UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-Q




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


For the
quarterly period ended June 30, 2009




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


For the
transition period from ____________ to ____________




Commission
file number:  0-28806




Ever-Glory
International Group Inc.


(Exact
name of registrant as specified in its charter)




Florida
                  
                  65-0420146(State
      or other jurisdiction of
                    incorporation
      or organization)
                  
                  (I.R.S.
      Employer
                    Identification
      No.)




100
N. Barranca Ave. #810


West
Covina, California 91791


(Address
of principal executive offices)




(626)
839-9116


(Registrant’s
telephone number, including area code)




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  ̈    Nox





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  
No   ̈    Yes
  ̈





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 definition of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  ̈




Large
      accelerated filer
             ̈
            Accelerated
      filer
             ̈Non-accelerated
      filer
             ̈
            Smaller
      reporting company
            x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes 
 ̈  No x


As of
August 5, 2009, 13,560,240shares
of the Company’s common stock, $0.001 par value, were issued and
outstanding.









EVER-GLORY
INTERNATIONAL GROUP, INC.


FORM 10-Q





INDEX




Page
                        NumberSPECIAL NOTE REGARDING
      FORWARD-LOOKING STATEMENTSPART I.  FINANCIAL
      INFORMATION
                      
                      4Item 1.
                      Financial
      Statements
                      
                      4CondensedConsolidated Balance
      Sheetsas of June 30, 2009 (unaudited) and December 31,
      2008
                      
                      4CondensedConsolidated
      Statementsof Operations and Comprehensive
      Income for the Threeand SixMonths Ended
      June 30, 2009 and 2008 (unaudited)
                      
                      5CondensedConsolidated
      Statementsof Cash Flows for
      theSixMonths Ended June 30, 2009 and
      2008 (unaudited)
                      
                      6Notes to theCondensedConsolidated Financial Statements
      (unaudited)
                      
                      7Item 2.
                      Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations
                      
                      21Item 3.
                      Quantitative and Qualitative
      Disclosures About Market Risk
                      
                      35Item 4.
                      Controls and
      Procedures
                      
                      36PART II.  OTHER
      INFORMATION
                      
                      36Item 1.
                      Legal
      Proceedings
                      
                      36Item 1A.
                      Risk
    Factors
                      
                      37Item 2.
                      Unregistered Sales of Equity
      Securities and Use of Proceeds
                      
                      37Item 3.
                      Defaults Upon Senior
      Securities
                      
                      37Item 4.
                      Submission of Matters to a Vote
      of Security Holders
                      
                      37Item 5.
                      Other
      Information
                      
                      37Item 6.
                      Exhibits
                      
                      37SIGNATURES
                      
                      38





2





Note
Regarding Forward-Looking Statements




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





·      Competition within our
industry;


·      Seasonality of our
sales;


·      Success of our investments in new
product development;


·      Our plans to open new retail
stores;


·      Success of our acquired
businesses;


·      Our relationships with our major
customers;


·      The popularity of our
products;


·      Relationships with suppliers and
cost of supplies;


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


·      Anticipated effective tax rates in
future years;


·      Regulatory requirements affecting
our business;


·      Currency exchange rate
fluctuations;


·      Our future financing needs;
and


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





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





Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management’s opinions only as of the date hereof. We undertake no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Readers should carefully review the factors
described in the following Management’s Discussion and Analysis of Financial
Condition and Results of Operation in this Form 10-Q in conjunction with our
Annual Report on Form 10-K for the year ended December 31, 2008 and other
documents we file from time to time with the Securities and Exchange Commission
(‘SEC’).




3





PART
I.  FINANCIAL INFORMATION




ITEM
      1.
            FINANCIAL
      STATEMENTS.




EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


AS
OF JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008





JUNE
      30,
                              
                              
                              December
      31,2009
                              
                              
                              2008(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                              
                              $
                              993,869
                              
                              
                              $
                              1,445,363Accounts
      receivable
                              
                              
                              15,188,450
                              
                              
                              
                              9,485,338Inventories
                              
                              
                              2,910,793
                              
                              
                              
                              3,735,227Value
      added  tax receivable
                              
                              
                              241,325
                              
                              
                              
                              -Other
      receivables and prepaid expenses
                              
                              
                              398,730
                              
                              
                              
                              945,191Advances
      on inventory purchases
                              
                              
                              321,710
                              
                              
                              
                              288,256Amounts
      due from related party
                              
                              
                              10,153,169
                              
                              
                              
                              11,565,574Total
      Current Assets
                              
                              
                              30,208,046
                              
                              
                              
                              27,464,949LAND
      USE RIGHT, NET
                              
                              
                              2,817,773
                              
                              
                              
                              2,854,508PROPERTY
      AND EQUIPMENT, NET
                              
                              
                              12,642,068
                              
                              
                              
                              12,494,452INVESTMENT
      AT COST
                              
                              
                              1,465,000
                              
                              
                              
                              1,467,000TOTAL
      ASSETS
                              
                              $
                              47,132,887
                              
                              
                              $
                              44,280,909LIABILITIES
      AND EQUITYCURRENT
      LIABILITIESBank
      loans
                              
                              $
                              3,223,000
                              
                              
                              $
                              6,542,820Accounts
      payable
                              
                              
                              6,133,696
                              
                              
                              
                              3,620,543Accounts
      payable and other payables- related parties
                              
                              
                              917,871
                              
                              
                              
                              754,589Other
      payables and accrued liabilities
                              
                              
                              1,923,451
                              
                              
                              
                              1,683,977Value
      added and other taxes payable
                              
                              
                              687,699
                              
                              
                              
                              368,807Income
      tax payable
                              
                              
                              230,847
                              
                              
                              
                              257,946Deferred
      tax liabilities
                              
                              
                              232,695
                              
                              
                              
                              80,009Total
      Current Liabilities
                              
                              
                              13,349,259
                              
                              
                              
                              13,308,691LONG-TERM
      LIABILITIESLoan
      from related party
                              
                              
                              2,718,614
                              
                              
                              
                              2,660,085TOTAL
      LIABILITIES
                              
                              
                              16,067,873
                              
                              
                              
                              15,968,776COMMITMENTS
      AND CONTINGENCIESEQUITYStockholders'
      equity of the CompanyPreferred
      stock ($.001 par value, authorized 5,000,000 shares,no
      shares issued and outstanding)
                              
                              
                              -
                              
                              
                              
                              -Common
      stock ($.001 par value, authorized 50,000,000 shares,13,548,498
      and 12,373,567 shares issued and outstandingas
      of June 30,2009 and December 31, 2008, respectively)
                              
                              
                              13,549
                              
                              
                              
                              12,374Additional
      paid-in capital
                              
                              
                              4,571,164
                              
                              
                              
                              4,549,004Retained
      earnings
                              
                              
                              18,604,895
                              
                              
                              
                              15,807,539Statutory
      reserve
                              
                              
                              3,437,379
                              
                              
                              
                              3,437,379Accumulated
      other comprehensive income
                              
                              
                              3,873,549
                              
                              
                              
                              3,956,860Total
      Stockholders' Equity of the Company
                              
                              
                              30,500,536
                              
                              
                              
                              27,763,156Noncontrolling
      interest
                              
                              
                              564,478
                              
                              
                              
                              548,977Total
      Equity
                              
                              
                              31,065,014
                              
                              
                              
                              28,312,133TOTAL
      LIABILITIES AND EQUITY
                              
                              $
                              47,132,887
                              
                              
                              $
                              44,280,909




4





EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED)





Three months ended
                                      
                                      
                                      Six months endedJune 30,
                                      
                                      
                                      June 30,2009
                                      
                                      
                                      2008
                                      
                                      
                                      2009
                                      
                                      
                                      2008NET
      SALESRelated
      parties
                                      
                                      $
                                      9,351
                                      
                                      
                                      $
                                      67,461
                                      
                                      
                                      $
                                      9,351
                                      
                                      
                                      $
                                      492,563Third
      parties
                                      
                                      
                                      21,116,143
                                      
                                      
                                      
                                      24,000,936
                                      
                                      
                                      
                                      41,623,965
                                      
                                      
                                      
                                      43,323,042Total
      net sales
                                      
                                      
                                      21,125,494
                                      
                                      
                                      
                                      24,068,397
                                      
                                      
                                      
                                      41,633,316
                                      
                                      
                                      
                                      43,815,605COST
      OF SALESRelated
      parties
                                      
                                      
                                      9,013
                                      
                                      
                                      
                                      58,636
                                      
                                      
                                      
                                      9,013
                                      
                                      
                                      
                                      461,384Third
      parties
                                      
                                      
                                      16,608,920
                                      
                                      
                                      
                                      19,655,924
                                      
                                      
                                      
                                      32,402,587
                                      
                                      
                                      
                                      35,279,348Total
      cost of sales
                                      
                                      
                                      16,617,933
                                      
                                      
                                      
                                      19,714,560
                                      
                                      
                                      
                                      32,411,600
                                      
                                      
                                      
                                      35,740,732GROSS
      PROFIT
                                      
                                      
                                      4,507,561
                                      
                                      
                                      
                                      4,353,837
                                      
                                      
                                      
                                      9,221,716
                                      
                                      
                                      
                                      8,074,873OPERATING
      EXPENSESSelling
      expenses
                                      
                                      
                                      865,341
                                      
                                      
                                      
                                      368,564
                                      
                                      
                                      
                                      1,805,815
                                      
                                      
                                      
                                      646,092General
      and administrative expenses
                                      
                                      
                                      2,289,282
                                      
                                      
                                      
                                      1,822,329
                                      
                                      
                                      
                                      4,145,404
                                      
                                      
                                      
                                      3,234,983Total
      Operating Expenses
                                      
                                      
                                      3,154,623
                                      
                                      
                                      
                                      2,190,893
                                      
                                      
                                      
                                      5,951,219
                                      
                                      
                                      
                                      3,881,075INCOME
      FROM OPERATIONS
                                      
                                      
                                      1,352,938
                                      
                                      
                                      
                                      2,162,944
                                      
                                      
                                      
                                      3,270,497
                                      
                                      
                                      
                                      4,193,798OTHER
      INCOME (EXPENSES)Interest
      income
                                      
                                      
                                      161,481
                                      
                                      
                                      
                                      48,590
                                      
                                      
                                      
                                      265,028
                                      
                                      
                                      
                                      80,564Interest
      expense
                                      
                                      
                                      (115,234
                                      )
                                      
                                      
                                      (631,126
                                      )
                                      
                                      
                                      (238,884
                                      )
                                      
                                      
                                      (1,208,954
                                      )Other
      income
                                      
                                      
                                      42,610
                                      
                                      
                                      
                                      53,085
                                      
                                      
                                      
                                      44,983
                                      
                                      
                                      
                                      53,085Total
      Other Income (Expenses)
                                      
                                      
                                      88,857
                                      
                                      
                                      
                                      (529,451
                                      )
                                      
                                      
                                      71,127
                                      
                                      
                                      
                                      (1,075,305
                                      )INCOME
      BEFORE INCOME TAX EXPENSE
                                      
                                      
                                      1,441,795
                                      
                                      
                                      
                                      1,633,493
                                      
                                      
                                      
                                      3,341,624
                                      
                                      
                                      
                                      3,118,493INCOME
      TAX EXPENSE
                                      
                                      
                                      (272,656
                                      )
                                      
                                      
                                      (284,809
                                      )
                                      
                                      
                                      (561,727
                                      )
                                      
                                      
                                      (568,647
                                      )NET
      INCOME
                                      
                                      
                                      1,169,139
                                      
                                      
                                      
                                      1,348,684
                                      
                                      
                                      
                                      2,779,897
                                      
                                      
                                      
                                      2,549,846ADD(LESS):
      NET LOSS(INCOME) ATTRIBUTABLE TO THE NONCONTROLING
INTEREST
                                      
                                      
                                      5,861
                                      
                                      
                                      
                                      620
                                      
                                      
                                      
                                      17,459
                                      
                                      
                                      
                                      (3,249
                                      )NET
      INCOME ATTRIBUTABLE TO THE COMPANY
                                      
                                      $
                                      1,175,000
                                      
                                      
                                      $
                                      1,349,304
                                      
                                      
                                      $
                                      2,797,356
                                      
                                      
                                      $
                                      2,546,597NET
      INCOME
                                      
                                      $
                                      1,169,139
                                      
                                      
                                      $
                                      1,348,684
                                      
                                      
                                      $
                                      2,779,897
                                      
                                      
                                      $
                                      2,549,846Foreign
      currency translation (loss) gain
                                      
                                      
                                      (39,103
                                      )
                                      
                                      
                                      611,354
                                      
                                      
                                      
                                      (83,311
                                      )
                                      
                                      
                                      1,711,238COMPREHENSIVE
      INCOME
                                      
                                      
                                      1,130,036
                                      
                                      
                                      
                                      1,960,038
                                      
                                      
                                      
                                      2,696,586
                                      
                                      
                                      
                                      4,261,084COMPREHENSIVE
      LOSS (INCOME) ATTRIBUTABLE TOTHE
      NONCONTROLING INTEREST
                                      
                                      
                                      3,109
                                      
                                      
                                      
                                      435
                                      
                                      
                                      
                                      15,501
                                      
                                      
                                      
                                      (23,022
                                      )COMPREHENSIVE
      INCOME ATTRIBUTABLE TOTHE
      COMPANY
                                      
                                      $
                                      1,133,145
                                      
                                      
                                      $
                                      1,960,473
                                      
                                      
                                      $
                                      2,712,087
                                      
                                      
                                      $
                                      4,238,062NET
      INCOME PER SHAREAttributable
      to the Company's common stockholdersBasic
                                      
                                      $
                                      0.09
                                      
                                      
                                      $
                                      0.12
                                      
                                      
                                      $
                                      0.21
                                      
                                      
                                      $
                                      0.22Diluted
                                      
                                      $
                                      0.09
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      0.21
                                      
                                      
                                      $
                                      0.10Weighted
      average number of shares outstandingBasic
                                      
                                      
                                      13,548,498
                                      
                                      
                                      
                                      11,710,865
                                      
                                      
                                      
                                      13,539,909
                                      
                                      
                                      
                                      11,580,273Diluted
                                      
                                      
                                      13,548,498
                                      
                                      
                                      
                                      12,528,595
                                      
                                      
                                      
                                      13,539,909
                                      
                                      
                                      
                                      12,291,758




5





EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED)





2009
                                
                                
                                2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                
                                $
                                2,779,897
                                
                                
                                $
                                2,549,846Adjustments
      to reconcile net income to cash providedby
      operating activities:Depreciation
      and amortization
                                
                                
                                987,141
                                
                                
                                
                                485,999Accrued
      interest on loan from related party
                                
                                
                                58,529Deferred
      income tax
                                
                                
                                152,868
                                
                                
                                
                                -Amortization
      of discount on convertible notes
                                
                                
                                -
                                
                                
                                
                                841,422Amortization
      of deferred financing costs
                                
                                
                                -
                                
                                
                                
                                60,630Stock
      issued for interest
                                
                                
                                -
                                
                                
                                
                                2,155Changes
      in operating assets and liabilitiesAccounts
      receivable
                                
                                
                                (5,718,775
                                )
                                
                                
                                (3,791,168
                                )Accounts
      receivable - related parties
                                
                                
                                -
                                
                                
                                
                                156,574Inventories
                                
                                
                                819,734
                                
                                
                                
                                (256,247
                                )Value
      added  tax receivable
                                
                                
                                (241,441
                                )
                                
                                
                                -Other
      receivables and prepaid expenses
                                
                                
                                (467,251
                                )
                                
                                
                                (266,453
                                )Advances
      on inventory purchases
                                
                                
                                (33,835
                                )
                                
                                
                                (197,562
                                )Amounts
      due from related party
                                
                                
                                1,391,643
                                
                                
                                
                                332,352Accounts
      payable
                                
                                
                                2,519,292
                                
                                
                                
                                2,213,670Accounts
      payable and other payables - related parties
                                
                                
                                178,745
                                
                                
                                
                                461,683Other
      payables and accrued liabilities
                                
                                
                                263,858
                                
                                
                                
                                220,172Value
      added and other taxes payable
                                
                                
                                337,762
                                
                                
                                
                                341,285Income
      tax payable
                                
                                
                                (44,974
                                )
                                
                                
                                183,853Net
      cash provided by operating activities
                                
                                
                                2,983,193
                                
                                
                                
                                3,338,211CASH
      FLOWS FROM INVESTING ACTIVITIESInvestment
      in La Chapelle
                                
                                
                                -
                                
                                
                                
                                (1,397,700
                                )Purchase
      of property and equipment
                                
                                
                                (122,879
                                )
                                
                                
                                (357,695
                                )Proceeds
      from sale of equipment
                                
                                
                                6,810
                                
                                
                                
                                13,161Net
      cash used in investing activities
                                
                                
                                (116,069
                                )
                                
                                
                                (1,742,234
                                )CASH
      FLOWS FROM FINANCING ACTIVITIESContribution
      from minority shareholders
                                
                                
                                -
                                
                                
                                
                                553,040Proceeds
      from bank loans
                                
                                
                                6,595,650
                                
                                
                                
                                5,616,864Repayment
      of bank loans
                                
                                
                                (9,908,132
                                )
                                
                                
                                (4,964,400
                                )Repayment
      of long term loan
                                
                                
                                -
                                
                                
                                
                                (1,990,000
                                )Exercise
      of warrants
                                
                                
                                -
                                
                                
                                
                                43,635Net
      cash used in financing activities
                                
                                
                                (3,312,482
                                )
                                
                                
                                (740,861
                                )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                
                                
                                (6,136
                                )
                                
                                
                                146,638NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                                
                                
                                (451,494
                                )
                                
                                
                                1,001,754CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                                
                                
                                1,445,363
                                
                                
                                
                                641,739CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                                
                                $
                                993,869
                                
                                
                                $
                                1,643,493SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for:Interest
      expense
                                
                                $
                                180,355
                                
                                
                                $
                                200,086Income
      taxes
                                
                                $
                                436,106
                                
                                
                                $
                                395,233




6




NOTE
1 BASIS OF PRESENTATION
  Ever-Glory
International Group, Inc., together with its subsidiaries (the “Company”), is an
apparel manufacturer, supplier and retailer in China, with a wholesale segment
and a retail segment. The Company’s wholesale business consists of recognized
brands for department and specialty stores located in Europe, Japan and the
United States. The Company’s newly established retail business consists of
flagship stores and store-in-stores for the Company’s own-brand products. The
Company’s wholesale operations are provided primarily through the Company’s
wholly-owned PRC subsidiaries, Goldenway Nanjing Garments Co. Ltd.
(“Goldenway”), Nanjing Catch-Luck Garments Co. Ltd. (“Catch-Luck”) and Nanjing
New-Tailun Garments Co. Ltd (“New-Tailun”). The Company’s retail operations are
provided through its 60%-owned subsidiary, Shanghai LA GO GO Fashion Company
Limited (“LA GO GO”).
  In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements of the Company contain all adjustments, consisting of
normal recurring adjustments, considered necessary for a fair presentation of
the condensed consolidated balance sheets as of June 30, 2009 and
December 31, 2008, the condensed consolidated statements of operations and
comprehensive income for the three and six months ended June 30, 2009
and 2008, and the condensed consolidated statements of cash flows for the six
months ended June 30, 2009 and 2008. The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and the instructions to
Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the
“SEC”). Accordingly, they have been condensed and do not include all of the
information and footnotes required by GAAP for complete financial statements.
The results of operations for the three and six months ended June 30,2009
are not necessarily indicative of the results of operations to be expected for
the full fiscal year. These financial statements should be read in conjunction
with the Company’s Annual Report on Form 10-K for the year ended December
31, 2008 filed with the SEC on March 31, 2009. The Company has made
certain reclassifications to the prior year’s condensed consolidated financial
statements to conform to classifications in the current year. These
reclassifications had no impact on previously reported results of
operations.
  Ever-Glory
International Group Apparel Inc.”(“Ever-Glory Apparel”) a wholly owned
subsidiary of Goldenway, was incorporated in the PRC on January 6,
2009.  Goldenway invested approximately $733,500 (RMB 5.0 million) in
cash. On June 30, 2009 Goldenway increased the investment to approximately
$4,395,000 (RMB30.0 million). Ever-Glory Apparel is principally engaged in the
import and export of apparel, fabric and accessories.
  On March
23, 2009, Goldenway transfered all of its ownership interest in LA GO GO to
Ever-Glory Apparel.
  7
  NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS
  Financial
Instruments
 
 Management
has estimated that the carrying amounts of non-related party financial
instruments approximate their fair values due to their short-term maturities.
The fair value of amounts due from (to) related parties is not practicable to
estimate due to the related party nature of the underlying
transactions.
  Fair Value
Accounting
   In
September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Statement No. 157, “Fair
Value Measurements” (“FAS No.157”). SFAS No.157 defines fair
value, establishes a framework for measuring fair value under GAAP, and expands
disclosures about fair value measurements. The provisions of FAS No.157
were adopted January 1, 2008. In February 2008, the FASB staff issued FASB
Staff Position (“FSP”) No. 157-2 “Effective Date of FASB Statement
No. 157” (“FSP FAS No.157-2”). FSP FAS No.157-2 delayed
the effective date of FAS No.157 for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). The
provisions of FSP FAS No.157-2 were effective for the Company’s
consolidated financial statements beginning January 1, 2009, and did not
have a significant impact on the Company.
  FAS No.157
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy
under FAS No.157 are described below:
 
 Level 1
              Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or
  liabilities;
 
 Level 2
              Quoted
      prices in markets that are not active, or inputs that are observable,
      either directly or indirectly, for substantially the full term of the
      asset or liability;
 
 Level 3
              Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (supported by little or no
      market activity).
  At June 30, 2009, the Company’s
financial assets consist of cash placed with financial institutions management
considers to be of a high quality.
  Effective
January 1, 2008, the Company also adopted SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—Including an Amendment of FASB Statement No.
115”, which allows an entity to choose to measure certain financial
instruments and liabilities at fair value on a contract-by-contract basis.
Subsequent fair value measurement for the financial instruments and liabilities
an entity chooses to measure will be recognized in earnings. As of June 30,
2009, the Company did not elect such option for its financial instruments and
liabilities.
  Foreign Currency Translation
and Other Comprehensive Income
  The
reporting currency of the Company is the U.S. dollar. The functional currency of
Ever-Glory and Perfect Dream is the U.S. dollar. The functional currency of
Goldenway, New Tailun, Catch-Luck, LA GO GO and Ever-Glory Apparel is the
Chinese RMB.
  8
  For the
subsidiaries whose functional currencies are the RMB, all assets and liabilities
are translated at the exchange rate on the balance sheet date; stockholders’
equity is translated at the historical rates and items in the statement of
operations are translated at the average rate for the period. Translation
adjustments resulting from this process are included in accumulated other
comprehensive income in the 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 and amounted to ($1,318),
$27,227, ($1,502) and $217,445 for the three and six month periods ended June
30, 2009 and 2008 , respectively. Items in the cash flow statement are
translated at the average exchange rate for the period.
  Recent Accounting
Pronouncements
  In June
2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
No. 07-5”). This Issue is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years. Early application is not permitted. Paragraph 11(a) of Statement of
Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own
stock and (b) classified in stockholders’ equity in the statement of
financial position would not be considered a derivative financial instrument.
EITF No.07-5 provides a new two-step model to be applied in determining whether
a financial instrument or an embedded feature is indexed to an issuer’s own
stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
This standard triggers liability accounting on all options and warrants
exercisable at strike prices denominated in any currency other than the
functional currency of the operating entity in China (Renminbi). Adoption of
EITF No. 07-5 did not have a material impact on the Company’s condensed
consolidated financial statements.
  In
December 2007, the FASB issued SFAS No. 141(revised 2007),
“Business Combinations” (“SFAS 141(R)”), which addresses the accounting and
disclosure for identifiable assets acquired, liabilities assumed, and
noncontrolling interests in a business combination. In April 2009, FASB
issued FASB Staff Position No. FAS 141(R)-1, “Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies” (“FSP FAS 141(R)-1”), which amended certain provisions of SFAS
141(R) related to the recognition, measurement, and disclosure of assets
acquired and liabilities assumed in a business combination that arise from
contingencies. The Company adopted SFAS 141(R) and FSP FAS 141(R)-1 on January
1, 2009. Adoption of this standard did not have a material impact on
the Company’s condensed consolidated financial statements, as the Company did
not enter into a business combination during the six months ended June 30,
2009.
  9
  In April
2009, the FASB issued FSP SFAS 107-1 and APB 28-1, "Interim
Disclosures about Fair Value of Financial Instruments", or FSP 107-1, which
requires that the fair value disclosures required for all financial instruments
within the scope of SFAS 107, "Disclosures about Fair Value of Financial
Instruments", be included in interim financial statements. This FSP also
requires entities to disclose the method and significant assumptions used to
estimate the fair value of financial instruments on an interim and annual basis
and to highlight any changes from prior periods. FSP 107-1 was effective for
interim periods ending after June 15, 2009, with early adoption permitted. The
adoption of FSP 107-1 did not have a material impact on the Company’s condensed
consolidated financial statements.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”), which addresses the accounting and reporting framework for noncontrolling
interests by a parent company. SFAS 160 also addresses disclosure requirements
to distinguish between interests of the parent and interests of the
noncontrolling owners of a subsidiary. SFAS 160 became effective in the first
quarter of 2009, which resulted in reporting noncontrolling interest as a
component of equity in the condensed consolidated balance sheets and below
income tax expense in the condensed consolidated statements of operations.
In addition, the provisions of SFAS 160 require that minority interest be
renamed noncontrolling interests and that a company present a consolidated net
income measure that includes the amount attributable to such noncontrolling
interests for all periods presented. The Company adopted SFAS 160 on January 1,
2009. As a result, the Company has reclassified financial statement line items
within the Company’s condensed consolidated balance sheets and statements of
operations and comprehensive income for the prior periods to conform with this
standard.
  In June
2009, the FASB approved its Accounting Standards Codification, or Codification,
as the single source of authoritative United States
accounting and reporting standards applicable for all
non-governmental entities, with the exception of the SEC and its staff. The
Codification, which changes the referencing of financial standards, is effective
for interim or annual financial periods ending after September 15, 2009.
Therefore, in the third quarter of fiscal year 2009, all references made to US
GAAP will use the new Codification numbering system prescribed by the FASB. As
the Codification is not intended to change or alter existing US GAAP, it is not
expected to have any impact on the Company’s condensed consolidated financial
statements.
  NOTE
3 INVENTORIES
  Inventories
at June 30, 2009 and December 31, 2008 consisted of the following:
  2009
                    
                    
                    2008Raw
      materials
                    
                    $
                    108,852
                    
                    
                    $
                    328,607Work-in-progress
                    
                    
                    292,614
                    
                    
                    
                    342,303Finished
      goods
                    
                    
                    2,509,327
                    
                    
                    
                    3,064,317Total
      inventories
                    
                    $
                    2,910,793
                    
                    
                    $
                    3,735,227
  10
  NOTE
4 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. As of June
30, 2009 and December 31, 2008, short-term bank loans consisted of the
following:
  2009
                                    
                                    
                                    2008Bank
      loan, interest rate at 0.4455% per month,paid
      in full July 2009
                                    
                                    $
                                    1,465,000Bank
      loan, interest rate at 0.4455% per month,due
      August 15, 2009
                                    
                                    
                                    1,025,500Bank
      loan, interest rate at 0.4455% per month,due
      October 12, 2009
                                    
                                    
                                    732,500Bank
      loan, interest rate at 0.60225% per month,paid
      in full, February 2009
                                    
                                    
                                    
                                    
                                    
                                    $
                                    5,809,320Bank
      loan, interest rate at 0.48825% per month,paid
      in full, April 2009
                                    
                                    
                                    
                                    
                                    
                                    
                                    733,500Total
      bank loans
                                    
                                    $
                                    3,223,000
                                    
                                    
                                    $
                                    6,542,820
  On July
31, 2008, Goldenway entered into a two-year revolving line of credit agreement
with a PRC Bank, which allows the Company to borrow up to approximately $7.3
million (RMB50million). These borrowings are guaranteed by Jiangsu Ever-Glory
International Group Corp. (“Jiangsu
Ever-Glory”),
an entity controlled by Mr. Kang, the Company’s Chief Executive Officer. These
borrowings are also collateralized by the Company’s property and plant. As of
June 30, 2009, all bank loans are under this agreement and approximately $4
million was unused and available. The loan for $1,465,000 was repaid in
July 2009. Also in July 2009 the Company borrowed an additional $4,102,000 under
this agreement.
  The bank
loan for $733,500 that was due in December 2009 was collateralized by personal
property of Mr. Kang. This loan was repaid in April 2009.
  On June
30, 2009, HSBC bank approved a revolving credit facility amounting to $2.5
million to Perfect-Dream. The credit facility is guaranteed by the Company and
by a personal guarantee from Mr. Kang. On July 3, 2009, Ever-Glory Apparel
entered into a one-year revolving line of credit agreement for RMB40 million
(approximately $5.9 million) with Nanjing Bank. The revolving line of credit is
guaranteed by Jiangsu Ever-glory and by Goldenway.
  11
  Total
interest expense on bank loans amounted to $85,970, $75,487, $180,355 and
$144,346 for the three and six months ended June 30,2009 and 2008
respectively,
  NOTE
5 INCOME TAX
  PRC
Pre-tax income for the three and six months ended June 30, 2009 and 2008 was
taxable in the following jurisdictions.
  Three
      months ended
                    
                    
                    Six
      months endedJune
      30,
                    
                    
                    June
      30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008PRC
                    
                    $
                    1,452,153
                    
                    
                    $
                    2,252,166
                    
                    
                    $
                    3,391,050
                    
                    
                    $
                    4,383,252Others
                    
                    
                    (10,358
                    )
                    
                    
                    (618,673
                    )
                    
                    
                    (49,426
                    )
                    
                    
                    (1,264,759
                    )$
                    1,441,795
                    
                    
                    $
                    1,633,493
                    
                    
                    $
                    3,341,624
                    
                    
                    $
                    3,118,493
  The
Company’s operating subsidiaries are governed by the Income Tax Law of the PRC
concerning Foreign Investment Enterprises and Foreign Enterprises and various
local income tax laws (the “Income Tax Laws”).
  Beginning
January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the old laws
for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
(“FIEs”).
  The
key changes are:
  a.
              The
      new standard EIT rate of 25% replaces the 33% rate applicable to both DES
      and FIEs, except for High-Tech companies that pay a reduced rate of
      15%;
  b.
              Companies
      established before March 16, 2007 continue to enjoy tax holiday treatment
      approved by local governments for a grace period of either the next 5
      years, or until the tax holiday term is completed, whichever is
      sooner.
 
 Below is
a summary of the income tax rate for each of our PRC subsidiaries in 2008
and 2009.
  Goldenway
                    
                    
                    New-Tailun
                    
                    
                    Catch-Luck
                    
                    
                    LA GO GO
                    
                    
                    Ever-Glory Apparel2008
                    
                    
                    25.0
                    %
                    
                    
                    12.5
                    %
                    
                    
                    12.5
                    %
                    
                    
                    25.0
                    %
                    
                    
                    *2009
                    
                    
                    25.0
                    %
                    
                    
                    12.5
                    %
                    
                    
                    12.5
                    %
                    
                    
                    25.0
                    %
                    
                    
                    25.0
                    %
  *Ever-Glory
Apparel was established on January 6, 2009.
  Income
tax expense was $272,656, $284,809, $561,727, and $568,647 for the three and six
months ended June 30, 2009 and 2008 respectively.
  12
  The
following table reconciles the PRC statutory rates to the Company’s effective
tax rate for the three and six months ended June 30, 2009 and 2008:
  Three
      months ended
                    
                    
                    Six
      months endedJune
      30,
                    
                    
                    June
      30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008PRC
      Statutory Rate
                    
                    
                    25.0
                    
                    
                    
                    25.0
                    
                    
                    
                    25.0
                    
                    
                    
                    25.0Income
      tax exemption
                    
                    
                    (7.8
                    )
                    
                    
                    (12.9
                    )
                    
                    
                    (11.4
                    )
                    
                    
                    (12.0
                    )Other
                    
                    
                    1.6
                    
                    
                    
                    
                    
                    
                    
                    3.0Effective
      income tax rate
                    
                    
                    18.8
                    %
                    
                    
                    12.1
                    %
                    
                    
                    16.6
                    %
                    
                    
                    13.0
                    %
  Income
tax expense for the three and six months ended June 30, 2009 and 2008 is as
follows:
  For
      the three months ended June 30
                  
                  
                  For
      the six months ended June 302009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Current
                  
                  $
                  215,982
                  
                  
                  $
                  284,809
                  
                  
                  $
                  408,859
                  
                  
                  $
                  568,647Deferred
                  
                  
                  56,674
                  
                  
                  
                  -
                  
                  
                  
                  152,868
                  
                  
                  
                  -Income
      tax expense
                  
                  $
                  272,656
                  
                  
                  $
                  284,809
                  
                  
                  $
                  561,727
                  
                  
                  $
                  568,647
  13
  NOTE
6 EARNINGS PER SHARE
  Earnings
per share is calculated as follows:
  For
      the three months ended June 30
                  
                  
                  For
      the six months ended June 302009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      income attributable to the Company
                  
                  $
                  1,175,000
                  
                  
                  $
                  1,349,304
                  
                  
                  $
                  2,797,356
                  
                  
                  $
                  2,546,597Add:
      interest expense related to convertible notes
                  
                  
                  
                  
                  
                  
                  19,143
                  
                  
                  
                  
                  
                  
                  
                  45,985Subtract:
      Unamortized issuance costs and discount on convertible
    notes
                  
                  
                  
                  
                  
                  
                  (1,394,522
                  )
                  
                  
                  
                  
                  
                  
                  (1,394,522
                  )Adjusted
      net income (loss) for calculating EPS-diluted
                  
                  $
                  1,175,000
                  
                  
                  $
                  (26,075
                  )
                  
                  $
                  2,797,356
                  
                  
                  $
                  1,198,060Weighted
      average number of common stock – Basic
                  
                  
                  13,548,498
                  
                  
                  
                  11,710,865
                  
                  
                  
                  13,539,909
                  
                  
                  
                  11,580,273Effect
      of dilutive securities:Convertible
      notes
                  
                  
                  
                  
                  
                  
                  817,730
                  
                  
                  
                  
                  
                  
                  
                  711,452Weighted
      average number of common stock – Diluted
                  
                  
                  13,548,498
                  
                  
                  
                  12,528,595
                  
                  
                  
                  13,539,909
                  
                  
                  
                  12,291,725Earnings
      per share - basic
                  
                  $
                  0.09
                  
                  
                  $
                  0.12
                  
                  
                  $
                  0.21
                  
                  
                  $
                  0.22Earnings
      per share -diluted
                  
                  $
                  0.09
                  
                  
                  $
                  0.00
                  
                  
                  $
                  0.21
                  
                  
                  $
                  0.10
  At June
30, 2009, the Company had 913,182 warrants outstanding. For the three and six
months ended June 30, 2009, these outstanding warrants were excluded from the
diluted earnings per share calculation as they are anti-dilutive as the average
stock price was less than the exercise price of the warrants.  For the
three and six months ended June 30, 2008, the average stock price was greater
than the exercise prices of 968,163 warrants which resulted in additional
weighted average common stock equivalents of 817,730 and 711,452,
respectively.
  NOTE
7 STOCKHOLDERS’ EQUITY
  On March
13, 2009 and March 25, 2009, the Company issued an aggregate of 21,085 shares of
common stock to the Company’s three independent directors as compensation for
their services in the third and fourth quarters of 2008. The shares were valued
at $1.05 per share, being the average market price of the common stock for the
five trading days before the grant date.
 
 On April
28, 2009, the Company issued 1,153,846 shares of restricted common stock to a
related party as part of the consideration for the acquisition of
Catch-Luck.
  NOTE
8 RELATED PARTY TRANSACTIONS
  Mr. Kang
is the Company’s Chairman and Chief Executive Officer. Ever-Glory Hong Kong is
the Company’s major shareholder. All transactions associated with the following
companies controlled by Mr. Kang and Ever-Glory Hong Kong are considered to be
related party transactions. All related party outstanding balances are short-tem
in nature and are expected to be settled in cash.
  14


Sales
and Cost of Sales to Related Parties





The
Company sells products to Nanjing High-Tech Knitting & Weaving Technology
Development Co., Ltd (“Nanjing Knitting”), a company controlled by Ever-Glory
Hong Kong. Sales and related cost of sales in connection with Nanjing Knitting
for the three and six months ended June 30, 2009 and 2008 are as
follows:





Three months ended June 30
                    
                    
                    Six months ended June 302009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Sales
      to Nanjing Knitting
                    
                    $
                    9,351
                    
                    
                    $
                    67,461
                    
                    
                    $
                    9,351
                    
                    
                    $
                    492,563Cost
      of Sales
                    
                    $
                    9,013
                    
                    
                    $
                    58,636
                    
                    
                    $
                    9,013
                    
                    
                    $
                    461,384





Purchases of raw materials
and sub contractor agreements with Related Parties







For the
three and six months ended June 30 2009 and 2008, the Company purchased raw
materials of $102,504, $20,404, $356,149, and $690,949, respectively, from
Nanjing Knitting.





In
addition, the Company sub-contracted certain manufacturing work to related
companies totaling $677,007, $378,230, $903,658 and $390,648 for the three and
six months ended June 30, 2009 and 2008, respectively. The Company provided raw
materials to the sub-contractors and was charged a fixed fee for labor provided
by the sub-contractors.





Sub-contracts
with related parties included in cost of sales for the three and six months
ended June 30, 2009 and 2008 are as follows:





Three Months Ended
                                          June 30
                                        
                                        Six Months Ended
                                          June 302009
                                        
                                        2008
                                        
                                        2009
                                        
                                        2008Nanjing
      High-Tech Knitting & Weaving Technology Development Co.,
      Ltd
                                        
                                        $
                                        334,364
                                        
                                        
                                        $
                                        56,501
                                        
                                        
                                        $
                                        408,944
                                        
                                        
                                        $
                                        68,919Nanjing
      Ever-Kyowa Garment Washing Co., Ltd.,
                                        
                                        
                                        342,643
                                        
                                        
                                        
                                        321,729
                                        
                                        
                                        
                                        494,714
                                        
                                        
                                        
                                        321,729$
                                        677,007
                                        
                                        
                                        $
                                        378,230
                                        
                                        
                                        $
                                        903,658
                                        
                                        
                                        $
                                        390,648





Amounts Due From Related
Party




Jiangsu
Ever-Glory is an entity engaged in importing/exporting, apparel-manufacture,
real-estate development, car sales and other activities. Jiangsu Ever-Glory is
controlled by the Company’s Chief Executive Officer. Because of PRC government’s
restrictions on the Company’s ability to directly import and export products,
the Company utilizes Jiangsu Ever-Glory as its agent, to assist the Company with
its import and export transactions and its international transportation
projects. Import transactions primarily consist of purchases of raw materials
and accessories designated by the Company’s customers for use in garment
manufacture. Export transactions consist of the Company’s sales to foreign
markets such as Japan, Europe and the United States. As the Company’s agent,
Jiangsu Ever-Glory’s responsibilities include managing customs, inspection,
transportation, insurance and collections on behalf of the Company. Jiangsu
Ever-Glory also manages transactions denominated in currencies other than the
Chinese RMB at rates of exchange agreed between the Company and Jiangsu
Ever-Glory and based upon rates of exchange quoted by the People’s Bank of
China. In return for these services, Jiangsu Ever-Glory charges the Company a
fee of approximately 3% of export sales.  For import transactions, the
Company may make advance payments, through Jiangsu Ever-Glory, for the raw
material purchases, or Jiangsu Ever-Glory may make advance payments on the
Company’s behalf. For export transactions, accounts receivable for export sales
are remitted by the Company’s customers through Jiangsu Ever-Glory, who forwards
the payments to the Company. The Company and Jiangsu Ever-Glory have agreed that
balances from import and export transactions may be offset.  Amounts
due to (from) Jiangsu Ever-Glory are typically settled within 60-90 days.
Interest of 0.5% is charged on net amounts due at each month end. Interest
income for the three and six months ended June 30, 2009 and 2008 was $160,912,
$263,491, $45,197 and $75,464, respectively. Following is a summary of import
and export transactions for the six months ended June 30, 2009:


15




Accounts Receivable
                          
                          
                          Accounts Payable
                          
                          
                          NetAs
      of January 1,2009
                          
                          $
                          17,938,281
                          
                          
                          $
                          6,372,707
                          
                          
                          $
                          11,565,574Sales/Purchases
                          
                          $
                          35,278,609
                          
                          
                          $
                          17,810,230Payments
      Received/Made
                          
                          $
                          36,011,653
                          
                          
                          $
                          17,130,869As
      of June 30,2009
                          
                          $
                          17,205,237
                          
                          
                          $
                          7,052,068
                          
                          
                          $
                          10,153,169




Approximately
54.5% of the receivable balance at June 30, 2009 was settled by July 31,
2009.




Accounts Payable and Other
Payables – Related Parties




As of
June 30, 2009 and December 31, 2008, accounts payables and other payables due to
related parties were as follows:.




2009
                  
                  
                  2008Nanjing
      High-Tech Knitting & Weaving Technology Development Co.,
      Ltd
                  
                  $
                  9,592Ever-Glory
      Enterprise HK Limited
                  
                  
                  761,779
                  
                  
                  $
                  754,589Shanghai
      La Chapelle Garment and Accessories Company Limited
                  
                  
                  146,500Total
                  
                  $
                  917,871
                  
                  
                  $
                  754,589





The
Company purchases raw materials from and subcontracts some of its production to
related parties. Accounts payable to Nanjing Knitting was $9,592 at June 30,
2009.





As of
June 30, 2009, $200,000 was due for the purchase of Catch-Luck and $561,779 was
due for legal and professional fees paid by Ever-Glory Hong Kong on behalf of
the Company.


16


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





In
February 2009 LA GO GO borrowed $146,500 (RMB 1 million) from La Chapelle for
operations. This loan is interest free and due on demand. Management expects to
repay this loan in cash from operations within the next twelve
months.




Long-Term Liability –
Related Party





As of
June 30, 2009 and December 31, 2008 the Company owed $2,718,614 and $2,660,085,
respectively to Blue Power Holdings Limited, a company controlled by the
Company’s Chief Executive Officer, Mr. Kang. Interest is charged at 6% per annum
on the amounts due. The loans are due between July 2010 and April 2011. For the
three and six months ended June 30, 2009 and 2008, the Company incurred interest
expense of $29,264, $57,456, $58,529, and $116,571, respectively. The accrued
interest is included in the carrying amount of the loan in the accompanying
balance sheets.




NOTE
9 CONCENTRATIONS AND RISKS




The
Company extends unsecured credit to its customers in the normal course of
business and generally does not require collateral. As a result, management
performs ongoing credit evaluations, and the Company maintains an allowance for
potential credit losses based upon its loss history and its aging analysis.
Based on management’s assessment of the amount of probable credit losses, if
any, in existing accounts receivable, management has concluded that no allowance
for doubtful accounts is necessary at June 30, 2009 and December 31, 2008
.. Management reviews the allowance for doubtful accounts each reporting
period based on a detailed analysis of accounts receivable. In the analysis,
management primarily considers the age of the customer’s receivable and also
considers the credit worthiness of the customer, the economic conditions of the
customer’s industry, and general economic conditions and trends, among other
factors. If any of these factors change, the Company may also change its
original estimates, which could impact the level of the Company’s future
allowance for doubtful accounts.  If judgments regarding the
collectability of accounts receivable were incorrect, adjustments to the
allowance may be required, which would reduce profitability.





For the
six-month period ended June 30, 2009, the Company had one wholesale customer
that represented approximately 34% of the Company’s revenues. For the
three-month period ended June 30, 2009, the Company had one wholesale customer
that represented approximately 31% of the Company’s revenues.  At June
30, 2009, approximately 26% of accounts receivable were due from this customer.
For the six-month period ended June 30, 2008, the Company had two customers that
represented approximately 32% and 11% of the Company’s revenues, respectively
For the three-month period ended June 30, 2008, the Company had one customer
that represented approximately 33% of the Company’s revenues. At June 30,
2008, approximately 30% of accounts receivable were due from this
customer.





With
respect to the Company’s wholesale business, during the three and six months
ended June 30, 2009 and 2008 no supplier represented more than 10% of the total
raw materials purchases.


17


The
Company’s retail business LA GO GO, purchased 11% of its raw materials from one
supplier during the six months ended June 30, 2009 and no one supplier supplied
more than 10% of raw materials during the three months ended June 30,
2009.





With
respect to the wholesale business, during the three months ended June 30, 2009
and 2008, the Company relied on one manufacturer for 18% and 21% of purchased
finished goods, respectively. During the six months ended June 30, 2009 and
2008, the Company relied on one manufacturer for 20% and 16% of purchased
finished goods, respectively.





With
respect to the retail business, during the three months ended June 30, 2009 and
2008, the Company relied on two manufacturers for 16% and 17% of purchased
finished goods, respectively. During the six months ended June 30, 2009 and
2008, the Company relied on two manufacturers for 12% each of purchased finished
goods.





The
Company’s revenue for the three and six months ended June 30, 2009 and 2008 were
earned in the following geographic areas:




Three months ended June 30
                      
                      
                      Six months ended June 302009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008The
      People’s republic of China
                      
                      $
                      2,778,644
                      
                      
                      $
                      2,154,952
                      
                      
                      $
                      6,127,694
                      
                      
                      $
                      4,070,295Europe
                      
                      
                      12,239,668
                      
                      
                      
                      14,279,799
                      
                      
                      
                      23,477,126
                      
                      
                      
                      27,253,854Japan
                      
                      
                      2,551,998
                      
                      
                      
                      3,313,527
                      
                      
                      
                      7,241,702
                      
                      
                      
                      5,813,499United
      States
                      
                      
                      3,555,184
                      
                      
                      
                      4,320,119
                      
                      
                      
                      4,786,794
                      
                      
                      
                      6,677,957Total
                      
                      $
                      21,125,494
                      
                      
                      $
                      24,068,397
                      
                      
                      $
                      41,633,316
                      
                      
                      $
                      43,815,605




NOTE
10 SEGMENTS




The
Company reports financial and operating information in the following two
segments:




(a)  Wholesale
segment




(b)  Retail
segment




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


18




Wholesale
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        Corporate
    andsegment
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        Retail segment
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        others
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        TotalSix months ended June 30,
      2009Segment profit or
      loss:Net revenue from external
      customers
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        37,058,183
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        4,565,782
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        -
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        41,623,965Net revenue from related
      parties
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        9,351
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        9,351Income from
      operations
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        3,309,516
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (48,121
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        9,102
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        3,270,497Interest
    income
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        264,686
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        341
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        1
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        265,028Interest
      expense
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        180,355
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        58,529
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        238,884Depreciation and
      amortization
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        503,338
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        483,803
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        987,141Income tax
      expense
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        561,727
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        -
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        561,727Segment
    assets:Additions to property, plant and
      equipment
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        62,943
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        59,936
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        122,879Total
assets
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        50,164,239
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        4,114,506
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        46,622,794
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        100,901,539Six months ended June
      30,2008Segment profit or
      loss:Net revenue from external
      customers
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        42,950,044
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        372,998
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        -
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        43,323,042Net revenue from related
      parties
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        492,563
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        492,563Income from
      operations
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        4,385,586
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        8,458
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (200,246
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        4,193,798Interest
    income
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        78,095
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        2,374
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        95
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        80,564Interest
      expense
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        144,346
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        1,064,608
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        1,208,954Depreciation and
      amortization
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        381,239
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        441
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        381,680Income tax
      expense
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        565,939
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        2,708
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        568,647Segment
    assets:Additions to property, plant and
      equipment
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        332,948
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        24,747
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        357,695Total
assets
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        42,650,247
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        2,527,329
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        38,183,709
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        83,361,285The reconciliations of segment
      information to the Company’s consolidated totals were as
      follows:June
      30,2009
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        June
      30,2008Revenues:Total reportable
      segments
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        41,633,316
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        43,815,605Elimination of intersegment
      revenues
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        -Total
      consolidated
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        41,633,316
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        43,815,605Income (loss) from
      operations:Total
    segments
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        3,270,497
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        4,193,798Elimination of intersegment
      profits
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        -
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        -Total
      consolidated
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        3,270,497
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        4,193,798Total
    assets:Total
    segments
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        100,901,539
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        83,361,285Elimination of intersegment
      receivables
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (53,768,652
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (41,289,027
                                                                                                                                                                        )Total
      consolidated
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        47,132,887
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        42,072,258




19




Wholesale
      segment
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  Retail
    segment
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  Corporate and
      others
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  TotalThree months ended June
      30,2009Segment profit or
      loss:Net revenue from external
      customers
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  19,082,560
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,033,583
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  21,116,143Net revenue from related
      parties
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  9,351
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  9,351Income from
      operations
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,350,468
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (16,436
                                                                                                                                                  )
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  18,906
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,352,938Interest
    income
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  161,458
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  23
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  161,481Interest
      expense
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  85,970
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  29,264
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  115,234Depreciation and
      amortization
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  252,462
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  250,674
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  503,136Income tax
      expense
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  272,656
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  272,656Segment
    assets:Additions to property, plant and
      equipment
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  10,218
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  58,617
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  68,835Total
assets
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  50,164,239
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  4,114,506
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  46,622,794
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  100,901,539Three months ended June
      30,2008Segment profit or
      loss:Net revenue from external
      customers
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  23,650,038
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  252,800
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  23,902,838Net revenue from related
      parties
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  67,461
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  67,461Income from
      operations
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,230,418
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (4,440
                                                                                                                                                  )
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (63,034
                                                                                                                                                  )
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,162,944Interest
    income
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  46,214
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,374
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  48,590Interest
      expense
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  75,487
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  555,639
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  631,126Depreciation and
      amortization
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  194,791
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  441
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  195,232Income tax
      expense
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  285,325
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (516
                                                                                                                                                  )
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  284,809Segment
    assets:Additions to property, plant and
      equipment
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  253,788
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  19,574
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  273,362Total
assets
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  42,650,247
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,527,329
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  38,183,709
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  83,361,285The reconciliations of segment
      information to the Company’s consolidated totals were as
      follows:June
30,2009
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  June
30,2008Revenues:Total reportable
      segments
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  21,125,494
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  23,970,299Elimination of intersegment
      revenues
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  98,098Total
      consolidated
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  21,125,494
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  24,068,397Income (loss) from
      operations:Total
    segments
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,352,938
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,162,944Elimination of intersegment
      profits
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  -Total
      consolidated
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,352,938
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,162,944Total
    assets:Total
    segments
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  100,901,539
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  83,361,285Elimination of intersegment
      receivables
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (53,768,652
                                                                                                                                                  )
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (41,289,027
                                                                                                                                                  )Total
      consolidated
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  47,132,887
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  42,072,258


NOTE
11 SUBSEQUENT EVENT




On July
16, 2009, the Company issued 11,742 shares of common stock to the Company’s
three independent directors as compensation for their services in the first and
second quarters of 2009. The shares were valued at $1.86 per share, being the
average market price of the common stock for the five trading days prior to the
June 30, 2009 grant date.




20




ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





The
following discussion and analysis of our financial condition and results of
operations for the three and six months ended June 30, 2009 should be read in
conjunction with the Financial Statements and corresponding notes included in
this Quarterly Report on Form 10-Q. 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.




Overview




Our
Business




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


We
classify our businesses into two segments: wholesale and retail. Our wholesale
business consists of wholesale-channel sales made principally to established
brands, department stores and specialty stores located throughout Europe, the
U.S., Japan and the People’s Republic of China (PRC). We have a focus on
well-known, middle-to-high grade casual wear, sportswear, and outerwear brands.
Our retail business which consists of retail-channel sales directly to consumers
through full-price retail stores located throughout the PRC.


Although
we have our own manufacturing facilities, we currently outsource most of the
manufacturing to our strategic alliances as part of our overall business
strategy.  Outsourcing allows us to maximize our production capacity
and maintain flexibility while reducing capital expenditures and the costs of
keeping skilled workers on production lines during low season. Our management
oversees the long-term contractors and inspects products manufactured by them to
ensure that they meet our high quality control standards and timely delivery.
Our annual production capacity including outsourcing orders is in excess of 12
million pieces.


On
January 6, 2009, we established Ever-Glory International Group Apparel Inc.
(“Ever-Glory Apparel”) a wholly owned subsidiary of Goldenway. Ever-Glory
Apparel is principally engaged in the import and export of apparel, fabric and
accessories. In order to reduce related transaction, we have been gradually
shifting our export and logistics business to Ever-glory Apparel step-by-step,
We previously utilizes our affiliate Jiangsu Ever-Glory International Group
Corporation to provide export and logistics services to us.


On March
23, 2009, Goldenway transferred all of its ownership interest in LA GO GO as
described below to Ever-Glory Apparel





Wholesale
Business




We
conduct our original design manufacturing (ODM) operations through four
wholly-owned subsidiaries which are located in the Nanjing Jiangning Economic
and Technological Development Zone and Shang Fang Town in the Jiangning District
in Nanjing, China: Ever-Glory International Group Apparel Inc. (“Ever-Glory
Apparel”), Goldenway Nanjing Garments Company Limited (“Goldenway”), Nanjing
New-Talent Garments Company Limited (“New Talent”), and Nanjing Catch-Luck
Garments Co., Ltd. (“Catch-Luck”).




21




Retail
Business




We
conduct our retail operations through Shanghai LA GO GO Fashion Company Limited
(“LA GO GO”), a joint venture of Ever-Glory Apparel and Shanghai La Chapelle
Garment and Accessories Company Limited, located in Shanghai, China. The
business objective of the joint venture is to establish a leading brand of
ladies’ garments and to build a retail and wholesale distribution channel for
the mainland Chinese market.


Below is
a summary of our store statistics:




2Q2008
                          
                          
                          
                          3Q2008
                          
                          
                          FY2008
                          
                          
                          
                          1Q2009
                          
                          
                          
                          2Q2009Total
      stores
                          
                          
                          39
                          
                          
                          
                          55
                          
                          
                          
                          93
                          
                          
                          
                          102
                          
                          
                          
                          130Total
      square meters
                          
                          
                          3,207
                          
                          
                          
                          5,513
                          
                          
                          
                          7,876
                          
                          
                          
                          9,032
                          
                          
                          
                          11,301Sales
      per square meter per month
                          
                          $
                          51
                          
                          
                          $
                          78
                          
                          
                          $
                          137
                          
                          
                          $
                          125
                          
                          
                          $
                          73




Business
Objectives




We
believe the strength of our wholesale business is due to our consistent emphasis
on innovative and distinct product designs with exceptional styling and quality.
We maintain long-term relationships with a portfolio of well-known, middle to
higher class global brands, a strong and experienced management team and a
proven ability to design, market and distribute our own brand through
fast-growing retail channels in a highly populated country.




Wholesale
Business




The
primary business objective for our wholesale segment is to expand our portfolio
into higher class brands, expand our customer base and improve margins.
Opportunities and continued investment initiatives include:


·
            Expand
      the global sourcing network;


·
            Invest
      in the overseas low-cost manufacturing
base;


·
            Focus
      on value and continue our Average Selling Price
  uptrend;


·
            Emphasize
      product design and new technology utilization;
  and


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




Retail
Business




The
business objective for our retail segment is to establish and create a leading
brand of women’s apparel and to build a nationwide retail distribution channel
in China. As of June 30, 2009 we operate 130 stores. In the first half of 2009
we opened 38 stores and expect to open between 80-100 stores in total during
2009. To date, we have only closed one location. Opportunities and continued
investment initiatives include:


·
            Becoming
      a multi-brand operator;


·
            Build
      the LA GO GO brand to become a major Chinese mid-end mass market in
      women's wear;


·
            Seek
      opportunities for long-term cooperation with reputable international
      brands to sell in our locations;


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


·
            Expand
      the LA GO GO retail network;


·
            Improve
      the LA GO GO retail store efficiency and increase same store
      sales;


·
            Strengthen
      the LA GO GO brand promotion; and


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


22


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





Seasonality
of Business




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




Collection
Policy




Wholesale
business




For our
new customers, we generally require orders placed to be backed by letters of
credit. For our long-term and established customers with a good payment track
record, we generally provide payment terms between 30 to 120 days following
delivery of finished goods.




Retail
business




For
store-in-store shops, we generally receive payments from the stores between
60-90 days following the time of register receipt. For our own stores, we
receive payments at the same time as register receipt.




Global
Economic Uncertainty




Our
business is dependent on consumer demand for our products. We believe that the
significant uncertainty in the global economy and a slowdown in the U.S. and the
European economy have increased our clients’ sensitivity to the cost of our
products as reflected in our revenues for the three and six months ended June
30, 2009 when compared to the same periods in 2008. We have experienced
continued pricing pressure this year. If the global economic environment
continues to be weak, these worsening economic conditions could have a negative
impact on our sales growth and operating margins in our wholesale
segment  this year.


In
addition, economic conditions in the United States and in foreign markets in
which we operate could substantially affect our sales and profitability and our
cash position and collection of accounts receivable.  Global credit
and capital markets have experienced unprecedented volatility and disruption.
Business credit and liquidity have tightened in much of the world. Some of our
suppliers and customers may face credit issues and could experience cash flow
problems and other financial hardships. These factors currently have not had an
impact on the timeliness of receivable collections from our customers. We cannot
predict at this point in time how this situation will develop and whether
accounts receivable may need to be allowed or  written off in the
coming quarter.




Summary
of Critical Accounting Policies




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




Revenue
Recognition




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


23


Estimates
and Assumptions




In
preparing our consolidated financial statements, we use estimates and
assumptions that affect the reported amounts and disclosures. Our estimates are
often based on complex judgments, probabilities and assumptions that we believe
to be reasonable, but that are inherently uncertain and unpredictable. We are
also subject to other risks and uncertainties that may cause actual results to
differ from estimated amounts. Significant estimates in 2009 and 2008 include
the estimated residual value and useful lives of property and equipment, and the
assumptions we made when we used the Black-Scholes option price model to value
the warrants granted.




Inventory




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


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




Recent
Accounting Pronouncements




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


In
December 2007, the FASB issued SFAS No. 141(revised 2007), “Business
Combinations” (“SFAS 141(R)”), which addresses the accounting and disclosure for
identifiable assets acquired, liabilities assumed, and noncontrolling interests
in a business combination. In April 2009, FASB issued FASB Staff Position
No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed
in a Business Combination That Arise from Contingencies” (“FSP FAS 141(R)-1”),
which amended certain provisions of SFAS 141(R) related to the recognition,
measurement, and disclosure of assets acquired and liabilities assumed in a
business combination that arise from contingencies. We adopted SFAS 141(R) and
FSP FAS 141(R)-1 on January 1, 2009. Adoption of this standard did not have a
material impact on our condensed consolidated financial statements, as we did
not enter into a business combination during the six months ended June 30,
2009.


In April
2009, the FASB issued FSP SFAS 107-1 and APB 28-1, "Interim
Disclosures about Fair Value of Financial Instruments", or FSP 107-1, which
requires that the fair value disclosures required for all financial instruments
within the scope of SFAS 107, "Disclosures about Fair Value of Financial
Instruments", be included in interim financial statements. This FSP also
requires entities to disclose the method and significant assumptions used to
estimate the fair value of financial instruments on an interim and annual basis
and to highlight any changes from prior periods. FSP 107-1 was effective for
interim periods ending after June 15, 2009, with early adoption permitted. The
adoption of FSP 107-1 did not have a material impact on our condensed
consolidated financial statements.


24





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”), which addresses the accounting and reporting framework for noncontrolling
interests by a parent company. SFAS 160 also addresses disclosure requirements
to distinguish between interests of the parent and interests of the
noncontrolling owners of a subsidiary. SFAS 160 became effective in the first
quarter of 2009, which resulted in reporting noncontrolling interest as a
component of equity in the condensed consolidated balance sheets and below
income tax expense in the condensed consolidated statements of operations. In
addition, the provisions of SFAS 160 require that minority interest be renamed
noncontrolling interests and that a company present a consolidated net income
measure that includes the amount attributable to such noncontrolling interests
for all periods presented. We adopted SFAS 160 on January 1, 2009. As a result,
we has reclassified financial statement line items within the our condensed
consolidated balance sheets and statements of operations and comprehensive
income for the prior periods to conform with this standard.


In June
2009, the FASB approved its Accounting Standards Codification, or Codification,
as the single source of authoritative United States accounting and reporting
standards applicable for all non-governmental entities, with the exception of
the SEC and its staff. The Codification, which changes the referencing of
financial standards, is effective for interim or annual financial periods ending
after September 15, 2009. Therefore, in the third quarter of fiscal year 2009,
all references made to US GAAP will use the new Codification numbering system
prescribed by the FASB. As the Codification is not intended to change or alter
existing US GAAP, it is not expected to have any impact on our condensed
consolidated financial statements.





Results
of Operations for the three months ended June 30, 2009





The
following table summarizes our results of operations for the three months ended
June 30, 2009 and 2008. The table and the discussion below should be read in
conjunction with the consolidated financial statements and the notes thereto
appearing elsewhere in this report.




Three months ended June 302009
                                              
                                              
                                              2008(in
      U.S. Dollars, except for percentages)Sales
                                              
                                              $
                                              21,125,494
                                              
                                              
                                              
                                              100.0
                                              %
                                              
                                              $
                                              24,068,397
                                              
                                              
                                              
                                              100.0
                                              %Gross
      Profit
                                              
                                              $
                                              4,507,561
                                              
                                              
                                              
                                              21.3
                                              
                                              
                                              $
                                              4,353,837
                                              
                                              
                                              
                                              18.1Operating
      Expenses
                                              
                                              $
                                              3,154,623
                                              
                                              
                                              
                                              14.9
                                              
                                              
                                              $
                                              2,190,893
                                              
                                              
                                              
                                              9.1Income
      From Operations
                                              
                                              $
                                              1,352,938
                                              
                                              
                                              
                                              6.4
                                              
                                              
                                              $
                                              2,162,944
                                              
                                              
                                              
                                              9.0Other
      Income (Expenses)
                                              
                                              $
                                              88,857
                                              
                                              
                                              
                                              0.4
                                              
                                              
                                              $
                                              (529,451
                                              )
                                              
                                              
                                              (2.2
                                              )Income
      Tax Expense
                                              
                                              $
                                              272,656
                                              
                                              
                                              
                                              1.3
                                              
                                              
                                              $
                                              284,809
                                              
                                              
                                              
                                              1.2Net
      Income
                                              
                                              $
                                              1,169,139
                                              
                                              
                                              
                                              5.5
                                              %
                                              
                                              $
                                              1,348,684
                                              
                                              
                                              
                                              5.6
                                              %




Revenue


The
following table sets forth a breakdown of our total sales, by region, for the
three months ended June 30, 2009 and 2008.


25




Three months
                          ended June
                          30,2009
                        
                        
                        % of total
                          sales
                        
                        
                        Three months
                          ended June
                          30,2008
                        
                        
                        % of total
                          sales
                        
                        
                        Growth(Decrease) in
                          2009 compared with
                          2008Wholesale
      businessThe
      People’s Republic of China
                        
                        $
                        746,939
                        
                        
                        
                        3.5
                        %
                        
                        $
                        1,902,952
                        
                        
                        
                        7.9
                        %
                        
                        
                        (60.7
                        )%Europe
                        
                        
                        12,239,668
                        
                        
                        
                        57.9
                        %
                        
                        
                        14,279,241
                        
                        
                        
                        59.3
                        %
                        
                        
                        (14.3
                        )Japan
                        
                        
                        2,551,999
                        
                        
                        
                        12.1
                        %
                        
                        
                        3,313,527
                        
                        
                        
                        13.8
                        %
                        
                        
                        (23.0
                        )United
      States
                        
                        
                        3,555,184
                        
                        
                        
                        16.8
                        %
                        
                        
                        4,320,119
                        
                        
                        
                        17.9
                        %
                        
                        
                        (17.7
                        )Sub
      total
                        
                        
                        19,093,790
                        
                        
                        
                        90.4
                        %
                        
                        
                        23,815,839
                        
                        
                        
                        99.0
                        %
                        
                        
                        (19.8
                        )Retail
      business
                        
                        
                        2,031,704
                        
                        
                        
                        9.6
                        %
                        
                        
                        252,558
                        
                        
                        
                        1.0
                        %
                        
                        
                        704.5Total
                        
                        $
                        21,125,494
                        
                        
                        
                        100.0
                        %
                        
                        $
                        24,068,397
                        
                        
                        
                        100.0
                        %
                        
                        
                        (12.2
                        )%





We
generate revenues primarily from our wholesale business mainly from
international markets. We also generate revenues from our retail business from
the Chinese domestic market focusing on our own apparel brand: LA GO
GO.


Total
sales for the three months ended June 30, 2009 were $21,125,494, a decrease of
12.2% from the three months ended June 30, 2008. Although sales in our retail
business increased significantly during the second quarter of 2009, sales in our
wholesale business decreased 19.8% due to the global economic
slowdown.


Sales to
customers in Europe were $12.2 million or, 57.9% of our total sales for the
three months ended June 30, 2009, a decrease of 14.3% compared to the three
months ended June 30, 2008. The decrease was primarily due to one major customer
reducing its orders because of the weak economic environment.





Sales to
customers in the U.S. were $3.6 million, or 16.8%, of our total sales for the
three months ended June 30, 2009, a decrease of 17.7% compared to the three
months ended June 30, 2008. Although one customer in the U.S. increased orders
significantly during the quarter, two customers reduced their orders because of
the weak economic environment.





Sales to
customers in Japan were $2.6 million, or 12.1%, of our total sales for the three
months ended June 30, 2009, a decrease of 23.0% compared to the three months
ended June 30, 2008. The decrease was due to decreased orders from one customer
in the Japanese market in the quarter as more orders were shipped in the first
quarter of this year.


Sales to
customers in the Chinese market were $0.75 million, or 3.5% of our total sales
for the three months ended June 30, 2009, a decrease of 60.7% compared to the
three months ended June 30, 2008. The decrease was attributable to fewer orders
from existing customers in Hong Kong who resell to customers in the
U.S.


Sales
generated from our retail business contributed 9.6% or $2.0 million of our total
sales for the three months ended June 30, 2009, compared to $0.25 million in the
three months ended June 30, 2008. In the second quarter of 2009 we opened 29 new
LA GO GO stores and closed one store.





Costs
and Expenses


Cost of
Sales and Gross Margin


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





The
following table sets forth the components of our cost of sales and gross profit
both in amounts and as a percentage of total sales for the three months ended
June 30, 2009 and 2008.


26




Three Months Ended June
      30,
                          
                          
                          Growth(Decrease)2009
                          
                          
                          2008
                          
                          
                          2009
      compared with(in
      U.S. dollars, except for percentages)
                          
                          
                          2008Wholesale
      sales
                          
                          $
                          19,093,790
                          
                          
                          
                          100.0
                          %
                          
                          $
                          23,815,839
                          
                          
                          
                          100.0
                          %
                          
                          
                          (19.8
                          )%Raw
      Materials
                          
                          
                          8,891,599
                          
                          
                          
                          46.6
                          
                          
                          
                          11,513,573
                          
                          
                          
                          48.3
                          
                          
                          
                          (22.8
                          )Labor
                          
                          
                          827,463
                          
                          
                          
                          4.3
                          
                          
                          
                          778,921
                          
                          
                          
                          3.3
                          
                          
                          
                          6.2Outsourced
      Production Costs
                          
                          
                          5,547,458
                          
                          
                          
                          29.1
                          
                          
                          
                          7,071,341
                          
                          
                          
                          29.7
                          
                          
                          
                          (21.6
                          )Other
      and Overhead
                          
                          
                          230,296
                          
                          
                          
                          1.2
                          
                          
                          
                          268,473
                          
                          
                          
                          1.1
                          
                          
                          
                          (14.2
                          )Total
      Cost of Sales for Wholesale
                          
                          
                          15,496,817
                          
                          
                          
                          81.2
                          
                          
                          
                          19,632,308
                          
                          
                          
                          82.4
                          
                          
                          
                          (21.1
                          )Gross
      Profit for Wholesale
                          
                          
                          3,596,973
                          
                          
                          
                          18.8
                          
                          
                          
                          4,183,531
                          
                          
                          
                          17.6
                          
                          
                          
                          (14.0
                          )Net
      Sales for Retail
                          
                          
                          2,031,704
                          
                          
                          
                          100.0
                          
                          
                          
                          252,558
                          
                          
                          
                          100.0
                          
                          
                          
                          704.5Production
      Costs
                          
                          
                          454,874
                          
                          
                          
                          22.4
                          
                          
                          
                          82,252
                          
                          
                          
                          32.6
                          
                          
                          
                          453.0Rent
                          
                          
                          666,243
                          
                          
                          
                          32.8
                          
                          
                          
                          0
                          
                          
                          
                          0.0Total
      Cost of Sales for Retail
                          
                          
                          1,121,116
                          
                          
                          
                          55.2
                          
                          
                          
                          82,252
                          
                          
                          
                          32.6
                          
                          
                          
                          1,263.0Gross
      Profit for Retail
                          
                          
                          910,588
                          
                          
                          
                          44.8
                          
                          
                          
                          170,306
                          
                          
                          
                          67.4
                          
                          
                          
                          434.7Total
      Cost of Sales
                          
                          
                          16,617,933
                          
                          
                          
                          78.7
                          
                          
                          
                          19,714,560
                          
                          
                          
                          81.9
                          
                          
                          
                          (15.7
                          )Gross
      Profit
                          
                          $
                          4,507,561
                          
                          
                          
                          21.3
                          %
                          
                          $
                          4,353,837
                          
                          
                          
                          18.1
                          %
                          
                          
                          3.5
                          %




There are
two operational patterns in our apparel making and trading business i.e. CMT and
FOB as they are generally called. Under the CMT(abbreviation of Cutting, Making
and Trim) mode, our buyers supply us with main raw materials, and we charge
them for production, where the pressure of cash flow is alleviated and
risks are reduced. Because no material supplied by the buyers is included
in the pricing, only production charges account for the sales volume.
As a result the sales volume appears low while the gross profit is higher. FOB
is a generally adopted business mode where the price is composed of both raw
material and production charges.


Total raw
materials costs decreased 22.8% to $8.9 million in the quarter ended June 30,
2009 versus $11.5 million in the quarter ended June 30, 2008. As a percent of
sales, raw materials cost for our wholesale business accounted for 46.6% of our
total wholesale sales in the three months ended June 30, 2009, a decrease of 170
basis points compared to the three months ended June 30, 2008. This decrease was
primarily due to our recently implemented centralized purchasing function to
increase our negotiating power with our raw material suppliers. In addition, raw
material costs decreased as we increased our CMT orders during the
quarter.





Total
labor costs increased 6.2% to $0.83 million in the three months ended June 30,
2009 versus $0.78 million in the three months ended June 30, 2008. As a percent
of sales, labor costs for our wholesale business accounted for 4.3% of our total
wholesale sales in the three months ended June 30, 2009, an increase of 100
basis points compared to the three months ended June 30, 2008. This increase was
primarily due to increased CMT orders during the quarter.


Total
outsourced production costs decreased 21.6% to $5.5 million in the three months
ended June 30, 2009 versus $7.1 million in the three months ended June 30, 2008.
This decrease was primarily due to decreased sales during the quarter. As a
percent of sales, outsourced production costs for our wholesale business
accounted for 29.1% of our total sales in the three months ended June 30, 2009,
a decrease of 60 basis points compared to the three months ended June 30,
2008.


Total
other costs and overhead decreased 14.2% to $0.23 million in the three months
ended June 30, 2009 versus $0.27 million the three months ended June 30, 2008.
As a percent of sales, overhead and other expenses for our wholesale business
accounted for 1.2% of our total sales in the three months ended June 30, 2009, a
modest increase compared to the three months ended June 30,
2008.


27


Production
costs for our retail business were $0.45 million or 22.4% of our total retail
sales in the three months ended June 30, 2009. Rent costs for our retail
business were $0.67 million or 32.8% of our total retail sales in the three
months ended June 30, 2009. A quarter over quarter comparison is not meaningful
as the retail operation was only a small part of the business in the second
quarter of 2008.


Total
cost of sales for the three months ended June 30, 2009 was $16.6 million, a
decrease of 15.7% compared to the three months ended June 30, 2008. As a
percentage of total sales, our cost of sales decreased to 78.7% of total sales
for the three months ended June 30, 2009, compared to 81.9% of total sales in
the three months ended June 30, 2008. Consequently, gross margins increased to
21.3% for the three months ended June 30, 2009 from 18.1% in the three months
ended June 30, 2008.





Gross
profit in our wholesale business for the three months ended June 30, 2009 was
$3.6 million, a decrease of 14.1% compared to the three months ended June 30,
2008. Gross margin was 18.8% for our wholesale business for the three months
ended June 30, 2009 an increase of 1.2% compared to the three months ended June
30, 2008. The increase in our gross margin was primarily due to the increase in
CMT orders versus FOB orders in the three months ended June 30, 2009 compared to
the three months ended June 30, 2008.


Gross
profit in our retail business for the three months ended June 30, 2009 was $0.90
million and gross margin was 44.8%. A year over year comparison for retail is
not meaningful given that this business was only a small part of the business in
the second quarter of 2008.




Selling,
General and Administrative (SG&A) Expenses


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





Our
general and administrative (G&A) expenses consist primarily of payroll for
executive, finance, accounting, and human resources personnel, office expenses
and professional fees.




For
      the three months ended June 30,
                      
                      
                      Increase2009
                      
                      
                      2008
                      
                      
                      (Decrease)(in
      U.S. Dollars, except for percentages)Gross
      Profit
                      
                      $
                      4,507,561
                      
                      
                      
                      21.3
                      %
                      
                      $
                      4,353,837
                      
                      
                      
                      18.1
                      %
                      
                      
                      3.53
                      %Operating
      Expenses:Selling
      Expenses
                      
                      
                      865,341
                      
                      
                      
                      4.1
                      
                      
                      
                      368,564
                      
                      
                      
                      1.5
                      
                      
                      
                      134.79General
      and Administrative Expenses
                      
                      
                      2,289,282
                      
                      
                      
                      10.8
                      
                      
                      
                      1,822,329
                      
                      
                      
                      7.6
                      
                      
                      
                      25.62Total
                      
                      
                      3,154,623
                      
                      
                      
                      14.9
                      
                      
                      
                      2,190,893
                      
                      
                      
                      9.1
                      
                      
                      
                      43.99Income
      from Operations
                      
                      $
                      1,352,938
                      
                      
                      
                      6.4
                      %
                      
                      
                      2,162,944
                      
                      
                      
                      9.0
                      %
                      
                      
                      (37.45
                      )%




Selling
expenses were $0.87 million in the three months ended June 30, 2009 an increase
of 134.8% or $0.50 million compared to the three months ended June 30, 2008. The
increase was attributable to increased salaries for retail staff of $0.28
million and $0.32 million of renovation and marketing expenses associated with
the promotion of LA GO GO.


G&A
expenses were $2.3 million in the three months ended June 30, 2009 an increase
of 25.6% or $0.47 million compared to the three months ended June 30, 2008. The
increase was partially due to increased payroll for additional management,
design and marketing staff as a result of our business expansion.




Income
from Operations


Income
from operations decreased 37.4% to $1.4 million for the three months ended June
30, 2009 from $2.2 million in three months ended June 30, 2008.


28


Interest
Expense


Interest
expense was $0.12 million for the three months ended June 30, 2009, a decrease
of 81.7% compared to the same period of 2008. This decrease was mainly due to
the conversion of convertible notes into common stock in 2008.




Income
Tax Expenses


Income
tax expense was $0.27 million for the three months ended June 30, 2009 a slight
decrease compared to the same period of 2008.


Our PRC
subsidiaries are governed by the Income Tax Law of the PRC concerning Foreign
Investment Enterprises and Foreign Enterprises and various local income tax laws
(“the Income Tax Laws”). Each of our consolidating entities files its own
separate tax return.





Below is
a summary of the income tax rate for each of our PRC subsidiaries in 2008 and
2009.





Goldenway
                  
                  
                  New-Tailun
                  
                  
                  Catch-Luck
                  
                  
                  LA GO GO
                  
                  
                  Ever-Glory Apparel2008
                  
                  
                  25.0
                  %
                  
                  
                  12.5
                  %
                  
                  
                  12.5
                  %
                  
                  
                  25.0
                  %
                  
                  
                  *2009
                  
                  
                  25.0
                  %
                  
                  
                  12.5
                  %
                  
                  
                  12.5
                  %
                  
                  
                  25.0
                  %
                  
                  
                  25.0
                  %




*Ever-Glory
Apparel was established on January 6, 2009.





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





Ever-Glory
International Group Inc. was incorporated in the United States and has incurred
net operating losses for income tax purposes through June 30, 2009. The net
operating loss carry forwards for United States income taxes may be available to
reduce future years’ taxable income. These carry forwards will expire, if not
utilized, through 2029. 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.





Net
Income


Net
income was $1.2 million for the three months ended June 30, 2009, a decrease of
13.3% compared to the three months ended June 30, 2008. Our diluted earnings per
share were $0.09 and $0.00 for the three months ended June 30, 2009 and 2008,
respectively.





Results
of Operations for the six months ended June 30, 2009




The
following table summarizes our results of operations for the six months ended
June 30, 2009 and 2008. The table and the discussion below should be read in
conjunction with the consolidated financial statements and the notes thereto
appearing elsewhere in this report.


29




Six
      months ended June 302009
                        
                        
                        2008(in
      U.S. Dollars, except for percentages)Sales
                        
                        $
                        41,633,316
                        
                        
                        
                        100.0
                        %
                        
                        $
                        43,815,605
                        
                        
                        
                        100.0
                        %Gross
      Profit
                        
                        $
                        9,221,716
                        
                        
                        
                        22.1
                        
                        
                        $
                        8,074,873
                        
                        
                        
                        18.4Operating
      Expenses
                        
                        $
                        5,951,219
                        
                        
                        
                        14.3
                        
                        
                        $
                        3,881,075
                        
                        
                        
                        8.9Income
      From Operations
                        
                        $
                        3,270,497
                        
                        
                        
                        7.9
                        
                        
                        $
                        4,193,798
                        
                        
                        
                        9.6Other
      Income(Expenses)
                        
                        $
                        71,127
                        
                        
                        
                        0.2
                        
                        
                        $
                        (1,075,305
                        )
                        
                        
                        (2.5
                        )Income
      Tax Expense
                        
                        $
                        561,727
                        
                        
                        
                        1.3
                        
                        
                        $
                        568,647
                        
                        
                        
                        1.3Net
      Income
                        
                        $
                        2,779,897
                        
                        
                        
                        6.7
                        %
                        
                        $
                        2,549,846
                        
                        
                        
                        5.8
                        %




Revenue




The
following table sets forth a breakdown of our total sales, by region, for the
six months ended June 31, 2009 and 2008.




Six
      months
                    ended
      June
                    30,2009
                  
                  
                  %
      of
                    total
      sales
                  
                  
                  Six
      months
                    ended
      June
                    30,2008
                  
                  
                  %
      of
                    total
      sales
                  
                  
                  Growth(Decrease)
                    in
      2009 compared
                    with
      2008Wholesale
      businessThe
      People’s Republic of China
                  
                  $
                  1,563,791
                  
                  
                  
                  3.8
                  %
                  
                  $
                  3,697,539
                  
                  
                  
                  8.4
                  %
                  
                  
                  (57.7
                  )%Europe
                  
                  
                  23,477,126
                  
                  
                  
                  56.4
                  %
                  
                  
                  27,253,854
                  
                  
                  
                  62.2
                  %
                  
                  
                  (13.9
                  )Japan
                  
                  
                  7,241,703
                  
                  
                  
                  17.4
                  %
                  
                  
                  5,813,499
                  
                  
                  
                  13.3
                  %
                  
                  
                  24.6United
      States
                  
                  
                  4,786,794
                  
                  
                  
                  11.5
                  %
                  
                  
                  6,677,957
                  
                  
                  
                  15.2
                  %
                  
                  
                  (28.3
                  )Sub
      total
                  
                  
                  37,069,413
                  
                  
                  
                  89.0
                  %
                  
                  
                  43,442,849
                  
                  
                  
                  99.1
                  %
                  
                  
                  (14.7
                  )Retail
      business
                  
                  
                  4,563,903
                  
                  
                  
                  11.0
                  %
                  
                  
                  372,756
                  
                  
                  
                  0.9
                  %
                  
                  
                  1,124.4Total
                  
                  $
                  41,633,316
                  
                  
                  
                  100.0
                  %
                  
                  $
                  43,815,605
                  
                  
                  
                  100.0
                  %
                  
                  
                  (5.0
                  )%




Sales for
the six months ended June 30, 2009 were $41.6 million, a decrease of 5.0%, from
the six months ended June 30, 2008. Although sales in our retail business
increased significantly during the first six months of 2009, sales in our
wholesale business decreased 14.7% due to the global economic
slowdown.


Sales to
customers in Europe were $23.5 million, or 56.4% of our total sales for the six
months ended June 30, 2009, a decrease of 13.9% compared to the six months ended
June 30, 2008. The decrease was primarily due to two major customers reducing
their orders because of the weak economic environment.





Sales to
customers in the U.S. were $4.8 million, or 11.5%, of our total sales for the
six months ended June 30, 2009, a decrease of 28.3% compared to the six
months ended June 30, 2008. Although we got more orders from two major U.S.
customers, other customers in the U.S decreased their orders because of the weak
economic environment.


Sales to
customers in Japan were $7.2 million, or 17.4% ,of our total sales for the six
months ended June 30, 2009, an increase of 24.6% compared to the six months
ended June 30, 2008. The increase was attributable to increased orders from
premium brands in the Japanese market.


Sales to
customers in the Chinese market were $1.6 million or 3.8%, of our total sales
for the six months ended June 30, 2009, a decrease of 57.7% compared to the six
months ended June 30, 2008. The decrease was attributable to fewer orders from
existing customers in Hong Kong who resell to customers in the U.S.


Sales
generated from our retail business contributed 11.0% or $4.6 million, of our
total sales for the six months ended June 30, 2009, compared to $0.37 million in
the six months ended June 30, 2008. In the first two quarter of 2009 we opened
38 new LA GO GO stores. As of June 30, 2009, we had 130 LA GO GO retail stores
open and average revenue per store was approximately $8,200per
month.


30


Costs
and Expenses




Cost
of Sales and Gross Margin





The
following table sets forth the components of our cost of sales and gross profit
both in amounts and as a percentage of total sales for the six months ended June
30, 2009 and 2008.





Six Months
      Ended June
      30,
                      
                      
                      Growth(Decrease)2009
                      
                      
                      2008
                      
                      
                      in
      2009 compared(in U.S. dollars, except for
      percentages)
                      
                      
                      with
      2008Wholesale
      Sales
                      
                      $
                      37,069,413
                      
                      
                      
                      100.0
                      %
                      
                      $
                      43,442,847
                      
                      
                      
                      100.0
                      %
                      
                      
                      (14.7
                      )%Raw
      Materials
                      
                      
                      16,055,181
                      
                      
                      
                      43.3
                      
                      
                      
                      21,124,898
                      
                      
                      
                      48.6
                      
                      
                      
                      (24.0
                      )Labor
                      
                      
                      1,457,727
                      
                      
                      
                      3.9
                      
                      
                      
                      1,383,333
                      
                      
                      
                      3.2
                      
                      
                      
                      5.4Outsourced
      Production Costs
                      
                      
                      11,677,248
                      
                      
                      
                      31.5
                      
                      
                      
                      12,553,965
                      
                      
                      
                      28.9
                      
                      
                      
                      (7.0
                      )Other
      and Overhead
                      
                      
                      403,640
                      
                      
                      
                      1.1
                      
                      
                      
                      560,210
                      
                      
                      
                      1.3
                      
                      
                      
                      (27.9
                      )Total
      Cost of Sales for Wholesale
                      
                      
                      29,593,797
                      
                      
                      
                      79.8
                      
                      
                      
                      35,622,406
                      
                      
                      
                      82.0
                      
                      
                      
                      (16.9
                      )Gross
      Profit for Wholesale
                      
                      
                      7,475,616
                      
                      
                      
                      20.2
                      
                      
                      
                      7,820,441
                      
                      
                      
                      18.0
                      
                      
                      
                      (4.4
                      )Net
      Sales for Retail
                      
                      
                      4,563,903
                      
                      
                      
                      100.0
                      
                      
                      
                      372,756
                      
                      
                      
                      100.0
                      
                      
                      
                      1,124.4Production
      Costs
                      
                      
                      1,114,521
                      
                      
                      
                      24.4
                      
                      
                      
                      118,326
                      
                      
                      
                      31.7
                      
                      
                      
                      841.9Rent
                      
                      
                      1,703,282
                      
                      
                      
                      37.3
                      
                      
                      
                      0
                      
                      
                      
                      0.0Total
      Cost of Sales for Retail
                      
                      
                      2,817,803
                      
                      
                      
                      61.7
                      
                      
                      
                      118,326
                      
                      
                      
                      31.7
                      
                      
                      
                      2,281.4Gross
      Profit for Retail
                      
                      
                      1,746,100
                      
                      
                      
                      38.3
                      
                      
                      
                      254,430
                      
                      
                      
                      68.3
                      
                      
                      
                      586.3Total
      Cost of Sales
                      
                      
                      32,411,600
                      
                      
                      
                      77.9
                      
                      
                      
                      35,740,732
                      
                      
                      
                      81.6
                      
                      
                      
                      (9.3
                      )Gross
      Profit
                      
                      $
                      9,221,716
                      
                      
                      
                      22.1
                      %
                      
                      $
                      8,074,871
                      
                      
                      
                      18.4
                      %
                      
                      
                      14.2
                      %




Total raw
materials costs decreased 24.0% to $16.1 million in the six months ended June
30, 2009 versus $21.1 million in the six months ended June 30, 2008. As a
percent of sales, raw materials cost for our wholesale business accounted for
43.3% of our total sales in the six months ended June 30, 2009, a decrease of
530 basis points compared to the six months ended June 30, 2008. This decrease
was primarily due to our recently implemented centralized purchasing function to
increase our negotiation power and the increased CMT orders in the second
quarter.


Total
labor costs increased 5.4% to $1.5 million in the six months ended June 30, 2009
versus $1.4 million in the six months ended June 30, 2008. As a percent of
sales, labor costs for our wholesale business accounted for 3.9% of our total
sales in the six months ended June 30, 2009, an increase of 70 basis points
compared to the six months ended June 30, 2008.


Total
outsource production costs for our wholesale business decreased 7.0% to $11.7
million in the six months ended June 30, 2009 versus $12.6 million in the six
months ended June 30, 2008. As a percent of sales, outsource production costs
were 31.5% of our total sales in the six months ended June 30, 2009, a 260 basis
point increase compared to the six months ended June 30, 2008. This decrease in
total costs was primarily due lower sales volume this year, while the increase
as a percent of sales was primarily due a strategic decision to outsource more
wholesale production


Overhead
and other expenses for our wholesale business accounted for 1.1% of our total
sales in the six months ended June 30, 2009, compared to 1.3% of total sales in
the six months ended March 31, 2008. This decrease was due to better expense
controls.


Production
costs for our retail business were to $1.1 million for the six months ended June
30, 2009. As a percent of sales, retail production costs accounted for 24.4% of
our total sales in the six months ended June 30, 2009, Rent costs for our retail
business were $ 1.7 million for the six months ended June 30, 2009. As a percent
of sales, rent costs accounted for 37.3% of total sales in the six months ended
June 30, 2009. A year over year comparison is not meaningful as the retail
operation was only a small part of the business in the first half of
2008.


31


Total
cost of sales for the six months ended June 30, 2009 was $32.4 million, a
decrease of 9.3% compared to the same period of 2008. As a percentage of total
sales, cost of sales decreased to 77.9% of total sales for the six months ended
June 30, 2009, compared to 81.6% of total sales in the six months ended June 30,
2008. Consequently, gross margin increased to 22.1% for the six months ended
June 30, 2009 from 18.4% in the six months ended June 30, 2008.





We
purchase the majority of our raw materials directly from numerous local fabric
and accessories suppliers. For our wholesale business, purchases from our five
largest suppliers represented approximately 24.3% and 24.0% of raw materials
purchases for the six months ended June 30, 2009 and 2008, respectively. No one
supplier provided more than 10% of our raw materials purchases for both the six
months ended June 30, 2009 and 2008. For our retail business, purchases from our
five largest suppliers represented approximately 39.7% of raw materials
purchases for the six months ended June 30, 2009. One supplier provided 10.6% of
our total purchases for the six months ended June 30, 2009. We have not
experienced difficulty in obtaining raw materials essential to our business, and
we believe we maintain good relationships with our suppliers.


We also
purchase finished goods from contract manufacturers. For our wholesale business,
purchases from our five largest contract manufacturers represented approximately
41.5% and 38.8% of finished goods purchases for the six months ended June 30,
2009 and 2008, respectively. One contract manufacturer provided approximately
19.8% and 16.3% of our finished goods purchases for the six months ended June
30, 2009 and 2008, respectively. For our retail business, our five largest
contract manufacturers represented approximately 39.0% of finished goods
purchases for the six months ended June 30, 2009. Two contract manufacturers
provided 11.7% and 11.6% of our finished goods purchases for the six months
ended June 30, 2009. We have not experienced difficulty in obtaining finished
products from our contract manufacturers and we believe we maintain good
relationships with our contract manufacturers.





Gross
profit in our wholesale business for the six months ended June 30, 2009 was $7.5
million, a decrease of 4.4% over 2008. Gross margin was 20.2% for our wholesale
business for the six months ended June 30, 2009 an increase of 2.2% compared to
the six months ended June 30, 2008. The increase in our gross margin was
primarily due to the increase in CMT orders versus FOB orders in
2009.


Gross
profit in our retail business for the six months ended June 30, 2009 was $1.7
million and gross margin was 38.3%. A year over year comparison for retail is
not meaningful given that this business was only a small part of our business in
the second quarter of 2008.




Selling,
General and Administrative (SG&A) Expenses


Our
selling expenses and general and administrative (G&A) expenses for the six
months ended June 30, 2009 and 2008 are as follows:


32


ForthesixmonthsendedJune30,2009
                  
                  
                  2008
                  
                  
                  Increase
                    (Decrease)(in
      U.S. Dollars, except for percentages)Gross
      Profit
                  
                  $
                  9,221,716
                  
                  
                  
                  22.1
                  %
                  
                  $
                  8,074,873
                  
                  
                  
                  18.4
                  %
                  
                  
                  14.2
                  %Operating
      Expenses:Selling
      Expenses
                  
                  
                  1,805,815
                  
                  
                  
                  4.3
                  
                  
                  
                  646,092
                  
                  
                  
                  1.5
                  
                  
                  
                  179.5General
      and Administrative Expenses
                  
                  
                  4,145,404
                  
                  
                  
                  10.0
                  
                  
                  
                  3,234,983
                  
                  
                  
                  7.4
                  
                  
                  
                  28.1Total
                  
                  
                  5,951,219
                  
                  
                  
                  14.3
                  
                  
                  
                  3,881,075
                  
                  
                  
                  8.9
                  
                  
                  
                  53.3Income
      from Operations
                  
                  $
                  3,270,497
                  
                  
                  
                  7.9
                  %
                  
                  
                  4,193,798
                  
                  
                  
                  9.6
                  %
                  
                  
                  (22.0
                  )%
  Selling
expenses were $1.8 million in the six months ended June 30, 2009 an increase of
179.5% or $1.16 million compared to the six months ended June 30, 2008. The
increase was attributable to increased salaries for retail staff of $0.57
million and $0.63 million of renovation and marketing expenses associated with
the promotion of LA GO GO.
 G&A
expenses were $4.1 million in the six months ended June 30, 2009 an increase of
28.1% or $0.91 compared to the six months ended June 30, 2008. The increase was
partially due to increased payroll for additional management, design and
marketing staff as a result of our business expansion.
  Income
from Operations
 Income
from operations decreased 22.0% to $3.3 million for the six months ended June
30, 2009 from $4.2 million in six months ended June 30, 2008.
  Interest
Expense
 Interest
expense was $0.24 million for the six months ended June 30, 2009, a decrease of
80.2% compared to the same period of 2008. This decrease was mainly due to the
conversion of convertible notes into common stock in 2008.
  Income
Tax Expense
 Income
tax expense for the six months ended June 30, 2009 was $0.56 million, a slight
decrease compared to the same period of 2008.
  Net
Income
 Net
income for the six months ended June 30, 2009 was $2.8 million, an increase of
9.0% compared to the same period of 2008. Our diluted earnings per share were
$0.21 and $0.10 for the six months ended June 30, 2009 and 2008,
respectively.
  Noncontrolling
Interest
 On
January 9, 2008, Goldenway entered into an Agreement with La Chapelle to form a
joint venture to develop, promote and market a new line of women’s wear in
China. Goldenway agreed to initially invest RMB 6 Million (approximately
$826,200) in cash, and La Chapelle agreed to invest RMB 4 Million (approximately
$553,040) in cash, for a 60%- and 40%- interest in the joint venture,
respectively. The joint venture is included in the Company’s consolidated
financial statements beginning in 2008, and the 40% interest held by La Chapelle
is classified as noncontrolling interest. As of June 30, 2009, the
noncontrolling interest was $564,478..
  33
  Summary
of Cash Flows
 Net cash
provided by operating activities for the six months ended June 30, 2009 was
$2,983,193 compared with net cash provided by operating activities of $3,338,211
during the six months ended June 30, 2008. This decrease was mainly attributable
to increased accounts receivable as we are allowing longer collection periods
for our long-term customers with good payment track records.
 Net cash
used in investing activities was $116,069 for the six months ended June 30,
2009, compared with $1,742,234 during the six months ended June 30, 2008. On
January 9, 2008, Goldenway entered into a Capital Contribution Agreement with La
Chapelle, pursuant to which Goldenway invested $1,397,700 in cash (RMB 10
million) in La Chapelle for a 10% ownership interest in La
Chapelle.
 Net cash
used in financing activities was $3,312,482 for the six months ended June 30,
2009, compared with cash used in financing activities of $740,861 during the six
months ended June 30, 2008. In 2009 we repaid $9,908,132 of bank loans while
receiving proceeds from loans from the bank of $6,595,650. In 2008 we repaid
$1,990,000 to Blue Power Holding Ltd, offset by $553,040 from La Chapelle’s
investment in LA GO GO.
  Liquidity
and Capital Resources
 As of
June 30, 2009, we had cash and cash equivalents of $993,869, other current
assets of $29,214,177 and current liabilities of $13,349,259. We presently
finance our operations primarily from cash flow from operations and we
anticipate that this will continue to be our primary source of funds to finance
our short-term cash needs.
 Bank
Loan
 In 2006,
we acquired a fifty-year land use right for 112,442 square meters (approximately
1,209,876 square feet) of land in the Nanjing Jiangning Economic and
Technological Development Zone, which houses our existing facility of 26,629
square meters (approximately 286,528 square feet), including our manufacturing
facility and office space. In 2006, we completed the construction of our new
facilities and moved our headquarters into the new office building and
consolidated part of our operations into our new manufacturing facility in
January 2007. The new manufacturing facility occupies an area of 10,000 square
meters (approximately 107,600 square feet) and is equipped with state-of-the-art
equipment. The land and building are being used as collateral for bank
loans.
 On July
31, 2008, Goldenway entered into credit agreements with a PRC Bank which allow
the Company to borrow up to $7.3 million (RMB50million) for a 24 month period.
Bank loans are secured by our facilities and are used to fund daily operations.
As of June 30, 2009, we had borrowed approximately $3.2 million which matures in
July, August and October 2009, at an interest rate of 5.35% per annum. The
maturity of these borrowings can be extended at our option. On December 8, 2008,
Goldenway borrowed approximately $733,500 which was to mature on December 7,
2009, and bore an interest rate of 5.86% per annum and was secured by our CEO’s
personal property. The loan could be extended at our option. We repaid the loan
in April 2009.
 On June
30, 2009, HSBC bank approved a revolving credit facility amounting to $2.5
million to Perfect-Dream. On July 3, 2009, Ever-Glory Apparel entered into
one-year line of credit agreement for RMB40 million (approximately $5.9 million)
with Nanjing Bank.
 Long-term
Loan
  As of
June 30, 2009, the long-term loan to Blue Power was $2,718,614. Interest accrued
on the loan to Blue power totaled $29,264 and $58,529 for the three and six
months ended June 30,2009.
  Capital
Commitments
 We have a
continuing program for the purpose of improving our manufacturing facilities. We
anticipate that cash flows from operations and borrowings from banks will be
used to pay for these capital commitments.
 
 The
Articles of Association of our Goldenway subsidiary required that registered
capital of approximately $17.5 million should be paid by Perfect Dream before
December 31, 2009. On July 6, 2009, we obtained the approval from the government
allowing the Company to decrease the registered capital from $17.5 million to
$12.5 million.  As of June 30, 2009, we had fulfilled our $12.5
million registered capital obligation.
  34
  Uses
of Liquidity
  Our cash
requirements through the end of 2009 will be primarily to fund daily operations
and the growth of our business.
 Sources
of Liquidity
  Our
primary sources of liquidity for our short-term cash needs are expected to be
from cash flows generated from operations, and cash equivalents currently on
hand. We believe that we will be able to borrow additional funds if
necessary.
 We
believe our cash flows from operations together with our cash and cash
equivalents currently on hand will be sufficient to meet our needs for working
capital, capital expenditure and other commitments through the end of 2009. No
assurance can be made that additional financing will be available to us if
required, and adequate funds may not be available on terms acceptable to us. If
funding is insufficient at any time in the future, we will develop or enhance
our products or services and expand our business through our own cash flows from
operations.
 As of
June 30, 2009, we had access to a $7.3 million a line of credit. Of this line of
credit, $4.1 million was unused and is currently available. This credit facility
does not include any covenants.
  Foreign
Currency Translation Risk
 Our
operations are, for the most part, located in the PRC, which may give rise to
significant foreign currency risks from fluctuations and the degree of
volatility of foreign exchange rates between the United States dollar and the
Chinese RMB. Most of our sales are in dollars. During 2003 and 2004 the exchange
rate of RMB to the dollar remained constant at 8.26 RMB to the dollar. On July
21, 2005, the Chinese government adjusted the exchange rate from 8.26 to 8.09
RMB to the dollar. From that time, the RMB continued to appreciate against the
U.S. dollar. As of June 30, 2009, the market foreign exchange rate had increased
to 6.83 RMB to one U.S. dollar. We are continuously negotiating price
adjustments with most of our customers based on the daily market foreign
exchange rates, which we believe will reduce our exposure to exchange rate
fluctuations in the future, and will pass some of the increased cost to our
customers.
 In
addition, the financial statements of Goldenway, New-Talent, Catch-Luck
Ever-Glory Apparel and LA GO GO (whose functional currency is the RMB) are
translated into US dollars using the closing rate method. The balance sheet
items are translated into US dollars using the exchange rates at the respective
balance sheet dates. The capital and various reserves are translated at
historical exchange rates prevailing at the time of the transactions while
income and expenses items are translated at the average exchange rate for the
period. All exchange differences are recorded within equity. The foreign
currency translation (loss) gain for the three months ended June 30, 2009 and
2008 was ($43,166) and $611,354, respectively. The foreign currency
translation (loss) gain for the six months ended June 30, 2009 and 2008 was
($87,374) and $1,711,238, 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 3. 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. On June 30, 2009, we had approximately $993,869 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.
  35
  Foreign
Exchange Rates. We pay our suppliers and employees in Chinese RMB, however, we
sell to customers in the U.S., Japan and Europe and we generate sales in
U.S. Dollars Euros and British Pounds. Accordingly, our business has substantial
exposure to changes in exchange rates between and among the Chinese RMB, the
U.S. Dollar,the Euro and the British Pound. In the last decade, the RMB has been
pegged at 8.2765 RMB to one U.S. Dollar. On July 21, 2005 it was revalued to
8.11 per U.S. Dollar. Following the removal of the peg to the U.S. Dollar and
pressure from the United States, the People’s Bank of China also announced that
the RMB would be pegged to a basket of foreign currencies, rather than being
strictly tied to the U.S. Dollar, and would be allowed to float trade within a
narrow 0.3% daily band against this basket of currencies. The PRC government has
stated that the basket is dominated by the U.S. Dollar, Euro, Japanese Yen and
South Korean Won, with a smaller proportion made up of the British Pound, Thai
Baht, Russian Ruble, Australian Dollar, Canadian Dollar and Singapore Dollar.
There can be no assurance that the relationship between the RMB and these
currencies will remain stable over time, especially in light of the significant
political pressure on the Chinese government to permit the free flotation of the
RMB, which could result in greater and more frequent fluctuations in the
exchange rate between the RMB, the U.S. Dollar and the Euro. On June 30, 2009,
the exchange rate between the RMB and U.S. Dollar was 6.83RMB to one U.S.
Dollar. For additional discussion regarding our foreign currency risk, see the
section titled Risk Factors in the Annual Report on Form 10-K for fiscal year
ended on December 31, 2008.Fluctuation in the value of Chinese RMB relative to
other currencies may have a material adverse effect on our business and/or an
investment in our shares.
 
 ITEM
4. CONTROLS AND PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
 
 We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended ( the “Exchange Act”)  is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including our 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
June 30, 2009, the end of the fiscal quarter covered by this report, we carried
out an evaluation, under the supervision and with the participation of our
management, including our chief executive officer and our chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our chief executive officer and
chief financial officer concluded that our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were
effective at the reasonable assurance level to ensure that information required
to be disclosed in our reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required
disclosure.
  Changes
in Internal Control over Financial Reporting
 
 There
were no changes in our internal control over financial reporting (as defined in
Rule 13a-15(f) of the Securities Exchange Act of 1934) during the quarter ended
June 30, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
 
 PART
II.  OTHER INFORMATION
 
 ITEM
1. LEGAL PROCEEDINGS
  We know
of no pending legal proceedings to which we are a party which are material or
potentially material, either individually or in the aggregate. We are from time
to time, during the normal course of our business operations, subject to various
litigation claims and legal disputes. We do not believe that the ultimate
disposition of any of these matters will have a material adverse effect on our
financial position, results of operations or liquidity.
  36
  ITEM 1A.
RISK FACTORS
  There has
been no material changes in the information provided in Item 1A of Form 10-K
Annual Report for the year ended December 31,2008 filed with the SEC on March
31, 2009.
  ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
 
 None.
  ITEM 3.
              DEFAULTS
      UPON SENIOR SECURITIES
 
 None.
  ITEM 4.
              SUBMISSION OF MATTERS TO A VOTE
      OF SECURITY HOLDERS
 
 None.
  ITEM 5.
              OTHER
      INFORMATION
 
 None.
  ITEM 6.
              EXHIBITS
 
 The
following exhibits are filed herewith:
  Exhibit No.
                              
                              Description10.1
                              
                              Letter
      regarding Banking Facility between HSBC Bank (China) Company Limited
      Shanghai Branch and Perfect Dream Limited dated June 30, 2009
      (incorporated by reference to Exhibit 10.1 of our Current Report on Form
      8-K, filed July 8, 2009);10.2
                              
                              Limited
      Guaranty provided by Ever-Glory International Group, Inc dated June 30,
      2009 (incorporated by reference to Exhibit 10.2 of our Current Report on
      Form 8-K, filed July 8, 2009);10.3
                              
                              Personal
      Guaranty provided by Edward Yihua Kang dated June 30, 2009 (incorporated
      by reference to Exhibit 10.3 of our Current Report on Form 8-K, filed July
      8, 2009);10.4
                              
                              Revolving
      Line of Credit Agreement between Ever-Glory International Group Apparel
      Inc. and Bank of Nanjing Co. Ltd. dated July 3, 2009 (incorporated by
      reference to Exhibit 10.1 of our Current Report on Form 8-K, filed July 9,
      2009);10.5
                              
                              Guaranty
      Agreement between Jiangsu Ever-Glory International Group Corporation
      and Bank of Nanjing Co. Ltd. dated July 3, 2009 (incorporated by
      reference to Exhibit 10.2 of our Current Report on Form 8-K, filed July 9,
      2009);10.6
                              
                              Guaranty
      Agreement between  Goldenway Nanjing Garment Co. Ltd. and Bank
      of Nanjing Co. Ltd. dated July 3, 2009 (incorporated by reference to
      Exhibit 10.3 of our Current Report on Form 8-K, filed July 9,
      2009);
 
 37
  31.1
                    
                    Certifications
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002. *31.2
                    
                    Certifications
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002. *32.1
                    
                    Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002. *32.2
                    
                    Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
*
  *
              Filed
      herewith.
  SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
  August
      6, 2009
                    EVER-GLORY
      INTERNATIONAL GROUP, INC.By:
                    /s/
      Edward Yihua KangEdward
      Yihua KangChief
      Executive Officer(Principal
      Executive
Officer)
  By:
                      /s/
      Yan GuoYan
      GuoChief
      Financial Officer(Principal
      Financial and Accounting Officer)
 
 38