from a related
      party for the main purpose of funding the increased registered capital of
      Goldenway. Interest to be paid to this related party totaled $236,459 for the
      2007 fiscal year.




42
 *Table
          of Contents*




**Capital
      Commitments**





We
      have a
      continuing program for the purpose of improving its 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 $17.5
      million be paid into Goldenway by 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 December 31, 2007, we have paid $3.6
      million of our registered capital requirements. The remaining $13.9 million
      is
      due on January 28, 2008 but remains unpaid as of the date of this report. We
      have applied for an extension of the deadline for payment of the remaining
      registered capital to July 25, 2008, with the Jiangsu Administration of Industry
      and Commerce. As of the date of this report, we have obtained approval for
      this extension.




On
      August
      2, 2007, the Company consummated a private placement of $2,000,000 senior
      secured convertible notes. The notes mature and become due and payable two
      years
      after the date they were issued, unless they are sooner converted by the
      noteholders into our common stock. If the notes are not converted into common
      stock, we will be required to repay the outstanding principal balance of these
      notes plus accrued interest on August 2, 2009.




On
      January 9, 2007, our Goldenway subsidiary entered into a Joint Venture
      Establishment Agreement with Shanghai La Chapelle Garment and Accessories
      Company Limited, in order to pursue a joint venture to develop, a private label
      referred to as “LA GO GO” in Chinese market. Goldenway agreed to invest RMB 6
      million (USD $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
      to
      develop several dozen retail chain stores in China by the end of
      2008.





**Uses
      of Liquidity**





Our
      cash
      requirements through the end of fiscal 2008 will be primarily to fund daily
      operations for the growth of our business. Our management will consider
      acquiring additional manufacturing capacity in the future to strengthen and
      stabilize our manufacturing base. We intend to establish our own distribution
      and logistics channels in overseas markets. As discussed above, on January
      9,
      2008, we entered into a joint venture to launch a proprietary brand directly
      to
      the Chinese market which also expected to require additional cash investments
      in
      2008. In addition, we must make certain required capital contributions to our
      Goldenway subsidiary in accordance with a timetable to be determined with the
      input of applicable local authorities.





**Sources
      of Liquidity**





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





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 2008.
      For
      our long-term cash needs, we are currently considering a number of different
      financing opportunities which may include debt and equity financing. No
      assurance can be made that such financing will be available to us, and adequate
      funds may not be available on terms acceptable to us. If additional funds are
      raised through the issuance of equity securities, dilution to existing
      shareholders may result. 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.




43
 *Table
          of Contents*




As
      of
      December 31, 2007, we had outstanding borrowings under a loan from Nanjing
      City
      Commercial Bank of approximately $4,798,500. This credit facility does not
      require that we meet or maintain any financial ratios or tests. As of December
      31, 2007, we did not have any standby letters of credit or standby repurchase
      obligations.





**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 Renminbi. Sales of our products are in dollars. During 2003 and 2004
      the
      exchange rate of RMB to the dollar remained constant at 8.26 RMB to the dollar.
      On July 21, 2005, the Chinese government adjusted the exchange rate from 8.26
      to
      8.09 RMB to the dollar. In 2007, the RMB continued to appreciate against the
      U.S. dollar. By the end of 2007, the market foreign exchanges rate was increased
      to 7.31 RMB to one U.S. dollar. As a result, the ongoing appreciation of RMB
      to
      U.S. dollar negatively impacted our gross margins for the year ended December
      31, 2007. We are always negotiating order price adjustments with most of our
      customers based on the daily market foreign exchange rates, which we believe
      will reduce our exposure to exchange rate fluctuations in the future and pass
      some increase of the cost to our customers.





In
      addition, the financial statements of Goldenway, New-Tailun and Catch-Luck
      (whose functional currency is the RMB) are translated into US dollars using
      the
      closing rate method. The balance sheet items are translated into US dollars
      using the exchange rates at the respective balance sheet dates. The capital
      and
      various reserves are translated at historical exchange rates prevailing at
      the
      time of the transactions while income and expenses items are translated at
      the
      average exchange rate for the year. All exchange differences are recorded within
      equity. The foreign currency translation gain for the years ended December
      31,
      2007 and 2006 was $1,383,279 and $657,375, respectively.





**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, 2007, we had approximately $640,000 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 Renminbi (RMB), however, we sell to
        customers in the U.S., Japan and Europe and we generate sales in U.S.
        dollars and Euros. Accordingly, our business has substantial exposure to
        changes
        in exchange rates between and among the Chinese RMB, the U.S. dollar and
        the
        Euro. In
        the
        last decade, the RMB has been pegged at 8.2765 yuan 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, E uro,
        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. For additional discussion
        regarding our foreign currency risk, see the section titled “ *Risk
        Factors—* **** *Fluctuation
        in the value of Chinese Renminbi (RMB) relative to other currencies may have
        a
        material adverse effect on our business and/or an investment in our
        shares* .”


44
 *Table
          of Contents*




**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.




**INDEX
      TO CONSOLIDATED FINANCIAL INFORMATION**





Reports
                of Independent Registered Public Accounting
                Firms
            
            
            F-1Consolidated
                Balance Sheets as of December 31, 2007 and
                2006
            
            
            F-3Consolidated
                Statement of Operations and Comprehensive
                Income for the Years Ended December 31, 2007 and
                2006
            
            
            F-4Consolidated
                Statements of Stockholders’ Equity for the Years
                Ended December 31, 2007 and 2006
            
            
            F-5Consolidated
                Statements of Cash Flows for the Years Ended
                December 31, 2007 and 2006
            
            
            F-6Notes
                to Consolidated Financial Statements for the Years
                Ended December 31, 2007 and 2006
            
            
            F-7




The
        report dated February 12, 2007 and July 4, 2007 of Jimmy C. H. Cheung & Co.
        included on page F-1 is a copy and has not been reissued by such firm.




45
 *Table
          of Contents*


**JIMMY C.H.
                  CHEUNG & CO.**
                *Certified
                  Public Accountants*
                *(Amember
                  of Kreston International)*
              
              Registered
                  with the Public Company
                Accounting
                  Oversight Board
   **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors of:
 Ever-Glory
        International Group, Inc.
 
 
 We
        have
        audited the accompanying consolidated balance sheets of Ever-Glory International
        Group, Inc. and subsidiaries as of December 31, 2006 **** (restated)
        and the related consolidated statements of operations, stockholders’ equity and
        cash flows for the year ended December 31, 2006 **** (restated).
        These financial statements are the responsibility of the Company's management.
        Our responsibility is to express an opinion on these financial statements
        based
        on our audits.
  We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits of the financial
        statements provide a reasonable basis for our opinion.
  In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Ever-Glory International Group,
        lnc. and subsidiaries as of December 31, 2006 (restated) and the results
        of its
        operations and its cash flows for the year ended December 31, 2006 (restated),
        in conformity with accounting principles generally accepted in the United
        States
        of America.
 
 /s/
        JIMMY
C.H.
        CHEUNG & CO
 JIMMY C.H.
        CHEUNG & CO
 Certified
        Public Accountants
  Hong
        Kong
  Date:
        February 12, 2007 and July 4, 2007.
 
 
 1607
                  Dominion Centre, 43 Queen’s Road East, Wanchai, Hong Kong
                Tel:
                  (852) 25295500   Fax: (852) 28651067   Email:
                  jchc@krestoninternational.com.hk


F-1
 *Table
            of Contents*
  **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 statements
        of income, stockholders’ equity and comprehensive income, 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. The consolidated
        financial statements of Ever-Glory International Group, Inc. and subsidiaries
        as
        of December 31, 2006 in the accompanying consolidated financial statements
        were
        audited by other auditors whose report dated February 12, 2007 except for
        Note
        2, to which the date is July 4, 2007, expressed an unqualified opinion on
        those
        statements.
  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 provides 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
 Moore
        Stephens Wurth Frazer and Torbet, LLP
 
 Walnut,
        California
 March
        10,
        2008
 F-2
 *Table
              of Contents*






**EVER-GLORY
        INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          BALANCE SHEETS**
 **AS
            OF DECEMBER 31, 2007 AND 2006**


**ASSETS**2007
              
              
              2006(restated)**CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              641,739
              
              $
              897,093Accounts
                  receivable
              
              
              13,035,299
              
              
              7,881,131Accounts
                  receivable - related parties under common control
              
              
              158,235
              
              
              2,463,857Inventories
              
              
              1,897,023
              
              
              1,216,251Other
                  receivables and prepaid expenses
              
              
              150,855
              
              
              153,216Advances
                  on inventory purchase - related parties under common
                  control
              
              
              2,568,040
              
              
              -Deferred
                  financing costs
              
              
              191,995
              
              
              -**Total
                  Current Assets**
              
              
              18,643,186
              
              
              12,611,548**LAND
                  USE RIGHT, NET**
              
              
              2,729,183
              
              
              2,521,109**PROPERTY
                  AND EQUIPMENT, NET**
              
              
              12,140,903
              
              
              13,301,164**TOTAL
                  ASSETS**
              
              $
              33,513,272
              
              $
              28,433,821**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              1,796,655
              
              $
              1,264,200Accounts
                  payable - related parties under common control
              
              
              245,589
              
              
              2,005,323Other
                  payables- related party under common control
              
              
              650,000
              
              
              2,621,130Other
                  payables and accrued liabilities
              
              
              1,069,682
              
              
              3,742,088Value
                  added tax payable
              
              
              378,898
              
              
              239,738Income
                  tax payable and other taxes payable
              
              
              146,226
              
              
              61,930Bank
                  loans
              
              
              4,798,500
              
              
              4,482,180Convertible
                  notes payable,(net
                  of unamortized discount of $1,974,497)
              
              
              25,503
              
              
              -**Total
                  Current Liabilities**
              
              
              9,111,053
              
              
              14,416,589**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              -
              
              
              -**LONG-TERM
                  LIABILITIES**Loan
                  from related party under common control
              
              
              4,474,985
              
              
              4,238,526**TOTAL
                  LIABILITIES**
              
              
              13,586,038
              
              
              18,655,115**STOCKHOLDERS'
                  EQUITY**Preferred
                  stock ($.001 par value, authorized 5,000,000 shares,no
                  shares issued and outstanding)
              
              
              -
              
              
              -Series
                  A Convertible Preferred Stock ($.001 par value,authorized
                  10,000 shares, 0 and 789 shares issuedand
                  outstanding as of December 31, 2007 and 2006,
                  respectively)
              
              
              -
              
              
              1Common
                  stock ($.001 par value, authorized 50,000,000
                  shares,11,379,309
                  and 1,997,203 shares issued and outstandingas
                  of December 31, 2007 and 2006, respectively)
              
              
              11,379
              
              
              1,997Common
                  stock to be issued for acquisition (0 and 2,083,333shares
                  as of December 31, 2007 and 2006, respectively)
              
              
              -
              
              
              2,083Additional
                  paid-in capital
              
              
              2,154,368
              
              
              161,666Retained
                  earnings
              
              
              12,247,748
              
              
              6,260,518Statutory
                  reserve
              
              
              3,437,379
              
              
              2,659,360Accumulated
                  other comprehensive income
              
              
              2,076,360
              
              
              693,081**Total
                  Stockholders' Equity**
              
              
              19,927,234
              
              
              9,778,706**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              33,513,272
              
              $
              28,433,821


The
      accompanying notes are an integral part of these statements.


See
      report of independent registered public accounting firm.




F-3
 *Table
          of Contents*




**EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSDIARIES**


**CONSOLIDATED
      STATEMENT OF OPERATIONS AND COMPREHENSIVE
      INCOME**




**FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


2007
              
              
              2006(restated)**NET
                  SALES**To
                  related parties under common control
              
              $
              1,155,998
              
              $
              479,004To
                  third parties
              
              
              69,179,385
              
              
              50,586,245**Total
                  net sales**
              
              
              70,335,383
              
              
              51,065,249**COST
                  OF SALES**From
                  related parties under common control
              
              
              995,398
              
              
              420,756From
                  third parties
              
              
              58,030,867
              
              
              42,028,172**Total
                  cost of sales**
              
              
              59,026,265
              
              
              42,448,928**GROSS
                  PROFIT**
              
              
              11,309,118
              
              
              8,616,321**OPERATING
                  EXPENSES**Selling
                  expenses
              
              
              593,570
              
              
              726,574General
                  and administrative expenses
              
              
              3,381,108
              
              
              2,280,155**Total
                  Operating Expenses**
              
              
              3,974,678
              
              
              3,006,729**INCOME
                  FROM OPERATIONS**
              
              
              7,334,440
              
              
              5,609,592**OTHER
                  INCOME (EXPENSES)**Interest
                  income
              
              
              174,036
              
              
              7,309Interest
                  expenses
              
              
              (424,448
              )
              
              (285,876
              )Other
                  income
              
              
              25,708
              
              
              16,694Other
                  expenses
              
              
              (91,805
              )
              
              (439
              )**Total
                  Other Income (Expenses)**
              
              
              (316,509
              )
              
              (262,312
              )**INCOME
                  BEFORE INCOME TAX EXPENSE**
              
              
              7,017,931
              
              
              5,347,280**INCOME
                  TAX EXPENSE**
              
              
              (252,682
              )
              
              (312,010
              )**NET
                  INCOME**
              
              
              6,765,249
              
              
              5,035,270**OTHER
                  COMPREHENSIVE INCOME**Foreign
                  currency translation gain
              
              
              1,383,279
              
              
              657,375**COMPREHENSIVE
                  INCOME**
              
              $
              8,148,528
              
              $
              5,692,645Net
                  income per share - basic
              
              $
              0.99
              
              $
              0.93Net
                  income per share - diluted
              
              $
              0.94
              
              $
              0.44Weighted
                  average number of shares outstandingduring
                  the year - basic
              
              
              6,865,482
              
              
              5,388,201Weighted
                  average number of shares outstandingduring
                  the year - diluted
              
              
              7,244,062
              
              
              11,379,700




The
      accompanying notes are an integral part of these statements.


See
        report of independent registered public accounting firm.




F-4
 *Table
          of Contents*




**EVER-GLORY
        INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS'
      EQUITY**




**FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


Series
                        A Convertible
                      Preferred
                        Stock
                  
                  Common
                      Stock
                  
                  Common
                          stock
                        to
                          be issued
                        for
                          acquistion
                  
                  
                  Additional
                    paid-in
                  
                  
                  Retained
                  
                  
                  Statutory
                  
                  
                  Accumulated
                            other
                        comprehensiveShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  capital
                  
                  
                  earnings
                  
                  
                  reserve
                  
                  
                  income
                  
                  
                  TotalBalance
                      at December 31, 2005
                  
                  
                  789
                  
                  $
                  1
                  
                  
                  1,997,203
                  
                  $
                  1,997
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  1,263,749
                  
                  $
                  2,221,341
                  
                  $
                  2,012,041
                  
                  $
                  35,706
                  
                  $
                  5,534,835-Capital
                      contribution from shareholder
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  900,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  900,000Distribution
                      to stockolder for merger of New-Tailun
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (2,000,000
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (2,000,000
                  )Stock
                      to be issued for merger of New-Tailun
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  2,083,333
                  
                  
                  2,083
                  
                  
                  (2,083
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Adjustment
                      for prior year accrued salary
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (348,774
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  (348,774
                  )Net
                      income for the year
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,035,270
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,035,270Statutory
                      reserve
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (647,319
                  )
                  
                  647,319
                  
                  
                  -
                  
                  
                  -Foreign
                      currency translation gain
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  657,375
                  
                  
                  657,375Balance
                      at December 31, 2006 (Restated)
                  
                  
                  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
                  
                  $
                  19,927,234




The
      accompanying notes are an integral part of these statements.


See
      report of independent registered public accounting firm.




F-5
 *Table
          of Contents*




**EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


2007
              
              
              2006(restated)**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income
              
              $
              6,765,249
              
              $
              5,035,270Adjusted
                  to reconcile net income to cash providedby
                  operating activities:Depreciation
                  and amortization
              
              
              876,094
              
              
              493,229Amortization
                  of discount on convertible notes
              
              
              25,503
              
              
              -Amortization
                  of deferred financing costs
              
              
              50,525
              
              
              -Loss
                  on disposal of fixed assets
              
              
              901
              
              
              14,396Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              (3,798,964
              )
              
              (8,034,568
              )Accounts
                  receivable - related parties under common control
              
              
              1,601,978
              
              
              1,789,187Inventories
              
              
              (571,377
              )
              
              (197,690
              )Other
                  receivables and prepaid expenses
              
              
              11,383
              
              
              (61,843
              )Advance
                  on inventory purchase to related party under common
                  control
              
              
              (1,668,357
              )
              
              -Accounts
                  payable
              
              
              425,682
              
              
              1,111,099Accounts
                  payable - related parties under common control
              
              
              (1,844,649
              )
              
              583,214Other
                  payables and accrued liabilities
              
              
              143,002
              
              
              2,005,057Payables
                  to related parties under common control
              
              
              (334,672
              )
              
              715,243Value
                  added tax payables
              
              
              117,401
              
              
              176,233Income
                  tax and other tax payables
              
              
              76,759
              
              
              121,032Net
                  cash provided by operating activities
              
              
              1,876,458
              
              
              3,749,859**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of New-Tailun
              
              
              (2,000,000
              )
              
              -Purchase
                  of property and equipment
              
              
              (3,127,321
              )
              
              (9,300,029
              )Proceeds
                  from sale of equipment
              
              
              431,859
              
              
              -Net
                  cash used in investing activities
              
              
              (4,695,462
              )
              
              (9,300,029
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Contribution
                  by stockholder
              
              
              -
              
              
              900,000Proceeds
                  from bank loan
              
              
              8,558,550
              
              
              4,389,210Repayment
                  of bank loan
              
              
              (8,558,550
              )
              
              (627,030
              )Net
                  proceeds from convertible notes
              
              
              1,757,480
              
              
              -Net
                  cash provided by financing activities
              
              
              1,757,480
              
              
              4,662,180**EFFECT
                  OF EXCHANGE RATE ON CASH**
              
              
              806,170
              
              
              311,413**NET
                  DECREASE IN CASH AND CASH EQUIVALENTS**
              
              
              (255,354
              )
              
              (576,577
              )**CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF YEAR**
              
              
              897,093
              
              
              1,473,670**CASH
                  AND CASH EQUIVALENTS AT END OF YEAR**
              
              
              641,739
              
              
              897,093**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                  paid during the year for:Interest
                  expense
              
              $
              162,156
              
              $
              50,017Income
                  taxes
              
              $
              199,071
              
              $
              357,280




The
      accompanying notes are an integral part of these statements.


See
        report of independent registered public accounting firm.




F-6
 *Table
          of Contents*
  **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 **NOTE
        1 - ORGANIZATION AND BASIS OF
        PRESENTATION**
 
 Ever-Glory
        International Group, Inc. (“EVGY”) was incorporated in Florida on October 19,
        1994. All of its businesses are operated through its three subsidiaries in
        the
        People’s Republic of China.
 
 Perfect
        Dream Limited (“Perfect Dream”), a wholly owned subsidiary of EVGY, was
        incorporated in the British Virgin Islands on July 1, 2004.
 
 Nanjing
        Goldenway Garments Co. Ltd. (“Goldenway”), a wholly owned subsidiary of Perfect
        Dream, was incorporated in the People’s Republic of China (“PRC”) on December
        31, 1993. Goldenway is principally engaged in the manufacturing and sale
        of
        garments.
 
 Nanjing
        New-Tailun Garments Co. Ltd. (“New-Tailun”), a wholly owned subsidiary of
        Perfect Dream, was incorporated in the PRC on March 27, 2006. New-Tailun
        is
        principally engaged in the manufacturing and sale of garments.
 
 Nanjing
        Catch-Luck Garments Co, Ltd. (“Catch-Luck”), a wholly owned subsidiary of
        Perfect Dream, was incorporated in the PRC on December 21, 1995. Catch-Luck
        was
        incorporated as a joint venture. On January 18, 2006, Catch-Luck became a
        wholly
        owned foreign enterprise after its acquisition by Perfect Dream. Catch-Luck
        is
        principally engaged in the manufacturing and sale of garments to customers
        located in Europe and Japan.
 
 EVGY,
        Perfect Dream, Goldenway, New-Tailun and Catch-Luck are hereinafter referred
        to
        as (the ”Company”).
  **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Principles
        of consolidation**
 
 The
        accompanying consolidated financial statements of Ever-Glory International
        Group, Inc. reflect the activities of EVGY, and its 100% owned subsidiaries
        Perfect Dream, Goldenway, New-Tailun and Catch-Luck. These financial statements
        have been prepared in accordance with accounting principles generally accepted
        in the United States of America. All significant inter-company balances and
        transactions have been eliminated in consolidation.
 
 **Business
        combinations between entities under common control**
 
 The
        Company entered into a purchase agreement, dated November 9, 2006, with
        Ever-Glory Enterprises (HK) Limited (“Ever-Glory Hong Kong”) to acquire 100%
        interest of New-Tailun (the “New-Tailun transaction”). Pursuant to the terms of
        the purchase agreement, the Company paid to Ever-Glory Hong Kong an amount
        of
        $2,000,000 in cash and issued 20,833,333 shares of the Company’s restricted
        common stock having a value of $10,000,000, such value of shares were based
        on
        the preceding 30-day average of high bid and the low ask price for the common
        stock on the date of the transfer within 90 days of the closing of New-Tailun
        transaction. The New-Tailun transaction closed on December 30, 2006. Assets
        acquired and debts assumed as of the acquisition date are listed below:
 
 F-7
  **EVER-GLORY
        INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
        31, 2007 AND 2006**




Item
                
                Book
                    ValueCurrent
                    assets
                
                $
                3,376,168Property,
                    plant, and equipment
                
                
                341,461Intangible
                    assetsTotal
                    assets
                
                
                3,717,629Total
                    liabilities
                
                
                1,796,785Net
                    assets
                
                $
                1,920,844
 The
        Company entered into a purchase agreement, dated June 26, 2006, with Ever-Glory
        Enterprises (HK) Limited (“Ever-Glory Hong Kong”) to acquire 100% interest of
        Catch-Luck (the “Catch-Luck transaction”). Pursuant to the terms of the purchase
        agreement, the Company agreed
        to pay to Ever-Glory Hong Kong an amount of $600,000 in cash and issue 1,307,693
        shares of the Company’s restricted common stock having a value of $3,400,000
        such value of shares were based on the preceding 30-day average of high bid
        and
        the low ask price for the common stock on the date of the transfer within
        90
        days of the closing of the Catch-Luck transaction. On August 31, 2006, the
        Company entered into an amendment to the Agreement (“the Amendment”) whereupon
        the terms of payment on the purchase consideration was amended as
        follows:
 
 1.
        The
        Company will pay to Ever-Glory Hong Kong an amount of $600,000 in cash and
        issued 1,307,693 shares of the Company’s restricted common stock having a value
        of $3,400,000 on the date of the transfer within 90 days of the closing of
        the
        transaction;
 
 2.
        At the
        end of the first full fiscal year ending December 31, 2008 in which Catch-Luck
        generates gross revenues of at least $19,000,000 and net profit of $1,500,000,
        Perfect Dream will issue 1,153,846 shares of the Company’s restricted common
        stock having a value of $3,000,000; and
 
 3.
        At the
        end of the next full fiscal year ending December 31, 2009 in which Catch-Luck
        generates gross revenues of at least $19,000,000 and net profit of $1,500,000,
        Perfect Dream will issue 1,153,846 shares of the Company’s restricted common
        stock having a value of $3,000,000.
 
 The
        number of shares of common stock to be delivered to Ever-Glory Hong Kong
        in
        satisfaction of the Stock Purchase Price shall be calculated based on the
        preceding 30-average high and low price for the Company’s common stock as quoted
        on the Over-the-Counter Bulletin Board as of the date of closing.
 
 F-8
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 On
        August
        1, 2007, the Company filed a definitive 14C information statement to report
        stockholder approval of the acquisition of Catch-Luck. The Information Statement
        was mailed to the shareholders on August 7, 2007. The Catch-Luck transaction
        closed on August 27, 2007. Assets acquired and debts assumed as of the
        acquisition date are listed below:
  Item
                
                Book
                    ValueCurrent
                    assets
                
                $
                7,028,842Property,
                    plant, and equipment
                
                
                799,579Intangible
                    assetsTotal
                    assets
                
                
                7,828,421Total
                    liabilities
                
                
                4,769,080Net
                    assets
                
                $
                3,059,341
  These
        transactions were accounted for as a merger of entities under common control,
        accordingly, the operation results of New-Tailun for the period from March
        27,
        2006 (inception) to December 31, 2006 and operations results of Catch-Luck
        for
        the year ended December 31, 2006 were included in the consolidated financial
        statements as if the transactions had occurred at the beginning of the first
        period presented, each account was stated at its historical cost. In this
        regard, the prior year’s financial statements and financial information have
        been restated to combine the previously separate entities to furnish comparative
        information. The results of the restatement were to increase the total assets
        $3,520,261, the total liabilities $1,088,836, and the shareholder’s equity
        $2,431,426 as of December 31, 2006 and the net income for the year ended
        December 31, 2006 by $2,564,015.
 
 **Use
        of estimates**
 
 The
        preparation of the financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amount of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        For
        example, the Company estimates its potential losses on uncollectible
        receivables. Management believes that the estimates utilized in preparing
        its
        financial statements are reasonable and prudent. Actual results could differ
        from these estimates.
  **Cash
        and cash equivalents**
 
 For
        purpose of the statements of cash flows, cash and cash equivalents include
        cash
        on hand and demand deposits with a bank with original maturities of less
        than
        three months.
 
 F-9
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 **Accounts
        receivable**
 
 The
        Company extends unsecured credit to its customers in the ordinary course
        of
        business but mitigates the associated risks by performing credit checks and
        actively pursuing past due accounts. An allowance for doubtful accounts is
        established and recorded based on managements’ assessment of the credit history
        with the customer and current relationships with them.
 
 As
        of
        December 31, 2007 and 2006, the Company considers all its accounts receivable
        to
        be collectable and no provision for doubtful accounts has been made in the
        financial statements.
 
 **Inventories**
 
 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 its delivery. Therefore, the products are rarely returned
        by
        the customers after delivery.
 
 **Long-lived
        assets**
 
 The
        Company accounts for long-lived assets under the Statements of Financial
        Accounting Standards Nos. 142 and 144 “Accounting for Goodwill and Other
        Intangible Assets” and “Accounting for Impairment or Disposal of Long-Lived
        Assets” (“SFAS No. 142 and 144”). In accordance with SFAS No. 142 and 144,
        long-lived assets, goodwill and certain identifiable intangible assets held
        and
        used by the Company are reviewed for impairment at least annually or more
        often
        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. As of December 31, 2007, the Company expects these assets to be fully
        recoverable.
 
 **Property
        and equipment**
 
 Property
        and equipment are stated at cost, less accumulated depreciation. Expenditures
        for additions, major renewals and betterments are capitalized and expenditures
        for maintenance and repairs are charged to expense as incurred.
 
 Depreciation
        is provided on a straight-line basis, less an estimated residual value over
        the
        assets’ estimated useful lives. The estimated useful lives are as
        follows:
 
 F-10
  **EVER-GLORY
        INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
        31, 2007 AND 2006**
  Property
                  and plant
              15-20
                  YearsLeasehold
                  improvements
              10
                  YearsMachinery
                  and equipment
              10
                  YearsOffice
                  equipment and furniture
              5
                  YearsMotor
                  vehicles
              5
                  Years
 
 **Intangible
        assets**
 
 All
        land
        in the People’s Republic of China is owned by the government and cannot be sold
        to any individual or company. However, the government may grant “land use
        rights” to firms or individuals to occupy, develop and use land. The Company
        records the land use rights obtained as intangible assets.
 
 Intangible
        assets of the Company are reviewed annually to determine whether their carrying
        value has become impaired. The Company considers assets to be impaired if
        the
        carrying value exceeds the future projected cash flows from related operations.
        The Company also re-evaluates the periods of amortization to determine whether
        subsequent events and circumstances warrant revised estimates of useful lives.
        As of December 31, 2007, the Company expects these assets to be fully
        recoverable.
 
 **Fair
        value of financial instruments**
 
 Statement
        of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
        Value of Financial Instruments” requires disclosure of the fair value of
        financial instruments held by the Company. SFAS 107 defines the fair value
        of
        financial instruments as the amount at which the instrument could be exchanged
        in a current transaction between willing parties. The Company considers the
        carrying amount of cash, accounts receivable, other **** receivables,
        accounts payable, accrued liabilities and other payables to approximate their
        fair values because of the short period of time between the origination of such
        instruments and their expected realization and their current market rate
        of
        interest.
 
 The
        carrying value of cash and cash equivalents, accounts receivable (trade and
        others), accounts payable (trade and related party) and accrued liabilities
        approximate their fair value because of the short-term nature of these
        instruments. The Company places its cash and cash equivalents with what it
        believes to be high credit quality financial institutions. The Company has
        a
        diversified customer base, most of which are in Europe, Japan, the United
        States
        and the PRC. The Company controls credit risk related to accounts receivable
        through credit approvals, credit limit and monitoring procedures. The Company
        routinely assesses the financial strength of its customers and, based upon
        factors surrounding the credit risk, establishes an allowance, if required,
        for
        uncollectible accounts and, as a consequence, believes that its accounts
        receivable credit risk exposure beyond such allowance is limited.
 
 F-11
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
  The
        Company analyzes all financial instruments with features of both liabilities
        and
        equity under SFAS 150, “Accounting for Certain Financial Instruments with
        Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for
        Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
        Derivative Financial Instruments Indexed to, and Potentially Settled in,
        a
        Company’s Own Stock.” During 2007, the Company issued 6% secured convertible
        debentures in a face amount of $2,000,000 which are due and payable in full
        in 2
        years from their issuance. As fixed prices are set for the conversion prices
        of
        such convertible debentures and the attached warrants, the Company is in
        a
        position to be sure it had adequate authorized shares for the future conversion
        of convertible debentures and warrants. Therefore, no embedded derivatives
        and
        warrants are required to be recorded at fair value and marked-to-market at
        each
        reporting period.
 
 **Beneficial
        conversion feature of convertible notes**
 
 The
        Company accounted for the secured convertible notes (the “Notes”) issued
        pursuant to the subscription agreement discussed in Note 9 under EITF 00-27,
        ‘‘Application of Issue 98-5 to Certain Convertible Instruments’’.  
Based on EITF 00-27, the Company has determined that the convertible notes
        contained a beneficial conversion feature because at August 2, 2007, the
        effective conversion price of the convertible notes was $1.10 when the market
        value per share was $2.70.
 
 **Discount
        on notes payable**
 
 A
        discount with respect to the Notes issued during the period ended December
        31,
        2007 was recorded by the Company. The amount of the discount was calculated
        to
        be the intrinsic value of the beneficial conversion feature and the fair
        value
        of the warrants included among the securities issued pursuant to the terms
        of
        the subscription agreement discussed in Note 9.
 
 **Revenue
        and cost recognition**
 
 The
        Company recognizes 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 collectibility is deemed probable.
 
 Local
        transportation and unloading charges and product inspection charges are included
        in selling expenses and totaled $195,995 in 2007 and $154,023 in
        2006.
 
 Cost
        of
        goods sold includes the appropriate materials purchasing, receiving and
        inspection costs, inbound freight where applicable, direct labor cost and
        manufacturing overheads including depreciation of production equipment
        consistent with the revenue earned.
 
 F-12
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 **Income
        taxes**
 
 The
        Company accounts for income taxes under the Statement of Financial Accounting
        Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under
        Statement 109, deferred tax assets and liabilities are recognized for the
        future
        tax consequences attributable to differences between the financial statement
        carrying amounts of existing assets and liabilities and their respective
        tax
        bases. Deferred tax assets and liabilities are measured using enacted tax
        rates
        expected to apply to taxable income in the years in which those temporary
        differences are expected to be recovered or settled. Under Statement 109,
        the
        effect on deferred tax assets and liabilities of a change in tax rates is
        recognized in income in the period that included the enactment date.
 
 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 financial statements.
 
 The
        charge for taxation is based on the results for the year as adjusted for
        items,
        which are non-assessable or disallowed. It is calculated using tax rates
        that
        have been enacted or substantively enacted by the balance sheet date. Deferred
        tax is accounted for using the balance sheet liability method in respect
        of
        temporary differences arising from differences between the carrying amount
        of
        assets and liabilities in the financial statements and the corresponding
        tax
        basis used in the computation of assessable tax profit. In principle, deferred
        tax liabilities are recognized for all taxable temporary differences, and
        deferred tax assets are recognized to the extent that it is probably that
        taxable profit will be available against which deductible temporary differences
        can be utilized.
 
 Deferred
        tax is calculated at the tax rates that are expected to apply to the period
        when
        the asset is realized or the liability is settled. Deferred tax is charged
        or
        credited in the income statement, except when it related to items credited
        or
        charged directly to equity, in which case the deferred tax is also dealt
        with in
        equity. Deferred tax assets and liabilities are offset when they relate to
        income taxes levied by the same taxation authority and the Company intends
        to
        settle its current tax assets and liabilities on a net basis.
 
 F-13
  **EVER-GLORY
        INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
        31, 2007 AND 2006**
 
 **China
        income tax**
 
 The
        Company’s subsidiaries are governed by the Income Tax Law of the People’s
        Republic of China (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 will replace the
        existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
        (“FIEs”).
 
 The
        key
        changes are:
 
 a.
              The
                  new standard EIT rate of 25% will replace the 33% rate currently
                  applicable to both DES and FIEs, except for High Tech companies
                  who pays a
                  reduced rate of 15%;
 
 b.
              Companies
                  established before March 16, 2007 will continue to enjoy tax holiday
                  treatment approved by local government for a grace period of either
                  for
                  the next 5 years or until the tax holiday term is completed, whichever
                  is
                  sooner.
 
 The
        Company and its subsidiaries were established before March 16, 2007 and
        therefore are qualified to continue enjoying the reduced tax rate as described
        before.
 
 Upon
        approval by the PRC tax authorities, FIE's 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.
  Goldenway
        is entitled to a reduction of 50% of any income tax rate for achieving export
        sales in excess of 70% of its total sales since 2007.
 
 New-Tailun
        and Catch-Luck were approved as wholly foreign-owned enterprises in 2006.
        This
        entity status allows New-Tailun and Catch-Luck a two-year income tax exemption
        beginning from the first year of profitability, and a 50% income tax reduction
        for the three years thereafter. New-Tailun and Catch-Luck are entitled to
        the
        income tax exemptions for 2006 and 2007 and 50% income tax reduction for
        the
        calendar years ended December 31, 2008, 2009 and 2010.
 
 F-14
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 **Other
        comprehensive income**
 
 The
        reporting currency of the Company is the US dollar. The functional currency
        of
        EVGY and Perfect Dream is the US dollar. The functional currency of Goldenway,
        New-Tailun and Catch-Luck is the Chinese Renminbi (RMB)..
 
 For
        the
        subsidiaries whose functional currencies are the RMB, all assets and liabilities
        accounts were translated at the exchange rate on the balance sheet date;
        stockholder's equity are translated at the historical rates and items in
        the
        statement of operations items are translated at the average rate for the
        period.
        Translation adjustments resulting from this process are included in accumulated
        other comprehensive income in the statement 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. 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 statement of stockholders’ equity
        amounted to $2,076,360 and $693,081 as of December 31, 2007 and 2006,
        respectively. Assets and liabilities at December 31, 2007 and 2006 were
        translated at 7.29 RMB and 7.80 RMB to $1.00, respectively. The average
        translation rates applied to income statement accounts and statement of cash
        flows for the years ended December 31, 2007 and 2006 were 7.59 RMB and 7.96
        RMB
        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 sheet.
 
 **Earnings
        per share**
 
 The
        Company reports earnings per share in accordance with the provisions of SFAS
        No.
        128, "Earnings Per Share." 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 increase as a result of a stock dividend or stock split
        or
        decrease 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-15
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 **Segments** ****
 
 The
        Company adopted Statement of Financial Accounting Standards No. 131, Disclosures
        about Segments of an Enterprise and Related Information (“SFAS 131”). SFAS
        establishes standards for operating information regarding operating segments
        in
        annual financial statements and requires selected information for those segments
        to be presented in financial reports issued to stockholders. SFAS 131 also
        establishes standards for related disclosures about products and services
        and
        geographic areas. Operating segments are identified as components of an
        enterprise about which separate discrete financial information is available
        for
        evaluation by the chief operating decision maker, or decision making group,
        in
        making decision how to allocate resources and assess performance. The
        information disclosed herein, represents all material financial information
        related to the Company’s principal operating segment. The Company operates in a
        single segment.
 
 **Recent
        accounting pronouncements**
 
 In
        July
        2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
        in
        Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”), which clarifies
        the accounting for uncertainty in tax positions. This Interpretation provides
        that the tax effects from an uncertain tax position can be recognized in
        the
        Company’s financial statements, only if the position is more likely than not of
        being sustained on audit, based on the technical merits of the position.
        The
        provisions of FIN 48 are effective as of the beginning of fiscal 2007, with
        the
        cumulative effect of the change in accounting principle recorded as an
        adjustment to opening retained earnings. The adoption of FIN 48 did not impact
        the Company’s results of operations or financial condition.
 
 In
        September 2006, FASB issued Statement 157, Fair Value Measurements. This
        statement defines fair value and establishes a framework for measuring fair
        value in generally accepted accounting principles (GAAP). More precisely,
        this
        statement sets forth a standard definition of fair value as it applies to
        assets
        or liabilities, the principle market (or most advantageous market) for
        determining fair value (price), the market participants, inputs and the
        application of the derived fair value to those assets and liabilities. The
        effective date of this pronouncement is for all full fiscal and interim periods
        beginning after November 15, 2008. The Company does not expect the adoption
        of
        SFAS 157 to have an impact on the Company’s results of operations or financial
        condition.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” (SFAS 159) which permits entities to
        choose to measure many financial instruments and certain other items at fair
        value that are not currently required to be measured at fair value. SFAS
        159
        will become effective for us on January 1, 2008. The Company is currently
        evaluating the impact this new Standard, but believes that it will not have
        a
        material impact on the Company’s financial position.
 
 F-16
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements - an amendment of Accounting Research Bulletin
        No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
        ownership interests ** in
        subsidiaries held by parties other than the parent, the amount of consolidated
        net income attributable to the parent and to the noncontrolling interest,
        changes in a parent’s ownership interest and the valuation of retained
        non-controlling equity investments when a subsidiary is deconsolidated. The
        Statement also establishes reporting requirements that provide sufficient
        disclosures that clearly ** identify
        and distinguish between the interests of the parent and the interests of
        the
        non-controlling owners. SFAS 160 is effective for ** fiscal
        years beginning after December 15, 2008. The Company has not determined the
        effect that the application of SFAS 160 will ** have
        on
        its consolidated financial statements.
 
 In
        December 2007, the FASB issued SFAS 141R, “Business Combinations,” which applies
        to all transactions or other events in which an entity obtains control of
        one or
        more businesses, including those sometimes referred to as “true mergers” or
“mergers of equals” and combinations achieved without the transfer of
        consideration. This statement replaces FASB Statement No. 141 and applies
        to all
        business entities, including mutual entities that previously used the
        pooling-of-interests method of accounting for some business combinations.
        The
        Company believes that adoption of the FAS 141R will have an effect on future
        acquisitions.
 
 **Reclassifications
        and restatements**
 
 Certain
        prior period amounts have been reclassified to conform to current period
        presentation. These reclassifications have no effect on net income or cash
        flows.
  During
          the audit of the financial statements as of December 31, 2007 and for the
          year then
          ended. The Company noted errors on the valuation and accounting for
          the  convertible
          notes issued on August 2, 2007. Accordingly, the carrying value of
          the  convertible
          notes and related expenses were adjusted to correct amounts as of
          and for the
          year ended December 31, 2007. See Note 9 - Convertible
          Notes Payable.
 
 **NOTE
        3 - ACCOUNTS RECEIVABLE**
 
 Accounts
        receivable at December 31, 2007 and 2006 consisted of the following:
 
 2007
              
              2006Accounts
                  receivable
              
              $
              13,035,299
              
              $
              7,881,131Less:
                  allowance for doubtful accounts
              
              
              -
              
              
              -Accounts
                  receivable, net of allowance
              
              $
              13,035,299
              
              $
              7,881,131
 
 As
        of
        December 31, 2007 and 2006, the Company considered all accounts receivable
        collectable and did not record a provision for doubtful accounts.
 
 **NOTE
        4 - INVENTORIES**
 
 Inventories
        at December 31, 2007 and 2006 consisted of the following:
 
 F-17
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 2007
              
              2006Raw
                  materials
              
              $
              304,178
              
              $
              318,221Work-in-progress
              
              
              338,599
              
              
              518,912Finished
                  goods
              
              
              1,254,246
              
              
              379,118Total
                  inventories
              
              $
              1,897,023
              
              $
              1,216,251
 
 For
        the
        years ended December 31, 2007 and 2006, no provision for obsolete inventories
        was recorded by the Company.
 
 **NOTE
        5 - LAND USE RIGHTS**
 
 On
        September 24, 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, 2007 and 2006 consisted of the following:
 
 2007
              
              2006Land
                  use rights
              
              $
              2,867,991
              
              $
              2,550,869Less:
                  accumulated amortization
              
              
              (138,808
              )
              
              (29,760
              )Land
                  use rights, net
              
              $
              2,729,183
              
              $
              2,521,109
 
 Amortization
        expense for the years ended December 31, 2007 and 2006 was $59,038 and $29,760,
        respectively.
 
 **NOTE
        6 - PROPERTY AND EQUIPMENT**
 
 The
        following is a summary of property and equipment at December 31:
 
 2007
              
              2006Property
                  and plant
              
              $
              11,354,623
              
              $
              4,039,818Equipment
                  and machinery
              
              
              3,128,928
              
              
              3,192,552Office
                  equipment and furniture
              
              
              208,327
              
              
              362,628Motor
                  vehicles
              
              
              165,393
              
              
              180,388Construction
                  in progress
              
              
              3,519
              
              
              7,392,01014,860,790
              
              
              15,167,396Less:
                  accumulated depreciation
              
              
              2,719,887
              
              
              1,866,232Property
                  and equipment, net
              
              $
              12,140,903
              
              $
              13,301,164
 
 Depreciation
        expenses for the years ended December 31, 2007 and 2006 were $817,056 and
        $463,469, respectively. During 2007 and 2006 the Company recognized losses
        on
        disposal of equipment of $901 and $14,396, respectively. For the year ended
        December 31, 2007 and 2006, $124,808 and $0 of interest was capitalized into
        construction in progress and later transferred to property and plant when
        completed.
 
 F-18
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 **NOTE
        7 - OTHER PAYABLES AND ACCRUED LIABILITIES**
 
 Other
        payables and accrued liabilities at December 31, 2007 and 2006 consist of
        the
        following:
 
 2007
              
              2006Building
                  construction costs payable
              
              $
              390,207
              
              $
              2,927,498Accrued
                  professional fees
              
              
              252,495
              
              
              200,057Accrued
                  wages and welfare
              
              
              337,995
              
              
              545,987Other
                  payables
              
              
              88,985
              
              
              68,546Total
                  other payables and accrued liabilities
              
              $
              1,069,682
              
              $
              3,742,088
 
 **NOTE
        8 - 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:
 
 2007
              
              2006Loan
                  from a bank, interest rate at 0.5442% per monthdue
                  February 9, 2008; paid in full, January 2008.
              
              $
              1,371,000
              
              $
              -Loan
                  from a bank, interest rate at 0.58482% per monthdue
                  May 11, 2008
              
              
              685,500
              
              
              -Loan
                  from a bank, interest rate at 0.58482% per monthdue
                  June 2, 2008
              
              
              1,371,000
              
              
              -Loan
                  from a bank, interest rate at 0.58482% per monthdue
                  June 12, 2008
              
              
              1,371,000
              
              
              -Loan
                  from a bank, interest rate at 0.4875% per monthdue
                  April 18, 2007
              
              
              -
              
              
              1,920,936Loan
                  from a bank, interest rate at 0.4875% per monthdue
                  May 20, 2007
              
              
              -
              
              
              640,311Loan
                  from a bank, interest rate at 0.4875% per monthdue
                  June 14, 2007
              
              
              -
              
              
              640,311Loan
                  from a bank, interest rate at 0.4875% per monthdue
                  June 20, 2007
              
              
              -
              
              
              640,311Loan
                  from a bank, interest rate at 0.4875% per monthdue
                  June 26, 2007
              
              
              -
              
              
              640,311Total
                  bank loans
              
              $
              4,798,500
              
              $
              4,482,180
 
 These
        bank loans are all collateralized by land use rights and buildings of the
        company.
 
 F-19
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 Total
        interest expense on the bank loans for the years ended December 31, 2007
        and
        2006 amounted to $237,323 and $50,017, respectively.
 
 **NOTE
        9 - 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 SFAS 91, financing cost is amortized over the life
        of the
        notes to interest expense using the effective interest method. During 2007,
        the
        Company amortized $50,525 of financing costs in interest expenses. The secured
        convertible notes are due 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
        its 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
        notes
        are subject to full-ratchet anti-dilution protection, i.e. if the Company
        issues
        shares at an average per-share price below $2.20 per share, the conversion
        price
        of the notes shall be adjusted downward to match the lower per-share price.
        Under the terms of the notes, the full-ratchet anti-dilution adjustments
        do not
        apply to (i) shares issued upon conversion of options under future stock
        option
        plans (ii) shares issued to third parties for acquisitions valued above $8
        million; (iii) shares issued to non-affiliates for services rendered to the
        Company. The holders of the notes may convert the unpaid principal amount
        of the
        notes into common stock of the Company at any time prior to maturity, at
        the
        applicable conversion price. The Company may at any time at its option, redeem
        the notes by paying 125% of the unpaid principal and accrued interest.
 
 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 for a period that extends five years
        beginning from the date that a registration statement covering the underlying
        warrant shares is declared effective. The warrants are also subject to
        full-ratchet anti-dilution protection in the event that the Company issues
        shares (with certain exceptions) at an average per-share price below $3.20
        per
        share, similar to the notes. 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.
 
 The
        notes
        are secured by all of the assets of the Company, excluding its subsidiaries.
        Pursuant to a security agreement, the Company’s performance of the notes and
        other obligations in connection with the financing is also secured by a pledge
        of 390 shares Preferred Stock (has been converted into 2,961,720 shares of
        common stock on November 30, 2007) personally held by the current CEO of
        the
        Company 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, the subsidiaries
        of
        the Company, Perfect Dream and Goldenway, each guaranteed the performance
        of the
        Company’s obligations under the notes and the subscription agreement under a
        guaranty agreement.
 
 F-20
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 As
        of
        December 31, 2007, the note holders have not converted the principal amount
        of
        their notes into shares of common stock of the Company.
 
 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 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) stock market price of
        $2.70.
        The discount on notes payable is amortized using effective interest method
        over
        2 years. For the year ended December 31, 2007, the Company recorded $25,503
        as
        interest expense in the statement of operations.
 
 The
        notes
        bear a 6% annual interest rate payable in arrears on the last business day
        of
        each calendar quarter thereafter and on the maturity date. For the year ended
        December 31, 2007, $49,972 was recorded as interest expense.
 
 **NOTE
        10 - INCOME TAX**
 
 EVGY
        was
        incorporated in the United States and has incurred net operating losses for
        income tax purposes for 2007 and 2006.
 
 Perfect
        Dream was incorporated in the British Virgin Islands and under the current
        laws
        of the British Virgin Islands, is not subject to tax on income or on
        capital.
 
 Goldenway
        was incorporated in the PRC and is subject to PRC income tax laws and
        regulations. The applicable tax rate has been 24%. In 2007, Goldenway is
        entitled to a refund of 50% of any income taxes paid for achieving export
        sales
        in excess of 70% of the total sales in a calendar year. In 2007, Goldenway
        was
        subject to an applicable tax rate of 12%.
 
 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 has 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 are entitled to full exemption from income
        tax.
 
 F-21
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 Provision
        for income tax for the years ended December 31, 2007 and 2006 amounted to
        $252,682 and $312,010, respectively.
 
 The
        following table reconciles the statutory rates to the Company’s effective tax
        rate for the years ended December 31, 2007 and 2006:
 
 2007
              
              2006U.S.
                  Statutory rate
              
              
              34.0
              %
              
              34.0
              %Foreign
                  income not recognized in USA
              
              
              (34.0
              )
              
              (34.0
              )China
                  income taxes
              
              
              33.0
              
              
              33.0China
                  income tax exemption
              
              
              (29.4
              )
              
              (27.2
              )Effective
                  income tax rate
              
              
              3.6
              %
              
              5.8
              %
 
 Ever-Glory
        International Group Inc. was incorporated in the United States and has incurred
        net operating losses for income tax purposes the years ended December 31,
        2007
        and 2006. The net operating loss carry forwards for United States income
        taxes
        amounted to $461,854 which may be available to reduce future years’ taxable
        income. These carry forwards will expire, if not utilized, through 2027.
        Management believes that the realization of the benefits from these losses
        appears uncertain due to the Company’ 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 benefit to
        reduce
        the asset to zero. The valuation allowance at December 31, 2007 was $461,854.
        Management will review this valuation allowance periodically and make
        adjustments as warranted.
 
 **Value
        added tax**
 
 Enterprises
        or individuals who sell commodities, engage in repair and maintenance or
        import
        and export goods in the PRC are subject to a value added tax, VAT, in accordance
        with Chinese laws. The VAT standard rate is 17% of the gross sales price.
        A
        credit is available whereby VAT paid on the purchases of semi-finished products
        or raw materials used in the production of the Company’s finished products can
        be used to offset the VAT due on sales of the finished product.
 
 VAT
        on
        sales and VAT on purchases amounted to $61,650,708 and $55,417,959 for the
        years
        ended December 31, 2007 and $42,640,629 and $39,343,972 for the year ended
        December 31, 2006, respectively. Sales and purchases are recorded net of
        VAT
        collected and paid as the Company acts as an agent because the VAT taxes
        are not
        impacted by the income tax holiday.
 
 F-22
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 **NOTE
        11 - EARNINGS PER SHARE**
 
 As
        discussed in Note 2, all share and per share amounts used in the Company's
        financial statements and notes thereto have been retroactively restated to
        reflect the 10-for-1 reverse stock split, which occurred on November 20,
        2007.
 
 The
        following demonstrates the calculation for earnings per share for 2006 and
        2007:
 
 Year
                  Ended December 31,2007
              
              
              2006Net
                  income
              
              $
              6,765,249
              
              $
              5,035,270Add:
                  interest expense related to convertible notes
              
              
              75,474
              
              
              -Adjusted
                  net income for calculating EPS-diluted
              
              $
              6,840,723
              
              $
              5,035,270Weighted
                  average number of common stock - Basic
              
              
              6,865,482
              
              
              5,388,201Effect
                  of dilutive securities:Convertible
                  notes
              
              
              378,580
              
              
              -Series
                  A Convertible preferred stock
              
              
              -
              
              
              5,991,499Weighted
                  average number of common stock - Diluted
              
              
              7,244,062
              
              
              11,379,700Earnings
                  per share - basic
              
              $
              0.99
              
              $
              0.93Earnings
                  per share -diluted
              
              $
              0.94
              
              $
              0.44
 
 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. There were no options or warrants outstanding
        in
        2006.
  **NOTE
        12 - STOCKHOLDERS’ EQUITY**
 
 **Authorized
        shares of common stock**
 
 On
        August
        10, 2006, holders of a majority of the capital stock of the Company approved
        an
        amendment to the Company’s Articles of Incorporation, to increase the number of
        authorized shares of common stock from 100,000,000 to 500,000,000. On October
        3,
        2007, the Company filed a Certificate of Amendment to the Articles of
        Incorporation to effect the amendment. Further in November, a 10-to-1 reverse
        stock split became effective. The 10-to-1 reverse stock split reduced both
        the
        number of outstanding shares and the number of authorized shares of common
        stock
        to 1/10 th of the
        amount immediately prior to the reverse stock split. As of December 31, 2007,
        the authorized number of common shares was 50,000,000 with a par value of
        $0.001
        per share.
 
 F-23
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 **Series
        A convertible preferred stock**
 
 On
        October 3, 2007, effective upon the filing of an amendment to its Articles
        of
        Incorporation, 789 shares of the Company’s Series A Preferred Stock were
        automatically converted into 59,914,988 shares, or 5,991,080 shares after
        the
        10-for-1 reverse stock split, of common stock of the Company. There was no
        outstanding series A convertible preferred stock at December 31,
        2007.
 
 **Stock
        issued for acquisitions under common control**
 
 In
        September 2007, the Company issued 2,083,333 shares of restricted common
        stock
        at a market price of $4.80 per share totaling $10,000,000 as part of the
        consideration to a related company in the acquisition of
        New-Tailun.
 
 In
        September 2007, the Company issued 1,307,693 shares of restricted common
        stock
        at a market price of $2.6 per share totaling $3,400,000 as part of the
        consideration to a related company in the acquisition of Catch-Luck.
 
 **Reverse
        stock split**
 
 On
        November 20, 2007, the Company amended its Articles of Incorporation as filed
        with the Department of State of the State of Florida to effect a 10-to-1
        reverse
        stock split which decreased the number of authorized shares of common stock
        from
        500,000,000 to 50,000,000 and reduced the number of outstanding shares from
        approximately 113 million to 11.3 million shares. As of December 31, 2007,
        the
        post-reverse-split outstanding shares of common stock totaled
        11,379,309.
 
 As
        a
        result of the reverse stock split of the Company’s common stock, the conversion
        price of the convertible notes was adjusted from $0.22 to $2.20 per share.
        The
        exercise price of the warrants issued in connection with the convertible
        notes
        was also adjusted from $0.32 to $3.20 per share.
 
 **Statutory
        reserve** ****
 
 The
        Company’s PRC subsidiaries are required to make appropriations to reserve funds,
        comprising the statutory surplus reserve, statutory public welfare fund and
        discretionary surplus reserve, based on after-tax net income determined in
        accordance with generally accepted accounting principles of the People’s
        Republic of China (the “PRC GAAP”). Appropriation to the statutory surplus
        reserve should be at least 10% of the after tax net income determined in
        accordance with PRC GAAP until the reserve is equal to 50% of the entities’
registered capital. Appropriations to the statutory public welfare fund are
        at
        10% of the after tax net income determined in accordance with PRC GAAP. The
        statutory public welfare fund is established for the purpose of providing
        employee facilities and other collective benefits to the employees and is
        non-distributable other than in liquidation. Appropriations to the discretionary
        surplus reserve are made at the discretion of the Board of Directors. Effective
        January 1, 2006, the Company is only required to contribute to one statutory
        reserve fund at 10% of net income after tax per annum, such contributions
        not to
        exceed 50% of the respective companies’ registered capital.
 
 F-24
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 During
        2007 and 2006, the Company appropriated $778,019 and $647,319, respectively,
        to
        the statutory surplus reserve fund.
 
 **NOTE
        13 - RELATED PARTY TRANSACTIONS**
 
 Mr.
        Kang
        Yihua is the Company’s chairman and chief executive officer. The Company
        purchased materials, sub-contracted certain manufacturing work, and sold
        products to companies under the control of Mr. Kang Yihua. All related party
        outstanding balances are short tem in nature and are expected to be settled
        in
        cash.
 
 **Sales
        and cost of sales to related parties under common
        control**
  For
        year
        ended December 31, 2007, the Company recognized sales of $1,155,998 to Nanjing
        High-Tech Knitting & Weaving Technology Development Co., Ltd, a company
        controlled by Mr. Kang Yihua. The related cost of sales was $995,398 for
        the
        year ended December 31, 2007.
  For
        the
        year ended December 31, 2006, the Company recognized sales of $479,003 in
        total
        to five entities controlled by the Company’s CEO. The related cost of sales was
        $420,756 for the year ended December 31, 2006. The five related parties
        were:
  (1)
              Ever-Glory
                  Enterprises (Chuzhou) Co., Ltd.
  (2)
              Nanjing
                  High-Tech Knitting & Weaving Technology Development Co., Ltd.
  (3)
              Jiangsu
                  Ever-Glory International Group Corp.
  (4)
              Nanjing
                  Jiangning Shangfang Garments Manufacturing Co.,
                  Ltd.
  (5)
              Jiangsu
                  Blue Glory Knitting Co., Ltd.
  **Purchases
        from and sub-contracts with related parties under common
        control**
 
 During
        2007 and 2006, the Company purchased raw materials totaling $446,561 and
        $447,280, respectively, from entities controlled by the Company’s CEO. Purchases
        from these entities for the years ended December 31, 2007 and 2006 were as
        follows:
 
 F-25
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 Purchases
                  from:
              
              2007
              
              2006Nanjing
                  High-Tech Knitting & Weaving Technology Development Co.,
                  Ltd.
              
              $
              446,561
              
              $
              426,198Jiangsu
                  Blue Glory Knitting Co., Ltd.
              
              
              -
              
              
              21,082Total
                  purchases from related parties
              
              $
              446,561
              
              $
              447,280
 
 In
        addition, the Company sub-contracted certain manufacturing work valued at
        $4,048,689 and $4,634,140 for years ended December 31, 2007 and 2006,
        respectively, to related companies controlled by the Company’s CEO. The Company
        provided raw materials to the sub-contractors who charged the Company a fixed
        labor charge for the sub-contracting work. Sub-contract these entities for
        the
        years ended December 31, 2007 and 2006 were as follows:
 
 Sub-contracts
                  with:
              
              2007
              
              2006Ever-Glory
                  Enterprises (Chuzhou) Co., Ltd.
              
              $
              2,802,874
              
              $
              2,876,913Nanjing
                  High-Tech Knitting & Weaving Technology Development Co.,
                  Ltd.
              
              
              268,743
              
              
              81,895Kunshan
                  Enjin Fashion Co., Ltd.
              
              
              503,498
              
              
              382,434Nanjing
                  Ever-Kyowa Garment Washing Co., Ltd.
              
              
              228,903
              
              
              828,397Nanjing
                  Jiangning Shangfang Garments Manufacturing Co., Ltd.
              
              
              244,671
              
              
              464,501Total
                  sub-contracts with related parties
              
              $
              4,048,689
              
              $
              4,634,140
 
 **Accounts
        receivable - related parties under common
        control**
 
 As
        of
        December 31, 2007 and 2006 accounts receivable from entities controlled by
        the
        Company’s CEO amounted to $158,235 and $2,463,857 for products sold and
        sub-contracting services provided. Account receivables - related parties
        were as
        follows at December 31:
 
 Receivable
                  from:
              
              2007
              
              2006Ever-Glory
                  Enterprises (Chuzhou) Co., Ltd.
              
              $
              12,052
              
              $
              -Nanjing
                  High-Tech Knitting & Weaving Technology Development Co.,
                  Ltd.
              
              
              146,183
              
              
              -Jiangsu
                  Ever-Glory International Group Corp.
              
              
              -
              
              
              2,463,857Total
                  accounts receivable - related parties
              
              $
              158,235
              
              $
              2,463,857
 
 **Advance
        on inventory purchase - related party under common
        control**
  As
        of
        December 31, 2007, the Company advanced funds to purchase raw material inventory
        from Jiangsu Ever-Glory International Group Corp., a company controlled by
        the
        Company’s CEO, Mr. Kang Yihua, in amount of $2,568,040. Interest is charged at
        0.5% per month according to the balance at the end of each month. Interest
        income earned for the year ended of December 31, 2007 was $165,201.
  
 F-26
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
  **Accounts
        payables - related parties under common control**
 
 The
        Company purchases raw material from and subcontract some of its productions
        to
        related parties. As of December 31, 2007 and 2006 the Company owed $245,589
        and
        $2,005,323 to related parties, all controlled by the Company’s CEO. Accounts
        payables - related parties at December 31, 2007 and 2006 were as
        follows:
 
 Payable
                  to:
              
              2007
              
              2006Ever-Glory
                  Enterprises (Chuzhou) Co., Ltd.
              
              $
              -
              
              $
              266,855Nanjing
                  High-Tech Knitting & Weaving Technology Development Co.,
                  Ltd.
              
              
              -
              
              
              7,356Kunshan
                  Enjin Fashion Co., Ltd.
              
              
              245,589
              
              
              191,455Wanshan
                  Furniture
              
              
              -
              
              
              5,794Nanjing
                  Ever-Kyowa Garment Washing Co., Ltd.
              
              
              -
              
              
              129,557Nanjing
                  Jiangning Shangfang Garments Manufacturing Co., Ltd.
              
              
              -
              
              
              19,209Jiangsu
                  Ever-Glory International Group Corp.
              
              
              
              
              
              1,385,097Total
                  accounts payables - related parties
              
              $
              245,589
              
              $
              2,005,323
 
 **Other
        payables - related parties under common control**
 
 Other
        payables - related parties at December 31, 2007 and 2006 were as
        follows:
 
 Payable
                  to
              
              2007
              
              2006Ever-Glory
                  Hong Kong Limited, controlled by the Company’s CEO
              
              $
              650,000
              
              $
              2,613,542Mr.
                  Kang Yihua, the Company’s CEO
              
              
              -
              
              
              7,588Total
                  other payables - related parties
              
              $
              650,000
              
              $
              2,621,130
 
 For
        the
        amount of $650,000 due to Ever-Glory Hong Kong Limited as of December 31,
        2007,
        $600,000 was due for the purchase of Catch-Luck while $50,000 was due for
        our
        going public fees paid by Ever-Glory Hong Kong Limited.
 
 For
        the
        amount of $2,613,542 due to Ever-Glory Hong Kong Limited as of December 31,
        2006, $2,000,000 was due for the purchase of New-Tailun while $613,542 was
        due
        for our going public fees paid by Ever-Glory Hong Kong Limited.
 
 F-27
  **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 The
        amount of $7,588 due to Mr. Kang as of December 31, 2006 was due for the
        miscellaneous expenses paid by Mr. Kang on behalf of the Company.
 
 **Long
        term liability - related party under common control**
 
 As
        of
        December 31, 2007 and 2006 the Company owed $4,474,985 and $4,238,526,
        respectively to Blue Power (Hong Kong) Holding Inc., a company controlled
        by the
        Company’s CEO, for various advances received. 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 2007 and 2006, the Company accrued interest expense
        of
        $236,459 and $235,859, respectively. The accrued interest is included in
        the
        carrying amount of the loan in the accompanying balance sheets.
 
 **Lease
        from a related party under common control**
 
 During
        2007, the Company paid rent of $26,256 for factory and office spaces leased
        from
        Jiangsu Ever-Glory International Group Corp., an entity controlled by the
        Company’s CEO. See Note 14.
 
 **NOTE
        14 - COMMITMENTS AND CONTINGENCIES**
 
 **Capital
        commitment**
 
 According
        to the Articles of Association of Goldenway, Goldenway had to fulfill registered
        capital requirements of $17,487,894 within three years from February 2, 2005.
        As
        of December 31, 2007, the Company had fulfilled $3,630,000 of its registered
        capital requirements and had a registered capital commitment of $13,857,894
        payable by February 1, 2008. The Company has applied for the extension of
        the
        payment of the remaining registered commitment to July 25, 2008 with the
        local
        government. As of the date of this report, the Company obtained the approval
        from the government granting the extension to make the required capital
        contribution until July 25, 2008.
  **Operating
        lease commitment**
 
 The
        Company leases factory and office space from Jiangsu Ever-Glory International
        Group Corp., a company controlled by Mr. Kang Yihua, controlling shareholder
        and
        chief executive of the Company, under an operating lease which expires on
        March
        31, 2008 at an annual rental of $26,256. Accordingly, for the period ended
        December 31, 2007 and 2006, the Company recognized rental expense in amount
        of
        $26,256 and $18,811, respectively. The outstanding commitments of this
        non-cancelable lease were $6,564 as of December 31, 2007.
 
 F-28
  **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 **Contingent
        shares to be issued**
 
 Pursuant
        to the terms of the purchase agreement on acquisition of Catch-Luck, the
        Company
        will issue additional common shares to the original shareholder as
        follows:
 
 (a)
              At
                  the end of the first full fiscal year ending December 31, 2008
                  in which
                  Catch-Luck generates gross revenues of at least $19,000,000 and
                  net profit
                  of $1,500,000, Perfect Dream will issue 1,153,846 shares of the
                  Company’s
                  restricted common stock having a value of $3,000,000;
                  and
 
 (b)
              At
                  the end of the next full fiscal year ending December 31, 2009 in
                  which
                  Catch-Luck generates gross revenues of at least $19,000,000 and
                  net profit
                  of $1,500,000, Perfect Dream will issue 1,153,846 shares of the
                  Company’s
                  restricted common stock having a value of $3,000,000.
 
 **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
        Plaintiff Douglas G. Furth. The other principal parties are named defendants
        John Zanic, Wilson-Davis & Co., and Godwin, Pappas, Longley & Ronquillo,
        LLP. The action alleges that 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 $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 intend to vigorously defend 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, Plaintiff Douglas G.
        Furth
        has 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 plaintiff and no settlement has
        been
        discussed between us and the Plaintiff. On November 29, 2007, we made a motion
        to dismiss the action for lack of personal jurisdiction, and a decision on
        this
        matter is pending.
 
 We
        were
        also named as a defendant in a civil action in the U.S. court of common pleas
        of
        Allegheny County, Pennsylvania. The civil action was filed on April 17, 2006
        by
        Plaintiff Mark B. Aronson. The action alleged that we violated the Pennsylvania
        Unsolicited Telecommunication Advertisement Act by issuing “spam” emails
        soliciting purchasers for our common stock. The action seeks an award of
        damages
        in excess of $12,100. Management believes the allegations made in this action
        are baseless. On January 4, 2007, the case was dismissed without prejudice
        by
        the Plaintiff.
 
 F-29
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 
 **NOTE
        15 - CONCENTRATIONS AND RISKS**
 
 Cash
        includes cash on hand and demand deposits in accounts maintained with
        state **** owned
        banks within the People’s Republic of China and Hong Kong. Total cash deposited
        with these banks at December 31, 2007 and December 31, 2006 amounted to $625,947
        and $896,381, 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.
 
 For
        the
        years ended December 31, 2007 and 2006, 31% and 28% of total sales were to
        one
        customer. As of December 31, 2007 and 2006, accounts receivable to this customer
        totaled $3,023,102 and $2,980,036, respectively.
 
 The
        Company did not rely on any supplier during 2007 and 2006.
 
 The
        following is geographic information of the Company’s revenue for the year ended
        December 31:
  2007
              
              2006The
                  People’s Republic of China
              
              $
              4,590,798
              
              $
              3,119,065Europe
              
              
              40,308,166
              
              
              29,469,046Japan
              
              
              10,956,030
              
              
              9,270,860United
                  states
              
              
              14,480,389
              
              
              8,389,786Others
              
              
              -
              
              
              816,492Total
              
              $
              70,335,383
              
              $
              51,065,249
 
 The
        Company's operations are carried out in the PRC. Accordingly, the Company's
        business, financial condition and results of operations may be influenced
        by the
        political, economic and legal environments in the PRC, and by the general
        state
        of the economy in the regions where the Company’s customers are located. The
        Company's operations in the PRC are subject to specific considerations and
        significant risks not typically associated with companies in the North America
        and Western Europe. These include risks associated with, among others, the
        political, economic and legal environments and foreign currency exchange.
        The
        Company's results may be adversely affected by changes in governmental policies
        with respect to laws and regulations, anti-inflationary measures, currency
        conversion and remittance abroad, and rates and methods of taxation, among
        other
        things.
 
 **NOTE
        16 - SUBSEQUENT EVENTS**
 
 On
        January 4, 2008, the Company issued warrants to the placement agent that
        are
        exercisable for up to approximately 73,000 shares of common stock of the
        Company
        with an exercise price of $3.20 per share (“Warrants”). The Warrants are
        exercisable for a three year period till January 4, 2011. These warrants
        were
        issued in connection with the private placement described in Note 9. These
        warrants were valued at approximately $130,000 using the Binomial method
        and
        will be amortized over the life of the convertible notes.
 
 F-30
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2007 AND 2006**
 On
        January 9, 2008, Goldenway entered into a Capital Contribution Agreement
        (“Capital Contribution Agreement”) with Shanghai La Chapelle Garment and
        Accessories Company Limited (“La Chapelle”), a Shanghai-based garment maker, and
        several shareholders of La Chapelle. Under the terms of the Capital Contribution
        Agreement, Goldenway agreed to invest approximately $1.37 million in cash
        (RMB10
        million) in La Chapelle for a 10% stake in La Chapelle. This investment will
        be
        accounted for using the cost method.
 
 Also
        on
        January 9, 2008, concurrently with Goldenway’s investment, Goldenway entered
        into an Establishment Agreement with Shanghai La Chapelle Garment and
        Accessories Company Limited, to form a joint venture to develop, promote
        and
        market a new line of women’s wear in China commonly referred to as “LA GO GO”.
        The joint venture will be in the form of a jointly owned PRC-based company
        to be
        registered as “Shanghai LA GO GO Fashion Company Limited.” Goldenway agreed to
        initially invest approximately $820 thousand in cash (RMB 6 million), and
        La
        Chapelle agreed to invest approximately $550 thousand in cash (RMB 4 million),
        for a 60% and 40% stake, 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. The scope of the business of
        the joint venture includes all activities relating to the development of
        the “LA
        GO GO” brand, including marketing and branding activities, design, production,
        and sales. The joint venture, in which the Company is expected to have a
        60%
        stake, will be consolidated to the Company’s financial statements in 2008.
 
 On
        January 16, 2008, the Company approved the issuance of 12,478 shares of common
        stock to pay fourth quarter interest of 2007 to six investors in connection
        with
        the senior convertible notes dated August 2, 2007. Approximately $30,904
        was recorded as interest expense.
 
 On
        January 10, 2008 and February 11, 2008, the Company issued 50,083 and 64,013
        unrestricted shares, respectively, of the Company’s common stock to Whalehaven
        Capital Fund Limited in connection with the partial conversion of a Convertible
        Notes issued on August 2, 2007.
 On
          March
          5, 2008, the Company issued 131,325 unrestricted shares of the Company’s common
          stock to Alpha Capital Anstalt in connection with the partial conversion
          of a
          Convertible Note issued on August 2, 2007.
  F-31


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





As
      approved by our board of directors, we dismissed Jimmy C.H. Cheung & Co.
      (“Cheung & Co.”) as our independent auditors effective December 12,
      2007.  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.




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 18, 2007, we filed a Current Report on Form 8-K disclosing the
      dismissal of Cheung & Co. We requested Cheung & Co. to review the
      disclosure contained therein and asked Cheung & Co. to furnish us with a
      letter addressed to the Commission containing any new information, clarification
      of the Registrant's expression of Cheung & Co.’s views, or the respects in
      which Cheung & Co. does not agree with the statements contained herein. Such
      Form 8-K indicated that we would file Cheung & Co.’s letter by amendment at
      a later date. A copy of Cheung & Co.’s letter was filed as an exhibit to
      Amendment No. 1 to such Form 8-K on December 20, 2007.




On
      December 12, 2007, we engaged Moore Stephens Wurth Frazer and Torbet, LLP
      (“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 us 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.”




46
 *Table
          of Contents*


**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 Exchange Act reports 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, 2007, 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 Securities Exchange Act
        of
        1934) 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:
 
 ·
              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.
  47
 *Table
            of Contents*
  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 has assessed the effectiveness of our internal control over financial
        reporting as of December 31, 2007. In making this assessment, management
        used the criteria set forth by the Committee of Sponsoring Organizations
        of the
        Treadway Commission (COSO) in *Internal
        Control—Integrated Framework* .
 
 Based
        on
        such assessment, they have concluded that as of December 31, 2007, our internal
        controls over financial reporting was deficient in certain respects because
        of
        the material weaknesses identified and described below.
 
 *Control
        Activities* .
        In 2006
        and in the first quarter of 2007, we did not maintain effective controls
        to
        ensure the completeness and accuracy of the valuation methods and accounting
        for
        business combinations, including the lack of conforming financial statements
        and
        footnotes prepared in accordance with SEC rules and regulations, in connection
        with our 2006 acquisition of New-Tailun. We inadvertently misapplied generally
        accepted accounting principles whereby we did not value the acquisitions
        and
        record the resulting transaction under purchase accounting in accordance
        with
        SFAS 141 and EITF 02-5. As a result, we were required to restate our financial
        results for the year ended December 31, 2006 and for the three months ended
        March 31, 2007.
  During
        the audit of the financial statements as of
        December 31, 2007 and for the year then ended. The Company noted errors on
        the
        valuation and accounting for the convertible notes issued on August 2, 2007.
        Accordingly, the carrying value of the convertible notes and related expenses
        needed to be adjusted and the corrected amounts were presented on the financial
        statements as of and for the year ended December 31, 2007.
 
 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 Securities and Exchange
        Commission that permit us to provide only management’s report in this annual
        report.
 
 *Remediation
        of Material Weaknesses in Internal Control over Financial
        Reporting*
 
 In
        light
        of the need for the restatements and the material weaknesses described above,
        our management will conduct further review of our disclosure, financial
        information, and internal controls and procedures with a particular focus
        on
        these areas for future complex financing transactions and acquisitions. This
        review will include efforts by our management and directors, as well as the
        use
        of additional outside resources, as follows:
 
 ·
              Senior
                  accounting personnel and our chief financial officer will continue
                  to
                  review any future acquisition or divestiture in order to evaluate,
                  document, and approve its accounting treatment in accordance with
                  SFAS 141
                  and EITF 02-5;
 
 ·
              We
                  will augment, as necessary, such procedures by obtaining concurrence
                  with
                  independent outside accounting experts prior to finalizing financial
                  reporting for such transactions;
                  and
 
 ·
              In
                  conjunction with the measures outlined below, we believe these
                  actions
                  will strengthen our internal control over our valuation and purchase
                  accounting of acquisitions, and this material weakness should be
                  resolved.
                  Management does not anticipate any extra cost from this change
                  over the
                  review of our valuation and purchase accounting of future acquisitions.
  48
 *Table
            of Contents*
  We
        expect
        that we will satisfactorily address the control deficiencies and material
        weakness relating to these matters by the end of our fiscal year, December
        31,
        2008, although there can be no assurance that compliance will be achieved
        in
        this time frame.
 
 Management,
        including our chief executive officer and our chief financial officer, does
        not
        expect that our disclosure controls and internal controls will prevent errors
        and omissions, even as the same are improved to address any deficiencies
        and/or
        weaknesses. A control system, no matter how well conceived and operated,
        can
        provide only reasonable, not absolute, assurance that the objectives of the
        control system are met. Over time, controls may become inadequate because
        of
        changes in conditions or deterioration in the degree of compliance with policies
        or procedures. Further, the design of a control system must reflect the fact
        that there are resource constraints, and the benefits of controls must be
        considered relative to their costs. Because of the inherent limitations in
        all
        control systems, no evaluation of controls can provide absolute assurance
        that
        all control issues and errors and omissions, if any, within the Company have
        been detected. These inherent limitations include the realities that judgments
        in decision-making can be faulty, and that breakdowns can occur because of
        simple error or mistake. Additionally, controls can be circumvented by the
        individual acts of some persons, by collusion of two or more people, or by
        management override of the control.
 
 Our
        financial reporting process includes extensive procedures we undertake in
        order
        to obtain assurance regarding the reliability of our published financial
        statements, notwithstanding the material weaknesses in internal control.
        We
        expanded our review of accounting for business combinations to help compensate
        for our material weaknesses in order to provide assurance that the financial
        statements are free of material inaccuracies or omissions of material fact.
        As a
        result, management, to the best of its knowledge, believes that (i) this
        Annual
        Report on Form 10-K does not contain any untrue statements of a material
        fact or
        omits any material fact and (ii) the financial statements and other financial
        information included in this report have been prepared in conformity with
        GAAP
        and fairly present in all material aspects our financial condition, results
        of
        operations, and cash flows.
 
 *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 Securities Exchange Act of 1934) during the fiscal
        year
        ended December 31, 2007 that have materially affected, or are reasonably
        likely
        to materially affect, our internal control over financial reporting.
  49
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**PART
      III**





**ITEM
      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
      REGISTRANT**




**Departure
      and Appointment of Directors**




Effective
      July 30, 2007, Mr. Yang Xiaodong resigned as a director of Ever-Glory
      International Group, Inc. The decision by Mr. Yan to resign from his
      position was to devote more time to his own business and was not the result
      of
      any material disagreement with the Company on any matter relating to the
      Company’s operations, policies or practices.




On
      August
      1, 2007, the board of directors of the Company (the “Board”) elected
      Ms. Guo Yan as a director, effective immediately, to fill the vacancy
      created by Mr. Yan’s resignation. Ms. Guo served as our chief
      financial officer from 1999 to 2004.




**Management**




The
      following table includes the names, positions held, and ages of our current
      executive officers and directors as of December 31, 2007:




Name
            
            Age
            
            Position
            
            Held
                Position SinceKang
                Yihua
            
            44
            
            Chief
                Executive Officer,  President, and Director
            
            1993Sun
                Jia Jun
            
            34
            
            Chief
                Operating Officer and Director
            
            2000*Guo
                Yan
            
            30
            
            Chief
                Financial Officer and Director
            
            1999**Wei
                Ru Qin
            
            54
            
            Director
            
            2000Li
                Ning
            
            45
            
            Director
            
            2000Jin
                Qiu
            
            33
            
            Secretary
            
            2005




*
      Mr. Sun
      was appointed as a director on our board of directors in 2005.




**
      Ms.
      Guo was appointed as a director on our board of directors in 2007.




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




***Kang
      Yihua*** has
      served as our President and Chief Executive Officer and as the Chairman of
      our
      Board of Directors since 2005. Since December 1993, Mr. Kang also serves as
      the
      President and Chairman of the Board of Directors of our subsidiary, Goldenway
      Nanjing Garments Company Limited, and as a member of the Board of Directors
      of
      our subsidiary, Nanjing
      Catch-Luck Garments Co., Ltd. Mr.
      Kang
      has extensive worldwide managerial and operational experience focusing upon
      business development and strategic planning. Mr. Kang formerly was the party
      Branch Secretary of the Management Department, Nanjing Aeronautics and
      Astronautics University, and the Vice General Manager of the Import and Export
      Department of Nanjing Shenda Company. Mr. Kang earned his bachelor’s degree in
      Management from Beijing Aeronautics and Astronautics University and his
      bachelor’s degree in Engineering from Nanjing Aeronautics and Astronautics
      University.




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***Sun
      Jia Jun*** has
      served as our Chief Operating Officer and a member of our Board of Directors
      since 2005. Mr. Sun also serves as a member of the Board of Directors of
      Goldenway since 2000 and as a member of the Board of Directors of Nanjing
      New-Tailun Garments Company Limited (PRC) 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.




***Guo
      Yan*** has
      served as our Chief Financial Officer since 2005, and was appointed to our
      Board
      of Directors on August 1, 2007. 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.




***Wei
      Ru Qin*** has been
      a member of our Board of Directors since 2007. Mr. Wei has been the head of
      the
      Auditing Department of Goldenway since 2000 and a member of the Board of
      Directors of Goldenway since 2004. Mr. Wei has more than 20 years experience
      in
      accounting and finance management in the construction and textile industries.
      Mr. Wei formerly served as a Vice Manager at Lishui Textile Garment Industry
      Company and as Manager at Lishui Second Light Textile Products Material Supply
      & Marketing Office.




***Li
      Ning*** has been
      a member of our Board of Directors since 2005. Mr. Li has been a member of
      Goldenway’s Board of Directors since 2000, a member of Catch-Luck’s Board of
      Directors since 2006, and a member of New-Tailun’s Board of Directors since
      2006. Mr. Li has more than 10 years experience in finance and investment
      management. Mr. Li earned his bachelor’s degree in Computer Science from Nanjing
      Aeronautics and Astronautics University.




***Jin
      Qiu*** has
      served as our Corporate Secretary since 2005. From 2003 to 2005, Mr. Jin served
      as the secretary to our President, Mr. Kang Yihua, in the aspects of corporation
      development planning and investment management. Mr. Jin earned his bachelor’s
      degree in English culture from the Beijing Institute of International Relations
      and his master’s degree in Economics from Nanjing University.




There
      are
      no family relationships, or other arrangements or understandings between or
      among any of the directors, executive officers or other person pursuant to
      which
      such person was selected to serve as a director or officer.





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**Involvement
      in Certain Legal Proceedings**




Our
      directors, executive officers and control persons have not been involved in
      any
      of the following events during the past five years:




1.    
      any bankruptcy petition filed by or against any business of which such person
      was a general partner or executive officer either at the time of the bankruptcy
      or within two years prior to that time;




2.    
      any conviction in a criminal proceeding or being subject to a pending criminal
      proceeding (excluding traffic violations and other minor offenses);




3.    
      being subject to any order, judgment, or decree, not subsequently reversed,
      suspended or vacated, of any court of competent jurisdiction, permanently or
      temporarily enjoining, barring, suspending or otherwise limiting his involvement
      in any type of business, securities or banking activities; or




4.    
      being found by a court of competent jurisdiction (in a civil action), the SEC
      or
      the Commodity Futures Trading Commission to have violated a federal or state
      securities or commodities law, and the judgment has not been reversed,
      suspended, or vacated.




**Audit
      Committee Financial Expert**




Our
      Board
      of Directors does not have a separate audit committee. The board has determined
      that it does not have a member of the board that qualifies as an “audit
      committee financial expert”, and is “independent” as the term is used in Item
      7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as
      amended.




We
      believe that the members of our board of directors are collectively capable
      of
      analyzing and evaluating our financial statements and understanding internal
      controls and procedures for financial reporting. However, we are considering
      appointing an independent qualified financial expert to our board of directors
      in order to strengthen and improve its internal disclosure controls and
      procedures.




**Section
      16(a) of the Exchange Act**




Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires 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 Securities and Exchange Commission. On September 15, 2006, Messers
      Kang, Yan, Wei, Sun and Li each has filed a Form 5 to report the exchange of
      their shares of common stock for shares of preferred stock, which exchange
      was
      effected on October 27, 2005. To 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, 2006 all
      Section 16(a) filing requirements applicable to its officers, directors and
      greater than ten percent shareholders were complied with.





**Code
      of Business Conduct and Ethics**




We
      have
      adopted a code of business conduct and ethics that applies to our officers,
      directors and employees, including our Chief Executive Officer, senior executive
      officers, principal accounting officer, controller and other senior financial
      officers. Our code of business conduct and ethics is available on our website
      at
      www.everglorygroup.com. A copy of our code of business conduct will be provided
      to any person without charge, upon written request sent to 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 Securities Exchange Act and
      the
      rules and regulations of the SEC.




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**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 2007,
      our
      Board of Directors oversaw 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;




·
            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;




53
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·
            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 board of directors 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 2007 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 making its recommendations to our board of directors
      regarding our executives’ compensation for fiscal year 2007. 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.





*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 2007, 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.




54
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*Discretionary
      Annual Cash Performance-Based Incentives*





In
      2007,
      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, 2007. No stock options were held by the named
      executive officers as of December 31, 2007.





*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
      generally available to and on the same terms as our other employees. ******





*Management’s
      Role in the Compensation-Setting Process*





Our
      management plays a role in our compensation-setting process. We believe this
      input from management is needed in order to evaluate the performance of our
      management, 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
      of cash and other compensation**




The
      following summary compensation table indicates the cash and non-cash
      compensation earned during the fiscal year ended December 31, 2007 by the
      Chief Executive Officer and each of our other four highest paid executives,
      whose total compensation exceeded $100,000 (if any) during the fiscal year
      ended
      December 31, 2007.




**Summary
      Compensation Table**




**Name
                and Principal Position**
            
            **Year**
            
            **Salary
                ($) (1)**
            
            **Total($)
                (1)**Kang
                Yihua
            
            
            2006
            
            $
            12,675
            
            $
            12,675Chairman
                of the Board, Chief ExecutiveOfficer
                and President
            
            
            2007
            
            $
            19,830
            
            $
            19,830Guo Yan
            
            
            2006
            
            $
            2,408
            
            $
            2,408Chief
              Financial Officer and Director
            
            
            2007
            
            $
            2,805
            
            $
            2,805





(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 7.6 RMB to one U.S. dollar. 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.




55
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          of Contents*




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




There
      are
      no employment contracts, compensatory plans or arrangements, including payments
      to be received from 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.




The
      table
      below sets forth information concerning compensation paid to our directors
      for
      fiscal 2006 and 2007.





**Director
      Compensation**




**Name**
            
            
            **Year**
            
            
            **Salary
                ($) (1)**
            
            
            **Total
                ($) (1)**Kang
                Yihua
            
            
            2006
              2007
            
            $
              $
            -
              19,830
            (2)
            $
              $
            -
              19,830
            (2)Sung
                Jiajun
            
            
            2006
              2007
            
            $
              $
            -
              8,730
            (3)
            $
              $
            -
              8,730
            (3)Yang
                Xiao Dong (4)
            
            
            2006
              2007
            
            $
              $
            5,262
              2,805
            
            $
              $
            5,262
              2,805Li
                Ning
            
            
            2006
              2007
            
            $
              $
            4,862
              5,372
            
            $
              $
            4,862
              5,372Wei
                Ruquin
            
            
            2006
              2007
            
            $
              $
            4,275
              5,293
            
            $
              $
            4,275
              5,293Guo
              Yan
            
            
            2006
              2007
            
            $
              $
            -
              -
            
            $
              $
            -
              -





(1)
            
            All
                compensation was paid in RMB. The amounts in the foregoing table
                have been
                converted into U.S. dollars at the conversion rate of 7.6 RMB to
                the
                dollar.(2)
            
            Mr.
                Kang was not paid additional compensation as a director; however,
                he
                received salary during 2007 of $19,830 and total compensation of
                $19,830
                in consideration of his services as our Chief Executive
                Officer.(3)
            
            Mr.
                Sung was not paid additional compensation as a director; however,
                he
                received salary during 2007 of $8,730 and total compensation of $8,730
                in
                consideration of his services as our Chief Operating
                Officer.(4)
            
            Mr.
              Yang resigned as a director on July 30, 2007.(5)
            
            Ms.
              Guo was appointed as a director effective July 30,
              2007.




**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 2007 and there were no outstanding
      unexercised options previously awarded to our officers and directors, at the
      fiscal year end, December 31, 2007.




56
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**Indemnification
      of Officers and Directors**





We
      are a
      Florida corporation, and accordingly, we are subject to the corporate laws
      under
      the Florida Revised Statutes. Article V of our bylaws provides that we may
      indemnify our officers and directors to the full extent permitted by law.
      Section 607.0850 of the Florida Statutes provides that a Florida corporation
      has
      the power to indemnify its officers and directors in certain
      circumstances.





Subsection
      (1) of Section 607.0850 empowers a corporation to indemnify any director or
      officer, or former director or officer, who was or is a party to any proceeding
      (other than an action by, or in the right of, the corporation), by reason of
      the
      fact that he or she is or was a director, officer, employee, or agent of the
      corporation or is or was serving at the request of the corporation as a
      director, officer, employee, or agent of another corporation, partnership,
      joint
      venture, trust, or other enterprise against liability incurred in connection
      with such proceeding, including any appeal thereof, if he or she acted in good
      faith and in a manner he or she reasonably believed to be in, or not opposed
      to,
      the best interests of the corporation and, with respect to any criminal action
      or proceeding, had no reasonable cause to believe his or her conduct was
      unlawful. The termination of any proceeding by judgment, order, settlement,
      or
      conviction or upon a plea of nolo contendere or its equivalent shall not, of
      itself, create a presumption that the person did not act in good faith and
      in a
      manner which he or she reasonably believed to be in, or not opposed to, the
      best
      interests of the corporation or, with respect to any criminal action or
      proceeding, had reasonable cause to believe that his or her conduct was
      unlawful.





Subsection
      (2) of Section 607.0850 empowers a corporation to indemnify any person, who
      was or is a party to any proceeding by or in the right of the corporation to
      procure a judgment in its favor by reason of the fact that the person is or
      was
      a director, officer, employee, or agent of the corporation or is or was serving
      at the request of the corporation as a director, officer, employee, or agent
      of
      another corporation, partnership, joint venture, trust, or other enterprise,
      against expenses and amounts paid in settlement not exceeding, in the judgment
      of the board of directors, the estimated expense of litigating the proceeding
      to
      conclusion, actually and reasonably incurred in connection with the defense
      or
      settlement of such proceeding, including any appeal thereof. Such
      indemnification shall be authorized if such person acted in good faith and
      in a
      manner he or she reasonably believed to be in, or not opposed to, the best
      interests of the corporation, except that no indemnification shall be made
      under
      this subsection in respect of any claim, issue, or matter as to which such
      person shall have been adjudged to be liable unless, and only to the extent
      that, the court in which such proceeding was brought, or any other court of
      competent jurisdiction, shall determine upon application that, despite the
      adjudication of liability but in view of all circumstances of the case, such
      person is fairly and reasonably entitled to indemnity for such expenses which
      such court shall deem proper.





Section
      607.0850 further provides that to the extent a director or officer of a
      corporation has been successful on the merits or otherwise in defense of any
      proceeding referred to in subsection (1) or subsection (2), or in the defense
      of
      any claim, issue, or matter therein, he or she shall be indemnified against
      expenses (including attorneys’ fees) actually and reasonably incurred by him or
      her in connection therewith; that indemnification and advancement of expenses
      provided for by Section 607.0850 are not exclusive, and a corporation may make
      any other or further indemnification or advancement of expenses of any of its
      directors or officers under any bylaw, agreement, vote of shareholders or
      disinterested directors, or otherwise, both as to action in his or her official
      capacity and as to action in another capacity while holding such office; and
      that the corporation shall have power to purchase and maintain insurance on
      behalf of a director or officer of the corporation against any liability
      asserted against him or her or incurred by him or her in any such capacity
      or
      arising out of his or her status as such whether or not the corporation would
      have the power to indemnify him or her against such liabilities under Section
      607.0850.




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We
      do not
      currently carry directors’ and officers’ liability insurance covering our
      directors and officers, but we have plans to do so. Insofar as indemnification
      for liabilities under the Securities Act may be permitted to directors,
      officers, or persons controlling the Company pursuant to the foregoing
      provisions, we have been informed that, in the opinion of the Commission, such
      indemnification is against public policy as expressed in the Securities Act
      and
      is therefore unenforceable.




**ITEM
      12.****SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of December 31, 2007, for each of the following
      persons:





·
            each
                of our directors and each of the named executive officers in the
                “Management” section of this
                prospectus;




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




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




Beneficial
      ownership is determined in accordance with the rules of the Commission. 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 11,379,309 **** shares
      of
      our common stock outstanding on December 31, 2007.




**Name
                of Beneficial Owner**
            
            **Amount
                and**
              **Nature**
              **of
                Beneficial**
              **Ownership
                of**
              **Common Stock (1)**
            
            **Percent****of
                Class****Executive
                Officers and Directors**Kang
                Yi Hua
            
            
            4,802,315
            
            
            42.2
            %Sun
                Jia Jun
            
            
            174,800
            
            
            1.5
            %Guo
                Yan
            
            
            -
            
            
            -Li
                Ning
            
            
            291,840
            
            
            2.6
            %Wei
                Ru Qin
            
            
            87,400
            
            
            0.8
            %Jin
                Qiu
            
            
            -
            
            
            -All
                Executive Officers and Directors as a Group (six persons)
            
            
            5,356,355
            
            
            47.1
            %**5%
                Holders**Ever-Glory
                Enterprises (H.K.) Ltd. (2)
            
            
            3,315,406
            
            
            29.1
            %Yan
                Xiao Dong (2)
            
            
            379,240
            
            
            3.3
            %





(1)
            The
                percentage of shares beneficially owned is based on11,379,309****shares
                of common stock outstanding. Except as otherwise noted, shares are
                owned
                beneficially and of record, and such record shareholder has sole
                voting,
                investment and dispositive power of the shares.




(2)
            Yan
                Xiao Dong 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.





58
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          of Contents*




**Equity
      Compensation Plan Information**




We
      have
      not adopted any equity compensation plan as of December 31,
      2007.




**ITEM
      13.****CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS******





Mr.
      Kang
      Yihua is the Company’s controlling shareholder and chief executive officer. We
      purchase materials, sub-contract certain manufacturing work, and sell products
      to companies that are under the control of Mr. Kang Yihua. All related party
      outstanding balances are short term in nature and are expected to be settled
      in
      cash.





**Sales
      to Related Parties**




For
      year
      ended December 31, 2007, the Company recognized sales of $1,155,998 to Nanjing
      High-Tech Knitting & Weaving Technology Development Co., Ltd, a related
      party controlle d
      by Mr.
      Kang Yihua. The related cost of sales was $995,398 for the year ended December
      31, 2007.




For
      the
      year ended December 31, 2006, we recognized sales of $479,003 in total to five
      related parties controlled by Mr. Kang Yihua. The related cost of sales was
      $420,756 for the year ended December 31, 2006. The five related parties
      were:




(1)
            Ever-Glory
                Enterprises (Chuzhou) Co., Ltd.




(2)
            Nanjing
                High-Tech Knitting & Weaving Technology Development Co.,
                Ltd,




(3)
            Jiangsu
                Ever-Glory International Group Corp.




(4)
            Nanjing
                Jiangning Shangfang Garments Manufacturing Co.,
                Ltd.




(5)
            Jiangsu
                Blue Glory Knitting Co., Ltd.




**Purchases
      from and sub-contracts with related parties**





During
      2007 and 2006, we purchased raw materials totaling $446,561 and $447,280,
      respectively, from related parties controlled by Mr. Kang Yihua. Purchases
      from
      related parties for the years ended December 2007 and 2006 were as
      follows:




Year
                Ended December 31,Purchases
                from:
            
            2007
            
            2006Nanjing
                High-Tech Knitting & Weaving Technology Development Co.,
                Ltd.
            
            $
            446,561
            
            $
            426,198Jiangsu
                Blue Glory Knitting Co., Ltd.
            
            
            -
            
            
            21,082Total
                purchases from related parties
            
            $
            446,561
            
            $
            447,280




59
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In
      addition, we sub-contracted certain manufacturing work valued at $4,048,689
      and
      $4,634,140 for year ended December 31, 2007 and 2006, respectively, to related
      companies controlled by Mr. Kang Yihua. We provided raw materials to the
      sub-contractors who charged us a fixed price for the sub-contracting work.
      The
      total dollar value of sub-contracts with related parties for the years ended
      December 2007 and 2006 were as follows:




Year
                Ended December 31,Sub-contracts
                with:
            
            2007
            
            2006Ever-Glory
                Enterprises (Chuzhou) Co., Ltd.
            
            $
            2,802,874
            
            $
            2,876,913Nanjing
                High-Tech Knitting & Weaving Technology Development Co.,
                Ltd.
            
            
            268,743
            
            
            81,895Kunshan
                Enjin Fashion Co., Ltd.
            
            
            503,498
            
            
            382,434Nanjing
                Ever-Kyowa Garment Washing Co., Ltd.,
            
            
            228,903
            
            
            828,397Nanjing
                Jiangning Shangfang Garments Manufacturing Co., Ltd.
            
            
            244,671
            
            
            464,501Total
                sub-contracts with related parties
            
            $
            4,048,689
            
            $
            4,634,140





**Accounts
      receivable - related parties**




As
      of
      December 31, 2007 and 2006 accounts receivable from related parties amounted
      to
      $158,235 and $2,463,857 for products sold and sub-contracting services provided.
      Account receivables - related parties were as follows.




At
                December 31,Receivables from:
            
            2007
            
            2006Ever-Glory
                Enterprises (Chuzhou) Co., Ltd.
            
            $
            12,052
            
            $
            -Nanjing
                High-Tech Knitting & Weaving Technology Development Co.,
                Ltd.
            
            
            146,183
            
            
            -Jiangsu
                Ever-Glory International Group Corp.
            
            
            -
            
            
            2,463,857Total
                accounts receivable - related parties
            
            $
            158,235
            
            $
            2,463,857




**Advance
      on inventory purchases - related party**




As
      of
      December 31, 2007, we advanced funds to purchase raw material inventory from
      Jiangsu Ever-Glory International Group Corp., a company controlled by Mr. Kang
      Yihua, in amount of $2,568,040. Interest is charged at 0.5% per month according
      to the principal balance outstanding at the end of each month. Interest income
      earned for the year ended of December 31, 2007 was $165,201.




**Accounts
      payables - related parties**




As
      of
      December 31, 2007 and 2006 we owed $245,589 to two related parties, and
      $2,005,323 to seven related parties, all controlled by Mr. Kang Yihua. Accounts
      payables - related parties were as follows at the end of 2006 and 2007.




60
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At
                December 31,Payable
                to:
            
            2007
            
            2006Ever-Glory
                Enterprises (Chuzhou) Co., Ltd.
            
            $
            -
            
            $
            266,855Nanjing
                High-Tech Knitting & Weaving Technology Development Co.,
                Ltd.
            
            
            -
            
            
            7,356Kunshan
                Enjin Fashion Co., Ltd.
            
            
            245,589
            
            
            191,455Wanshan
                Furnituring
            
            
            -
            
            
            5,794Nanjing
                Ever-Kyowa Garment Washing Co., Ltd.,
            
            
            -
            
            
            129,555Nanjing
                Jiangning Shangfang Garments manufacturing Co., Ltd.
            
            
            -
            
            
            19,209Jiangsu
                Ever-Glory International Group Corp.
            
            
            
            
            
            1,385,097Total
                accounts payables - related parties
            
            $
            245,589
            
            $
            2,005,321




**Other
      payables - related parties**




Other
      payables - related parties consisted of the following at the end of 2006 and
      2007.




At
                December 31,Payable
                to:
            
            2007
            
            2006Ever-Glory
                Enterprises (H.K.) Limited, controlled by
                Mr. Kang Yihua
            
            $
            650,000
            
            $
            2,613,542Mr.
                Kang Yihua
            
            
            -
            
            
            7,588Total
                other payables - related parties
            
            $
            650,000
            
            $
            2,621,130





**Long
      term liability - related party**





As
      of
      December 31, 2007 and 2006 the Company owed $4,474,985 and $4,238,526,
      respectively to Blue
      Power Holding Limited, a
      company controlled by Mr. Kang Yihua, for various advances received. 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 2007 and 2006, we accrued interest
      expense of $236,459 and $235,859, respectively. The accrued interest is included
      in the carrying amount of the loan in the accompanying balance
      sheets.





**Lease
      from a related party**





During
      2007, we paid rent of $26,256 for factory and office spaces leased from
      Jiangsu Ever-Glory International Group Corp., which is controlled by Mr. Kang
      Yihua, our chairman and chief executive officer. See Note 14 of our
      financial statements in Item 8 of this report.





**Catch-Luck
      Acquisition**





Catch-Luck
      was previously a wholly-owned subsidiary of Ever-Glory Hong Kong. Mr. Kang
      Yihua
      was previously the sole shareholder of Ever-Glory Hong Kong, until he
      transferred 100% of his ownership to Mr. Yang Xiodong, an unrelated party,
      in
      2007. For further details concerning this acquisition, please see “ *Recent
      Developments - Acquisition of Nanjing Catch-Luck Garments Co.,
      Ltd.* ”
on
      page
      10 of this report.





**About
      Ever-Glory Hong Kong**





In
      2007,
      Mr. Kang Yihua transferred his ownership of Ever-Glory Hong Kong to Mr. Yang
      Xiodong. Currently, Ever-Glory Hong Kong is separate and independent from us,
      except that Ever-Glory Hong Kong is one of our significant shareholders. None
      of
      our directors or officers has any ownership interest in Ever-Glory Hong Kong.
      Ever-Glory Hong Kong is engaged in the business of sourcing, logistics, and
      the
      importing and exporting of finished goods and raw materials in and out of China.
      Although our corporate names are similar, our line of business is separate
      and
      distinct from that of Ever-Glory Hong Kong. We use the services of Ever-Glory
      Hong Kong to export some of our goods to other countries.




61
 *Table
          of Contents*




**ITEM
      14.****PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





As
      approved by our board of directors, we dismissed Jimmy C.H. Cheung & Co.
      (“Cheung & Co.”) as our independent auditors effective December 12,
      2007.  Cheung & Co. served as our independent auditors for the
      fiscal years ended December 31, 2006 and December 31, 2005 and for the
      quarterly review for 2006. On December 12, 2007, we engaged Moore Stephens
      Wurth
      Frazer and Torbet, LLP (“Moore Stephens”) as our outside independent accounting
      firm for the fiscal years ended December 31, 2007.





2007
            
            2006Audit
                fees
            
            $
            233,000
            
            $
            205,000Audit-
                related fees
            
            
            -
            
            
            -Tax
                fees
            
            
            -
            
            
            -All
                other fees
            
            
            -
            
            
            -





Fees
      for
      audit services include fees associated with the annual audit and the review
      of
      documents filed with the Securities and Exchange Commission 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.




**PART
      IV**





**ITEM
      15.****EXHIBITS,
      FINANCIAL STATEMENTS SCHEDULE AND REPORTS ON****FORM
      8-K**





**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
      Jimmy C. H. Cheung & Co., Independent Auditors




Report
      of Moore
      Stephens Wurth Frazer and Torbet, LLP ,
      Independent Auditors




Consolidated
      Balance Sheets at December 31, 2007 and 2006




Consolidated
      Statements of Operations and Comprehensive Income for the Years Ended December
      31, 2007 and 2006




Consolidated
      Statements of Stockholders’ Equity for the Years Ended December
      31, 2007 and 2006




Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2007 and
      2006




Notes
      to
      Consolidated Financial Statements




62
 *Table
          of Contents*





**(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).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).


63
 *Table
          of Contents*




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).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.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).21.1
              
              Subsidiaries
                  of Registrant (incorporated by reference to Exhibit 21.1 to our
                  Registration Statement on Form S-1, filed October 5, 2007).23.1
              
              Consent
                  of Independent Registered Public Accounting Firm.31.1
              
              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.


64
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          of Contents*




**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 11th day of March, 2008.


EVER-GLORY
                INTERNATIONAL GROUP, INC.By:
            /s/    Kang
                Yihua**Kang
                Yihua**
              **Chief
                Executive Officer**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated:




Signature
            
            Title
            
            Date/s/
                Kang Yihua
            
            Chief
                Executive Officer,
            
            March
                11, 2008Kang
                YiHua
            
            President,
                and Director
              (Principal
                Executive Officer)/s/
                Sun Jia Jun
            
            Chief
                Operating Officer
            
            March
                  11, 2008Sun
                Jia Jun
            
            and
                Director/s/
                Guo Yan
            
            Chief
                Financial Officer
            
            March
                  11, 2008Guo
                Yan
            
            (Principal
                Financial and Accounting Officer)
              and
                Director/s/
                Li Ning
            
            Director
            
            March
                  11, 2008/s/
                Wei Ru Qin
            
            Director
            
            March
                  11, 2008




65